Magical unicorns are helping General Mills sell more cereal but not enough to satisfy the appetite of investors.
Despite posting a better-than-expected profit for its fiscal first quarter on Tuesday, General Mills investors hoped for stronger sales growth in both its largest business segment, selling food through U.S. stores, and its newest, the recently purchased Blue Buffalo pet food brand.
Sales of Blue Buffalo products grew 9 percent, falling below executives’ full-year forecast of double-digit percentage growth. Investors, concerned General Mills overpaid for Blue Buffalo, are eager to see the acquisition pay off. Jeff Harmening, General Mills’ chief executive, said the business has a long runway ahead of it.
“We still only have 3 percent household penetration among pet parents,” Harmening said. “So, we have a lot of room to expand.”
Better known for making and selling human food, the Golden Valley-based company saw improvements across its international businesses and in U.S. cereal sales. But declines in other U.S. food categories, from yogurt to snack bars, led it to slightly miss analysts’ forecasts for sales growth.
The company’s U.S. retail business reported a 2 percent sales decline. Cereal sales in that unit were up 1 percent. Executives said the new unicorn marshmallow in Lucky Charms and the return of artificial colors and flavors to Trix lifted demand for those cereals.
But investors are looking for signs that the company’s renewed focus on, and investment in, growing sales is paying off, said Brittany Weissman, a food-industry analyst with Edward Jones.
General Mills reported sales of $4.09 billion, a 9 percent increase over the same period last year largely due to the inclusion of Blue Buffalo. Analysts expected sales of $4.11 billion. Organic net sales, which don’t include the effect of acquisitions, rose by less than a half percent.
Sales of snacks slumped due to a massive 20 percent drop in Fiber One bar sales. This was somewhat offset by gains in Larabar and Epic snack bars, which helped hold the segment’s overall drop to 4 percent. Executives are now aiming to limit the declines in Fiber One and return Nature Valley bars to growth.
“We were not particularly pleased with our first-quarter performance on snack bars,” Harmening said.
Sales declines in U.S. yogurt, a category that been the company’s problem child for several years, have slowed recently to just a half a percent in the latest quarter. It’s still a loss, which Harmening attributes to overall declines in yogurt consumption especially Greek, but one General Mills hopes to stymie through innovation like its new Oui by Yoplait and YQ yogurt products.
General Mills’ share of the U.S. yogurt market actually grew the last two quarters for the first time in three years.
“We think the category will really get back to growth because it follows health trends,” Harmening said. “The reason we are able to outperform our peers right now is because we have some really good innovation. As Greek becomes less a part of the overall segment, we think that bodes well for our position.”
The company’s stock was down more than 7.6 percent at market close Tuesday.
The food maker’s profit for the three months ended Aug. 26 was $392.3 million, or 65 cents a share, down 3 percent from a year ago. Adjusted for one-time expenses like the Blue Buffalo purchase, General Mills earned 71 cents a share, beating Wall Street’s consensus of 64 cents a share, according to 15 analysts polled by Thomson Reuters ahead of the results.
General Mills reaffirmed its full-year guidance for fiscal 2019. General Mills’ stock price has fallen nearly 20 percent since the start of the year.