5 highlights from our fiscal 2016 results
Today we reported results for the fiscal 2016 fourth quarter and full year. The company made notable progress to contemporize key areas of its portfolio to meet changing consumer food preferences, which helped improve topline momentum on a number of key businesses.
The full financials, which include results for the fourth quarter and the full year, are detailed in this press release.
In our earnings call with investors this morning, Chairman and Chief Executive Officer Ken Powell summarized the year:
“We made important progress strengthening our business model and bringing our Consumer First strategy to life in our brands in fiscal 2016. Most importantly, we returned the business to organic sales and operating profit growth, while continuing to drive improvement in free cash flow,” said Powell.
Ken said our renovation and innovation efforts were important across the company, and our productivity and cost-savings initiatives drove strong margin expansion, delivering profit and EPS ahead of our expectations.
“We also took important strategic actions to reshape our portfolio for growth, including the divestiture of the Green Giant vegetable business in North America, the expansion of our recently acquired Annie’s brand into new categories, the launch of Yoplait yogurt in China, and the acquisitions of EPIC Provisions meat snacks in the U.S. and Carolina yogurt in Brazil,” he said.
We’ll build on our 2016 successes, Ken added, by investing to grow where we have positive net sales momentum, taking clear Consumer First actions to establish a solid base for long-term growth on certain other businesses, accelerating our margin expansion efforts already in progress, and taking additional actions to optimize spending, reduce complexity, and prioritize profitable volume.
If you missed today’s webcast, you can listen to a replay.
I’ve also summarized today’s remarks into five key takeaways:
General Mills Cereal helped drive a category turnaround in the U.S.
After several years of decline, the U.S. cereal category grew in the fourth quarter of fiscal 2016 – thanks in no small part to the introduction of five gluten-free Cheerios varieties and the removal of artificial flavors and colors from artificial sources, from many General Mills cereals.
After declining 8 percent in fiscal 2015, retail sales for the renovated varieties of Cheerios – about 90 percent of the franchise – increased 5 percent in the second half of fiscal 2016.
And thanks to advertising behind seven cereals that now have no artificial colors and flavors, retail sales for those varieties increased 8 percent in the second half of fiscal 2016 – after declining 6 percent in fiscal 2015.
“Our cereal business has consistently strengthened throughout the year,” said Ken.
The increase in overall U.S. cereal category sales in the fourth quarter was small – just 0.1 percent – but significant given the decline in the category in recent years. And it underscores the effectiveness of our Consumer First strategy.
Ken said that in fiscal 2017, we’ll convert two more Cheerios varieties to gluten free and will continue to progress against our commitment to remove artificial colors and flavors.
General Mills is targeting 90 percent of its cereal portfolio to be free from artificial colors and flavors by next January. Today 75 percent of the portfolio meets this claim.
Renovation efforts this year have also benefited Cereal Partners Worldwide (CPW), our cereal joint venture with Nestlé. CPW exited the year posting 3 percent constant-currency net sales growth in the fourth quarter.
Similar to the U.S., performance was driven by product innovation and renovation, including good growth on its line of gluten-free cereal.
Global consumer interest in snacking benefited international markets
Snacking is a global phenomenon, and many of our snack products resonate with consumers in the U.S. and around the world.
In Europe, Häagen-Dazs ice cream grew 10 percent driven by the success of new stick bars. We plan to expand this innovation into new markets beyond France and introduce new flavors in fiscal 2017.
In AMEA (Asia, Middle East, Africa), sweet snacking is on trend and Betty Crocker cookie cakes are performing well.
And consumers in China continue to enjoy the thick, creamy texture of our premium Yoplait yogurts. Ken said the company plans to build on our successful launch in Shanghai and will expand Yoplait to Beijing in fiscal 2017.
We’re continuing to grow our Natural and Organic Portfolio, expanding Annie’s, growing LÄRABAR and adding EPIC Provisions
Our natural and organic portfolio had a strong year, with net sales up double digits.
We significantly increased distribution on Annie’s and brought the brand to new categories including soup, cereal and yogurt.
And LÄRABAR continues to post consistent double-digit growth, as it has since it joined General Mills eight years ago.
In January, we added EPIC Provisions. Our portfolio now includes nine natural and organic brands that generated $750 million in proforma net sales in fiscal 2016, putting General Mills well on its way to reaching its goal of $1 billion in net sales by 2019.
Convenience & Foodservice segment delivered strong operating profit.
For three years running, the Convenience & Foodservice segment’s six focus platforms, which include cereal, yogurt, snacks, frozen meals, biscuits and baking mixes, posted mid single-digit net sales growth.
Notably, innovation in K-12 schools drove results, with good performance from Pillsbury mini-bagels, pancakes and cheesy pull-aparts. Ken said these frozen meal solutions, which provide great convenience to foodservice operators, will benefit from expanded distribution in fiscal 2017.
General Mills returned $1.5 billion in cash to shareholders in fiscal 2016
We paid $1.1 billion in dividends and $435 million in net share repurchases in fiscal 2016. Chief Financial Officer Don Mulligan said that the company’s cost-savings initiatives generated $350 million in total annual savings. And he said we have good visibility to continued strong cost-savings over the next two years.
“As a result, we are increasing our total annual savings target to $600 million by fiscal 2018, up from the previous target of $500 million,” said Don.
He also said that we will implement further efforts in fiscal 2017 to optimize spending and reduce complexity to drive profitable growth. One result will be faster margin expansion.
“We now expect to achieve an adjusted operating profit margin of 20 percent by fiscal 2018, up from our previous target of 18 percent by fiscal 2020,” Don said.
Upcoming Investor Day presentation in New York
General Mills executives will detail the company’s plans for fiscal 2017 and share more news about our product innovation line-up at our Investor Day in New York on July 13, 2016. A webcast of that event will be available on the Investors page 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 June 29, 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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