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General Mills Faces Odds With Cost Cut & Other Initiatives
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General Mills Inc. (GIS - Free Report) has been implementing cost saving initiatives, investing in consumer-focused innovation and accelerating the natural and organic product portfolio to boost its sales keeping the changing food preferences in mind.
Earlier this month, the company posted weak first-quarter fiscal 2018 results, wherein both the top and bottom lines missed the Zacks Consensus Estimate by 0.5% and 7.8%, respectively.
Challenges
Major U.S. food companies are fighting a tough battle as easy-to-prepare and ready-to-eat convenience foods are gradually losing sheen. Consumers would earlier take decisions based on taste, price and convenience.
This seismic shift in the U.S. food industry is creating hurdles for food behemoths such as General Mills, Kellogg Company (K - Free Report) , Mondelez International, Inc. (MDLZ - Free Report) , The Kraft Heinz Company (KHC - Free Report) , and others, thus making it harder for legacy brands to improve sales.
In the recently reported quarter, General Mills’ adjusted earnings and revenues declined 9% and 3.5%, respectively, year over year due to weak sales across the board, barring Convenience Stores & Foodservice, and Europe & Australia segments. Its core U.S. Retail business’ sales declined 5% primarily due to double-digit declines in the domestic yogurt operating unit and a 7% decline in cereals. The company’s organic sales also declined 4%, with volumes decreasing 4%.
The company also revealed a weak margin picture with adjusted gross margin declining 230 basis points (bps) due to higher input costs. Adjusted operating margin also plunged 210 bps thanks to lower adjusted gross margins and an increase in advertising and media expense.
Again, fiscal 2018 guidance seems to be a shade depressing, depicting organic sales decline of 1% to 2%, segment operating profit growth of 0% to 1% (restructuring savings partly offsetting higher investments), and earnings per share growth of 1% to 2%.
Management is trying to turn around the U.S. Retail business through consumer-focused innovation and marketing. However, a material improvement in the segment will take some time.
Turnaround Efforts
To regain lost ground, General Mills laid out four global growth priorities for improving its top line. Growing Cereal globally, improving U.S. yogurt through innovation, investing in differential growth opportunities and managing the company’s foundation brands with appropriate investment are the key agendas. Precisely, expanding the Cereal business includes Cereal Partners Worldwide (CPW), which is the joint venture with Nestlé based in Switzerland that markets cereal in 130 countries.
The company is investing in consumer-focused innovation, marketing and accelerating its organic product portfolio to boost sales in a challenging and dynamic environment.
Furthermore, General Mills is on track to achieve its cost-savings target for fiscal 2018 as it forges ahead with its margin-expansion efforts. The company has plans of delivering approximately $390 million in supply chain productivity savings in fiscal 2018 through its ongoing Holistic Margin Management efforts that will more than offset input cost inflation. General Mills also expects to deliver about $160 million in incremental savings from other restructuring and cost-reduction initiatives, which equate to approximately $700 million in aggregate cost savings by fiscal 2018.
The company remains optimistic about the rest of fiscal 2018 and expects retail sales to contribute positively, beginning second quarter. Although, we do not expect significant sales growth in the near term, the declines are expected to narrow down as the company focuses more on sales growth, banking on product innovations. Hence, sales are likely to strengthen and margin headwinds to diminish as we move forward through the fiscal year, driving profit growth in the second half of fiscal 2018.
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General Mills Faces Odds With Cost Cut & Other Initiatives
General Mills Inc. (GIS - Free Report) has been implementing cost saving initiatives, investing in consumer-focused innovation and accelerating the natural and organic product portfolio to boost its sales keeping the changing food preferences in mind.
Earlier this month, the company posted weak first-quarter fiscal 2018 results, wherein both the top and bottom lines missed the Zacks Consensus Estimate by 0.5% and 7.8%, respectively.
Challenges
Major U.S. food companies are fighting a tough battle as easy-to-prepare and ready-to-eat convenience foods are gradually losing sheen. Consumers would earlier take decisions based on taste, price and convenience.
This seismic shift in the U.S. food industry is creating hurdles for food behemoths such as General Mills, Kellogg Company (K - Free Report) , Mondelez International, Inc. (MDLZ - Free Report) , The Kraft Heinz Company (KHC - Free Report) , and others, thus making it harder for legacy brands to improve sales.
In the recently reported quarter, General Mills’ adjusted earnings and revenues declined 9% and 3.5%, respectively, year over year due to weak sales across the board, barring Convenience Stores & Foodservice, and Europe & Australia segments. Its core U.S. Retail business’ sales declined 5% primarily due to double-digit declines in the domestic yogurt operating unit and a 7% decline in cereals. The company’s organic sales also declined 4%, with volumes decreasing 4%.
The company also revealed a weak margin picture with adjusted gross margin declining 230 basis points (bps) due to higher input costs. Adjusted operating margin also plunged 210 bps thanks to lower adjusted gross margins and an increase in advertising and media expense.
Again, fiscal 2018 guidance seems to be a shade depressing, depicting organic sales decline of 1% to 2%, segment operating profit growth of 0% to 1% (restructuring savings partly offsetting higher investments), and earnings per share growth of 1% to 2%.
Management is trying to turn around the U.S. Retail business through consumer-focused innovation and marketing. However, a material improvement in the segment will take some time.
Turnaround Efforts
To regain lost ground, General Mills laid out four global growth priorities for improving its top line. Growing Cereal globally, improving U.S. yogurt through innovation, investing in differential growth opportunities and managing the company’s foundation brands with appropriate investment are the key agendas. Precisely, expanding the Cereal business includes Cereal Partners Worldwide (CPW), which is the joint venture with Nestlé based in Switzerland that markets cereal in 130 countries.
The company is investing in consumer-focused innovation, marketing and accelerating its organic product portfolio to boost sales in a challenging and dynamic environment.
Furthermore, General Mills is on track to achieve its cost-savings target for fiscal 2018 as it forges ahead with its margin-expansion efforts. The company has plans of delivering approximately $390 million in supply chain productivity savings in fiscal 2018 through its ongoing Holistic Margin Management efforts that will more than offset input cost inflation. General Mills also expects to deliver about $160 million in incremental savings from other restructuring and cost-reduction initiatives, which equate to approximately $700 million in aggregate cost savings by fiscal 2018.
The company remains optimistic about the rest of fiscal 2018 and expects retail sales to contribute positively, beginning second quarter. Although, we do not expect significant sales growth in the near term, the declines are expected to narrow down as the company focuses more on sales growth, banking on product innovations. Hence, sales are likely to strengthen and margin headwinds to diminish as we move forward through the fiscal year, driving profit growth in the second half of fiscal 2018.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
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