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General Mills’ earnings take a plunge amid price war

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Gill Hyslop

By Gill Hyslop+

23-Mar-2017

Cheerios maker General Mills reported a drop in sales amid a price war with competitors. Pic: ©iStock/Sydney Manuel
Cheerios maker General Mills reported a drop in sales amid a price war with competitors. Pic: ©iStock/Sydney Manuel

The Cheerios maker reported its seventh straight decline in quarterly sales, with a 5% decline in sales for Q3, due to gaps in pricing and increased promotional activity.

According to COO Jeff Harmening, pricing has been one of the company’s biggest challenges so far this year.

It has been offering fewer discounts on products such Pillsbury dough to boost margins, while its rivals have slashed their prices to gain shelving space.

“We haven't been as competitive in pricing as we could have been," Harmening said.

However, chairman and CEO Ken Powell said results for the third quarter ended February 26, 2017 “finished in line with our expectations and keep us on track to deliver the guidance we updated last month".

Global restructure

Don Mulligan, General Mills’ CFO, reported the company’s net sales were down 5% to $3.8bn; total operating profit decreased by 2% to $662m; and net earnings slumped 1% to $358m.

This was essentially due to charges related to the recent global regorganization.

Late last year, General Mills announced a new global organisation structure.

The company now operates under four business segments, including North American Retail; Convenience Stores & Foodservice; Europe & Australia; and Asia & Latin America.

“We’ve combined our US retail and Canada businesses into a North American Retail segment due to their similar product portfolio and go-to-market structure,” said Mulligan, noting that NA Retail is the largest segment representing roughly two-thirds of company sales.

The company reported NA Retail saw an 8% decline in organic sales in the quarter because of sales dips for refrigerated bakery products, soup and yogurts.

Healthy cereals; healthy messages

President and COO Jeff Harmening said, globally, the company’s cereal business is improving.

“It’s growing in Canada, Cereal Partners Worldwide, and in US food service outlets,” he said.

He reported the company has ramped up the activities for its taste and wellness communications, including the gluten-free message on the Cheerios franchise, and the whole grain message on a variety of cereal brands.

The Nature Valley snacks maker also reported good growth on US snacks, with strong sales from innovation and strong distribution gains, said Harmening.

“We expect to see improvement in the fourth quarter for our North America Retail segment driven by increased contributions from our product innovation and core renovation efforts and increased consumer and trade support on key businesses like cereal, snacks, Old El Paso Mexican products and Tortino's hot snacks,” said Harmening.

“Our plans for next year will balance stronger product news, define our global growth priorities, refined levels of investment across our categories and continued margin expansion,” added Powell.

General Mills expects organic net sales will decline approximately 4% for full-year fiscal 2017.

The company had forecast flat organic net sales to -2% for the period when it reported its fiscal 2016 results in June last year.

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