General Mills net profit plummets 37% amid continued cereal woes

By Kacey Culliney contact

- Last updated on GMT

General Mills' US cereal sales dropped 3% for the first half of the year
General Mills' US cereal sales dropped 3% for the first half of the year

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General Mills has reported a significant slump in profits for its second quarter, pulled down by a tough environment in North America, particularly across breakfast cereals.

The food major pulled in $346.1m in net profit for the quarter, down on last year’s $549.9m. Overall sales were down 3.4% - pooling $4.7bn.

CEO and chairman of the board Ken Powell said General Mills had failed to deliver on its goal of accelerating sales growth.

“The operating environment remains challenging but as we move into the second half of our fiscal year, we expect to renew sales and profit growth and we will do that by innovating,”​ he told analysts on the company’s earnings call earlier this week.

Cereal woes

The US cereal portfolio faced continued difficulties with a sales drop of 3% in the first half of the year.

“We are not satisfied with that,”​ said Jeff Harmening, executive VP and COO of US Retail at General Mills. Although he said there had started to be “encouraging signs”​ in the category.

Product development around gluten-free with its Chex brand, for example, had worked well, he said.

Chex_gluten-free

“Chex was on a steady downward trend for most of the 2000s – retail sales declined to 50% between 2002 and 2009. But since fiscal 2010, when we began marking the brand as a gluten-free cereal, Chex has grown at a 10% compound rate.”​ And this growth, he said, was set to continue into 2015 as product development continued, including a Chex gluten-free oatmeal.

Granola had also seen success because of increasing consumer interests in products they perceive to be minimally processed, Harmening added. Sales of General Mills’ granola segment, which included Nature Valley and Cascadian farm, were up 10% over the past four years.

“Consumers are also looking for more protein options at breakfast,”​ he said – a demand the company had responded to with Cheerios Protein​ – and there was also a strong desire for great tasting cereals, prompting the re-launch of French Toast Crunch​.

“We know that when we understand our consumers, deliver product news that meets their needs and interest and then market that news effectively, our cereal brands grow,”​ Harmening said.

Bigger and better ideas

He said General Mills still had a lot of work to do on its cereals portfolio in the US, but if the big brands across the globe joined forces in innovating and executing great ideas the category could flourish.

Acquisition_merger_partnership

Even its Cereal Partners Worldwide (CPW) joint venture with Nestlé posted a net sales decline of 3% in the quarter. However, he said there were new products being rolled out and developed to improve that, such as gluten-free cornflakes​ and Fitnesse branded protein granola.

“We branded manufacturers need to bring renovation, innovation and advertising investment targeted to areas of consumer interest to grow sales for our business and the overall category,”​ he said.

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1 comment

Less Sugar, Less Sugar, Less Sugar! More Whole Grains

Posted by Susan Burke March, Registered Dietitian and Certified Diabetes Educator,

Here this clearly, General Mills...consumers are finally learning to read the nutrition facts labels, instead of relying on front-of-the-package fanciful pseudo health claims like "Whole Grain" on packages of Lucky Charms.

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