Rebound in cereal sales critical for General Mills

General Mills and the entire packaged food industry have been stagnating for several quarters, but Mills executives Tuesday told a confab of stock analysts that better times are ahead.

"The operating environment has been challenging in recent years, but there are signs of improvement," said General Mills CEO Ken Powell, kicking off the annual Consumer Analyst Group of New York meeting in Boca Raton, Fla.

The U.S. economic recovery is strengthening and disposable income is expected to increase, Powell said.

Sluggish wage growth, a punch in the gut to the mass of U.S. consumers, has hurt the packaged food industry. But so have evolving consumer tastes, as some shoppers have moved away from processed food.

Just last week, Kellogg posted a grim quarter and lowered its annual revenue forecasts. Campbell Soup, ConAgra Foods and J.M. Smucker also lowered their earnings outlooks last week.

General Mills cut its 2015 fiscal year outlook in November. The company's profits and sales have both declined over the first half of its fiscal year. General Mills is expected to report third quarter earnings in March.

Critical for both General Mills and Kellogg is a rebound in cereal, a roughly $10-billion-a-year U.S. business that has been in decline in recent years. Mills executives themselves have blamed the malaise partly on a lack of innovation by cereal makers.

There's also been much made by food industry watchers that a key market — the millennials — is turning away from cereal.

But Jeff Harmening, head of General Mills U.S. retail foods business, told stock analysts that such observations were made 20 years ago, too, yet cereal continued to prosper.

"We expect our U.S. cereal business to be a source of growth for General Mills for years to come, " he said.

Mike Hughlett • 612-673-7003