General Mills Inc. gave hints Wednesday that it’s cutting through the food industry’s malaise.
The company beat Wall Street’s third-quarter profit estimates. Its U.S. sales were up a bit after getting hammered during the six prior months. And its long-suffering Yoplait operation — a core U.S. business — posted its best quarterly sales gain in years.
“I think there are some signs that their business is getting better,” said Jack Russo, a stock analyst at Edward Jones. “I think they have turned the corner.”
Packaged-food makers like General Mills have suffered several quarters of stagnant sales, due to a weak economic recovery coupled with changing consumer tastes. Many consumers are favoring less-processed food that they perceive to be healthier.
The slump has led foodmakers to slash costs, with General Mills eliminating about 800 white-collar jobs nationwide. Many of them were at its Golden Valley headquarters, though the company has declined to release specifics. “Project Catalyst,” as the white-collar cost-cutting was dubbed, has been completed, General Mills said Wednesday.
General Mills on Wednesday posted fiscal third-quarter earnings of $343.2 million, or 56 cents per share, down from $410.6 million, or 64 cents a share, last fiscal year.
But adjusted for one-time charges, General Mills earned 70 cents per share, up from 62 cents a year ago and 3 cents ahead of the consensus forecast of analysts polled by Thomson Reuters.
General Mills’ stock closed at $52.86, up 81 cents, or 1.6 percent, on a day of broad stock market gains.
The company reported net sales of $4.35 billion for the quarter ended Feb. 22, in line with analysts’ estimates, but down 1 percent from a year ago. Adjusted for negative currency fluctuations, General Mills’ sales rose 3 percent.
General Mills’ U.S. retail division, its biggest segment, saw sales rise 1 percent to $2.65 billion. Annie’s, the organic macaroni and cheese maker that General Mills acquired in October, contributed 2 percentage points to net U.S. sales growth.
The increase also was driven by the company’s booming snack business — anchored by the Nature Valley brand — and its recovering yogurt operation. Yoplait’s U.S. sales rose 10 percent over the same time a year ago. Only General Mills’ snacks division, which had 14 percent sales growth, did better than Yoplait in the third quarter.
“Those are two categories that have been on trend for consumer demand, and yogurt has been their Achilles’ heel for some time,” said Erin Lash, a stock analyst with Morningstar.
Ken Powell, General Mills’ CEO, called the third quarter a “clear inflection” point for the company.
“In the first half of the year, U.S. retail sales were down 4 percent, but this quarter they were up 1 percent,” he said in an interview with the Star Tribune. “On the top line, we are seeing growth, though it still is clearly not all the way back to where we would like to see it.”
Indeed, General Mills cereal sales were essentially unchanged from a year ago. Cereal is the company’s biggest U.S. business, and it’s been hurt as consumers increasingly turn to breakfast alternatives. Still, cereal sales saw a marked improvement from the steep losses they suffered in General Mills’ first two quarters.
“We saw pockets of growth in the third quarter in cereal,” Powell told stock analysts in a conference call.
There’s more evidence of the mixed bag in General Mills’ U.S. retail business. Its meals and baking products units — which, respectively, include soup and cake mixes — both posted a disappointing quarter. Meals’ sales fell 2 percent over a year ago; baking products, 9 percent.
General Mills’ food service business had a bang-up third quarter, its sales growing 6 percent to $465 million. Food service — which includes convenience stores, schools and other institutions — has posted a 14 percent increase in operating profits in General Mills’ first three quarters compared to a year earlier.
“Our strongest operating performance this year is coming from our convenience and food service business,” Don Mulligan, General Mills’ chief financial officer, told analysts on a conference call.
The company’s international arm had sales of $1.23 billion, down 7 percent due to currency head winds. On a constant-currency basis, international sales grew by 6 percent.
General Mills reaffirmed its fiscal 2015 full-year financial targets and said in a statement it expects strong growth in the fourth quarter of its 2015 fiscal year.