General Mills profit falls 37% on weak demand

by Eric Schroeder
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MINNEAPOLIS — General Mills, Inc. sustained a 37% decline in earnings in the second quarter of fiscal 2015, dragged down by weak demand in the United States and slowing growth in Europe and Canada. Net income in the quarter ended Nov. 23 was $346.1 million, equal to 58c per share on the common stock, down from $549.9 million, or 87c per share, in the same period a year ago.

Despite the decline in net income, General Mills said adjusted earnings per share, which excludes certain items affecting comparability of results, totaled 80c per share. The results exceeded analysts’ expectations of 76c per share.

Net sales totaled $4,712.2 million in the second quarter, down 3.4% from $4,875.7 million a year ago.

“Second-quarter results were broadly in line with the updated outlook we provided in early November,” said Ken Powell, chairman and chief executive officer. “Net sales declined for the quarter as anticipated, reflecting continued weak food-industry trends in the U.S. and slowing growth in key emerging markets.  Adjusted diluted e.p.s. came in slightly better than our estimate, primarily due to differences in expense timing. These quarterly results keep us on track to achieve the full-year fiscal 2015 targets announced last month.”

Operating profit in the U.S. Retail segment totaled $616.1 million in the second quarter, down nearly 10% from $681.6 million in the same period a year ago. Sales for the segment also were lower, falling 3.5% to $2,861.6 million from $2,965.4 million.

General Mills said lower pound volume subtracted 3 points of net sales growth, and unfavorable net price realization and mix subtracted 1 point of growth during the quarter. Also during the quarter, General Mills realigned its U.S. Retail businesses into five operating units. The snacks and yogurt operating units posted net sales gains for the quarter, while sales for the cereal, baking products and meals units declined.

Operating profit in the International segment fell 12% to $134.3 million from $153.2 million, while sales declined nearly 6% to $1,321.1 million from $1,403.3 million.

In the Convenience Stores and Foodservice segment, operating profit totaled $96.2 million, up 13% from $84.9 million a year ago. Net sales were $529.5 million, up 4.4% from $507 million a year ago. General Mills said yogurt snacks, cereal and frozen breakfast items led sales performance in the quarter.

Net income in the six months ended Nov. 23 totaled $691.3 million, down 32% from $1,009.2 million in the same period a year ago. Net sales fell 2.9% to $8,980.6 million from $9,248.4 million.

Through the first six months of fiscal 2015, General Mills said its U.S. Retail segment dollar market shares increased in categories representing 68% of the company’s sales volume in Nielsen-measured outlets. Strong first-half sales contributors included Yoplait Original Style and Greek yogurt varieties, Fiber One cookies and Fiber One Streusel snack bars, Nature Valley breakfast biscuits, Cinnamon Toast Crunch and Cheerios Protein cereals, and Chex gluten-free oatmeal.

“The operating environment remains challenging, but, as we move into the second half of our fiscal year, we expect to renew sales and profit growth,” Mr. Powell said.

General Mills’ second-half marketing plans include a line-up of new product introductions worldwide, along with product news on many key established brands. Savings from the company’s ongoing Holistic Margin Management program are forecast to exceed $400 million in fiscal 2015, and several incremental cost-reduction actions launched this year are expected to contribute to margin improvement in the second half, the company said. General Mills said the initiatives to streamline its North American supply chain network and reduce overhead costs are on track to generate $40 million in cost savings in the second half of fiscal 2015, and cumulative annual savings from the efforts are expected to total between $260 million and $280 million in fiscal 2016, and exceed $350 million in fiscal 2017.

General Mills reaffirmed its fiscal 2015 full-year targets. Net sales in constant currency are 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 acquisition of Annie’s, Inc.
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