General Mills saw sales and profit suffer during “year of significant change”

By Gill Hyslop contact

- Last updated on GMT

General Mills reported a sales and profit decline in full-year and Q4 2017, mainly due to an aggressive cut back on promotions and advertising. Pic: General Mills
General Mills reported a sales and profit decline in full-year and Q4 2017, mainly due to an aggressive cut back on promotions and advertising. Pic: General Mills

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The Cheerios maker reported a dip in net earnings and sales during the fourth-quarter and full year 2017.

Net income in the fiscal year ended May 28 totaled $1.66bn, down 2% from $1.7bn in 2016.

Net sales were also lower, falling nearly 6% to $15.6bn from $16.56bn.

Likewise, fourth-quarter net sales fell, by 3% to $3.81bn, while organic net sales declined 3%.

Gross margin increased 40 basis points to 35.6% of net sales. Adjusted gross margin increased 50 basis points to 36.1%.

Operating profit totaled $2.57bn, down 5% from the prior year. Operating profit margin of 16.4% was up 10 basis points. Adjusted operating profit margin increased 130 basis points to 18.1%.

Total segment operating profit of $2.95bn was down 1%.

Restoring media spend

CEO Jeff Harmening, who took over in June, said, going forward, General Mills will be more competitive on pricing and concentrate on improving sales.

To limits its sales declines, it aggressively cut back on promotions and advertising, and media spend in 2017 was reduced to $624m, down from $754m the year prior.

However, this weighed on sales, and the Minneapolis-based company said in March it would slow down the pace of the pull back on promotions.

“Fiscal ’17 was a year of significant change for General Mills. We accelerated some important cost-savings efforts to improve our efficiency… but it’s clear some actions did not go according to plan,”​ admitted Harmening, adding “the vast majority”​ of challenges “are entirely fixable.

"We missed the mark last year on promotional spending. So, in fiscal 2018, our goal is to be in the zone on pricing during the key season,"​ he said.

Return to business as usual

During fiscal 2018, General Mills’ top priority is to make significant strides to return the business to sustainable top-line growth.

Jeff Harmening
Jeff Harmening

“Fiscal ’17 was a year of significant change for General Mills. We accelerated some important cost-savings efforts to improve our efficiency… but it’s clear some actions did not go according to plan.”​ 

Advertising and media spend will be increased, including a double-digit increase in outlay for the Nature Valley snack line – which is rolling out more than 20 new products – more emphasis on Fiber One, Larabar and Old El Paso, and campaigns in cereal.

“We’re getting behind coconut, one of the fast-growing flavors in snack bars, with the launch of toasted coconut Sweet & Salty nut bars and coconut butter Nature Valley Biscuits sandwiches,”​ said Harmening.

It will be introducing two new varieties of Pillsbury pizza dough, too.

The cereal strategy

The company also plans to grow its global cereal platform, including Cereal Partners Worldwide. It wants to leverage its wellness advantage by investing in a new campaign called “Good Starts With G”, accentuating clean label, whole grain, high fiber and gluten-free.

“For the digital component, we’re using precision targeting to tailor our messages to individual consumers, with an emphasis on Hispanic families and empty-nesters,”​ said Harmening.

Other advertising plans include Lucky Charms (which saw 3% sales growth in the US), Reese's Puffs cereal and Toast Crunch. Recently, certain varieties of Tiny Toast were rebranded under the Toast Crunch label and a new flavor launched.

For today and in the future

“We’ll also increase investment in capabilities like e-commerce and strategic revenue management, which are critical for growth today and will be in the future,”​ said Harmening.

"While we took important steps in fiscal 2017 to globalize our business structure, accelerate our cost-savings efforts, expand our margins and drive growth in adjusted diluted EPS, our results on the topline fell well short of our standards,”​ he added.

“Our entire organization is moving with urgency in fiscal 2018 to meaningfully improve our net sales trends while keeping a sharp eye on our efficiency."

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