Natural and organic a bright spot in General Mills' portfolio

by Monica Watrous
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Yoplait yogurt, Fiber one bars, Progresso soup, Pillsbury refrigerated dough
Declines in Yoplait yogurt, Progresso soup, Pillsbury refrigerated dough and Fiber One bars contributed to falling sales at General Mills.

MINNEAPOLIS — Declines in Yoplait yogurt, Progresso soup, Pillsbury refrigerated dough and Fiber One snack bars contributed to the latest in seven straight quarters of falling sales at General Mills, Inc.  Third-quarter results finished in line with company expectations, as net earnings in the period ended Feb. 26 totaled $357.8 million, equal to 62c per share on the common stock, down 1.1% from $361.7 million, or 61c per share, in the same period a year ago. Net sales fell 5% to $3,793.2 million from $4,002.4 million.

General Mills attributed the shortfall in sales to increased promotional activity by its competitors in the yogurt, soup and refrigerated baking categories in the United States. Operating profit in the North America Retail segment fell 6.5% during the third quarter, to $516.7 million. Sales in the segment also were lower, declining 7% to $2,499 million from $2,686.6 million in the same period a year ago.

Efforts under way to improve sales in the fourth quarter include product innovation and increased consumer and trade support behind cereal, snacks, Old El Paso Mexican products and Totino’s hot snacks, said Jeff Harmening, president and chief operating officer.

Jeff Harmening, General Mills
Jeff Harmening, president and c.o.o. of General Mills

“As we've previously discussed, we have work to do to reposition our U.S. yogurt portfolio into faster growing, more premium yogurt segments,” Mr. Harmening said during a March 21 earnings call with financial analysts. “We’ll do that through core renovation on our existing lines and innovating on the emerging segments in the yogurt category.”

In cereal, the company will increase marketing support behind recent recipe reformulations for Lucky Charms and Cocoa Puffs to improve taste, as well as gluten-free messaging on Cheerios and whole grain messaging on a variety of cereal brands, Mr. Harmening said.

Lucky Charms and Cocoa Puffs, General Mills
General Mills plans to increase marketing support behind recent recipe reformulations for Lucky Charms and Cocoa Puffs.

He said the company also is addressing weakness in some of its snack brands, adding, “we won’t get back to growth on Fiber One, certainly in the fourth quarter.”

While General Mills faces a number of challenges across some of its legacy brands, the company’s natural and organic portfolio continues to drive double-digit sales growth. Led by Annie’s, the business is expected to generate more than $1 billion in the fiscal year.

“Annie’s is our largest brand, and retail sales are increasing nearly 40% so far this year in U.S. Nielsen-measured outlets,” Mr. Harmening said. “We continue to gain distribution on Annie’s established businesses, including macaroni and cheese, fruit snacks, and cracker lines that were in the market when we acquired the brand. Year to date, retail sales for those categories combined are up 18%.

Annie's popcorn, General Mills
Annie's recently launched into the ready-to-eat popcorn segment.

“And as you know, we’ve also introduced this brand into new categories, with ready-to-eat popcorn being our latest addition to the portfolio.”

The company’s Larabar brand has achieved year-to-date sales growth of 44% behind expanded distribution in conventional channels, Mr. Harmening said.

“In fact, household penetration for Larabar has grown 30% in the past year, as we’ve found new ways to reach consumers, including targeted TV advertising,” he said. “We’re also seeing good growth on Epic natural meat snacks, with retail sales more than doubling so far this year on good innovation and strong distribution gains, and we see considerable opportunity to expand household penetration on this growing brand.”

Epic meat snacks and Larabar
Epic meat snacks and Larabar have experienced growth.

Elsewhere in the business, operating profit in the Convenience Stores and Foodservice unit in the third quarter increased 3% to $93.6 million from $90.6 million, but sales fell 1.1% to $448.5 million from $453.7 million. General Mills said declines in certain frozen dough products partially were offset by growth for its core six platforms, including cereal, biscuits and yogurt.

For the nine months ended Feb. 26, net earnings at General Mills totaled $1,248.6 million, or $2.12 per share, down 5% from $1,317.8 million, or $2.20 per share. Net sales fell 6.5% to $11,813.2 million from $12,635.2 million.  
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