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General Mills looks to China as profits slump 28%

By Oliver Nieburg , 21-Dec-2011
Last updated on 21-Dec-2011 at 13:38 GMT

General Mills profits fell 27.5% in its second quarter results as the company said it was eyeing investment in China to improve its fortunes.

The company’s net earnings for Q2 were €338.3m ($444.8m), a steep decline on earnings for the same quarter last year of €466.9m ($613.9m).

General Mills said in its financial release that “Gross margin as a percent of net sales was below year-ago levels due to higher input costs and the change in business mix to include the Yoplait acquisition.”

China strategy

The company said sales were up 15% in Asia and announced plans to construct an R&D centre in Shanghai, China to drive growth through product innovation.

Chris O’Leary, General Mills COO and executive vice president said: “International has led company growth over the last decade.”

“We will continue to increase scale in emerging markets, including continued strong levels of investment in China,” he said.

Financial results

The company’s operating profit fell 12% from €625.9m ($822.9m) to €545.2m ($716.9m) while Net sales during the quarter rose around 13% from €3.08bn ($4.06bn) last year to €3.51bn ($4.62bn) this quarter.

Snacks were one of the strongest performers with net sales up 18%. Grain snacks were a particular highlight with retail value sales up 26% on same quarter last year, which included strong performance from the firm’s Fiber One brand.

International

The company saw its strongest growth outside the US with its International business recording €882.2m ($1.16bn) net sales, a rise of 55% compared to just 3% growth in its US retail segment.

According to O’Leary over half of General Mills’ 15,000 employees now work outside the US.

He added that performance for Pasta Master in Australia, following General Mills’ acquisition of the company in December 2010 was “exceeding expectations”.

According to O’Leary, the company’s takeover of yoghurt business Yoplait had also significantly increased the General Mills’s scale outside the US.

“Our Europe sales essentially doubled with the addition of this business,” he said, pointing to strong performance in France.

He added that there were plans to grow the company’s cereals business to build on its 23% global share of the global market through a partnership with Nestle.

He said that more would be revealed from Christi Strauss, the company’s CEO for Cereal Partners Worldwide at the 2012 Cagny conference in February.

The company is expecting growth in 2012 in Mexico, Brazil and Turkey in this category, he added.

Product launches

General Mills also announced plans to launch 50 new products throughout the remainder of its fiscal year, which ends 27 May 2012.

The launches include many new varieties to its snacks brands which it hopes will help keep momentum going in this category into the next financial year.

Further details on the new products can be found on the company’s blog here .

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