General Mills Records 2nd-Quarter Earnings and Revenue Beat

Solid pet food sales boost company's revenue

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Dec 19, 2019
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General Mills Inc. (GIS, Financial) released its second-quarter financial results before the opening bell on Dec. 18. Both earnings and revenue beat analysts' expectations.

Snapshot of the quarter

The maker of Cheerios cereal posted second-quarter earnings of 95 cents per share, topping the consensus estimate of 88 cents per share. Revenue of $4.4 billion remained flat compared to last year, but surpassed expectations of $4.35 billion.

Organic net sales grew 1% thanks to higher organic volume as well as high demand for pet food.

“I’m encouraged by our second-quarter performance, including the broad-based improvement in our organic sales trends and positive results on the bottom line,” Chairman and CEO Jeff Harmening said. “We will build on our topline momentum in the second half, fueled by increased investment in our brands.”

Segment results

In the North America retail segment, net sales amounted to $2.68 billion. While the U.S. Cereal operating unit flourished during the quarter with sales growth of 5%, U.S. Yogurt and U.S. Snacks experienced declines of 2% and 4%. The segment's operating profit totalled $642 million, reflecting a gain of 4% in constant currency.

The pet segment posted $389 million in revenue, up 16% year over year. General Mills cited robust volume growth as well as net price realization and mix. Also, the introduction of the Blue Buffalo pet food line at Walmart (WMT, Financial) contributed to the segment’s performance. Operating profit in the division rose 14% to $81 million.

Sales in the Convenience Stores and Foodservice business remained flat at $514 million as compared to the year-ago period. The segment saw low single-digit growth of its Focus 6 platforms that included splendid performance from cereal and frozen baked food, which was offset by adverse index pricing on bakery flour. Operating profit came in at $115 million.

Net sales in the Europe and Australia segment fell 7% to $554 million owing to adverse foreign currency exchange rates. Organic sales dipped 1% in the reported quarter due to a tough retail atmosphere in France for yogurt and ice cream. The operating profit was $59 million.

In Asia and Latin America, net sales amounted to $410 million, reflecting a decline of 5%. Organic net sales increased 1% thanks to growth in Latin America and China, which was partially offset by distribution network modifications in India. Operating profit totalled $24 million.

Company’s investment in Blue Buffalo

The Minneapolis-based company bought pet food brand Blue Buffalo last year for $8 billion.Ă‚

The pet food category is flourishing in the consumer staples sector. Blue Buffalo recorded sales growth at an annualized rate of 12% for the preceding three years at the time of the acquisition.

While the rollout of Blue Buffalo products at Walmart could lift sales levels, the pet segment accounts for only 10% of the company’s overall revenue. For General Mills to grow in the long run, it will need to rely more on its core businesses, where it is currently seeing a weak performance.

Fiscal 2020 outlook

For fiscat 2020, the company projects 3% to 5% earnings growth. The combined effect of currency translation as well as the divestitures that took place in fiscal 2019 is expected to lead to higher top-line growth. Organic net sales growth of 1% to 2% is also anticipated.

Disclosure: I do not hold any positions in the stocks mentioned.

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