Weak demand for snacks and baking products hurt General Mills in the second quarter.

MINNEAPOLIS — General Mills, Inc. posted lower sales in the second quarter of the fiscal year behind weak demand for snacks and baking products, a strong U.S. dollar and the November divestiture of the Green Giant business. Robust cost-savings initiatives and a one-time gain from the Green Giant sale propelled earnings by 53% for the period ended Nov. 29 to $529.5 million, equal to 88c per share on the common stock, which compared with income of $346.1 million, or 58c per share, for the prior-year period. Net sales for the quarter fell 6% to $4,424.9 million from year-ago sales of $4,712.2 million.

Looking ahead to the full year, the company has lowered its outlook to reflect the impact of the Green Giant sale.

Don Mulligan, General Mills
Don Mulligan, executive v.p. and c.f.o. of General Mills

“Our original guidance called for flat net sales, low single-digit growth in segment operating profit and mid-single digit growth in adjusted diluted e.p.s.,” said Don Mulligan, executive vice-president and chief financial officer, during a Dec. 17 earnings call with financial analysts. “Adjusted for the impact of Green Giant, we now expect net sales to be down low single digits, total segment operating profit to be flat to last year and adjusted diluted earnings per share to grow at a low single digit rate.”

During the second quarter, operating profit in the U.S. Retail segment fell 3% to $600 million due to lower net sales, including the impact of acquisitions and divestitures, partially offset by the benefit of cost savings initiatives and lower media expense. Net sales fell 4% to $2,761.9 million.

“After posting 4% net sales growth in the first quarter, U.S. retail net sales decreased 4% in the second quarter, driven by lower merchandise volume and the net impact of acquisitions and divestitures,” Mr. Mulligan said. “Second-quarter net sales were down 1% in the snacks and baking products operating units and declined at a mid-single digit rate in the remaining units.”

In the International segment, operating profit rose 1% to $136 million, while sales declined 12% to $1,157.2 million, which included 15 percentage points of unfavorable foreign currency exchange.

“Net sales grew 3% overall led by Latin America, where sales grew 17% driven by Mexico and Argentina,” Mr. Mulligan said. “Brazil posted low single-digit sales growth in the quarter. Canada sales were up 3%. Net sales in the Asia-Pacific region increased 2%, including double-digit growth in India. And in Europe, sales were down 2% with good growth in Häagen-Dazs offset by declines in Old El Paso as we lapped the highly successful launch of Stand ‘N Stuff taco shells last year.”

Haagen-Dazs ice cream
In Europe, Haagen-Dazs experienced growth in the quarter.

Operating profit in the Convenience Stores and Foodservice segment increased 7% to $103 million, benefitting from administrative cost savings initiatives. Net sales, however, fell 4% to $506 million, reflecting a decline in volume and unfavorable net price realization and mix.

“Our six priority platforms posted combined net sales growth of 3% for the quarter with the strongest growth in frozen meals and yogurt,” Mr. Mulligan said. “Net sales declined in the remainder of the business driven by the exit of some low-margin businesses in the fourth quarter of last year, as well as market index pricing on bakery flour.”

Net earnings for the first half of the fiscal year were $956.1 million, or $1.59 per share, up 38% from $691.3 million, or $1.14 per share, for the same period of the previous year. Net sales for the period totaled $8,632.8 million, down 3.9% from $8,980.6 million.

“We posted growth in constant currency net sales, segment operating profit and adjusted diluted earnings per share in the first half,” said Ken Powell, chairman and chief executive officer. “We have a solid plan to strengthen retail sales in the second half with innovation and renovation news, as well as additional consumer and merchandising support.

“We are now targeting $500 million in cost savings by fiscal 2018, and we’ve adjusted our fiscal 2016 guidance for the Green Giant divestiture. Excluding the impact of Green Giant, we remain on track to deliver the growth goals we laid out at the beginning of the year.”