General Mills profits plunge 25% but 2015 growth targets will be kept

By Kacey Culliney contact

- Last updated on GMT

Related tags: General mills, Cheerios

General Mills CEO: '…We’re staying with our guidance because that’s the way the business looks to us right now as we look forward, but we do acknowledge that the environment is more challenging'
General Mills CEO: '…We’re staying with our guidance because that’s the way the business looks to us right now as we look forward, but we do acknowledge that the environment is more challenging'
A tough operating environment with softer retail trends saw General Mills’ net profit plunge for the first quarter of FY 2015, but its CEO remains certain growth targets will be met.

The cereal giant closed with net profits of $345.2m for Q1, 2015 ending August 24 – down 24.8% on the previous year. Net sales were also down 2.4% on the previous year’s quarter pegged at $4.27bn.

Ken Powell, CEO of General Mills, acknowledged the quarter had been tough.

“The operating environment for food and beverage companies remains quite challenging and trends weakened for some markets in the latest quarter. However, we’ve not changed our 2015 growth targets,”​ he told analysts on yesterday’s earnings call.

The company expected mid single-digit growth in net sales and operating profits, he said, and would recover over the next three quarters.

“…We’re staying with our guidance because that’s the way the business looks to us right now as we look forward, but we do acknowledge that the environment is more challenging, so there is some risk around that profile.”

Innovating out of the drag

Trade had been the primary issue for Q1, he said, but was a factor that should normalize over the coming months. In addition, he said some of the bigger volume drags would strengthen and areas of positive momentum in certain parts of the business would continue.

“We continue to see strong opportunities for our brands. Our number one priority is to find those opportunities and leverage them to accelerate our topline growth.”

Asked by an analyst how General Mills would work to get out of “the fairly self-destructive pattern of heavy promotional spending”​, Powell said R&D would be the focus.

“… I think all the roads lead to higher levels of innovation. I’m continuing to focus on brand renovation; making sure that we have the right level of messaging behind our core brands and new products.”

It was ultimately innovation and capitalizing on consumer trends that stimulated higher levels of growth, he said. “The reason we’re so certain of that is because we see that when we get that formula right, we get a very marked response from consumers.”

General Mills, for example, had made changes to Cinnamon Toast last quarter – adding more cinnamon taste – and retail sales for this brand were up 7% in Q1.

US cereal still challenging

While the US cereal category remained challenging, Powell said General Mills was committed to introducing more new products, improving innovation and increasing investment behind consumer-directed marketing – steps every branded cereal player should be taking.

General Mills had upped its media investment in Honey Nut Cheerios, for example, and launched Cheerios Protein in June​ which was “off to a very strong start”,​ he said.

Powell said the company was encouraged by growth over the past few weeks but would remain focused on executing innovation and brand renovation, as well as driving forward strong consumer programs.

“We like the plans that we have and that’s why we feel confident right now about maintaining guidance,”​ he said.

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