General Mills Net Earnings Drop 67%: Why Shares Keep Rising Anyway

NEW YORK, September 26, General Mills, Inc. (GIS) posted a 67% net earnings drop in Q1 FY2027 while sales fell 3%, pacing a second straight weekly gain. The volume loss is centred in North America Retail, where Cheerios, Pillsbury, and Old El Paso are losing shelf space to expanding private-label ranges, with secondary pressure in North America Pet, where Blue Buffalo competes against lower-priced alternatives as shoppers trade down across categories.

The numbers: Net earnings fell 67% YoY in Q1 FY2027; trailing EPS has flipped to -$1.64 as $18.3bn in TTM revenue contracts 2.8% YoY. At 10.6x forward P/E with $1.3bn in annual FCF, GIS is priced for a recovery that Q1 results have yet to confirm. Q2 organic sales growth and gross margin trajectory are the next test; either number turning positive changes the thesis.

North America Retail Volume Deleverage Is Doing the Damage

The 67% earnings drop understates the severity. Q1 sales fell 3% on an $18.3bn TTM revenue base already shrinking 2.8% YoY. Trailing EPS has flipped to -$1.64, making GIS a negative-earner on a twelve-month basis. The loss swing reflects volume deleverage and margin compression in North America Retail, the segment where flagship cereal brands such as Cheerios and Cinnamon Toast Crunch, baking lines under Pillsbury and Betty Crocker, and Old El Paso meal kits compete most directly with store-brand alternatives. The same dynamic has reached North America Pet, where Blue Buffalo's premium positioning faces pressure as consumers reappraise discretionary spend even on pet nutrition.

The company's $1.3bn in annual FCF provides a buffer and funds the dividend that anchors long-only holders. But FCF alone will not re-rate a staples stock if investors believe the earnings trough keeps moving lower.

10.9% Short Interest Is the Unwritten Context

Nearly 11% of the float is sold short, an elevated position that makes two consecutive weekly gains significant. It points to early short covering or value buyers stepping in at 10.6x forward P/E. Consumer staples names historically trade at a premium to that level, so GIS is cheap on a relative basis, but only if the earnings trough is now. The risk for bears: cost savings arrive faster than the short thesis assumes. The risk for longs: the forward estimate keeps compressing, and today's multiple becomes fair value on a smaller earnings base. The two-week recovery visible in the chart above shows the market is no longer adding to the short side.

Jefferies' Cost-Savings Case Needs Gross Margin to Cooperate

Jefferies sees cost efficiencies as an offset to consumer spending pressure, arguing that GIS can rebuild earnings without volume growth. That thesis is defensible: General Mills has procurement scale across its broad brand portfolio and real SKU rationalization capacity. The math works if gross margin inflects before volume recovers.

The problem is delivery. Management must extract savings while defending promotional spending in North America Retail against private-label competition on Pillsbury, Progresso, and Nature Valley shelf sets. A cost-savings story that requires pulling trade promotion at the wrong moment becomes a market-share story by another name. For investors stress-testing the recovery scenario, the gross margin assumption in years two and three is the single input that drives the output in any DCF model for GIS.

Q2 Organic Sales Growth Is the Number That Settles the Bear vs. Bull Case

Watch Q2 organic sales growth and gross margin direction at the next print. Positive organic growth, even modest, paired with gross margin recovery would validate Jefferies' thesis and support a re-rating from that valuation floor. If both miss, the -$1.64 trailing EPS is not a one-quarter distortion, it is the new baseline.

At $33.64, GIS is a thesis stock: cheap if the recovery lands, a value trap if it does not. The bears have 10.9% of the float committed to the latter view. The next quarterly print is when one side collects.

For a full fundamental breakdown of General Mills, including revenue trends, margin analysis, and valuation, generate a Basis Report at basisreport.com/stock/gis.

Basis Report is independent research for informational purposes. It is not investment advice and not a recommendation to buy or sell any security.

Basis Report is independent research for informational purposes. It is not investment advice and not a recommendation to buy or sell any security.