General Mills hits seventh straight sales drop, and investors look for turning point

Sales fell more than expected again at General Mills Inc., threatening the company's ability to maintain a profit drive that bolstered its market value and held off potential buyers.

Executives pledged quick fixes, including the launch this summer of a new brand in yogurt, the worst-performing of its major products.

The results announced Tuesday were in line with a reduced outlook the company announced last month. But they raised new questions about General Mills' ability to do two things at once: push profits higher and adjust to smaller appetites for many types of processed foods.

Sales have now dropped for seven straight quarters for the Golden Valley-based company, but it has maintained profits by cutting costs. In the three months ended Feb. 26, General Mills' operating profit was 1 percent higher than it was in the same period two years ago despite sales that were 13 percent lower.

Executives faced intense questioning from investment analysts about how long that can go on. One asked whether they were considering selling the Pillsbury and Progresso lines, two popular brands that were hit hard in the latest period. The executives said they weren't.

They stuck to their goal of increasing the company's profit margin. And they said they can arrest the sales declines with better pricing tactics and new yogurt products. "It's a matter of our price competitiveness and getting back to levels of innovation on yogurt that we feel can ... get us back to growth in that business," Jeff Harmening, company president, said.

The company will start to see a payoff from some lower product pricing and increased marketing in April and May, he said.

Investors and analysts have turned less certain. The company's stock is trading near a 52-week low. It closed down 1 percent Tuesday to $59.76, about 18 percent below the record high reached last July.

The high valuation made General Mills a more expensive takeover prospect, a plus for the economy in the Twin Cities, where the company has been one of the largest employers and a major benefactor for decades. Some gains in the company's stock price over the past year were driven by speculation that it might be a target, particularly for Kraft Heinz Co., which recently attempted and retreated from a purchase of Britain's Unilever PLC.

Profit gains also drove General Mills' stock higher, but there is a trade-off if the profits come at the expense of sales. The company's independence would likely be threatened by a spiral in which tumbling sales led to steep staff and development cuts that compromised its ability to add products and reignite growth.

General Mills has gone through three major efforts to lower costs and reduce employment in recent years. The latest will eliminate 400 to 600 jobs this spring.

Executives said they don't think the cost-cutting actions slowed sales growth. "Even though there's been a lot of change, I don't think that's been the primary driver of our performance this year," Chief Executive Ken Powell said.

Alexia Howard, food analyst at Bernstein, said the company's sales declines are now among the fastest in the food business. "We don't think there is anything nonrecurring about this and are skeptical of the company's ability to reverse it," she wrote in a note published Tuesday afternoon.

She noted that company's Yoplait yogurt business is half the size it was in 2009 and suggested the brand's reputation may be permanently impaired. In the latest quarter, General Mills' yogurt sales in the U.S. and Canada fell 20 percent, the steepest drop yet.

"Yogurt is a big ship to right and the competitors are also innovating," said Brittany Weissman, analyst at Edward Jones.

Harmening announced that the company in July would launch a new brand of yogurt, adding to its Yoplait, Liberte, Annie's and Mountain High lines. "It will leverage the French heritage of the Yoplait brand and it will be a premium offering," he said.

General Mills also plans heavy marketing this spring for new versions of Cocoa Puffs and Very Berry Cheerios cereals and Nature Valley bars.

The company said it earned $358 million in the December-through-February quarter, the third of its fiscal year. Adjusted for one-time costs and gains, the profit amounted to 72 cents a share, a penny more than the consensus estimate of financial analysts. Adjusted operating profit margin was 16.9 percent, up from 15.9 percent a year ago.

Sales fell 5 percent to $3.79 billion, deeper than the 4.6 decline expected by analysts. The company's North America retail business, its largest, reported a sales drop of 7 percent.

Evan Ramstad • 612-673-4241