By Granth Vanaik
(Reuters) - General Mills Inc (NYSE:GIS) said on Tuesday quarterly sales at its high-margin pet business took a hit due to some key retailers cutting back on inventory, sending its shares down 5%.
The cutback of pet food inventory by retailers "is frankly a bit disconcerting," J.P. Morgan analyst Ken Goldman said.
General Mills' pet business, one of its fastest growing business segments, saw flat second-quarter sales of about $593 million.
"We experienced an unexpected headwind in Q2," Chief Executive Officer Jeffrey Harmening said, referring to the pet business, adding that the company faced manufacturing capacity constraints for its dry dog food and treats business.
However, Harmening said he expects retailer inventory to remain stable in the back half of the year.
This along with the company's strategy to raise prices to combat spiraling costs of labor, raw materials, supply chain and transportation helped General Mills raise its annual forecasts.
The Cheerios cereal maker now expects organic net sales to rise 8% to 9% in fiscal 2023, compared with its previous forecast of a 6% to 7% increase.
Producers of staples such as food have seen less pushback from inflation-hit consumers, who are otherwise cautious on their discretionary spending.
The company also forecast full-year adjusted profit per share to rise between 4% and 6% on a constant-currency basis, compared with its prior outlook of an increase of 2% to 5%.
General Mills' net sales rose to $5.22 billion in the second quarter ended Nov. 27, compared with analysts' estimates of $5.19 billion, according to Refinitiv data.
On an adjusted basis, the company earned $1.10 per share, beating estimates of $1.07.