Sales growth accelerates at General Mills; execs seek balance in new fiscal year

After a disappointing winter, General Mills righted the ship this spring with better-than-expected profit and a third consecutive quarter of sales growth.

The Golden Valley-based company closed the book Wednesday on another turbulent year — the new norm for packaged-food companies — as it strives to balance sales and profit growth amid big shifts in what people eat.

"The key for us is to get to the middle of the boat," Chief Executive Jeff Harmening said in an interview. "And what you have seen from us over this last year, and what you will see next year, is a greater emphasis on top-line growth [sales] than we have had, but it's certainly not at the expense of efficiency."

General Mills is beginning to see revenue growth following several years of deep cost-cutting that boosted its profit and profit margins sharply. Executives last year said they had cut too far and needed to spend more on product innovation and marketing to stimulate sales.

The plan appears to be working as sales improved 2 percent to $3.89 billion in the three months ended May 27, the fourth quarter of its fiscal year. Organic net sales — or those that don't include the impact of acquisitions — rose about 1 percent.

Its profit amounted to $354.4 million, down 13 percent from a year ago but better than analysts predicted and a positive note for investors.

"Last quarter's results were very disappointing, so I think there was a bit of a sigh of relief today," said Brittany Weissman, a food-industry analyst with Edward Jones. "There were also some positives in there of progress being made."

In April, General Mills announced the $8-billion acquisition of Blue Buffalo, a high-growth pet food maker. Many on Wall Street were initially skeptical of the deal, for both its high price tag and its divergence from General Mills' core food business, but Harmening said those skeptics have largely been calmed after hearing his rationale.

"They are less skeptical about the strategy and now they want to see us execute, which is fair," Harmening said. "The people who know us the best and know Blue Buffalo the best have been the ones that have always been the most enthusiastic about this deal."

Blue Buffalo is expected to help bolster the company's sales by 9 to 10 percent in its new fiscal year, which is now almost a month old. Given the accounting costs of the deal, General Mills Chief Financial Officer Don Mulligan expects full-year adjusted earnings per share will be flat or down 3 percent.

Yogurt is showing signs of improvement — thanks to successful new products — but remains the biggest drag on the company's North American sales, posting a 5 percent decline last quarter. The segment started the year with a 22 percent loss in sales during the first quarter, followed by 11 percent and 8 percent in the following two quarters.

Looking ahead, the company will continue its work on lifting sales while seeking greater efficiencies to keep profits up.

"The declines we had on profitability have lessened," Harmening said.

Kristen Leigh Painter • 612-673-4767