General Mills to expand free-from range as cereal sales return to growth

By Vince Bamford contact

- Last updated on GMT

Sales of the renovated Cheerios rose 5% in second half of fiscal 2016
Sales of the renovated Cheerios rose 5% in second half of fiscal 2016

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General Mills has unveiled NPD plans including new gluten-free Cheerios and natural products as it looks to maintain growth in its cereals business.

The company said its improved cereals performance had been driven by renovation activity including the introduction of five gluten-free Cheerios varieties last year and removal of artificial flavors and colors from artificial sources from seven of its cereals.

Reporting its full-year financial results (ending May 29, 2016), General Mills said retail sales of its US cereals had grown 3% year on year in the fourth quarter [Nielsen]. They had declined 3% in the first half of the fiscal year and had been down 1% in the third quarter.

In its financial summary, the business reported a 1% year on year decline in full-year sales from its US cereals division, to $2.3bn.

The Nielsen data cited by General Mills showed overall category sales for US cereal were up – by just 0.1% year on year – in the fourth quarter following decline in the rest of 2016. Full-year data for 2015 had shown a 3.2% drop compared with the previous year.

General Mills reported that sales of the gluten-free Cheerios – which account for about 90% of the Cheerios brand - had risen 5% year on year in the second half of fiscal 2016, versus an 8% decline in 2015.

And sales of the seven cereals no longer containing artificial flavors or colors were up 8% in H2 2016, compared with a 6% decline in 2015.

General Mills: FY results snapshot

Net sales:​ -6% to $16.6bn

EPS:​ Adjusted diluted EPS $2.92, up 2% year on year

Operating profit:​ $2.7bn, up 30% year on year

Profit margin:​ Adjusted operating profit margin up 90 basis points to 16.8% of net sales. 

The US cereal category has improved considerably since last year​,” said General Mills chairman and chief executive officer Ken Powell. “This is being driven by stronger innovation and renovation aligned with current consumer interests​.

General Mills has been a key contributor to the turnaround​,” he added. “Our cereal business has consistently strengthened throughout the year​.”

Powell announced activity planned for the cereal portfolio in the coming year, including the roll-out of the previously announced​ new cereal brand Tiny Toast. General Mills will:

  • Convert two more Cheerios varieties to gluten-free
  • Remove artificial flavors and colors from five additional cereals
  • Launch three more varieties of Annie’s cereals

We have a strong media plan in place, with cereal investment up mid-single digit​,” he said. “And we will focus on optimizing merchandising and driving positive net price realization for our cereal business​.”

GM cereal trends

General Mills also reported growth in its snack bars, with Nature Valley sales up 4% in the second half of fiscal 2016 versus 1% growth in the first half.

Nature Valley had benefited from activity including a new ‘easier to bite’ recipe designed to answer the number one consumer complaint about the brand, said the company. General Mills has also promoted the brand’s use of no artificial flavors, colors or sweeteners.

Activity planned for Nature Valley in the coming year will include:

  • Renovating the packaging on Nature Valley bars
  • Launching new flavors of Nature Valley nut butter biscuits
  • Introducing Nature Valley Backpackers - oatmeal snacks geared toward school-age kids
Nature Valley

General Mills will also focus on growing its natural and organic business, boosted this year by the acquisition of meat snacks brand Epic Provisions.

This will include a “full slate of plans for Annie’s​” said Powell, including new yogurt and soups in addition to the cereals NPD.

General Mills secured double-digit distribution growth for Annie’s in 2016 and is aiming to repeat this in 2017.

General Mills financial results: we’ve made important progress

GM brands

General Mills has reported a 6% decline in full-year net sales to $16.6bn – blaming the drop on factors including foreign exchange headwinds and the sale of its Green Giant business in North America.

Foreign currency exchange had reduced net sales growth by four percentage points, said the company, with sales down 2% year on year on a constant-currency basis. It added that acquisitions and divestitures accounted for 2% of sales decline.

Total segment operating profit fell 1%, while operating profit was up 1% on constant currency.

Organic sales growth

"We made important progress strengthening our business model​," said General Mills chairman and chief executive officer Ken Powell. "Most importantly, we returned the business to organic sales and operating profit growth, while continuing to drive improvement in free cash flow​." 

General Mills said its gross margin increased 150 basis points, with cost savings initiatives more than offsetting 2% input cost inflation. Selling, general, and administrative expenses decreased as a result of cost savings including an 8% decrease in advertising and media expenses, it added.

Renovation and innovation

Powell added that renovation and innovation had helped improve “topline momentum​” in many of its businesses.

Important strategic activity to reshape the General Mills portfolio had included selling the Green Giant vegetable business in North America, expansion of the Annie's brand into new categories, the launch of Yoplait yogurt in China, and the acquisitions of meat snack brand Epic Provisions in the US.

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