General Mills Inc. (NYSE:GIS) — Shares plunged in yesterdays session as profits and revenue were reported to have slipped at the Cheerio’s maker. Yoplait yogurt and packaged foods during first quarter with the downward sales trend for yogurt and cereal persisting. Sales in the US were down 5 percent to $2.44 billion, weighed down by double-digit declines in Yoplait yogurt products. Cereals fell 7 percent. Profit at the Minneapolis company fell 1.1 percent to $404.7 million, 69 cents per share. Earnings, adjusted for one-time gains and costs, came to 71 cents per share, which was 6 cents short of Wall Street expectations. Revenue dropped 3.5 percent to $3.77 billion, also short of analyst projections. The company’s shares were selling for $52.17 at the close of regular trading, down $3.21.
General Mills’ consumer-focused innovation, promotion initiatives and robust restructuring savings have been making up for the slower revenue growth. The company is currently pursuing several initiatives focused on improving operational efficiency to generate cost savings and support its key growth strategies. By fiscal year 2018, the company expects to achieve cost savings through increased efficiency, reduced complexity through SKU optimization, further supply chain optimization and continued expansion of zero-based budgeting across the business, which will result in accelerated margin expansion. It is on track to achieve its cost savings target for fiscal 2018 as it forges ahead with its margin expansion efforts. However, General Mills’ shares have underperformed the industry so far this year. Slower organic sales are overshadowing minor improvements in profit margins.
Based in Minneapolis, MN, General Mills Inc. is a global manufacturer and marketer of branded consumer foods sold through retail stores. The company also serves the foodservice and commercial baking industries. Its principal product categories include ready-to-eat cereals, convenient meals, snacks (including grain, fruit and savoury snacks, nutrition bars, and frozen hot snacks), yogurt, super-premium ice creams, baking mixes and ingredients, and refrigerated and frozen dough.
Beginning Q3 2017, the company has started reporting results under four new business groups: North America Retail, which combines U.S. Retail segment and Canada region in international segment; Convenience Stores & Food Service; Europe & Australia,; and Asia & Latin America. Note: These segment changes had no effect on previously reported consolidated net sales, operating profit, net earnings attributable to General Mills, or earnings per share.
North America Retail (65% of total revenue in fiscal 2017): This segment consists of U.S. Meals & Baking and reflects business with wide variety of grocery stores, mass merchandisers, membership stores, natural food chains, and drug, dollar and discount chains operating throughout the United States. The product categories within the segment include ready-to-eat cereals, refrigerated yogurt, soup, meal kits, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza and pizza snacks, grain, fruit and savoury snacks, and a wide variety of organic products including meal kits, granola bars, and ready-to-eat cereal. Convenience Stores & Foodservice (12%): The segment sells ready-to-eat cereals, snacks, refrigerated yogurt, frozen meals, unbaked and fully baked frozen dough products and baking mixes to foodservice, convenience stores, vending, and supermarket bakeries. Europe & Australia (12%): This segment reflects retail and foodservice businesses in the greater Europe & Australia regions. Asia & Latin America (11%): This segment consists of retail and foodservice businesses in the greater Asia and South America regions.
Key Fiscal 2018 Strategies to Combat Weak Sales: General Mills has outlined four key global strategies for fiscal 2018 to combat weak sales trajectory. The company plans to focus more on growing its cereal business, which has been sluggish for quite some time now. For that, General Mills plans to introduce new varieties of its “Toast Crunch” line, Blueberry Chex and Banana Nut Cheerios across U.S. brands. Also, products like Nesquik and Cheerios all-family granolas will be added to the global product portfolio along with expansion of the Lion Wild brand.
General Mills is restructuring its U.S. yogurt portfolio through fundamental innovation. It is renovating its core Yoplait and Go-Gurt products, expanding its organic presence with Annie’s and Liberté, and developing a new yogurt segment.
