Mulligan says General Mills remains well positioned for growth

by Josh Sosland
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NEW YORK — In spite of numerous challenges, the U.S. Retail segment of General Mills, Inc. is positioned to achieve growth in fiscal 2014 in line with the company’s long-term objectives, said Donal L. Mulligan, executive vice-president and chief financial officer.

Mr. Mulligan reviewed the company’s U.S. retail business in a presentation Nov. 20 at the Morgan Stanley Global Consumer & Retail Conference in New York.

While upbeat about the company’s performance in recent years and the outlook, Mr. Mulligan described difficulties General Mills has been facing.

“The growth rate for food and beverage sales across our key developed markets has slowed a bit in the second quarter,” he said. “In addition, input costs remain a headwind. We continue to expect 3% input cost inflation for fiscal 2014. But this inflation is frontloaded with inflation in the second quarter expected to be the highest of the year.”

Mr. Mulligan was careful to draw a distinction between commodity inflation in the second quarter and what transpired in recent years when major upward swings in commodity prices caused disruptive food price inflation.

“Today’s more stable in-store environment is one where product news and consumer marketing can be effective.”

In connection with Mr. Mulligan’s remarks, General Mills reaffirmed its fiscal 2014 earnings guidance, projecting earnings per share for the year ending May 25 of $2.87 to $2.90. But the company acknowledged challenges in the second quarter.

The update prompted Robert Moskow, an analyst with Credit Suisse, to lower earnings guidance for the second quarter alone to 84c per share, versus an analyst consensus of 89c. General Mills’ shares fell Nov. 20 in trading on the New York Stock Exchange, closing for the day at $49.24 per share, down 2.2%.

Most of Mr. Mulligan’s presentation was devoted to discussions of the General Mills product line, category by category, beginning with ready-to-eat cereal. With retail measured channel sales exceeding $9 billion, it is the company’s largest business, one that has gained a full point of market share since 2008.

“But overall category sales have declined slightly over this period,” he said.

General Mills is countering the trend with product news and “effective consumer marketing,” he said.

He cited a number of innovations the company is making, beginning with the introduction of Nature Valley Protein Granola, with 10 grams of protein per serving, about double the cereal category average.

Early results have been impressive, he said.

“After just five months in the market, it is already among the top turning granola items in a segment that is growing 17% year to date,” Mr. Mulligan said.

Turning to yogurt, Mr. Mulligan said sales of the company’s U.S. Greek Yogurt “continue to significantly outpace this segment.”

Yoplait Greek blended yogurt was introduced during the summer, with sales momentum expected to grow throughout fiscal 2014, he said.

In the core cup yogurt category, business has improved from challenging conditions experienced recently.

“Base unit sales on Yoplait original have turned positive this quarter, driven in part by increased levels of advertising,” Mr. Mulligan said. “In total our U.S. yogurt business is stabilizing. Consumer sales in Nielsen measured outlets have been improving sequentially, and reported net sales have been slightly above year-ago levels in the most recent two quarters.”

He predicted a turn to growth for yogurt in fiscal 2014, describing long-term prospects for the business in the United States as excellent.

More consistently positive news has come from the General Mills Snacks business. General Mills has gained 10 points of market share over the past five years, and 2014 has started off strong, he said.

“We’ve added nearly 4 points of market share year to date,” he said. “The driver here is terrific product innovation with items like Fiber One Lemon Bars, Nature Valley Soft Baked Oatmeal Squares and Nature Valley Greek Yogurt Protein Bars, all launched in the first half.”

Less upbeat was Mr. Mulligan’s assessment of prospects for the General Mills dinner mix business.

While the category remains a “pantry staple” for many consumers, “growth in this category has paused in recent months, and we are losing share overall in the dry dinners,” he said.

The company has done well with its Ultimate Helpers new products and expects this part of the category to continue to-do well.

“Refrigerated baked goods is another category where we are a clear leader,” Mr. Mulligan said. “We’ve been finding new sources of growth recently by focusing on different consumers. For example, we’re reaching Hispanic households with targeted advertising and sampling. This effort is paying off with increased household penetration and buy rates.”

Financial results for the second quarter ending Nov. 24 will be issued by the company on Dec. 18.
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