The producer of Cheerios and Betty Crocker, General Mills Inc, reported a quarterly profit which exceeded the expectations. This is owing to the fact that sales in the US rose after five consecutive quarters of decline.
On Wednesday the company declared that the sales increased 1% in the third quarter because of yoghurt and snacks, which were more popular. So the company’s shares rose to $52.40 in premarket trading.
The company’s Chairman and Ken Powell, the Chief Executive Officer commented upon the success:
“Our third-quarter results reflect strengthened operating performance. Our U.S. Retail segment posted net sales and profit growth including contributions from the Annie’s business acquired in October 2014. Constant-currency net sales and profit growth accelerated for our International segment. And the Convenience Stores and Foodservice segment led our operating results, with sales up 6 percent and profit up 11 percent.”
General Mills says that the sale of cereals and frozen foods has not been very profitable, since Americans tend to orientate towards healthier foods. That’s why the sale of Yoplait, the yoghurt produced by the company, increased.
That is also a reason why not only General Mills, but other companies such as Campbell Soup Co and ConAgra Foods Inc. are trying to expand in the domain of organic and natural foods. In September General Mills said that would buy the organic food company Annie’s Inc. and so they did: they acquired it in October for approximately $820 million.
The company also stated that according to their “Catalyst” plan of cost-cutting they intend to eliminate around 800 jobs mostly from the US by the end of the fiscal year 2015. They expect to obtain a net charge of almost $146 million.
“Project Century”, another restructuring plan, provides that the company will close plants in Methuen (Massachusetts) and Lodi (California) and by the end of the fiscal year 2016 they would cut 680 jobs. According to the same plan, they will shut plants in New Albany (Indiana) and Midland (Ontario, Canada), cutting 500 jobs.
In the quarter that ended on February 22 the company fell 56 cents per share (to $343.2 million), compared to the previous year when it was 64 cents per share ($410.6 million). Overall the company earned 70 cents per share. This surpassed the expectations of the analysts which anticipated 67 cents per share.
Through the first nine months of the fiscal year 2015, the net sales were $13.3 billion, meaning 2% lower than the previous year ($13.6 billion). The number essentially matched the results from the previous year. The profit in this period totaled $2.24 billion, 8% lower.
The market shares increased in domains representing 68% of General Mills’ sales of Nielsen-measured outlets. This also includes growth in RTE yoghurt, cereal and snacks. The retail products which mainly contributed to net sales in the nine-month period were: Yoplait Original Style, Greek yogurts, Cascadian Farm organic snacks, Fiber One snack bars, Cheerios Protein cereals, Nature Valley granola and Cinnamon Toast Crunch. , Yoplait yogurts, Pillsbury frozen breakfast products and Big G bowl pack cereals were great sales contributors in the segment of food service and convenience stores. Regarding the international products, the ones that strongly contributed to the net sales were Haagen-Dazs super premium ice (Asia), La Saltena and Yoki meal products (Latin America) and Old El Paso dinner products (Europe, Canada and Australia).
Ken Powell stated that their operating results are starting to show the beneficial effects of the fact that the company has widely focused on the consumer. According to him growth in the business can be seen in those domains in which the company has struggled to make improvements to release new items, establish brands and develop marketing messages, all of which correspond to the constantly changing needs and preferences of the consumers. Powell also added that they are making plans for the fiscal year 2016. The company intends to expand their strategic focus Consumer First and the impact it has.
In the fourth quarter of the fiscal year 2015 General Mills further expects noticeable growth, including the gradual contribution from the acquisition of Annie’s and the help of one extra week in this period. So as to meet the EPS expectations, the company will need to increase EPS by almost 3%, which is not something easy to do.
Image Source: FTM