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Sep 21, 2016 • By

General Mills reports first quarter fiscal 2017 results

This morning General Mills released earnings results for the first quarter of fiscal 2017. The full financial results are detailed in this press release.

Overall performance was mixed for the first quarter. We made good progress on our 2017 adjusted operating profit margin expansion goal. Adjusted diluted Earnings Per Share (EPS) results reflected continued good progress on productivity and cost-savings initiatives.

However, net sales fell short of the company’s expectations. Challenges included macro environment, a difficult comparison to last year and a slower start to the year on certain businesses.

“We are taking actions to improve our net sales performance going forward, leveraging our Consumer First focus,” said Ken Powell, chairman and CEO. “At the same time, we have a number of encouraging examples across our global portfolio where our efforts to adapt to evolving consumer interests are driving positive results.”

This morning, Ken joined Don Mulligan, our chief financial officer, to summarize the company’s performance this quarter to financial analysts via webcast. You can listen to a replay here.

Here are five key takeaways:

Natural and Organic businesses are driving excellent growth

For the most recent three-month period, our nine natural and organic brands posted 12 percent retail sales growth across natural and traditional channels.

Ken said that Annie’s and LÄRABAR are key contributors to this growth. Annie’s has been continuing to expand distribution, enter new categories and increase household penetration. In fact, while presenting at an investor conference earlier this month, John Foraker, president of Annie’s, said more than 4 million new households enjoyed Annie’s products last year.

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In fiscal 2016, Annie’s expanded into new categories including cereal, yogurt and soup. In recent months, the brand has entered the baking mixes and refrigerated dough product categories.

Cereal renovation initiatives are going strong

While our net sales for U.S. cereal were down in the first quarter, Ken said our rolling 12-month Nielsen-measured cereal sales have shown a marked improvement from year ago trends, with our latest 12-month retail sales down just under one percent.

“We think we can continue to drive improvement in our cereal business by putting the consumer first and consistently delivering on their needs with innovation and renovation, just as we’ve been doing,” said Ken.

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Two key consumer first initiatives in cereal – Gluten-Free Cheerios and the removal of artificial colors and flavors from artificial sources – continue to post growth.

In the first quarter, retail sales for Gluten-Free Cheerios were up two percent and the products we have featured in our no artificial colors and flavors advertising campaign were up another three percent in the quarter. The success of Gluten-Free Cheerios also is benefiting the K-12 foodservice business and the cereal business in Canada.

We are investing in significant innovation and renovation in yogurt

We’re highly focused on improving our U.S. yogurt performance, and we believe that renovation and innovation are the keys to getting this business back to growth,” said Ken.

The company has a broad set of initiatives this year. Among them is a recipe change for Yoplait Kid yogurt, which is shifting to whole milk. Yoplait Original will start to tout its six grams of protein content on packaging in coming months. And Yoplait Greek 100 will up the protein content by as much as 40 percent come January, while improving the taste at the same time.

By the end of the fiscal year, 60 percent of the company’s yogurt portfolio will have been renovated.

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We also have recently entered the growing organic yogurt segment with a line of Annie’s yogurts available in cup, tube and tub packaging. And we’ve relaunched our premium Liberté line as certified organic.

And more new products will be launching soon to address the growing number of consumers interested in yogurt beverages, desserts and snacks.

Outside the U.S., Ken said General Mills is looking to build on our success with Yoplait in Shanghai by expanding to Beijing. 

We are meeting consumer interests in snacking around the world

While wholesome snacks like Nature Valley and LÄRABAR are performing in the U.S., we also are meeting consumer interest in snacking globally. In Canada, Europe and Mexico, Nature Valley bars are off to a strong start.

In AMEA (Africa, Middle East, Asia), Häagen-Dazs has introduced stick bars, which have been well received. In Brazil, retail sales for Yoki snacks were up five percent in the latest three months behind Yoki popcorn.

And in January, we’re bringing new renovation to Fiber One by removing artificial colors and sweeteners from our brownies line and varieties of chewy bars. We’ll also introduce two new layered chewy bars in flavors like salted caramel chocolate chunk and double chocolate almond.

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We reaffirmed fiscal 2017 full- year financial targets

Don said today that the company expects organic net sales growth to be between flat and down two percent. We’re targeting total segment operating profit growth of six to eight percent on a constant-currency basis. And we expect adjusted diluted EPS also will be up between six and eight percent in constant currency.

Don also said we are on track to deliver our adjusted operating profit margin goal of 20 percent by fiscal 2018.

In addition to a disciplined focus on Holistic Margin Management, and previously announced administrative and supply chain restructuring initiatives, we’re looking to drive benefits from several efforts, including trade and consumer spending efficiency and additional savings from supply chain and zero-based budgeting practices.

If you missed today’s webcast, you can listen to a replay here.

Editor’s Note: This post contains non-GAAP financial information and forward -looking statements regarding future results. Please see our press release dated September 21, 2016 for a reconciliation of these non-GAAP measures and for risk factors that could affect the results anticipated in these forward- looking statements.

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