Food companies are having a tough time, trying to cope up with reduced consumer interests towards items such as cereals. Further, their intention to spend less has been a big hurdle for such companies. Increasing input costs have added to the woes of the food retailers, making the situation even worse. One company which is facing all of the aforementioned problems is General Mills (GIS) which posted its fourth quarter results recently. The numbers were below the analysts’ estimates, enabling its share prices to fall.
By the numbers
Revenue dropped 3% to $4.3 billion over last year, missing the expectation of $4.45 billion. The top line was hampered by factors such as lower demand, which led to a decline in volumes, and slowdown in the overall food industry. Despite an increase in advertising and promotions, in order to lure consumers, volumes fell 2% over last year’s quarter.
Also, currency headwinds reduced revenue from the International segment, resulting in a drop of 7% to $1.34 billion over the prior year’s quarter. Also, volume decreased 6%, which was offset by the 4 % benefit of price increase.
Sales from U.S. Retail segment declined 1.4%, mainly because of unfavorable price/mix. However, the segment witnessed a volume increase of 1% over last year. The only segment which registered an increase in revenue was Convenience Stores and Foodservice segment. Sales from this segment grew 1.1% to $507.5 million.
The packaged food company managed to register an increase in its bottom line. Earnings jumped to $0.67 per share from $0.54 per share in the previous year. However, it failed to meet the estimate of $0.72 per share. Also, gross margin shrank by 10 basis points to 35% as increased dairy costs took its toll.
Efforts for the future
Nonetheless, General Mills has initiated a new plan in order to overcome the existing barriers to success. It first plans to control costs by laying down a cost cutting program which will include capacity cuts, employee cuts, etc. It will be reviewing its manufacturing operations of its North American business in order to identify the fields where costs can be cut. The company expects to save around $40 million every year in costs.
Not only General Mills, but also peers such as ConAgra Foods (CAG) are planning to cut costs through a similar program. Even ConAgra has undertaken efficiency initiatives such as factory closures, layoffs and selling off underperforming brands and units, which results in lower costs.
General Mills declared that it will be focused on innovating new products and promoting the existing ones to bring in more customers. It has also added protein to Cheerios and plans to expand Fiber One granola bars, which should help in boosting revenue. Also, the popular Yoplait Greek Yogurt is to be expanded since health conscious people want more of such products.
One of the biggest challenged for General Mills is the fact that people have reduced their consumption of cereals, as a main source of breakfast, since there are many more other options. However, efforts to promote cereals as an evening snack and promoting it heavily should help. Also, bringing in new products and expanding the ones which are doing better should be fruitful. Further, the cost cutting program provides a ray of hope. Hence, General Mills should be able to reap in the benefits. Until then, stay on the sidelines and watch the company closely.