Cost Cuts Boost Margins At General Mills
March 24 2016 - 3:02AM
Dow Jones News
(FROM THE WALL STREET JOURNAL 3/24/16)
By Annie Gasparro
Cost-cutting helped General Mills Inc. book a higher profit in
its latest quarter, but the Cheerios maker is still struggling with
weakening U.S. demand for its cereal and yogurt.
The Minneapolis-based company's sales fell 8% to $4 billion for
the three months ended Feb. 28, trimmed by the sale of its Green
Giant vegetable business and foreign-exchange headwinds that cut
the value of overseas revenue.
But its effort to close factories and reduce corporate spending
helped lift profit by 5.4% to $361.7 million, beating analysts'
expectations.
Cost-cutting efforts "have been very effective as we're seeing
nice [profit] margin expansion this year," Chief Executive Ken
Powell said in an interview Wednesday. "But you can't sustain the
business on cost-cutting alone."
The 150-year-old food company says restoring growth for its U.S.
cereal sales is a priority. Consumers are eating less of processed
oats and grains for breakfast, switching to higher-protein,
portable meals such as Greek yogurt and breakfast sandwiches.
In January, General Mills replaced traditional varieties of
Golden Grahams, Trix and four other cereals with more-natural
versions that don't use artificial food dyes.
Sales of those cereals rose 6% in January and February from a
year earlier, compared with a 6% decline in fiscal 2015.
"We're in an environment where the consumer attitudes about food
are changing very rapidly," Mr. Powell said. "Now would not be a
good time to cut your innovation. If anything, you should
accelerate it."
General Mills said it expects to close out its fiscal year
ending in May with a rise in U.S. cereal sales on a comparable
basis, following a 3.3% decline last year.
The company also has to tackle challenges to its dairy business.
Yogurt sales, driven by its Yoplait brand, fell 10% in the latest
quarter.
With milk costs down, other yogurt brands offered significant
discounts, while General Mills said it held pricing steady to
protect profitability.
Mr. Powell said that in the next couple of months it will become
more competitive on pricing and hopes to regain shelf space in
retailers.
General Mills reported fiscal third-quarter earnings of $361.7
million, or 59 cents a share, up from $343.2 million, or 56 cents,
a year earlier. Excluding certain items, adjusted earnings fell to
65 cents a share from 70 cents.
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Anne Steele contributed to this article
(END) Dow Jones Newswires
March 24, 2016 02:47 ET (06:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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