General Mills putting pedal to the metal in yogurt

by Monica Watrous
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MINNEAPOLIS – Noting growth of Greek yogurt is slowing, General Mills, Inc. is focused on building its Yoplait business. With the right product portfolio, distribution and manufacturing capacity in place, the company is investing heavily in the marketing and merchandising of its U.S. yogurt products.

But those investments, as well as higher dairy input costs and competitive pricing actions, spoiled profitability for the yogurt platform during the company’s third quarter. Additionally, retail sales for the segment declined, due in part to bad weather.

But General Mills said trends are improving behind increased support of the Greek and original Yoplait lines.

“During this period, we really put our foot down on the gas pedal with incremental investments in this business,” said Ken Powell, chairman and chief executive officer, during a March 19 earnings call with analysts. “We are already seeing benefits from these efforts.”

In January, the company introduced 16 products, twice the number that debuted in the year-ago period, along with introductory trade funds to generate feature and display of the new items. General Mills also launched a Greek yogurt taste-off campaign, which included in-store sampling and a pop-up store in New York City where consumers tasted the Yoplait Greek products.

“It is very taste-oriented advertising, and it is a lot of sampling,” Mr. Powell said. “We want to get these products in people's mouths because we know that they perform very, very well and people like them.”

Since January, he added, the company has gained dollar share in the Greek segment, and original Yoplait varieties have returned to growth on the strength of a family-targeted snacking campaign and improved distribution.

“We still have work to do on Yoplait Light, but turns for that line are now positive, and we’ve been gaining share in this segment,” Mr. Powell said.

The portfolio’s other soft spot is children’s yogurt, traditionally a “good grower” for General Mills that has posted “uncharacteristic” declines in recent quarters.

“We don’t feel we had the right kind of kid-oriented promotions on Go-Gurt, and that is easily correctible,” he said.

Overall, Mr. Powell added, General Mills plans to “keep our foot on the gas to fuel momentum in this business.”

Net earnings attributable to General Mills for the third quarter ended Feb. 23 was $410.6 million, equal to 66c per share on the common stock, up 3.1% from $398.4 million, or 61c per share, for the prior-year period. Net sales dipped 1.2% to $4,377.4 million from $4,430.6 million in last year’s third quarter.

Operating profit for the U.S. Retail segment was $517 million, down 11% from year-ago results, reflecting dairy inflation and increased marketing and merchandising for the yogurt business. Third-quarter net sales decreased 2% to $2.62 billion on lower volumes and net price realization and mix.

For the International segment, operating profit grew 1%, excluding the impact of currency devaluation in Venezuela in fiscal 2013. Net sales for the company’s consolidated international businesses increased 2% to $1.32 billion, lifted by net price realization and mix that was offset by lower volumes.

Operating profit for the Convenience Stores and Foodservice segment fell 17% to $62 million, and segment sales dropped 7% to $437 million from year-ago levels, due in part to severe weather that hampered industry performance.

Net earnings attributable to General Mills through the first nine months of fiscal 2014 declined 4.6% to $1,419.8 million, equal to $2.24 per share, compared with $1,488.9 million, or $2.29 per share, in the same period of the previous year.

Net sales for the nine-month period increased 2% to $13.63 billion. Products contributing to year-to-date net sales growth include Honey Nut Cheerios, Cinnamon Toast Crunch and Cascadian Farm organic cereals; Yoplait Greek yogurt; Fiber One protein bars, Nature Valley oatmeal squares and Larabar snacks; Old El Paso shelf-stable and frozen Mexican food items; Pillsbury refrigerated biscuits, sweet rolls and gluten-free dough products; and Totino's frozen pizza and snacks.

Looking ahead, General Mills expects double-digit earnings growth in the fourth quarter, with input cost inflation, tax rate and average number of shares outstanding expected to be below year-ago levels.
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