General Mills reported mixed results Wednesday morning for its opening quarter of the new fiscal year, and its stock fell in premarket trading.
The company grew its profit in the latest quarter, but failed to increase sales — something executives have said it needs to do this year.
The Golden Valley-based food maker said its net profit rose 33% to $521 million for the quarter ended Aug. 25, thanks to a higher operating profit and lower effective tax rate. Adjusted earnings amounted to 79 cents a share, beating Wall Street’s expectations by two cents.
Net sales decreased 2% to $4 billion, short of analysts’ expectations. The company’s stock price was down as much as 5% after the announcement but recovered closer to the start of regular trading.
Investors are looking for General Mills to deliver on its promise of getting General Mills’ sales back to true growth. The company spent several years stabilizing its businesses through cost-cutting measures in the face of a broad consumer shift away from traditional packaged food toward fresher, wholesome foods.
But executives have been focused recently on the company’s long term growth plans, which hinge on its ability to deliver consistent organic sales growth — an industry term for growth achieved through its existing products rather than relying solely on acquisitions to boost its numbers.
While the quarter was mixed, the company reaffirmed its full-year guidance of growing organic net sales 1% to 2% and increasing earnings per share 3% to 5%.
“We remain on track to deliver our fiscal 2020 goals, including accelerating our organic sales growth, maintaining our strong margins, and reducing our leverage,” Jeff Harmening, chief executive of General Mills, said in a news release Wednesday.
Harmening recently told the Star Tribune that much of its sales growth will come from its fast-growing pet food category, which the company recently bought into through the $8 billion acquisition of Blue Buffalo in 2018.
Investors are keeping tabs on that line’s growth rate as an indicator of General Mills’ overall progress toward its goals. Pet food sales grew 7% to $368 million during the quarter.
And while General Mills is banking on growth in its pet food sales, the segment only accounts for about 10% of the company’s overall revenue. Executives say General Mills’ North America retail segment, which accounts for about 60% of overall revenue, has to do the heavy lifting in getting its human food back to growth. Harmening says improvements in U.S. snacks and cereal will be especially important in the company hitting its long-term growth forecast.
Net sales in North America were flat while snacks were down 1% and cereal was up 1% during the first quarter.
“Our first-quarter net sales performance included encouraging improvement in North America Retail and strong growth in Pet, driven by good innovation and effective brand-building investment,” Harmening said in the release.
While much of the focus is on pet food and North America retail, Wednesday’s results prove no part of its business can falter. Its Europe and Australia segment’s sales dropped 9% while its Asia and Latin America business’ sales tumbled nearly 10%.
“We’re taking actions to drive top-line improvement for those segments and the company starting in the second quarter,” Harmening added.
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