General Mills made more money this spring than investors expected, but sales dropped for the eighth straight quarter and executives said they are aiming to fix that.
After solid profit growth, General Mills will try to get sales growing again
The company's profit margin still strong despite two years of soft sales.
June 29, 2017 at 1:04AM
In announcing its latest results Wednesday, General Mills signaled it would ease its aggressive operating profit margin goals and make a new commitment to lift sales.
Under new Chief Executive Jeff Harmening, who has been at the helm since June 1, the company will cut prices and spend more on advertising, innovation and e-commerce — all with a goal of reviving revenue, which fell 3 percent in the March-to-May quarter and 6 percent for all of fiscal 2017.
"No, we were not super pleased with 2017," Harmening said. "We didn't take the wrong actions, but we did them at a pace that was very aggressive."
The trade-off from the sales push is that General Mills' operating profit margin in fiscal 2018 will be flat or up 1 percentage point. "We are really going back to a model that has worked for us for years, which is a balance of [sales] growth and [profit] margin," said Don Mulligan, the company's chief financial officer.
Investors — who have seen the company's full-year sales drop from $17.6 billion two years ago to $15.6 billion in the just-finished fiscal year — sent the company's shares up 1.6 percent Wednesday.
"It seems like they reset the base. The stock is up today, which seems to suggest people feel like we may have reached the bottom," said Brittany Weissman, a food industry analyst with Edward Jones. "It may take several years to see real growth, so thinking of next year as more of a rebuilding year."
Yogurt, which accounts for about 16 percent of its global sales, continues to be the biggest reason for caution. U.S. yogurt sales declined 22 percent in the latest quarter, a further erosion from a 10 percent decline from the year before.
On Monday, General Mills unveiled a new product, called Oui by Yoplait, that is the first step in the company's turnaround plan for the division. It is the company's answer to Greek yogurt and General Mills hopes to create an entirely new segment with a French-style yogurt that it says is thicker and less sour than Greek yogurt.
"When it comes to yogurt itself, our goal is to keep improving. Oui is the first step in that, but it's not the last step," Harmening said. "Will we get back to share growth this year? I suspect we won't. But we have to show we can innovate."
The Golden Valley-based company reported a net profit of $409 million for its fiscal fourth quarter that ended May 28, a 7.7 percent increase over the same period last year. Adjusted for one-time events, the profit amounted to 73 cents a share, beating analysts' forecasts of 71 cents a share. Revenue was $3.8 billion.
General Mills has used various cost-cutting measures, including a series of layoffs, factory closings and a global restructuring effort, to achieve higher margins. Last June, executives set high operating profit margin goals for the upcoming two years. The company just managed to hit its 2017 target of more than 18 percent on an adjusted basis.
Wednesday's announcement marked the first time Harmening faced investors as the new CEO and he took the opportunity to begin establishing his vision.
"I've been in the job about three weeks, and it's interesting when you run a 150-year-old company, you look back and see a number of inflection points," he said. "We are in one of those times of tremendous change and we are writing a new chapter in its history."
With news of Amazon purchasing Whole Foods still fresh, General Mills is bullish on the importance of e-commerce for its own long-term health, and it plans to make investments there this year.
"In the next five years, how food is distributed will clearly change," Harmening said. "There will be a variety of winners in the new world order just as there were in the old.
"Our sales online have broadly outperformed our sales in the store. So we feel good about our ability to win on e-commerce."
General Mills has strong relationships with Amazon and Whole Foods, he said. The company currently has the fourth largest share of the natural and organic foods market and is growing.
Regarding the new guidance, Alexia Howard, an analyst at Bernstein, said the new CEO has struck a cautious balance.
"The question from here will continue to be whether investments in innovation and marketing support can begin to sequentially improve top line performance, particularly in the U.S.," Howard wrote.
Kristen Leigh Painter • 612-673-4767
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