- General Mills said Tuesday that net sales rose 8.6% to $4.09 billion during its first quarter despite a decline in its North American business, according to a company release. Earnings for the period fell 3.1% from the year-ago period to $392.3 million. The North American segment, which represents most of the manufacturer's revenue, saw sales slip 2.1% to $2.39 billion.
- Sales in the food giant's U.S. snacks business fell 4%, but cereal sales climbed 1%. Net sales in its U.S. yogurt category and U.S. meals and baking segment each dropped 2%. General Mills' pet food division, anchored by its recent $8 billion purchase of Blue Buffalo, reported sales gains of 14% to $343.4 million on a pro forma basis.
- The company reaffirmed its full-year guidance for fiscal 2019, which predicts sales gains of 9% to 10%. General Mills also reported that it's on track with its "Consumer First" strategy, which is aimed at accelerating growth on its Häagen-Dazs ice cream, snack bar, Old El Paso Mexican food and natural and organic food brand platforms. Shares in General Mills fell about 7.6% to $44.13 in mid-morning trading as its North American unit disappointed.
This quarter drew mixed results for General Mills, but the company's gains in cereal sales and strong performance from its pet food division show the manufacturer's strategic investments are paying off.
Cereal has been a major challenge for CPG brands as consumers move toward fresher, convenient and more health-focused breakfast options, such as protein shakes and smoothies. And while some companies have tried to cater to these interests by reformulating their products with value-adds like probiotics, ancient grains and protein, other manufacturers have focused much of their attention on items that highlight their expertise. General Mills has chosen to double down on cereal's indulgence factor, rolling out ultra-sugary products such as Dippin' Dots cereal, Lucky Charms Frosted Flakes and Cinnamon Toast Crunch shredded wheat.
The company's U.S. yogurt segment continues to be a pain point. The segment slipped 2% this quarter, and while this is an improvement from the 5% decline the business saw last quarter, its lackluster performance reflects growing competition from powerful newcomers. General Mills' French-style Yoplait yogurt called "Oui," which was meant to counter authentic, international-inspired brands such as Chobani and Siggi's, has yet to gain meaningful traction.
But General Mills isn't only looking to yogurt or cereal to be main growth drivers, according to its "Consumer First" strategy. Instead, the Minneapolis company is hoping to strengthen power brands, such as Old El Paso Mexican Food and Häagen-Dazs ice cream, as well as trending categories like snack bars and natural and organic foods, to better respond to changing consumer demands. Part of this initiative also includes "reshaping its portfolio through growth-enhancing acquisitions and divestitures, including the recent acquisition of Blue Buffalo," according to the earnings release.
The cereal giant's entry into the pet food space seems to be a savvy move, as its Blue Buffalo purchase made it a leader in the U.S. natural pet food category. According to Euromonitor, retail pet food sales topped packaged food sales last year, growing 3.7% compared to 1.2%. This sales growth shows why more food companies are bulking up their focus in pet food. The deal also will help General Mills keep pace with Nestlé, which owns Purina PetCare; Mars, the owner of VCA, an animal hospital chain, as well as Iams, Pedigree and Whiskas; and J.M. Smucker, which oversees brands like Meow Mix, Kibble 'n Bits, Milk Bone and Rachel Ray's Nutrish dog food.
Last quarter, General Mills also announced that it would cut up to 625 jobs by this spring to reduce costs and improve performance in its baking and yogurt divisions. Most of these positions have already been cut, but further changes could help free up money for new acquisitions and make the food giant more nimble in an increasingly dynamic marketplace. Still, even as it expands its reach into other areas like pet food, it needs to be careful not to ignore its legacy brands that remain an important part of its overall business.