MINNEAPOLIS — Although scanner data suggests the overall ready-to-eat cereal category is down 2% to 3% year-over-year, General Mills, Inc. likes the way it’s competing in the category right now, said Jonathon J. Nudi, senior vice-president and group president of North America Retail.
|Jonathon Nudi, senior vice-president and group president of North America Retail|
“When you look at our performance through the first half, our change in trend is pretty significant, and nearly 70% of that change is from baseline sales,” Mr. Nudi explained during a Dec. 20 conference call with analysts to discuss second-quarter results. “So again, it’s really better innovation and better marketing that’s driving our results in the category. And that’s really been the recipe for success in the category over the long term.”
Mr. Nudi said General Mills is committed to continuing to build strong brands and is focused on innovating more aggressively. He said the company is excited about its product pipeline moving forward.
“If you think about the category, it grew nicely during the financial downturn,” he said. “So between 2007 and 2012, the category grew. As the economy gradually got better and out-of-home eating increased, we saw the category tip to negative. So we’re starting to see that moderate in terms of the in-home versus out-of-home. We also know that 30% consumption of the category comes from boomers and older adults, and that group of consumers is going to grow. So we absolutely believe in the category. We believe that strong marketing and good innovation can drive it. We’re committed to doing our part and we look forward to, again, driving our growth as we move to the back half and into the future.”
Back in July at the company’s Investor Day, Mr. Nudi said driving improved performance in U.S. Cereal was General Mills’ top priority in North America Retail. The company appears to be making good on that goal.
U.S. cereal sales increased 7% during the second quarter at General Mills, boosted by non-measured channel growth, strong performance from Chocolate Peanut Butter Cheerios, and other quarterly timing shifts, Mr. Nudi said.
“Four of our largest taste-oriented cereals, which make up over one-third of our portfolio, are driving our performance this year,” he said. “Year-to-date, retail sales for Lucky Charms and Cocoa Puffs reached up 14%, while Cinnamon Toast Crunch and Reese's Puffs are up 8%.”
“Compelling consumer news” has been a theme across General Mills’ top brands, Mr. Nudi said, adding that the company will look to extend its cereal momentum in the second half behind some exciting innovation and impactful marketing executions. Chocolate Peanut Butter Cheerios, which launched in October, is off to a great start and is turning at the top of the category, he said.
“We’ll continue to fuel this new product in the second half with strong in-store support,” Mr. Nudi said.
In January, General Mills is launching Blasted Shreds shredded wheat cereal in Cinnamon Toast Crunch and peanut butter chocolate flavors. Mr. Nudi said the products are geared toward “invigorating the $400 million shredded-wheat segment by delivering satiety and taste.” The company also will tap into the fast-growing nut butter channel with new almond butter and peanut butter varieties of Nature Valley cereals.
Beyond the R.-T.-E. cereal category, General Mills has been confronted with a “tale of two stories” within its U.S. snacks bars business, Mr. Nudi said. Nature Valley and Lärabar have been strong performers, but Fiber One has continued to struggle.
“Retail sales for Nature Valley were up double digits so far this year, helped by new advertising on our core and excellent performance in our new nut butter biscuits and granola cup platforms,” he said. “And Lärabar continues to deliver 30% retail sales growth behind strong distribution growth and investment behind its Food Made From Food campaign, which will continue in the back half of the year.
“The story on Fiber One is more challenging. We’re working hard to improve performance by refocusing or messaging on our core consumer and renovating our products and packaging returning to Fiber One’s core role, permissible indulgence. And the retail sales are still down sharply in the first half, driven by reduced distribution. Base sales per point of distribution have turned positive, which is a good indicator of future trends.”
Mr. Nudi said General Mills is working to rebuild the innovation pipeline on Fiber One and will launch eight new items in January, including four flavors of Fiber One Bites. Meanwhile, General Mills has what Mr. Nudi described as “great new indulgent offerings” on tap for Nature Valley.
“Consumers are looking for indulgent treats made from real food, so we’re introducing Layered Bars that have a triple layer of nut butter, granola with nuts and chocolate,” he said. “And we’re launching soft-baked filled squares that combine whole grain oatmeal bars with creamy peanut-butter filling. We’re supporting these launches with TV, social media, digital coupons and merchandising.”
Net earnings attributable to General Mills in the second quarter ended Nov. 26 totaled $430.5 million, equal to 75c per share on the common stock, which was down 11% from $481.8 million, or 82c, in the prior-year period. Results included a $42 million charge related to a prior-year tax adjustment.
Net sales of $4,198.7 million were up 2.1% from year-ago sales of $4,112.1 million.Net earnings attributable to General Mills in the first six months of the year totaled $835.2 million, equal to $1.46 per share, down 6% from $890.8 million, or $1.50 per share. Net sales dipped to $7,967.9 million, down 0.6% from $8,020 million in the same period of the prior year.