General Mills reaffirms full-year 2015 growth targets
This morning General Mills reported financial results for the first quarter of fiscal 2015 and reaffirmed its constant-currency growth targets for the full fiscal year, but acknowledged conditions in the U.S. market are more challenging than expected.
In the press release issued this morning, Ken Powell, chairman and chief executive officer said, “Back in June, we said our 2015 plans anticipated first-quarter EPS below year-ago levels. Our results were driven by sales and profit declines in the U.S., where industry trends were weak in the quarter. In addition, higher merchandising expense for our U.S. Retail businesses in this period depressed reported net sales and gross margin.”
The company noted that product innovation and consumer-directed marketing plans, holistic margin management (HMM) cost savings and several incremental cost reduction actions are expected to drive improved sales and margin performance across the remainder of the year.
Here’s an overview of General Mills fiscal 2015 first-quarter results:
· Net sales totaled $4.27 billion, down 1 percent in constant-currency.
· Segment operating profit totaled $690 million, 15 percent below year-ago results as reported and in constant currency.
· Diluted earnings per share (EPS) totaled 55 cents. Adjusted diluted EPS totaled 61 cents.
· Net sales for the U.S. Retail segment declined 5 percent, while the International segment grew 6 percent on a constant currency basis, and the Convenience Stores & Foodservice segment grew 1 percent.
“Our key financial targets for the full 2015 fiscal year have not changed,” said Don Mulligan, executive vice president and chief financial officer. “We expect adjusted diluted EPS to grow at a high single-digit rate in constant currency from the base of $2.82 per share achieved in 2014.”
Ken and Don along with John Church, executive vice president for our Supply Chain, participated in a live webcast this morning to discuss the company’s results for the quarter.
Here’s a closer look at the remarks made today.
U.S. Retail: Growth in cereal, yogurt and snacks
The company made good progress on the U.S. priorities that Jeff Harmening outlined at the company’s Investor Day in July: continuing to lead performance in U.S. cereal, returning U.S. yogurt to growth, and maintaining strong snacks momentum. You can see Jeff talk about those priorities at Investor Day here.
In the cereal category, the company is working to bring more product news, better innovation and an increased investment behind consumer-directed marketing.
Ken said, “In total, our cereal category market share was up 30 basis points to 31 percent in the first quarter.”
He noted that consumers are responding to the added cinnamon taste in Cinnamon Toast Crunch with retail sales up 7 percent in the quarter. And initial results for new Cheerios Protein are encouraging – this new line reached a nearly 1 percent market share in August.
The yogurt business is also gaining momentum with net sales up 1 percent, retail sales up 3 percent and market share up a half point. In the first quarter, we expanded the Yoplait Greek Taste-off across America, with a notable stop in Minneapolis in August. Share in the Greek segment was up 240 basis points versus last year. And retail sales for Original Yoplait were up 12 percent in the first quarter.
The U.S. snacks division is also off to another good start this year, led by strong consumer-driven innovations including Fiber One Streusel bars, new Nature Valley products, LÄRABAR Renola and Food Should Taste Good gluten-free brown rice crackers.
Convenience Stores and Foodservice: Good growth from yogurt
Yogurt, frozen breakfast, snacks, biscuits, cereal, and mixes posted combined sales growth of 4 percent in our Convenience & Foodservice business. Ken noted that net sales for yogurt increased 34 percent, due to good growth from our Yoplait Greek and Parfait Pro lines, as well as the July introduction of Yoplait Go-GURT as an option in McDonald’s happy meals.
International: A good summer for Häagen-Dazs
Turning to international markets, it was a good summer for Häagen-Dazs in our Europe and Australasia region, fueled by our new Triple Sensations product line. The region posted mid single-digit net sales growth in constant currency.
In addition, Old El Paso’s line of Stand N Stuff tortillas and dinner kits is off to a great start – retail sales for the brand were up 12 percent in the latest quarter.
And Yoplait continues to grow, led by Liberté Greek-style yogurt in the UK and Yopa! high protein yogurt in France. “Yoplait’s year-to-date category share is up almost a full point in both markets,” said Ken.
Constant-currency net sales for Häagen-Dazs grew 9 percent in our Asia-Pacific region, driven by unique-to-Asia varieties like Classic Milk and Blueberries and Cream, and by continued expansion into new cities in China.
Sales of Wanchai Ferry frozen dim sum also increased in the quarter, thanks to expanded distribution as well as new flavors of dumplings.
In Latin America, constant-currency net sales increased by 20 percent, powered by another quarter of strong results in Brazil. Yoki’s Festa Junina merchandising event was a great success, which coincided with the world soccer championship this year. And our new Betty Crocker dessert mixes in Brazil are off to a good start. Early consumer and retailer feedback has been positive.
$400 million in savings expected from Holistic Margin Management efforts
John Church, executive vice president for Supply Chain, said the company expects our ongoing Holistic Margin Management efforts will generate more than $400 million in savings this year.
“We are continuing to deliver strong levels of HMM each year,” said John. “Back in fiscal 2010, we set a goal of achieving a cumulative $4 billion dollars in COGS HMM through fiscal 2020. I’m pleased to say we’re already halfway to our goal.”
Simply put, HMM calls on us to understand the drivers of value in our brands and to eliminate non-value added costs and activities. These cost savings allow us to protect our margins and reinvest in brand building and innovation, fueling growth.
“I have great confidence that by the time we get to 2020, we will have met – or possibly exceeded – our $4 billion dollar HMM goal,” he said.
In June, the company announced it had initiated several new cost-reduction projects designed to boost organizational efficiency and sharpen business focus behind the company’s key growth strategies, incremental to the company’s ongoing HMM program. This includes a formal review of the General Mills North American manufacturing and distribution network. The company said today that this initiative is expected to generate $100 million in annualized savings by fiscal 2017.
“Our number one objective in fiscal 2015 continues to be accelerating our topline growth. At the same time, we know we must always be working to reduce costs, streamline operations and improve efficiency across our worldwide business. We’ve got strong plans for both of these efforts,” said Ken.
Ken recently told the Star Tribune that innovation is the only way forward for General Mills and detailed how the company is making moves to capture the entrepreneurial spirit of a small company while harnessing the resources and talent of a big company, which begins with placing the consumer first.
You can read the story here.
The full financials are outlined in the press release issued this morning. In addition, the full webcast and presentation slides from today’s earnings announcement, including the highlights on how each of General Mills’ business segments performed is available on the Investors section of GeneralMills.com.
Editor’s Note: This post contains non-GAAP financial information and forward looking statements regarding future results. Please see our press release dated Sept. 17, 2014 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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