Consumers may be dumping their economic fears into Fido's bowl.
Food giant General Mills (GIS) — which counts pet brand Blue Buffalo among its stable cereal and snack brands — saw noticeable sluggishness in demand for pet food in its most recent quarter.
Reported net sales for Blue Buffalo were unchanged year over year, with the division's operating profits falling 10%. The company called out double-digit percentage sales declines for pet treats, which tend to be a more discretionary purchase for pet owners.
Sales were flat for wet pet food, often more expensive than dry food. Blue Buffalo's dry food sales rose by a mid-single-digit percentage.
"It was a tough quarter [in pet food]," General Mills chairman and CEO Jeff Harmening told Yahoo Finance Live (video above). He explained consumers are in search of value and opting for dry pet food.
The cautious commentary on pet food demand was echoed on a late August earnings call by online pet retailer Chewy (CHWY).
Chewy CEO Sumit Singh told Wall Street he is seeing a more "discerning" shopper.
"For the first time in July, we really noticed a shift out of kind of wet food more toward dry food," Singh said on the earnings call. "And that generally is an indication of more value-seeking behavior. We're also seeing kind of treats pull back a little bit."
Singh later told Yahoo Finance Live's Seana Smith that the consumer is on the hunt for value.
However, a challenging environment for Blue Buffalo didn't stop General Mills from reiterating its full fiscal year sales and earnings outlook.
Despite pesky inflation gnawing at consumer budgets, General Mills is still seeing strength for snack foods and cereal.
The earnings rundown
Net sales: $4.90 billion, +4% year over year. Estimate: $4.88 billion
Organic net sales: +4%. Estimate: +4.15%
Adjusted EPS: $1.09, -1.8% year over year. Estimate: $1.08
North American retail sales: $3.07 billion, +2.8% year over year. Estimate: $3.06 billion
Pet segment net sales: $579.9 million, flat year over year. Estimate: $592.2 million
International net sales: $715.8 million, +9.7% year over year. Estimate: $719.2 million
What else caught our attention
General Mills reiterated its outlook for fiscal year organic net sales to increase 3% to 4%.
The company also reiterated it sees fiscal year adjusted operating profits and EPS increasing 4% to 6% in constant currency.
It factored moderating inflation into its fiscal year guidance.
The company had $490.9 million in cash on the balance sheet.
General Mills stock was roughly flat on the news Wednesday.
The vibe on Wall Street is that General Mills has other positives in its favor that can help offset near-term sales challenges in pet food.
"While North America Retail and Pet trends are slowing, we see offsets that should limit downside to our FY24 EPS estimate," Evercore ISI analyst David Palmer wrote in a client note. "These include: 1) excess [general and administrative] spending in the second half of the year, 2) lapping transitory headwinds in fiscal year 2023 in the International segment, 3) continued momentum in the North America Foodservice segment particularly K-12, and 4) supply chain friction costs are now in-line with pre-COVID levels, which provides gross margin opportunity as the company laps fiscal year 2023 periods with still heightened friction costs."
Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
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