Misstep in snack bar business drags General Mills' sales results

General Mills now sees it: Counting calories is out, macro-tracking is in.

The Golden Valley-based food company last year missed an opportunity with this dieting shift and is quickly working to address it by making changes to its Fiber One snack bars, which traditionally target weight-managing consumers.

Missing that trend, along with other missteps in its Nature Valley snacks, held down General Mills' fourth-quarter and full-year sales, dampening an otherwise positive report Wednesday and highlighting the precarious balance between sales growth and margin expansion that legacy packaged food companies are constantly seeking.

If last year was all about integrating Blue Buffalo pet products into General Mills, this year is all about growing organic sales, said Jeff Harmening, chief executive of General Mills.

Organic sales is a measure that excludes the benefits of acquisitions and other accounting anomalies. Big Food companies like General Mills have struggled to eke out true growth in this area as consumers increasingly move away from processed foods in search of better-for-you options.

Executives on Wednesday offered fiscal 2020 guidance, including a pledge to grow organic sales by between 1% and 2%. In its latest year ended May 26, organic sales were flat.

To get there, General Mills plans to spend money on its cereal and yogurt segments, both of which are showing positive momentum, and on its snack bars to get that business back on track.

Alexia Howard, an analyst with Bernstein Research, commended the company for being ahead on earnings per share but said in a research note that the conservative sales guidance "implies that the company is still pedaling hard to stand still on the base business."

Snacks are one of General Mills' "accelerator" platforms, a term management has given segments that most closely align with modern consumers and their preferences. As a result, the company banks on growth in those areas, so missing a somewhat niche dieting trend can have an outsized effect.

The company plans to launch a refreshed Fiber One product or package to address this trend toward "macros" — which goes beyond calorie counting by tracking the ratio of macronutrients like carbs, proteins and fats.

It will also do a better job of capturing the back-to-school marketing moment with its Nature Valley products, said Jon Nudi, president of North American retail at General Mills. Meanwhile, the company's natural brands, Larabar and Epic, performed well.

General Mills delivered better-than-expected adjusted earnings per share of 83 cents on a $570 million profit for the quarter and delivered on its full-year financial promises. But investors had hopes for slightly better revenue than the $4.16 billion reported and punished the company for missing it by sending its stock down nearly 4.5% on Wednesday.

The company's stock has been riding a wave of enthusiasm this year, up nearly 38% as of Tuesday and outpacing the S&P 500 by twofold as it rolled out Blue Buffalo pet foods at Walmart, the nation's largest retailer.

Blue Buffalo pet-food sales shot up 38% during its fourth quarter. This marks the end of Blue Buffalo's first full year under General Mills, and investors have long been eyeing these results as a measure for judging the $8 billion acquisition.

Investors, many initially tepid on the deal, have warmed to the idea after seeing sales growth and margin expansion in the business.

But the expansion into Walmart and other mainstream stores has upset Blue Buffalo's pet-specialty retailers who no longer benefit from its more exclusive partnership. On Wednesday, Harmening announced a new Blue Buffalo line, called Carnivora, which will launch in pet-specialty stores later this summer. It will be a more meat-centric line sold at a higher price.

"What we are seeing with consumers, particularly millennials, is they are looking for higher-quality products, and they are willing to pay for it," said Don Mulligan, General Mills' chief financial officer.

For the year, Blue Buffalo's sales rose 11% and its operating profit, excluding charges related to the deal that brought them together, also rose 11% on a pro forma basis.

Kristen Leigh Painter • 612-673-4767