Dive Brief:
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General Mills' third-quarter sales rose 2% to $3.88 billion, with organic operations up 1%, the company said in a statement. The cereal and snack maker posted growth in all four operating segments, including its North American division, where sales were up 1%. However, North American yogurt sales dropped 8%, and cereal sales slid 1%.
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The company reported an operating profit of $593 million, up 9% from the year-ago period. Due to higher supply chain costs, including freight expenses and a lack of carriers, the Minneapolis-based company revised its full-year total segment operating profit outlook to a decline of 5% to 6%, compared to the previous projection of flat to a 1% decline.
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"Our third-quarter operating profit fell well short of our expectations, and cost pressures are impacting our full-year outlook," CEO Jeff Harmening said in a press release. "Like the broader industry, we're seeing sharp increases in input costs, including inflation in freight and commodities. ... We are moving urgently to address this increasingly dynamic cost inflation environment.
Dive Insight:
Similar to other CPG companies struggling from an exodus of shoppers fleeing the center of the store in favor of more natural, less processed and better-for-you items, it's evident that General Mills has a lengthy shopping list of things to address, including slumping yogurt and cereal sales as well as higher input costs and shipping expenses.
Harmening said the company might raise prices to help offset some of its costs, The Wall Street Journal reported. The risk, of course, is that raising prices causes more consumers to flock to upstart or private label brands. That will do little to help bring growth back to some of its key divisions.
Its yogurt segment remains the sour spot for General Mills, with sales down 8% during the company's fiscal third quarter ended February 25. Sales of U.S. cereals, including Cheerios, Lucky Charms, Cinnamon Toast Crunch, slid 1%. However, the snacks segment — with brands such as Larabar and Nature Valley — posted a 3% increase in net sales.
The company has not yet closed on its recently announced $8-billion purchase of Blue Buffalo Pet Products, Inc., a move that was not included in its latest financial outlook. That acquisition is expected to close by the end of May.
Harmening, who became General Mills' CEO last June, is hoping the Blue Buffalo deal will boost the company's bottom line by giving it a primary position in the wholesome and natural pet food market, which is growing faster than many of its other products.
Last month at the Consumer Analyst Group of New York conference in Florida, Harmening said the cereal maker's efforts to reshape the company's portfolio will accelerate going forward, with acquisitions expected to play a meaningful role. General Mills said Wednesday it is focusing on "reshaping its portfolio through growth-enhancing transactions."
"We're going to continue to look for bolt-on acquisitions both in North America and Europe," Harmening said during a panel discussion at CAGNY. "We feel good about what we've done with Annie's and what we've done with Epic, what we've done with Larabar."
Even as it looks to buy more brands, the company might be wise to jettison slower-growing products that have fallen out of favor with consumers. Some analysts have speculated Hamburger Helper or Bisquick could be next to go.
General Mills needs to get serious about bolstering its ready-to-eat cereal segment, where sales are still down. The company has been trying to reach beyond its traditional segments to attract new customers and make itself relevant in today's market by increasing whole grains and the number of gluten-free products it offers. It has repackaged cereals like Cinnamon Toast Crunch into bar form to allow it to take advantage of the snacking, on-the-go consumer.
General Mills remains a high-profile CPG company with a recognizable roster of brands such as Annie's, Progresso and Old El Paso, but investors are likely longing for some signs of hope. The company's stock, which is down about 25% during the past year, fell nearly 10% on Wednesday to $45 a share, its lowest level in five years.