The company’s third main strategy focuses on driving differential growth across several global platforms where it has already witnessed solid revenue (roughly $4 billion) momentum. The platforms include Häagen-Dazs ice cream, snack bars (primarily under Nature Valley), Fiber 1 and Larabar brands, Old El Paso Mexican foods and its natural and organic brands in North America.
Investing in its Foundation businesses (includes refrigerated dough, soup, and baking mixes etc.) is also a priority for fiscal 2018. The company will be launching a line of organic soups under the Progresso brand and two new varieties of Pillsbury pizza dough.
Apart from these four key priorities, the company is focused on improving its e-commerce channel given its rapid acceleration.
E-commerce already represents about 1.5% of the company’s total sales in the U.S. as of fiscal 2017 and this is expected to grow 5% by fiscal 2020. The company also expects double-digit growth for its global e-commerce business, led by the U.S.
Focus on Consumer-Focused Innovation, Health & Nutrition: The company focuses on maintaining a steady pipeline of products to boost sales momentum and capture market share. With evolving consumer food preferences, General Mills is investing in consumer-focused innovation and marketing and accelerating the natural and organic product portfolio to boost its sales.
General Mills has an outstanding portfolio of growth products and brands, especially its healthy and convenience packages. Currently, 75% of its cereals are devoid of any artificial flavours and colours. The company remains committed to remove these ingredients from its entire cereals portfolio. General Mills has also reduced sodium by 20% or more in 7 key U.S. product categories over the past five years.
The company’s net sales of North America natural and organic portfolio including its fast growing Liberté brand in Canada have already reached over $1 billion as of fiscal 2017. The company still expects to grow in this space. Annie’s is General Mills’ largest natural and organic brand and the company aims to continue expanding its distribution in fiscal 2018 as well.
Cost Saving Initiatives: General Mills is currently pursuing many initiatives focused on improving operational efficiency to generate cost savings and support its key growth strategies. By fiscal 2018, the company expects to achieve cost savings through increased efficiency, reduced complexity through SKU optimization, further supply chain optimization and continued expansion of zero-based budgeting across the business, which will result in accelerated margin expansion.
The company has plans of delivering approximately $390 million in supply chain productivity savings in fiscal 2018 through its ongoing Holistic Margin Management (HMM) efforts that will more than offset input cost inflation of 3%. General Mills also expects to deliver about $160 million in incremental savings from other restructuring and cost-reduction initiatives, which equates to approximately $700 million in aggregate cost savings by fiscal 2018.
Fiscal 2017 was a transition year for General Mills. The company implemented a new global organizational structure to enhance its ability in rapidly changing consumer preferences. General Mills increased its global supply chain restructuring initiative to further enhance efficiency. It has also implemented a business plan that aggressively shifted resources to its best growth opportunities, while eliminating low-return investments and volume.
By fiscal 2018, the company expects to achieve an operating margin of 18%.
A portion of these savings are expected to be used for the company’s growth plans.
Enhancing Shareholders’ Value: The company remains committed toward enhancing its shareholders’ return via share repurchases and dividends.
The company increased its annual dividend payments for fiscal years 2014, 2015, 2016 and 2017 by 17%, 7%, 7% and 8%, respectively. Moreover, it has maintained its consistent record of repurchasing shares, which totalled $1.16 billion, $607 million and $1.65 billion in fiscal 2015, fiscal 2016, and fiscal 2017, respectively.
Fiscal 2018 Guidance
Organically, year-over-year sales growth is expected to decline 1–2%.
Adjusted earnings per share (constant currency) are anticipated to grow 1–2% from the fiscal 2017 level of $3.08 per share. The company expects currency-related headwind of one cent on full-year fiscal 2018 adjusted earnings per share. The company expects first half of fiscal EPS to be down reflecting lower sales and the phasing of its cost savings initiatives and brand investments. However, EPS is anticipated to improve in the second half as sales trends improve.
Total segment operating profit growth is estimated in the range of flat to 1%, on a constant-currency basis. Adjusted operating margin is expected to remain above the fiscal 2017 level of 18.1%.