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Cheerios maker General Mills Inc. reported better-than-expected quarterly sales on Wednesday, as strong growth in its pet foods business cushioned a slowdown in demand for its cooking sauces and baking products.

Net revenue at its pet foods unit jumped 25 per cent in the first quarter, benefiting from a rise in the adoption of cats and dogs by people looking to ease the stress of the pandemic.

General Mills has also launched new items such as Tastefuls cat food and bought Tyson Foods’ pet treats business to take advantage of the demand surge.

That helped drive total net sales 4.1 per cent higher to US$4.54-billion, beating the analysts’ average estimate of US$4.29-billion, according to Refinitiv data.

General Mills shares were 2 per cent higher as it maintained its forecast for annual organic net sales to come in toward the higher end of a 1-per-cent to 3-per-cent decline range.

The reported quarter showed that demand for cereals, snacks and baking products continued to recede from last year’s pandemic peak, with the core North America retail business posting a 3-per-cent fall.

The Betty Crocker cake mixes maker’s gross margins also shrank 1.2 per cent, taking a hit from higher transportation costs, labour shortages and a surge in raw material prices that have affected the entire packaged foods industry.

“The current operating environment is as dynamic as we’ve experienced in at least the last decade,” chief executive officer Jeff Harmening said in his pre-recorded remarks.

He added that the company expected total input cost inflation for the year to be roughly 7 per cent to 8 per cent, up from a prior estimate of 7 per cent.

Quarterly net earnings attributable to General Mills fell 2 per cent to US$627-million, or US$1.02 a share.

On an adjusted basis, it earned 99 US cents a share, compared with estimates of 89 US cents a share.

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