Blue Buffalo, General Mills' pet-food line, and its old standby Cheerios bolstered sales this fall as it tried to get two other product lines, yogurt and snack bars, back on track.
The Golden Valley-based food maker said its profit rose 69% to $581 million, or 95 cents a share, for its fiscal second quarter ended Nov. 24. That beat the consensus estimate of analysts polled by Thomson Reuters of 88 cents a share.
Investors sent the company's stock up nearly 2% in trading Wednesday on the upbeat results. General Mills shares are up more than 30% this year.
Sales in the company's pet segment grew 16% year-over-year. Blue Buffalo used to be a brand found almost exclusively in pet-specialty stores, but the company continues to expand its distribution with grocery, drug and mass merchandise stores.
General Mills Chief Executive Jeff Harmening said that mass retailers that have carried Blue Buffalo products for more than 12 months posted a significant 45% sales growth. Harmening said he believes this shows the growth is more than simply a one-time bump from getting placement on new store shelves.
The company's U.S. cereal business, which has had its fair share of challenges in the past decade, posted one of its best quarters in recent memory, growing sales by 5%.
"On cereal, we feel really, really good about our performance to date [this year]," said Jon Nudi, president of North America Retail. "We had our best quarter on Cheerios in over a decade, with the Cheerios franchise up 6%."
These improvements have been driven by aggressive marketing and innovation efforts, he said, with General Mills releasing the top four new cereal products introduced in the last year — Blueberry Cheerios, Cinnamon Toast Crunch Churros, Chocolate Toast Crunch and Fruity Lucky Charms.
"Nearly 50% of all innovation in [U.S.] cereal is coming from General Mills," said Nudi.
One risk to this momentum of cereal, said Alexia Howard, an analyst with Bernstein Research, is if "Kellogg steps up its efforts in cereals after effectively taking a break over the past year or more."
Such positive trends in the company's North America segment, its biggest and most important, were slightly tempered by a 4% decline in U.S. yogurt sales and more modest declines in U.S. snacks, which the company has been trying to salvage after unexpected losses last year in its Nature Valley and Fiber One brands.
Harmening told the Star Tribune that while U.S. snacks sales declined in the quarter, the business is actually recovering a bit faster than expected. He said its snacks business should get back to growth in the second half of this year.
As for yogurt, results should start to improve in January.
The company isn't alone in its yogurt challenges as the market is flooded with new products and options at a time when consumer interest in yogurt as a whole is waning.
"There's probably more innovation in yogurt than the other 25 categories that we compete in in the U.S.," Nudi said.
This presents a paradox for the yogurt makers. More products means it is difficult for any one product to stand out on store shelves, but consumer tastes shift quickly. Harmening said, "There's not really an option other than keep innovating."
For the quarter, General Mills posted sales of $4.42 billion.
Organic sales — a measure that removes one-time issues — grew 1%, meeting the executives' goal.
"We believe the internal moves that management at General Mills is making to bring new ideas to market faster and more profitably are starting to pay off," John Boylan, an analyst with Edward Jones, wrote in a note Wednesday.
"While these changes may take time to fully manifest themselves, we continue to believe this strategy will enhance earnings and sales growth over the long term."
The company reaffirmed full-year guidance on sales, profit, and earnings per share and raised guidance for free cash flow conversion.
"I'm encouraged by our performance," Harmening said. "We will meet or exceed all of our 2020 fiscal goals."