Despite a malaise in the packaged food industry, General Mills Inc. posted a strong quarter Tuesday. Even its stagnant cereal business showed some pep.
The Golden Valley-based packaged food giant's first-quarter net profit increased 25 percent over a year ago, handily beating Wall Street's forecasts as rising U.S. retail sales and cost-cutting initiatives both helped boost the bottom line.
General Mills also was aided by low ingredient-cost inflation, as well as an easy comparison to a weak first quarter in its last fiscal year. "The firm was lapping an extremely abysmal quarter," said Erin Lash, a stock analyst at Morningstar Inc.
General Mills' stock closed at $57.13, up 34 cents on a day when the broad market posted steep losses.
General Mills, maker of Progresso soup, Betty Crocker cake mixes and many other products, posted net earnings of $426.6 million, or 69 cents per share, for the quarter ended Aug. 30, up from $345.2 million, or 55 cents, a year ago.
Adjusted for one-time charges or benefits, General Mills had first-quarter earnings of 79 cents per share, 10 cents above the consensus estimate of stock analysts polled by Thomson Reuters.
General Mills' sales came in at $4.21 billion, a tad short of analysts' estimates of $4.25 billion and down 1 percent over a year ago because of unfavorable foreign currency swings. Stripping out currency fluctuations, sales rose 4 percent.
General Mills' acquisition last fall of Annie's, the organic and natural mac and cheese maker, accounted for about half of its sales growth minus currency effects. General Mills executives say they have maintained Annie's double-digit sales growth since buying the company.
During General Mills' first quarter, most of its U.S. businesses — including yogurt, snacks and cereal — posted sales gains. U.S. retail sales were $2.53 billion, up 4 percent when measured in dollars and 2 percent when measured in pounds.
"We were very pleased with U.S. sales," Don Mulligan, General Mills chief financial officer, told stock analysts in a conference call. "We haven't seen a quarter like that in a couple of years."
General Mills' profits during the quarter got a lift from cost-cutting efforts that began a year ago. The company's three big cost reduction programs — one each for production, administration and international operations — are expected to save $285 million to $310 million in the current fiscal year. With the expense reductions, General Mills has shed at least 2,500 jobs.
The company's first-quarter selling, general and administrative costs were down 6 percent over a year ago, more than expected by stock analysts.
Cereal is General Mills' largest U.S. business, but the cereal category has been declining the past few years as consumers have increasingly migrated to other breakfast options, from yogurt to eggs. General Mills and Kellogg each hold about 30 percent of the cereal market, and Kellogg has suffered, too.
During General Mills' first quarter, cereal perked up. U.S. cereal sales rose 6 percent over a year ago as retailers bulked up on inventory, particularly General Mills' new gluten-free Cheerios. General Mills also launched Nature Valley Toasted Oats Muesli, its first muesli cereal.
With the new products, General Mills will go heavy on merchandising and marketing for cereal during its current quarter, CEO Ken Powell said in an interview with the Star Tribune. After General Mills' U.S. cereal sales fell 3 percent in its previous fiscal year, Powell said the company expects the business to grow in its new fiscal year.
General Mills' international sales of $1.2 billion were down by 11 percent during the first quarter, pummeled by unfavorable currency fluctuations. Stripping those out, international sales were up 5 percent.
China is General Mills' biggest international market, and the company is feeling the effects of that country's economic slowdown. China sales, when adjusted for currency movements, were down 1 percent during the first quarter. Sales of General Mills' popular Wanchai Ferry dumpling products were down 4 percent, while same-store sales for its Häagen-Dazs ice cream outlets declined as they have for the past few quarters.
"We are definitely getting some headwinds there and consumers are getting a little more cautious," Powell told the Star Tribune.
Powell noted that General Mills still has a lot of room for geographic expansion in China, and its Yoplait yogurt venture there just kicked off in June.
"That's a huge opportunity for us," Powell said.
Mike Hughlett • 612-673-7003
