General Mills Inc.'s latest results disappointed investors, but executives said Wednesday the company can still hit short-term financial goals with new ads and products.
They revealed its biggest launch of the year comes next month: chocolate peanut butter Cheerios.
General Mills executives and staffers are trying to fix missteps in several product lines, including yogurt, soup and refrigerated foods. At the same time, they are recalibrating a financial model that went awry, trying to arrest sales declines that grew too large over the last two years when they were focused on lifting profit margins.
The results issued Wednesday for the June-to-August quarter, the first of its new fiscal year, showed the Golden Valley-based company making progress on both goals. But General Mills missed the profit expectations of investment analysts and the company's stock fell 5.8 percent. Its shares are now down 16 percent in 2017 and trading at their lowest price since January 2015.
Executives attributed the bottom-line miss to factors that were out of the company's hands, including an accounting change and efforts by retailers to tighten their inventories. In a conference call, analysts pressed executives on the moves by retailers, seeking assurance they weren't a sign of deeper trouble. "Investors want to make sure retailers are not taking away shelf space," said Brittany Weissman, analyst at Edward Jones.
Chief Executive Jeff Harmening said the company still has "much work to do to return to growth" but is "confident in the direction that we're headed."
The launch of a new French-style yogurt this summer, called Oui by Yoplait, exceeded expectations, Harmening said. That's positive news in a product category where General Mills for years has been losing ground to competitors. In the latest quarter, U.S. yogurt sales again fell by more than 20 percent.
New packaging and greater marketing of some existing products — including Nature Valley snacks, Go-Gurt yogurts for kids and Gushers fruit snacks for kids and teens — helped the company in the latest quarter.
"The areas where we've invested marketing spending are the ones where we've seen the best results," Harmening said.
The company has gone through some turnover in the top ranks of its marketing executives, and it hired new advertising agencies last year. Harmening said those agencies are starting to deliver.
"The change is not so much what was bad before but what is good now. ... It's amazing what a fresh pair of eyes can do for a business," he said. He said he believes a soon-to-launch campaign for Pillsbury products will be some of the best advertising the company has done recently.
And the release next month of chocolate peanut butter Cheerios, adding to the flagship brand of the company's largest product group, will be "the biggest launch we've had in quite some time," Harmening said.
Chocolate peanut butter cereals generate $500 million in annual consumer sales, and he expects the arrival of the Cheerios brand into the flavor category will make a splash.
"We've got a big pond to fish in both in terms of the brand and in terms of the flavor," Harmening said, adding he ate the new cereal for breakfast Wednesday morning. "Chocolate peanut butter you would expect to taste good, but this really delivers."
For the three months ended Aug. 27, General Mills said its profit fell 2.6 percent to $408.6 million, or 69 cents a diluted share. Adjusted for one-time costs and benefits, the company earned 71 cents a share, which was below the 77 cents a share consensus forecast of analysts surveyed by Zack's Investment Research.
Revenue was $3.77 billion, down 3.5 percent from $3.91 billion a year ago.
That marked the ninth consecutive decline in quarterly revenue for General Mills. It last experienced a jump in sales during in the March-to-May period of 2015, the fourth quarter of its 2015 fiscal year. The pace of revenue declines peaked during a three-month period in spring 2016 with a drop of nearly 9 percent.
For full-year fiscal 2018, executives told investors earlier to expect a sales decline of 1 to 2 percent, and they repeated that outlook Wednesday.
Alexia Howard, analyst at Bernstein Research, said, factoring in the company's latest results, General Mills will need to limit its sales declines to a half-percent for the remaining three quarters of its fiscal year in order to have a full-year decline of 1.5 percent, or the midpoint of its sales forecast.
"We believe [that] is an aggressive target," Howard wrote to investors.
Evan Ramstad • 612-673-4241
