With demand weak, General Mills profit, sales drop

General Mills Inc.'s sales woes continued in its most recent quarter, but they weren't much worse than investors expected.

The Golden Valley-based company reported Wednesday that second-quarter net profit dropped 37 percent as weak demand continued to gnaw at the big packaged-food maker. However, its adjusted operating profit, which excluded restructuring expenses, was above analysts' estimates.

General Mills posted net earnings of $346.1 million, or 56 cents per share, for the quarter ended Nov. 23. Stripping out restructuring costs, General Mills had earnings per share of 80 cents, down from 83 cents a year ago, but above the 77 cent consensus forecast from analysts polled by Thomson Reuters.

General Mills recorded sales of $4.71 billion, down 3 percent from a year ago and short of analysts' estimates of $4.79 billion. When adjusted for unfavorable foreign currency fluctuations, sales were still down 1 percent over a year ago.

General Mills stock closed Wednesday at $52.19, up $1.06, or 2 percent.

On Nov. 7, General Mills sharply lowered its sales and profit outlook citing weak industry trends. "The second quarter was really right in line with the November revision in pretty much every way," General Mills CEO Ken Powell said in an interview with the Star Tribune.

Jack Russo, a stock analyst at Edward Jones, said it was "good to see that business conditions did not get any worse."

Packaged food is being buffeted by a sluggish economic recovery, food industry executives say. But consumers also have been changing their tastes, for example favoring more protein and fewer carbohydrates in their diets. Packaged-food makers need to adapt.

"It's really an era of change," Powell told stock analysts in a conference call Wednesday. "So with all this change going on, with millennial [generation] values and how they see food, the time is ripe for good consumer-focused innovation."

General Mills' U.S. retail sales were $2.86 billion, down 4 percent from a year ago. The segment's operating profit fell 10 percent.

Sales of cereal, General Mills' largest U.S. business, dropped 5 percent from a year ago, though the company gained share on rival Kellogg. The U.S. meals division saw a 7 percent decline as Hamburger Helper's 2013 makeover hasn't taken hold. Sales of baking products fell 5 percent as a key competitor cut prices.

However, Yoplait sales were up 1 percent, a second consecutive quarter of sales growth after three years of decline. And General Mills' vibrant snacks division, home to its Nature Valley and Fiber One bars, posted 2 percent sales growth.

To deal with weak sales, General Mills is in the midst of a significant restructuring and cost-cutting drive.

In September, it announced the closing of two plants, one each in California and Massachusetts, erasing about 575 jobs. In October, it said it would also cut 700 to 800 mostly white collar jobs, though the company again declined Wednesday to say how many of those would be in the Twin Cities.

"The restructuring process has been ongoing since the end of September and we have worked our way through most of it," Powell told the Star Tribune. It should be completed by late January or early February, he said.

Mike Hughlett • 612-673-7003