General Mills cuts earnings, sales outlook

by Eric Schroeder
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MINNEAPOLIS — Shares of General Mills, Inc. fell more than 4% in pre-market trading on Nov. 7 after the Minneapolis-based maker of Cheerios cereal, Yoplait yogurt and Progresso canned soups lowered its full-year earnings and sales outlook, citing weak food-industry trends in the United States and slowing growth in key emerging markets.

General Mills fiscal 2015 net sales in constant currency are now expected to grow at a low single-digit rate from the 2014 base of $17.9 billion. This includes an estimated 2 points of sales growth from the 53rd week in fiscal 2015 and approximately $120 million of incremental sales from the Annie’s organic and natural food businesses acquired Oct. 21. Annie’s will be consolidated into General Mills’ 2015 results on a one-month lag basis, the company said.

Total segment operating profit in constant currency is expected to decline at a low single-digit rate from prior-year results of $3.15 billion, General Mills said. This includes more than $400 million in cost of goods savings from holistic margin management, along with $40 million in savings from projects initiated this year to streamline the company’s North American supply chain and further reduce overhead costs.

Fiscal 2015 adjusted diluted earnings per share are expected to grow at a low single-digit rate in constant currency from the base of $2.82 earned in fiscal 2014, the company said. This includes an estimated contribution from Annie’s of 1c per share. Adjusted diluted earnings per share for the second quarter ending Nov. 23, 2014, are expected to be between 75c and 77c. This compares with adjusted diluted e.p.s. of 83c earned in the prior year’s second quarter.

General Mills had been targeting mid- single-digit constant-currency growth in net sales and segment operating profit, and high single-digit constant-currency growth in adjusted diluted e.p.s. for fiscal 2015.

Digging deeper into its business units, General Mills said its International and Convenience Stores and Foodservice operating segments remain on track to achieve their full-year operating profit growth targets for fiscal 2015, while the company’s U.S. Retail operating segment is now expected to show an operating profit decline for fiscal 2015.

“In Nielsen-measured U.S. retail outlets, General Mills fiscal 2015 year-to-date (Y.T.D.) sales are growing in key categories such as yogurt, grain snacks, fruit snacks and frozen pizza,” the company said. “The company’s Y.T.D. market shares are flat or up in categories representing 75% of the company’s sales volume in measured outlets. Businesses posting market share increases include cereal, yogurt, grain and fruit snacks, ready-to-serve soup, and frozen pizza and hot snacks. General Mills’ Y.T.D. composite dollar share in measured outlets is 15 basis points below the prior year, led by market share declines in frozen vegetables and dessert mixes. The company is making tactical adjustments in its marketing plans for these categories in response to competitive activity.”

General Mills also provided an update on its recently announced cost savings initiatives. In June, General Mills announced the initiation of projects designed to generate cost savings and fuel accelerated top-line growth for the company. The projects are expected to focus on streamlining the company’s North American supply chain network and reducing overhead costs. Together, the initiatives are expected to generate $40 million in cost savings in fiscal 2015. The company on Nov. 7 said that by fiscal 2016, cumulative annual savings from the efforts are expected to total between $260 million and $280 million. Cumulative annual savings in fiscal 2017 are expected to exceed 2016 levels, General Mills said.
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