General Mills retains focus on cost-cutting despite quarterly profit topping estimates
Q4 sales rose 2% to $3.9bn, while organic net sales were up 1%, reflecting the company’s efforts to reduce costs and improve distribution network.
However, it is maintaining its focus on lessening costs, announcing it is cutting 625 positions by the end of 2019.
The Golden Valley-based company had a total workforce of approximately 38,000 last year and made much bigger rounds of cuts several years back, as plant closures and other restructuring moves eliminated thousands of jobs.
According to CFO Don Mulligan, the layoffs are part of the company’s “resource agility. At the same time that these positions may be being reduced, we are adding roles in growth areas,” highlighting General Mills’ Asia, e-commerce and data-analytics businesses.
Exceeding analyst expectations
Although the company’s profit fell to $354.4m, or 59 cents per share (cps) for the three months ended May 27 – from $408.9m, or 69cpc a year earlier – adjusted earnings of 79cps was well above the 72cps expected by analysts.
“While our full-year profit results fell short of our initial plans, we finished the year delivering growth in sales, margins, profit, and EPS in the fourth quarter,” said CEO Jeff Harmening.
“I’m pleased with the continued progress we’ve made in cash generation, with our free cash flow up nearly 30% this year.”
The Cheerios cereal titan has been struggling to turn around its US yogurt business against competitors such as Chobani and Danone. To balance the playing field, Harmening said the company will be releasing new line-ups in 2019 to its Totino’s hot snacks, Betty Crocker desserts and Wanchai Ferry dumplings brands, among others.
Full year highlights
- Net sales rose 1% to $15.7bn; organic net sales were flat
- Operating profit dropped 2%; total segment operating profit decreased 6%
- Operating cash flow increased 18% to $2.8b; free cash flow increased 28% to $2.2bn
Recently, the company has tried to bolster its business with a move into pet food. In April, it bought pet snacks maker Blue Buffalo Pet Products for $8bn, as sales in the pet-food aisle showed a faster growth than those of established package foods.
More prudent approach
“Though F4Q18 results came in better than modelled, we think the main focus will be on FY19 guidance – which appears to suggest that the company still sees the coming year as one that still requires significant reinvestment while also facing greater cost headwinds,” said Andrew Lazar, senior analyst of Packaged Food at Barclays.
“In our view, while this may not do much for the stock in the very near term, we do think starting the year with an appreciation for the necessary reinvestment is a much more prudent approach.”