General Mills reports third quarter fiscal 2016 results
Today General Mills reported results for the third quarter of fiscal 2016. As noted in our press release, results for the quarter were in line with our expectations.
On a reported basis, net sales of $4 billion were down 8 percent, due in part to the divestiture of the North American Green Giant business and unfavorable foreign currency exchange. Operating profit of $586.3 million was up 9.1 percent and diluted EPS totaled 59 cents, an increase of 5.4 percent.
Ken Powell, chairman and CEO of General Mills, summarized the quarter by saying:
“Our third-quarter financial results were in line with our expectations. We reported a decline in net sales, as anticipated, primarily reflecting the Green Giant divestiture and continued foreign exchange headwinds,” said Powell. “Constant-currency segment operating profit was down modestly, as our cost savings efforts more than offset the impact of the Green Giant sale. Our disciplined financial management has enabled us to expand our adjusted operating profit margin for the fifth consecutive quarter while still investing in Consumer First renovation and innovation news.”
Following the release of today’s results, Ken along with Don Mulligan, chief financial officer, and Jeff Harmening, chief operating officer for our U.S. Retail segment, detailed the quarter for financial analysts through our quarterly webcast.
Here are the top takeaways from the call.
Harmening: Product renovation and innovation initiatives are working in our cereal business.
Jeff said retail sales trends in the cereal category have been improving so far this fiscal year, and we have returned to share growth in recent months.
And our biggest renovation initiatives are driving results. Most notable, retail sales for Gluten-Free Cheerios are up 2 percent, after declining high single digits last year.
And since we began marketing no artificial flavors and colors news on seven of our cereals – including Reese’s Puffs, Trix and Golden Grahams – Jeff said retail sales for these varieties have increased 6 percent after posting a 6 percent decline last year.
Cinnamon Toast Crunch is also continuing to benefit from last year’s “more cinnamon” renovation, delivering 8 percent retail sales growth so far this year on top of 8 percent growth a year ago.
And on-trend innovation from the Nature Valley cereal franchise – which includes protein granola, ready-to-eat cereal, muesli, granola bites and oatmeal – is contributing to strong retail sales, up 35 percent so far this year.
Harmening: LÄRABAR and Annie’s have contributed to double-digit net sales growth for our U.S. natural and organic business.
Jeff said LÄRABAR is posting exceptional growth behind the brand’s first TV campaign. Since the campaign began airing, retail sales are up more than 40 percent. He also said Annie’s performance continues to accelerate, with strong retail sales and distribution growth.
“In January we launched a whole milk, organic Annie’s yogurt into one of the fastest growing segments in the category. We think Annie’s all-family appeal and strong organic brand equity will bring new consumers to the shelf,” said Jeff.
Annie’s will be launching three new cereals in coming months.
Powell: Constant-currency net sales are up 2 percent so far this year for our International segment.
Foreign currency exchange impacted net sales, which declined 12 percent as reported over the nine month period.
Ken said that in Europe sales are up 1 percent in constant currency fiscal year to date, led by good performance on Häagen-Dazs ice cream and Old El Paso products.
In Canada, sales growth has been impacted by the Green Giant divestiture. However, our grain snacks business is seeing positive growth driven by new product launches like Nature Valley Nut and Seeds bars and Fiber One Crumble bars.
Ken also said that performance in emerging markets strengthened in the third quarter. Wanchai Ferry contributed to improved performance in China, where net sales were up low single digits thanks to good performance on Rainbow Tang Yuan dim sum products during the Chinese New Year.
Sweet snacking is leading growth in our Asia, Middle East and Africa region, where we have launched new Betty Crocker cookie cakes and fruit flavors of Häagen-Dazs ice cream.
In Brazil we posted high single-digit net sales growth in the third quarter, with good performance on our snacks business, benefits from pricing, and incremental contributions from Carolina yogurt.
Mulligan: We continue to return significant cash to shareholders.
Don said through nine-months General Mills has spent $602 million in share repurchases and has paid $795 million in dividends. On March 8, we announced a dividend increase of 4.5 percent, payable May 2, marking the seventh time we have increased our quarterly dividend rate since 2010.
He also gave an update on our cost-savings initiatives.
“We have good visibility to achieving $400 million dollars in cost of goods sold HMM (Holistic Margin Management) savings this year. And we continue to make progress toward our goal of $500 million dollars in savings from incremental projects by fiscal 2018,” Don said.
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 March 23, 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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