General Mills' efforts gain traction in marketplace

by Eric Schroeder
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Chocolate peanut butter Cheerios, General Mills
General Mills plans to launch new chocolate peanut butter Cheerios.
 

MINNEAPOLIS — Despite year-over-year declines in earnings and sales, General Mills, Inc. showed “great focus and urgency” in executing against its global growth priorities in the first quarter of fiscal 2018, said Jeffrey L. Harmening, chief executive officer.

Net income at General Mills in the first quarter ended Aug. 27 totaled $404.7 million, equal to 70c per share on the common stock, down 1.1% from $409 million, or 68c per share, in the same period a year ago. Net sales also were lower, falling 3.5% to $3,769.2 million from $3,907.9 million.

During a Sept. 20 conference call with analysts to discuss first-quarter results, Mr. Harmening identified three key takeaways from the quarter.

First, the aforementioned focus and urgency that the company showed in executing against its global growth priorities.

Jeff Harmening, General Mills
Jeffrey Harmening, c.e.o. of General Mills

“We’ve started to see those efforts gain traction in the marketplace,” he said. “I can sense the change in momentum as I talk to employees across our company. Now we still have much more work to do to return to growth, but our efforts are beginning to pay off, and we’re confident in the direction that we’re headed.”

Second, General Mills plans to build on the momentum of the first quarter as it approaches the second quarter.

“We’ll continue to expand successful innovation, like Oui by Yoplait,” Mr. Harmening said. “We’ll increase our brand-building investment behind Häagen-Dazs, Nature Valley and our cereal portfolio. And we will drive significant improvement on our performance on soup and refrigerated dough.”

General Mills snacks - Annie's, Nature Valley, Larabar
Larabar, Annie’s and Nature Valley offset General Mills' 2% net sales decline in U.S. snacks.
 

Third, the company has a line of sight to deliver on its full-year commitments on sales, earnings and cash generation, he said.

General Mills was especially challenged in its North America Retail business unit during the first quarter, as operating profit fell 15% to $533.2 million from $628.2 million and sales declined 4.6% to $2,438.2 million from $2,557 million.

Don Mulligan, General Mills
Donal Mulligan, executive vice-president and c.f.o. of General Mills

“U.S. yogurt represents more than half of the segment’s net sales decline in the quarter, driven by continued significant declines in Greek and Light varieties, partially offset by excellent performance on Oui by Yoplait, which launched in July,” said Donal L. Mulligan, executive vice-president and chief financial officer. “U.S. cereal net sales were down 7%, reflecting a reduction in customer inventory levels and unfavorable trade expense phasing. Retail sales results for cereal were much stronger with Nielsen-measured takeaway down just 1% in the quarter. The 2% net sales decline in U.S. snacks was due to Fiber One snack bars, partially offset by growth on Larabar, Annie’s and Nature Valley.”

Mr. Harmening said the company’s first-quarter U.S. cereal sales strengthened throughout the quarter and were down less than 0.5% in the month of August, signaling a potential turnaround for the segment.

General Mills cereals: Lucky Charms, Reese's Puffs, Cinnamon Toast Crunch
Reese's Puffs retail sales grew 8%, Lucky Charms grew 16% and Cinnamon Toast Crunch grew 4.5%.
 

“Lucky Charms posted 16% retail sales growth behind our first-quarter marshmallow event, where we gave away 10,000 boxes of Lucky Charms containing only marshmallows,” he said. “Reese’s Puffs grew retail sales 8% through effective messaging and by expanding availability of different pack formats. And Cinnamon Toast Crunch continued its track record of growth with retail sales up 4.5% in the quarter, behind effective taste messaging and merchandising.”

Looking ahead to the second quarter, Mr. Harmening said General Mills plans to introduce chocolate peanut butter Cheerios and bring back its seasonal pumpkin spice variety.

“Consumers love chocolate and peanut butter flavored cereals,” he said. “In fact, these two flavors combined to generate almost $0.5 billion of U.S. cereal category retail sales, and they’re growing. So we’re expanding Cheerios, the largest cereal brand in the category with this new offering. We think this launch is going to be a big hit.”

Betty Crocker Ultimate Cookie Mixes, General Mills
General Mills will use the Betty Crocker Ultimate brand for a more indulgent line of cookie mixes.
 

In the baking aisle, Mr. Harmening said General Mills will be differentiating on the shelf with the launch of a more premium version of cake and cookies mixes, using the Betty Crocker Ultimate brand for a more indulgent line of cookie mixes and the Betty’s Original brand for its simple ingredient cake mix line.

“We’re just about to enter a key season for these businesses,” he said. “And with stronger merchandising and innovation plans in place, we feel much better about our prospects this season.” 
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