Commentary

The Munchies Proving Healthy For General Mills's Bottom Line

In a week that saw two middle-aisle competitors snatch up “healthy” snack food companies, General Mills yesterday released an upbeat earnings report for its fiscal 2018 second quarter with its 1% year-over gain in the North American retail segment primarily driven by a 7% increase in cereal and 5% growth in its snacks unit in the U.S.

“General Mills has been in a prolonged cereal slump, but customers scooped up Lucky Charms, Cinnamon Toast Crunch, Reese's Puffs and Cocoa Puffs last quarter, helping lift sales for the first time in more than two years,” Nathaniel Meyersohn reports for CNN Money. “The company said its new chocolate peanut butter flavored Cheerios, which hit stores in October, were a quick hit.”

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Hey, they’re “made with real cocoa and real peanut butter.” And have 12 vitamins and minerals.

“People are snacking more,” GM CEO Jeff Harmening tells the Wall Street Journal’s Annie Gasparro in an interview, adding that GM believes 30% of cereal in the U.S. is eaten as a snack rather than a meal, up from 10% a decade ago.

“‘It’s probably one of the reasons our cereals that taste really good are the ones that growing,’ he said. Sweeter, classic cereals like Lucky Charms and Cinnamon Toast Crunch are driving General Mills’ sales, while its Fiber One brand struggles.”

But GM also “has been sprucing up its organic offerings to expand beyond its packaged foods portfolio,’ according to a Reuters report published on CNBC.com. “The company said on Wednesday it expects initiatives such as the launch of two flavors in its Shreds cereal and adding more fruit to its Original Style Yoplait yogurt to fuel sales growth in the second half of the year.”

Overall, U.S. yogurt sales were down 11%. 

“Continued declines for Yoplait Greek and Yoplait Light products were partially offset by increasing benefits from the new Oui by Yoplait and Yoplait Mix-Ins product launches,” according to the company. 

“As always, executives saw products leap out during the quarter,” reports Evan Ramstad for the Minneapolis Star Tribune. “A peanut butter-flavored Haagen-Dazs ice cream found an unexpected level of demand in Europe, Harmening said, considered surprising because peanut butter has traditionally been a flavor that only did well in the United States. And Pillsbury Stuffed Waffles, a product that General Mills only sells in 7-Eleven, also made a strong debut.”

“People are eating healthier and want organic and non-GMO and they want pure ingredients,” Harmening said, Ramstad reports. “Well, Stuffed Waffles is probably none of those things, but they taste really good and they've got a job to do, which is fill you up in the morning. If you have a job that requires a lot of energy, you need something that fills you.”

All in all, revenue rose 2.1% in the second quarter to $4.2 billion and things are looking better for the upcoming months, GM says. It revised its fiscal 2018 full-year organic net sales outlook based on the better than expected year-to-date results. Organic net sales are now expected to range between flat and down 1%, compared to the previous range of a decline of 1 to 2%.

“I’m pleased with the breadth of the topline improvement we delivered this quarter across our geographies, product platforms, and channels. We’re executing better, with stronger innovation, more effective brand building, and better merchandising leading to market share gains in the majority of our key global platforms,” crowed CEO Harmening.

Analysts were positive, too, if a bit more reserved. 

"I am ready to be cautiously optimistic about General Mills once again,” is the top takeaway in the summary for D.M. Martins Research’s analysis for Seeking Alpha. “I continue to believe the stock has legs as the return to sales growth seems to be in its early stages,” the piece concludes.

Meanwhile, sure it’s a multinational conglomerate with about 38,000 employees and $15.6 billion in fiscal 2017 net sales on six continents, but no doubt there’s a compelling human interest story to be tweeted about every one of them.

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