Dive Brief:
- General Mills posted earnings of $408.9 million in the fourth quarter ended May 28, up from $379.6 million a year earlier. Sales declined 3.1% to $3.81 billion.
- The maker of Progresso soup, Annie's Homegrown and Totino's Pizza Rolls, forecast organic sales in its coming fiscal year to fall between 1% and 2% after slipping 3% in the fourth quarter.
- "While we took important steps in fiscal 2017 to globalize our business structure, accelerate our cost-savings efforts, expand our margins, and drive growth in adjusted diluted EPS, our results on the topline fell well short of our standards," Jeff Harmening, General Mills' CEO said in a statement. "Our entire organization is moving with urgency in fiscal 2018 to meaningfully improve our net sales trends while keeping a sharp eye on our efficiency."
Dive Insight:
Harmening recently took the helm at General Mills at a time when more consumers are leaving processed foods in favor of fresher, healthier items. It helps in this effort that Harmening drew praise during his more than two decades at the Minnesota company for pushing it toward more natural products, including its purchase of Annie's for $820 million three years ago, and the removal of artificial colors from many of its cereals.
The company veteran said Wednesday that General Mills would invest in new products and innovation, while improving those existing areas that underperform to restore growth at the 151-year old food manufacturer. "We'll also increase investment in capabilities like e-commerce and Strategic Revenue Management, which are critical to future growth," he said.
In recent quarters, General Mills was hit by declines in light and Greek yogurt varieties even as its competitors notched gains in the popular snack. Last year, General Mills vowed to overhaul 60% of its yogurt business to better align with consumer trends, adding new Greek varieties, flavors and organic options.
The latest quarter showed those efforts have yet to take hold with North American retail sales dropping 3%, led by double-digit declines in yogurt. Earlier this week, General Mills introduced its latest yogurt creation in hopes of stemming the downturn: a French-style treat with no artificial preservatives, flavors and colors and minimal ingredients packaged in a glass jar.
While yogurt struggled in the most recent period, the company's North American operations posted growth in its U.S. snacks division, which included Bugles, Chex and Nature Valley brands.
Brittany Weissman, an analyst at Edward Jones, which has a hold rating on General Mills' shares, said in a note after the earnings release that the company "faces many challenges," but she expects improving sales trends and continued cost savings that should drive improved profit margins and earnings growth. The company will focus more on sales in the coming year, she said, which will require increased spending — a reason why General Mills' earnings guidance of between $3.10 and 3.13 per share was below consensus expectations of $3.20 per share.
"General Mills still has a lot of work to do in order turn around its North American retail business, but the company is focused on adding back some advertising and promotional support behind its brands and bringing more news to products through new product innovation," Weissman said. "While we don't expect sales to turn positive in the near term, we look for declines to lessen as the company shifts its focus back to sales growth."
With growth slowing for food and beverage manufacturers, big players like Nestle and Unilever have attracted interest from outside parties looking to improve the businesses. Earlier this week, billionaire activist investor Daniel Loeb’s Third Point hedge fund purchased 1.25% of the company's shares and issued a letter on changes the firm should make to its business. And Unilever rejected a $143 billion takeover bid from Kraft Heinz in February.
Harmening will have some time to put his mark on the company as CEO, but some analysts speculate that General Mills, with well-known brands, strong cash flow and potentially easy fixes in divisions like yogurt, could be under pressure too if initiatives don't start yielding results soon.