General Mills net earnings drop 20%
- General Mills' net earnings this quarter totaled $343 million — a 20% decrease from last year, according to a release. The company missed analyst expectations and its operating profit also dropped 23% from the year before to $547 million.
- The company's net sales increased 5% to $4.41 billion, which was boosted by recently acquired Blue Buffalo pet products. But overall, General Mills' organic net sales dropped 1%, caused by a decline in its North America business.
- "Our cost and capital discipline has driven profit growth ahead of our expectations in the first half. Our job to do in the second half is to accelerate our sales growth while maintaining that same discipline," General Mills Chairman and CEO Jeff Harmening said in the release. "We're taking actions to strengthen our second-half topline trends in North America Retail, led by U.S. cereal and snacks."
Despite new products and acquisitions, General Mills continues to struggle to lift its North American profits. The company's Q2 net sales in North America totaled $2.68 billion, dropping 3% from the year before. The decline was mainly caused by lower sales activity in its U.S. cereals and a drop in volume for its U.S. snacks.
That drop comes as consumers have turned to other better-for-you breakfast options instead of cereals. Slumping cereal sales across the industry have led some manufacturers to reformulate products for consumers looking for healthier options. General Mills has instead continued to double down on its indulgence factor, announcing new sugary cereals — including Cinnamon Toast Crunch Churros, Fruity Lucky Charms and Chocolate Toast Crunch — just this week. But if the company can't pull up its cereal sales soon, that strategy could change.
Like other big food companies, General Mills has been reevaluating its portfolio to make room for new — potentially more lucrative — products. To get into the booming pet care category, General Mills purchased Blue Buffalo earlier this year for $8 billion, becoming the U.S. leader in the natural pet food segment in one swoop. Net sales in the pet category during the last six months were $678 million, an increase of 2% on a pro forma basis.
Pet care could continue to pay off for General Mills. According to research firm Euromonitor, retail pet food sales increased 3.7% last year, more than doubling the 1.2% increase in packaged food. In the earnings release, the company said it is planning significant expansion of Blue Buffalo, including doubling distribution and increasing its product assortment.
General Mills isn't the only big food player in the pet food space. Nestlé has Purina PetCare, Cargill has its Animal Nutrition segment Smucker purchased Big Heart Pet Brands and Ainsworth Pet Nutrition. So although it could be a lucrative market for General Mills, it is increasingly competitive — and an area many food manufacturers are relying on to boost their margins.
General Mills' operating profit was hit hard by higher restructuring, impairment and other exit costs. That came to $209 million this quarter, compared to just $2 million last year. General Mills wrote off $193 million in impairment charges for its Progresso, Food Should Taste Good and Mountain High brands, largely because it now projects those brands to see weaker sales in the future.
To reduce costs and improve performance in its baking and yogurt divisions, General Mills recently cut 625 jobs. That move and potentially more cuts down the line could make room for additional savvy acquisitions.
The company said in its earnings release that it will continue focusing on its long-term goals of stronger innovation and reshaping its portfolio with acquisitions and divestitures. And despite its decline this quarter and recent struggles, the company still reaffirmed its guidance for 2019.
"I'm pleased that our results through six months keep us on track to deliver our full-year targets," Harmening said.
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