General Mills Q2: ‘Our five largest categories fell short of expectations’

By Elaine Watson contact

- Last updated on GMT

General Mills Q2: ‘We fell short of expectations’

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General Mills experienced another lackluster quarter in Q2 2017, with a 9% decline in net sales in US retail, although operating profit in the division was up due to margin expansion initiatives.

Speaking to analysts on the earnings call yesterday, president and COO Jeff Harmening blamed the weak performance on a challenging operating environment, inadequate marketing support, and a lack of innovation.

While Old El Paso Mexican foods, Totino’s hot snacks, and the Annie’s natural and organic business performed well, he said, sales in the company’s five largest categories - cereal, yogurt, snack bars, refrigerated dough, and soup – “fell short of expectations.”

He added: “The industry has experienced a slowdown in retail sales growth… In our categories, average unit prices were up 3% last quarter but volume softness drove overall category retail sales down 1%.  

“We did not have enough marketing support in the form of trade and consumer spending and new product news to deliver the improvement we were looking for.”

Retail sales for the US yogurt category turned negative in the quarter

In the US, retail sales for General Mills’ cereal brands were down 3% despite growth in gluten-free Cheerios, Cocoa Puffs and Cinnamon Toast Crunch; Nature Valley sales were down 3% and Fiber One bars were down double digits; while retail sales of yogurt were down 18% despite an encouraging start for Annie’s and Liberte organic yogurts (which launched in Q1).

“Retail sales for the yogurt category also turned negative in the quarter as elevated levels of merchandising generated less incremental lift and as the level of new products news slowed," ​said Harmening.

On the plus side, Larabar sales were up more than 50% and Annie’s sales rose 46%, he said. “With the strength of this great brand as well as the performance of our other terrific natural and organic brands, we are well on our way to meeting our goal of $1bn in net sales for our natural and organic portfolio by 2019.”

Q2 results breakdown

Group net sales declined 7% to $4.1bn in Q2 due to lower organic net sales and the divestiture of the North American Green Giant business.  Organic net sales declined 4%. Net earnings were down 9% to $482m.   

US retail sales fell 9% to $2.52bn; Convenience Stores and Foodservice sales fell 4% to $488m; and International division sales fell 5% to $1.1bn, mainly due to the negative impact of foreign exchange movements and the sale of the Green Giant business. However, Häagen-Dazs ice cream performed well in Europe, and Wanchai Ferry frozen meals and Yoplait yogurt did well in China.

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