General Mills Cutting Costs As Q4 Net Sales Drop 3%

With “disappointing” sales and a drop in revenue for its fiscal fourth quarter 2014, General Mills yesterday announced it was launching a  formal review of its North American manufacturing and distribution network “with the goals of streamlining operations and identifying potential capacity reductions.”

Net sales grew just 1% to $17.9 billion for the year, according to a company press release, with operating profit down 2% from a year ago. Net sales for the quarter were 3% below year-ago results.

“General Mills execs attributed the slack sales and smaller profit margins to ‘less effective’ promotions in developed markets,” reports Clare Kennedy in the Minneapolis/St. Paul Business Journal. “In the yogurt market, for instance, the number of items and sellers has proliferated, [chairman and CEO Ken] Powell said, and the clamor for prime supermarket display space has increased in kind.”

General Mills is joining a crowd of packaged-goods powerhouses, Annie Gasparro points out in the Wall Street Journal, who are trimming costs because of “lackluster sales throughout grocery stores.” 

H.J. Heinz, Mondelez International, Kellogg, Campbell Soup and ConAgra are among those who have “have turned to efficiency initiatives that include factory closures, sales of underperforming brands, layoffs and other reductions in corporate overhead, such as restricting executives from flying first class,” she writes.

Ouch on that last one, which coincides with a trend toward decreasing legroom, but there’s no telling if that will be one of the measures mandated from Golden Valley, Minn., headquarters.

The details of the cost-cutting program “are unclear at the moment, writes the Minneapolis Star-Tribune’s Mike Hughlett. “We’re really not at that level of definition at this point,” Powell told him yesterday. “Typically in these kinds of situations, there are places where we add and places where we reduce.”

The savings will likely go into product development and market support, Morningstar analyst Erin Lash told Bloomberg’s James Callan and Jaime Myslik. “The question is whether General Mills will lower prices to drive sales volume or if it will bring in higher cost products popular with consumers, she said,” they write.

“By taking costs out of the business — we’re not expecting that to drive material margin improvement,” Lash told them. “We’re expecting them to reinvest that back into the brand.”

“We saw so much competition for display space in stores,” Powell said in his presentation, Gasparro points out. “It's our responsibility to make sure we get the right level of visibility in the store ... and we didn't see all of those dimensions come together the right way, and the performance lagged as a result.”

After CFO Donal L. Mulligan briefed analysts on the nitty-gritty of the results — including the observation that 2014 “was a good year” for shareholders with total returns increasing 13% — Powell opened his earnings presentation with an upbeat prognosis for the future, proclaiming that “there are plenty of growth opportunities and our plan is to go out and get them.”

“Our number one priority is to accelerate top line growth,” Powell said, according to a transcript of the call on Seeking Alpha. “We’ll do that by sharpening our consumer-first mindset with particular focus on four growing consumer groups: the growing middle class in emerging markets, U.S. multicultural families, Millennials and consumers over age 55.”

Specifically, Powell said, the priorities for the coming year include “investing in our cereal business for growth, returning our U.S. yogurt business to growth, accelerating our strong performance in better-for-you snacking, leveraging the good momentum we have in Totino’s hot snacks, Old El Paso Mexican products and baking products and continuing to foster our strong culture of HMM.”

HMM, you may recall, is an acronym for the New Agey-sounding Holistic Margin Management, which boils down to identifying what  consumers “truly value” and “what are they willing to pay for a product that meets or exceeds those expectations?” 

The approach “crosses functions and disciplines,” according to a company blog post. “It involves virtually everything — from product development to packaging innovations, convenience to product placement, from manufacturing to logistics, to marketing to sales — with business units taking the lead coordinating role.”

When asked “asked how General Mills and others plan to ‘break’ the negative sales trend,” yesterday, Powell responded: “I wish there was one silver bullet,” the St. Cloud Times reports.

“Consumers’ definitions of health and well-being are changing and we need to be very attuned to that,” he said. 

Hi-Yo Silver, Away!

Tags: food
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1 comment about "General Mills Cutting Costs As Q4 Net Sales Drop 3%".
  1. Paula Lynn from Who Else Unlimited , June 26, 2014 at 8:43 a.m.
    As incomes become more stagnant or decreased and creeping inflation including the cost of food - less for more - people have found alternatives to the high priced brands. We should not be surprised to see this with other companies.