Slack consumer demand, bad weather and rising yogurt expenses combined to dent General Mills' profit in its latest quarter.
The weather led to plant shutdowns. High dairy prices and a big Yoplait marketing push particularly ate into earnings. And consumers are living frugally, a problem for all packaged-food makers.
"For the consumer-goods industry in general, it has been a very slow recovery," General Mills CEO Ken Powell said in an interview.
Still, Powell said he sees gradual progress. "As the consumer continues to come back, that will lead to improvement in the strength of our categories and in the industry's strength."
Golden Valley-based General Mills Inc. on Wednesday posted net earnings for its fiscal third quarter of $410.6 million, or 64 cents per share, up from $398.4 million, or 60 cents per share, a year ago. But stripping out one-time items, the packaged-food giant recorded adjusted earnings per share of 62 cents, down from 66 cents a year ago.
"It was a tough third quarter, reflecting some clear head winds," Powell said in a conference call with stock analysts Wednesday.
It was not surprising, though. General Mills announced last Friday that its profit was going to come in below analysts' forecasts of 68 cents per share for the period. The company's stock closed Wednesday at $50.74, up 3 cents.
General Mills' sales for the quarter ended Feb. 23 tallied $4.38 billion, 1 percent below year-ago levels. Excluding foreign currency effects, third-quarter sales would have essentially matched the prior year's.
General Mills' biggest business, U.S. retail, experienced a 2 percent decline in year-over-year third-quarter sales, while its operating profits were down 11 percent. Another large U.S. business, convenience stores and food service, saw sales fall 7 percent and operating profits decline 17 percent.
The brutal winter weakened demand and raised costs for both businesses, the company said. Consumers stayed home and shopped less. Institutions served by General Mills' food service division — such as schools — closed day after day. Transportation costs rose as supply chains got gummed up.
And General Mills lost a total of 62 plant-days of production as workers couldn't get to myriad job sites due to weather. "It's significant," Powell said in an interview. "We'd have to go back a long way to find a winter where we had so many lost days."
A big chunk of the profit decline in General Mills' U.S. business came from its Yoplait division. Yoplait is one of the best known U.S. yogurt brands, but it has lost market share over the past two years due to the rise of Greek-style yogurt. General Mills was late to the Greek market, which has cannibalized sales from conventional yogurt.
During the quarter, Yoplait introduced 16 new items and launched a big ad blitz for its Greek yogurt. The company's share of the Greek market lately has been around 10 percent, a high point. Meanwhile, sales of its original yogurt were growing again, and there were even some positive indicators for Yoplait Light, though its sales were still falling.
That's the good news. The bad news is that rising dairy input costs hurt Yoplait profits, which were already pressured by increased advertising and price promotions. Despite the company's efforts, Yoplait's U.S. sales were down 8 percent in the third quarter compared to the same time a year ago.
"You don't want to see that, but they seemed to indicate that better days were ahead," said Jack Russo, a stock analyst at Edward Jones.