General Mills reports second quarter fiscal 2016 results
After a strong first quarter, the company reported a modest net sales decline in constant currency for the second quarter, due in part to the sale of our North American Green Giant business. And General Mills delivered another quarter of margin expansion, which helped drive a mid-single digit increase in adjusted diluted earnings per share on a constant-currency basis.
As noted in our press release, General Mills’ first-half financial results were in line with our expectations.
General Mills Chairman and CEO Ken Powell said, “Our first-half results keep us on track to deliver the targets we outlined at the beginning of the year, adjusting for the Green Giant sale. Our emphasis on Consumer First drove positive results in a number of categories and markets, and we plan to expand the impact more broadly in the second half in order to strengthen our retail sales performance. At the same time, we are committed to driving efficiency in our businesses and expanding our margins. The incremental actions we took in the first half of the year have enabled us to increase our overall cost savings target to $500 million by 2018.”
On this morning’s webcast with investors, Ken was joined by Don Mulligan, chief financial officer, and Chris O’Leary, chief operating officer for our International segment.
Here are the key takeaways from today’s call:
Ken Powell: We like the improvement we’re seeing in our U.S. categories in the first half.
Retail sales in aggregate across our categories are up one percent in the first half of fiscal 2016 after being flat in fiscal 2015. Ken said the largest driver of improved category performance has been cereal, where declines have moderated.
“Our top priority in U.S. Retail this year is to drive growth in cereal and the launch of gluten-free Cheerios is an important component of our plans,” said Ken. “We’ve been encouraged by the results thus far.”
Gluten-free Cheerios varieties have posted baseline sales growth in recent months and will continue to build momentum with advertising and merchandising efforts in the back-half.
Ken Powell: We have solid plans to strengthen retail sales in the second half with new product innovation, renovation and promotions.
In the U.S., Nature Valley will launch Baked Oat Bites, two varieties of Oat Clusters cereal, and two Granola Crunch cereals in cinnamon and oat and honey flavors.
Plus, we’ll introduce Annie’s organic yogurt and new varieties of Yoplait Plenti Greek yogurt with Oatmeal.
In China, we’ll launch new rainbow colored Tangyuan dim sum in time for Chinese New Year, and rose-themed ice cream creations from Häagen-Dazs for Valentine’s Day.
Also, in the back half, our Cereals team will promote its “No artificial colors and flavors” initiative and we’ll have higher levels of merchandising, including a great slate of movie equity promotions like Star Wars.
Chris O’Leary: Innovation is driving growth across developed and emerging markets.
“We’ve driven excellent results in developed markets, we’re focused on delivering improvement in Brazil and China, and we expect to continue generating strong growth in the rest of our emerging markets in the second half,” said Chris.
In Europe, first-half constant currency net sales are up two percent, and outpacing the market thanks to growth in Old El Paso Mexican products and Haagen-Dazs stick bars.
And in Canada, new product innovation including Chocolate Lucky Charms, Nature Valley Nut and Seed bars and Fiber One Crumble bars are contributing to constant currency growth in the first half of the year.
In emerging markets, Chris said we continue to experience headwinds in China and Brazil, but we’re seeing strong growth in markets like Mexico, India and the Middle East. In Mexico, Nature Valley and the newly launched Fiber One grain snacks are doing well. We’re gaining distribution on Pillsbury cake mixes and new chocolate spreads in India.
And in the Asia, Middle East, Africa (AMEA) region, the popularity of sweet snacks, like the Betty Crocker cookie cake, is contributing to good results.
Don Mulligan: Excluding the impact of Green Giant, we remain on track to deliver our original fiscal 2016 growth goals.
General Mills today updated its full-year fiscal 2016 growth targets to include the impact of the sale of the North American Green Giant business.
“Adjusting for the impact of the Green Giant sale, we now expect net sales to be down low single-digits, total segment operating profit to be flat to last year, and adjusted diluted earnings per share to grow at a low single-digit rate,” said Don.
Don also said the company remains on track to deliver $400 million in cost of goods savings in fiscal 2016 and continues to make good progress against the company’s incremental cost savings initiatives. The company has increased its fiscal 2017 cost savings target to $450 million dollars, and is now targeting $500 million dollars in savings by fiscal 2018.
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 December 17, 2015 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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