Commentary

General Mills' Pet Foods Wow, But Snack Biz Slumps

General Mills has gone to the dogs (and cats) but it has plans to reinvigorate its appeal to fickle homo sapiens looking to satisfy their cravings for snacks, cereal and yogurt.

After announcing its fiscal 2019 results yesterday, shares dropped more than 6% “even as the company delivered strong fiscal fourth-quarter earnings primarily driven by its acquisition of pet-food maker Blue Buffalo,” M. Corey Goldman writes  for The Street.

“The Minneapolis-based food maker posted net earnings of $570 million, or 83 cents an adjusted share, vs. $354 million, or 79 cents an adjusted share, in the comparable year-earlier period. Analysts polled by FactSet had been expecting earnings of 77 cents. However, while sales increased 7% to $4.2 billion, the number fell slightly short of analysts’ forecasts, sending investors to the exits,” Goldman reports.

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“Net sales for General Mills’ North American retail segment, which accounts for more than half of the company’s revenue, fell 2% during its fiscal-fourth quarter ended May 26. It partially attributed the drop to a decline in its U.S. snacks business, which includes its popular Chex Mix and Nature Valley granola bars. The company said U.S. retail sales for its meals and baking, yogurt and cereal segments were unchanged from a year ago,” CNBC’s Amelia Lucas writes .

“The biggest challenge we face is certainly on our bars business in the U.S.,” CEO Jeff Harmening told  the Wall Street Journal’s Micah Maidenberg. 

“The maker of Cheerios cereal, Yoplait yogurt and Nature Valley granola bars plans to step up its efforts to create new products, he said, and recently introduced Nature Valley bars made from wafers,” Maidenberg continues. 

“General Mills faces robust competition to win over shoppers looking for snack bars. Kellogg Co. now owns the protein-bar brand Rxbar, while Clif Bar & Co. has been introducing new options. The snack-bar market has always been a competitive one,” Harmening acknowledged to Maidenberg.

That being the case, what’s the new wrinkle?

“General Mills now sees it: Counting calories is out, macro-tracking  is in,” Kristen Leigh Painter observes  for the Minneapolis Star Tribune.

“The Golden Valley-based food company last year missed an opportunity with this dieting shift and is quickly working to address it by making changes to its Fiber One snack bars, which traditionally target weight-managing consumers. … The company plans to launch a refreshed Fiber One product or package to address this trend toward ‘macros’ -- which goes beyond calorie counting by tracking the ratio of macronutrients like carbs, proteins and fats,” Painter continues.

It will also “do a better job of capturing the back-to-school marketing moment with its Nature Valley products,” according to Jon Nudi, GM’s president of North American retail, she reports. 

“The good news for General Mills is sales for the company's Blue Buffalo pet products division is booming, surging 38% from a year ago. Operating profits soared 82% as well,” writes  Paul R. La Monica for CNN Business. “General Mills bought  Blue Buffalo in 2018 for $8 billion, a move that seems to be paying off. The strong stock-market debut for online pet supplies retailer Chewy earlier this month is another sign of how Americans love to pamper their pooches and kitties.”

Indeed, Blue Buffalo reported $406 million in sales, about $40 million more than Daniel Martins of D.M. Martins Research had been expecting. 

“It looks like management's plan to increase distribution and product assortment in FDM channels  have been paying off. The pet business also produced impressive segment profits of $110 million, more than 13% of the total company's segment profits combined -- despite Blue Buffalo accounting for less than 10% of total revenues,” Martins writes  for Seeking Alpha.

Mark Kalaygian outlined  GM’s strategy for moving into the food, drug and mass (FDM) channel last year in a piece for Pet Business.

GM also reported yesterday that its yogurt business grew share for the full year, a first since fiscal 2015.

“We improved our core yogurt business, which represents more than 50% of our retail sales and includes brands such as Go-GURT and original style Yoplait,” Hammering said on a conference call with analysts transcribed   by Seeking Alpha. 

“In fiscal 2020, we expect further improvements in U.S. yogurt, as our strong consumer marketing plans and innovation continue to drive growth, while the declines in our Greek and Light product lines are less a drag on our results,” he added.

Overall, “we have plans in place to improve our organic sales growth in fiscal 2020 and you'll hear quite a bit more about those plans at our Investor Day in two weeks,” Hammering also said.

He’s obviously hoping to serve up a “moment of sheer jubilation and celebration” when he delivers fiscal 2020 results, as a company blog post describes the photo   of Serena Williams on a limited-edition Wheaties box unveiled Tuesday.

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