General Mills (GIS, Financial) released its third-quarter results before the market opened on March 18. The maker of Cheerios cereal posted mixed results, with earnings surpassing Wall Street’s expectations while revenue missed.
By the numbers
The Minneapolis-based company posted third quarter adjusted earnings of 77 cents, down 7.3% on a year-over-year basis but topping Wall Street’s estimate of 76 cents. Revenue of $4.18 billion was slighly lower than the $4.2 billion reported in the prior-year quarter. Wall Street had predicted revenue of $4.21 billion.
Organic sales was flat as compared with the year-ago period as softness in the North America Retail and Convenience Stores and Foodservice segments was only partly offset by solid pet segment performance. Chairman and CEO Jeff Harmening commented:
“We began fiscal 2020 with three key priorities: accelerate our organic sales growth, maintain our strong margins, and reduce our leverage. Our focus and execution in a dynamic environment this year have kept us on track to achieve those goals. Our third-quarter results were broadly in line with our expectations, except for the negative impact in Asia of the COVID-19 virus outbreak.”
Segment results
In the North America Retail segment, net sales came in at $2.50 billion. While the U.S. Meals & Baking operating unit saw sales decline of 2%, sales were down 1% each for U.S. Cereal, Snacks and Yogurt. In contrast, the Canada operating unit flourished during the quarter with sales growth of 6%. Segment operating profit totaled $532 million, reflecting a decline of 9% year-over-year.
The pet segment recorded $384 million in revenue, up 11% year-over-year. General Mills cited robust volume growth as well as net price realization and mix. Life Protection Formula and Wilderness, Blue Buffalo’s two lasgest product lines, witnessed double-digit sales growth during the quarter. Operating profit in the division rose 29% to $94 milion.
Sales in the Convenience Stores and Foodservice business plunged 2% to $465 million. The Non-Focus Six products, which includes flour and mixes, saw sales decline, which was partially offset by low single-digit growth of its Focus Six platforms that included splendid performance from cereal and frozen baked food. The operating profit was $92 million.
Net sales in the Europe and Australia segment fell 2% to $422 million owing to adverse foreign currency exchange rates. Organic sales plummeted 1%. Operating profit of $22 million dipped 1% as sales decline in Yoplait yogurt and Häagen-Dazs ice cream was only partially offset by growth in Nature Valley and Fibre One snack bars and Old El Paso Mexican food.
In Asia and Latin America, net sales amounted to $408 million, refelecting a decline of 5%. Organic net sales was in line with the year-ago results thanks to growth in Latin America, which was partially offset by declines in Asia. Operating profit totaled $8 million.
Effect of Covid-19
The company witnessed soaring demand after its fiscal third-quarter ended Feb. 23. Over the past week, consumers have bought large quantities of cereals, soup and other food to get through the coronavirus pandemic. As a matter of fact, the company’s factories are running almost at full capacity to serve the growing demand of retailers in North America and Europe.
In case of an unforeseen event like the workers taking leave to stay at home amid the coronavirus scare, the company has devised contingency plans to keep its factory running.
Fiscal 2020 outlook
For fiscal 2020, the company projects 6% to 8% 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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