General Mills Profit Rises as Yogurt Makes Comeback

General Mills Inc.'s (GIS) fiscal first-quarter earnings rose
35%, bolstered by acquisitions, and the company expects new products,
especially yogurt, to help its slipping domestic sales return to growth
this year.
"In our core U.S. market, we are seeing slow
improvement in price and volume trends across our retail food
categories," Chairman and Chief Executive Ken Powell said. "As we move
into the second quarter, we'll be putting full advertising support
behind our new items, and we have planned strong levels of in-store
merchandising across our product categories."
The maker of
Cheerios cereal and Betty Crocker baking products has struggled to
mitigate higher raw-material costs with price increases. But pushback
from budget-conscious consumers has contributed to lower sales volume
and margins in recent quarters.
Yoplait, which makes up 14% of
U.S. revenue, has been the main drag on its domestic business lately. In
fiscal 2012, Yoplait's U.S. sales fell 5%, making it the only domestic
segment to experience a decline.
But General Mills said Yoplait is
poised to make a comeback in the U.S., thanks in part to new Greek
yogurts and lower prices on certain products. Industry analysts have
questioned General Mills's ability to capitalize on the Greek yogurt
trend because the company got into the game late; however, company
executives said they're pleased with the results so far and noted that
the product line is still in its early days.
The company plans to
launch 40 new yogurts this year, such as its 100-calorie Greek yogurt
introduced in August. General Mills also wants to expand its recently
acquired Canadian brand, Liberte, in the U.S.
Investing more in
Yoplait is part of General Mills's restructuring plan, which also
includes cutting roughly 2% of its global work force and accelerating
growth internationally, particularly in emerging markets such as China.
In
the first quarter, General Mills's international sales rose 36%,
excluding foreign currency exchange, with a 51% jump in Europe and a 20%
rise in the Asia/Pacific region.
Overall, General Mills sees
pricing pressures easing. The company expects inflation of 2% to 3% this
year, compared to 10% last year. "We do anticipate a more stable food
price environment for consumers going forward," Mr. Powell said. For the
past decade, the industry has been faced with "epic inflationary
times...due to globalization and consumer demand," he said.
The
company also is focused on the increase in snacking, by monitoring what
consumers are eating and where they are shopping. "U.S. consumers are
snacking more than ever," said Jon Nudi, president of General Mills's
snack division. The company said the trend is helped by people eating at
home and packing their lunches to save money.
He noted, in
particular, that General Mills is gaining market share in the vastly
popular healthier-foods segment, including low-calorie, natural and
organic foods, by expanding its Nature Valley brand--specifically the
Fiber One line.
General Mills still has a "strong presence" in
traditional grocery stores, Mr. Nudi said, but the majority of its snack
sales are at the fastest-growing nontraditional food outlets, such as
mass retailers like Wal Mart Stores Inc. (WMT), club stores like Costco
Wholesale Corp. (COST) and dollar stores.
Club stores represent
General Mills's largest channel, with sales rising as big "mega-packs
represent value to club consumers," Mr. Nudi said. Meanwhile, dollar
stores are the company's fastest-growing channel, with volume up 9% last
year. "Here we offer smaller packages at the attractive dollar
price-point and introduce new consumers to our brands," he added.
Shares
of the company recently rose 2.2% to $40.19 in Wednesday trading.
Through Tuesday's close, the stock had fallen 2.7% so far this year.
For
the quarter ended Aug. 26, General Mills reported a profit of $548.9
million, or 82 cents a share, up from $405.6 million, or 61 cents, a
year earlier. Excluding items such as restructuring charges, per-share
earnings rose to 66 cents from 64 cents, and was above the 62 cents
expected by analysts, on average, according to Thomson Reuters.
Sales increased 5.3% to $4.05 billion, slightly below the Thomson Reuters forecast of $4.08 billion.
Gross margin rose to 40.2% from 37.6% as input costs edged up 0.9%.
At
its U.S. retail segment, net sales fell 0.7%, while operating profit
decreased 1.7%. The international segment's sales grew 27% including
currency translation to $1.09 billion, contributing to a 56% jump in the
segment's operating profit.
--Melodie Warner contributed to this article.
-Write to Annie Gasparro at annie.gasparro@dowjones.com
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