General Mills, Inc. (NYSE:GIS) is showing early signs that its fiscal 2026 trough may be behind it, but the latest quarter does not yet establish a full recovery.
Organic sales were flat in the first quarter, North American retail trends improved sequentially, and management is leaning harder on innovation rather than broad price increases. Yet input inflation remains elevated, and the company is still losing share across most of its core categories, leaving Wall Street split between an improving trajectory and weak underlying earnings.
The strongest part of the story is that General Mills appears to be fixing the problem that hurt it most last year: value perception.
North America Retail organic sales declined 3%, but retail sales growth improved by two percentage points sequentially, while share performance strengthened in the majority of priority categories. Cereal share fell only 0.1 point versus 0.9 point a year earlier, and soup declined 0.1 point versus 0.4 point.
That is consistent with Deutsche Bank raising its price target to $34 from $33 while maintaining Hold. The firm said the quarter provides early evidence that trends are improving from the trough levels of fiscal 2026, helped by better-than-expected Pet and Foodservice performance.
General Mills, Inc.’s focus on innovation and improving value perception reflects a broader effort among packaged-food companies to revive growth while navigating persistent cost pressures. In our recent story, Kraft Heinz’s Bull Case Runs Into Its Own Recent Reversal, we examined Kraft Heinz’s investment in innovation, pricing, and marketing and the challenges it faces in turning those efforts into a sustained recovery.
Innovation Is Becoming The More Important Recovery Lever
General Mills, Inc. is also shifting away from relying primarily on lower prices to rebuild demand.
Management said it increased new products from 3% to 5% of sales over two years, with early traction in protein cereals, Totino’s Blasted Rolls, La Tiara, and Love Made Fresh. The company is also preparing additional innovation in snacks, bars, pet food, and cereal for the second half.
CEO Jeff Harmening emphasized that recent improvements in brands such as Lucky Charms, Reese’s Puffs, and Cinnamon Toast Crunch are being driven by marketing and product news rather than pricing. That matters because General Mills needs to rebuild volume without giving back too much margin.
TD Cowen called the quarter “encouraging” and said management appeared to have visibility toward the upper half of its negative 1.5% to positive 0.5% organic sales outlook. However, the firm also noted that management was careful not to promise sequential improvement in second-quarter retail growth or market share.
Inflation Still Limits The Earnings Recovery
The problem is that better sales trends are not yet translating into better profitability. Adjusted gross margin fell 90 basis points to 33.3%, while adjusted operating profit declined 11% in constant currency and adjusted EPS fell 13% to $0.75.
Management expects input inflation around 4% in the first three quarters and roughly 6% in the fourth, while targeting at least $750 million of fiscal 2027 savings. CFO Kofi Bruce said those savings and inflation are expected to roughly offset over the full year, leaving limited room for margin expansion.
That explains BofA’s more cautious stance. It cut its price target to $40 from $43 while maintaining Neutral, saying improved North American retail trends and cost savings were encouraging, but the timing-related Pet benefit and higher fourth-quarter inflation exit rate made it more conservative on earnings into fiscal 2028. Freedom Broker likewise cut its target to $38 from $42, citing improving sales momentum but continued cost inflation.
Wall Street’s Range Shows the Debate
Barclays raised its target to $37 from $36 but kept Equal Weight, noting that General Mills, Inc. is gaining or holding share in only two of its ten core categories. That is perhaps the clearest expression of the central debate: the trajectory is improving, but the competitive position is not yet broadly repaired.
At roughly 11.6 times forward earnings, General Mills trades at a valuation broadly comparable to Campbell’s at 11.9 times. Short interest is also high at 44.83 million shares, or 10.91% of the float, although it was little changed from the prior month. Hedge fund bullishness on GIS increased from 44 to 46 funds in the second quarter.
The stock therefore offers a relatively low valuation against an early operational recovery, but the market still needs evidence that innovation can turn into sustained volume and share gains. The next test is whether North American retail can move from sequential improvement to actual growth while General Mills absorbs higher input costs without sacrificing the margin gains targeted by its $750 million savings program.
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