General Mills misses Q1 2018 profit as cereal sales fall

By Gill Hyslop

- Last updated on GMT

General Mills reported a decline in profits, which, according to CEO Jeff Harmening, was in line with expectations.
General Mills reported a decline in profits, which, according to CEO Jeff Harmening, was in line with expectations.

Related tags General mills Cereal partners worldwide

Cheerios maker General Mills reported a smaller-than-expected profit for the first quarter ended August 27, hurt by a 7% decline in sales by its US cereal operating unit.

The Minneapolis-based company also noted its US yogurt sales recorded a double-digit drop, as demand for its Yoplait products remained weak.

US snacks sales fell 2% in the quarter, with declines on Fiber One (-20%) partially offset by growth on Lärabar (+33%) and Nature Valley (+8%).

US baking sales were flat.

GM ...

Profits down

General Mills’ profits fell 1.1% to $404.7m (from $409m a year earlier), or 69 cents per share, short of Wall Street expectations of 71 cents per share.

Total segment operating profit totalled $664m, down 16% on a constant currency basis.

Revenue dropped 3.5% to $3.76bn, also short of analyst projections of $3.79bn, while organic net sales declined 4%.

The decline in sales in its cereal business in North America reflect a reduction in customer inventory levels and the timing of trade expenses, said the company.

The US packaged food sector is facing pressure as consumers swing from frozen, packaged food to fresh, organic products.

As expected

Despite the decline, General Mills CEO Jeff Harmening said net sales finished in line with expectations.

“We anticipated a slow start to the year on the bottom line, and we continue to expect sequential improvement in profitability in the coming quarters,”​ he said.

“We’re confident with the direction that we’re headed,”​ he said.

CFO Don Mulligan said the company will focus on four global growth priorities next year: Growing cereal globally, including Cereal Partners Worldwide; investing in growth opportunities in snack bars, Old El Paso, Häagen-Dazs and its portfolio of natural and organic food brands; improving US yogurt through innovation; and pumping additional investment into foundation brands.

Product innovations

GM Chocolate and Peanut Butter Cheerios

For example, General Mills will be launching Chocolate and Peanut Butter Cheerios in the US in October.

“Consumers love chocolate and peanut butter flavor cereals … these two flavors combined to generate almost $0.5bn of US cereal category retail sales and are growing,” ​said Harmening.

There are also seasonal launches planned, including reintroducing the successful Pumpkin Spice flavor launched last year, as well as a new Banana Nut Cheerios.

Asia will see the launch of several new flavors for Häagen-Dazs, including green tea and Azuki, as well as the launch of mooncakes in time for the mid-autumn festival in China.

In fiscal 2017, General Mills generated net sales of $15.6bn, as well as another $1bn from its share of joint-venture net sales.

At a glance: Q1 2018 financials

  • Net sales declined 3.5% to $3.76bn from $3.9bn a year ago.
  • Operating profit declined 3.1% to $625m from $645m.
  • Diluted earnings per share (EPS) increased 3% to $0.69.
  • Operating cash flow increased 59% to $590m; free cash flow more than doubled to $474m
  • Reaffirms fiscal 2018 full-year outlook down 1%-2%, which, according to Mulligan, “translates to a 200-300 basis point improvement over our fiscal ’17 performance.”
  • Expected adjusted diluted EPS up 1%-2% in constant currency.

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