General Mills Inc. is looking to lop expenses beyond its customary efficiency programs as a malaise continues in the packaged food industry.
The company said Wednesday that it aims to cut out $40 million in pretax costs in the new 2015 fiscal year, with additional savings coming in 2016. These cuts are in addition to $400 million-plus in expense reductions expected in 2015 through the company's ongoing annual cost-efficiency program.
The Golden Valley-based packaged food giant capped a mediocre fiscal year with a weak fourth quarter. Results announced Wednesday fell short of Wall Street's profit expectations, while its fourth-quarter sales dropped 3 percent from a year ago.
"Lackluster top-line growth continues to challenge the company," said Erin Lash, a stock analyst at Morningstar.
Soft sales have bedeviled General Mills — and the entire packaged-food industry — for several quarters now. Consumers, still smarting from a weak economic recovery, are being tightfisted in the supermarket. There's speculation, too, that some consumers are migrating away from some of the traditional offerings of packaged-food makers.
Food companies have increasingly taken to new rounds of cost-cutting, and General Mills has joined the crowd.
The company said it has begun a formal review of its North American manufacturing and distribution network, searching for ways to streamline operations and potentially reduce production capacity.
The effects of the cost-cutting program in Minnesota are unclear at the moment. "We're really not at that level of definition at this point," General Mills CEO Ken Powell told the Star Tribune on Wednesday. "Typically in these kinds of situations, there are places where we add and places where we reduce."
Powell said the cost-cutting moves are leaning more in the direction of General Mills' manufacturing and distribution operations.
General Mills employs just over 5,300 people in Minnesota, primarily at its headquarters, but also at two research facilities, along with a flour mill in Fridley and a food service plant in Chanhassen.
General Mills recorded adjusted fourth-quarter earnings of $733 million, flat compared with the same time a year ago. Per-share adjusted profits were 67 cents, while analysts polled by Thomson Reuters were on average anticipating 72 cents. General Mills' fourth-quarter sales were $4.3 billion, short of analysts' estimates of $4.4 billion.
The company's stock closed Wednesday at $51.76, down $1.94 or 3.6 percent.
Don Mulligan, General Mills' chief financial officer, told stock analysts that the company returned more than $2.7 billion in value to stockholders through dividends and share repurchases in fiscal 2014. "But our sales and operating profit in 2014 were disappointing."
General Mills said its promotional spending in key markets was less effective than planned during the fourth quarter, while product input costs rose a bit above the company's forecast.
Fourth-quarter sales in General Mills' U.S. retail segment, its biggest business, fell 1 percent to $2.4 billion, while operating profits clocked in at $502 million, down 3 percent.
On a conference call with analysts, Powell was asked how General Mills and other food firms plan to break disappointing sales trends. "I wish there was one silver bullet," Powell answered.
Powell nodded at changes in consumer preferences, which are serving up challenges for packaged-food makers. "Consumers' definitions of health and well-being are changing, and we need to be very attuned to that," Powell said. "We are in changing times. We are a marketing company, and our job is to understand the change and capitalize on it."
General Mills has capitalized on such health-related trends as the rise of gluten-free products and the boom in healthier snacking. Indeed, its U.S. snacks business, which includes Nature Valley and Fiber One bars, saw sales rise 6 percent in fiscal 2014, hitting $1.8 billion.
But General Mills' frozen foods, meals, baking products and yogurt businesses in the U.S. all saw sales decline during the last fiscal year. The company's biggest business, U.S. cereal, posted flat sales of $2.4 billion, though General Mills outpaced the sluggish cereal category as a whole.
In its guidance for fiscal 2015, General Mills said it expects earnings-per-share growth at a high single-digit rate, exclusive of currency fluctuations.
"Their guidance is still pretty promising," said Jack Russo, an analyst at Edward Jones. "But everybody is lowering their earnings estimates for the new fiscal year."