Why General Mills is feeling 'bullish' about future growth in US cereals

24-Mar-2016 - Last updated on 24-Mar-2016 at 11:57 GMT

Cereals relaunched in January have grown 6%, said General Mills

General Mills expects its cereals and snacks brands to drive growth in the business in the coming year – the second vote of confidence in the US cereals market from a major manufacturer in recent months.

Last month, Kellogg said it expected its US cereal sales to return to growth in 2016, and General Mills this week told analysts it was feeling “bullish” about its own prospects for cereals growth in the coming months.

IRI data for the overall US cold cereals market in 2015 shows value sales down 1.2% year -on-year to $8.9bn with volumes down 1.7% [52 w/e 27 December 2016].

And despite announcing a 2% year-on-year decline in both its cereals and snacks sales in its third-quarter results yesterday (March 23), General Mills said retail sales trends were improving in the cereal market.

Overall Retail segment down 7%

Overall sales of General Mills’ US Retail segment – which includes its snacks and cereals – fell 7% over the period to $2.48bn, with the sale of Green Giant to B&G Foods late last year driving five percentage points of the decline.

Speaking to analysts following publication of the results, Jeff Harmening, chief operating officer for US Retail, said product innovation and effective marketing activity had returned General Mills cereals to dollar share growth in recent months following a 0.7% decline in the first half of fiscal 2016 (see chart).

He added that the seven cereals relaunched in January with no artificial flavors, no colors from artificial sources, and no high fructose corn syrup - Trix, Reese’s Puffs, Cocoa Puffs, Golden Grahams, Chocolate Cheerios, Frosted Cheerios and Fruity Cheerios – had since posted 6% sales growth versus a 6% decline last year.

Nature Valley cereals up by a third

Nature Valley cereals had also been a key focus on innovation, Harmening said, contributing to 35% sales growth so far in 2016, following 44% growth in 2015.

General Mills did concede that some brands, including Fiber One and Chex, had shown a weaker performance than their stablemates over the period.

Harmening added that the business planned to keep the momentum in cereals going in the coming year, and that sales figures in Q4 would start to lap earlier issues with reduced display merchandising in a key customer.

Display headwinds

“I am bullish on our prospects for cereal growth,” he said. “We will start to lap some of the display headwinds in the fourth quarter. More importantly, we will continue to expand the impact of our renovation and new product news, and will invest in higher levels of advertising in the fourth quarter.”

Reduced display merchandising had also impacted Nature Valley bars in some retail channels, said Harmening, although merchandising had been more consistent in the grocery channel, where sales were up. He also said the recently launched nut butter bars has brought “excellent results”.

TV ad drives 45% Lärabar growth

General Mills said early response to the launch of Annie’s breakfast cereals had been encouraging, and said sales of Lärabar were up 45% year on year in February following the launch of the brand’s first TV advertising.

“We are encouraged by the performance of our cereals and grain snacks, and expect cereals and snacks to drive growth in the fourth quarter,” said Harmening.

The performance of the company’s snacks and cereals businesses were both flat over the nine-month period.

General Mills: overall business performance

General Mills’ overall net sales fell 8% to $4bn in the third quarter, including a three percentage point decline as a result of the sale of Green Giant to B&G Foods. On a constant-currency basis, net sales fell 4%. Total operating profit fell 3% to $679m, and was down 1% in constant currency.

“Our third-quarter financial results were in line with our expectations,” said chairman and chief executive officer Ken Powell. “We reported a decline in net sales as anticipated, primarily reflecting the Green Giant divestiture and continued foreign exchange headwinds.

“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.

Net sales through the first nine months of fiscal 2016 were down 5% to $12.6bn, including a one point decline from acquisitions and divestitures. On a constant-currency basis, net sales fell 1%.

Operating profit over the nine months was $2.3bn, up 5% year on year, and up 8% at constant currency.