General Mills Q1 report buoyed by small gains in cereal, refrigerated dough and snack bars

By Kristine Sherred

- Last updated on GMT

General Mills' CEO Jeff Harmening said innovation is a key growth driver for cereal, noting that Blueberry Cheerios and Cinnamon Toast Crunch Churros snagged two of the top-five new products in the category this quarter.
General Mills' CEO Jeff Harmening said innovation is a key growth driver for cereal, noting that Blueberry Cheerios and Cinnamon Toast Crunch Churros snagged two of the top-five new products in the category this quarter.

Related tags General mills Pillsbury company Cereal Cereal bars Snack bars Earnings Call Fiscal year Yoplait Yogurt Baking

The cereal giant reported a 2% drop in net sales, but CEO Jeff Harmening emphasized the slow-but-steady growth of its cereal, yogurt and snacks divisions in North America retail.

Net sales fell to $4bn, but General Mills reaffirmed its outlook for 2020, which expects modest gains of 1% to 2%.

Operating profit jumped 10% to $662m due in part to a lower effective tax rate and net interest expense, according to the company. Net earnings also spiked by a third to $521m for the quarter.

“We are making clear progress in becoming a nimbler, more consumer-connected General Mills,” ​said Harmening. That strategy involves focusing on innovation, ‘effective’ consumer marketing and in-store merchandising. It also doubles down on four specific subsets of its core categories, including snack bars, Old El Paso products and its selection of natural and organic brands, like Nature Valley and Lärabar.

Cereal still relevant to General Mills

The cereal sector “maintained positive momentum,”​ said Harmening, gaining 1% in sales in the first quarter of the company’s 2020 fiscal year. Its cereal segment had likewise enjoyed steady growth in the past two years.

General Mills carried the top five new products in the category, he added, noting Blueberry Cheerios​ and Cinnamon Toast Crunch Churros. The kid-favorite brand underwent a refresh this summer that introduced a new ‘Cinnamoji’ mascot and invited consumers to experience the new look at a pop-up experience in New York City​.

“I am very pleased by our performance in US cereal, and I’m excited about the plans for the rest of the year to continue our momentum,”​ said Harmening in a conference call with investors. “We’re executing well on the fundamentals of innovation and brand-building, and we’ll continue to drive these levers in the rest of the year.”

Nature Valley unveiled these wafer bars in 2019, a triple-layered snack bar with peanut butter (or chocolate) and granola.

Through Cereal Partners Worldwide (a collaboration with Nestlé), General Mills also enjoyed a boost from products such as the caramel and chocolate-flavored Lion cereal and Nesquik’s chocolate alphabet cereal. Net sales in that segment jumped from $18m at this time last year to $22m.

Snacking key part of General Mills’ future

The US snacks business continues to grow, said Harmening, but it was not without challenges in fiscal year 2019. Over the next year, General Mills will focus on updating brands for the modern consumer, product innovation, brand-building support and in-store campaigns.

Nature Valley, for instance, caught consumers’ eyes heading into the school year with its new wafer bar. Post-reformulation, the Fiber One brand has rekindled a conversation with ‘modern weight managers,’ said Harmening, adding that snack bars, in general, continue to grow.

Yogurt plays a role in that snacking game, too. General Mills has focused on improving recipes and branding for its Yoplait Light line and also launched a new product, Yoplait Smoothies. Go-Gurt remains a perennial school-year favorite, according to Harmening, with ‘strong’ back-to-school merchandising and product innovation: the line now features ‘Dunkers’ and ‘Simply,’ the latter of which contains no added colors or high fructose corn syrup. 

Refrigerated dough good for meals and baking

Pillsbury's Place & Bake brownie mix is one of the refrigerated products performing well for General Mills.

General Mills’ $4bn meals and baking unit – which includes iconic brands like Betty Crocker, Bisquick, Pillsbury and Gold Medal – lost 1% in sales. There were some bright spots, however, with refrigerated dough gaining 2%, attributed to successful innovation and in-store execution.

Old El Paso has also provided a much-needed boost, with sales up 5%, thanks to increased distribution and consumer-focused products.

Together, this division is off to “a good start,”​ said Harmening, adding he was encouraged by first-quarter results in North America.

General Mills stumbles in Europe, LATAM and Asia

European sales have sunk 9%, due to a ‘challenging retail environment’ in France and poor timing in new product launches and distribution in the UK. Sales in Asia and Latin America, which General Mills currently reports together, also plummeted 10%. Harmening pointed to lower inventories being held by retailers in politically unstable Brazil, a changing route-to-market in India and declining foot traffic in China.

CFO Don Mulligan told investors the company expects the inventory issue in Brazil to ‘correct itself.’

“As we head into the rest of the year, we fully expect that the segments that were below our expectations will improve significantly in the second quarter,” ​he said, especially in North America retail and pet food – General Mills’ most profitable businesses.

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