General Mills' innovation drives Q2 sales

by Monica Watrous
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Successful launches of Oui by Yoplait and Chocolate Peanut Butter Cheerios contributed to top-line growth for General Mills in the latest quarter.
MINNEAPOLIS — General Mills, Inc. is benefiting from an increased focus on innovation. Successful product launches including Oui by Yoplait yogurt and Chocolate Peanut Butter Cheerios cereal contributed to top-line growth in the latest quarter.

Jeff Harmen
Jeffrey Harmening, CEO of General Mills

“Our biggest challenge entering 2018 was to change the momentum on our top line, and I’m pleased to say that we have delivered broad-based improvement in the second quarter across geographies, product platforms and channels,” said Jeffrey L. Harmening, CEO, during a Dec. 20 earnings call. “We’re executing better, we have stronger innovation, more effective brand building and better merchandising that’s driving market share gains in the majority of our key global platforms.

“We’re growing aggressively in key emerging channels like e-commerce. And I’m also pleased to say that we grew organic sales in absolute terms across all four of our operating segments this quarter, and while we like our momentum, I must say it feels great to grow again in absolute terms.”

Net earnings attributable to General Mills in the second quarter ended Nov. 26 totaled $430.5 million, equal to $0.75 per share on the common stock, which was down 11 percent from $481.8 million, or $0.82, in the prior-year period. Results included a $42 million charge related to a prior-year tax adjustment.

 Net sales of $4,198.7 million were up 2.1 percent from year-ago sales of $4,112.1 million.

Jon Nudi
Jonathon Nudi, senior vice president and group president of North America Retail for General Mills

“Our profit was down this quarter but improved sequentially over the first quarter,” said Jonathon J. Nudi, senior vice president and group president of North America Retail. “And we have clear initiatives that will deliver profit growth in the second half. We’re executing well against our fiscal ‘18 priorities, and we have strong back-half plans in place to maintain our trajectory.”

A highlight of the quarter was “a strong turnaround” in General Mills’ US cereal performance, driven by solid growth in Lucky Charms, Cocoa Puffs, Cinnamon Toast Crunch and Reese’s Puffs.

“Compelling consumer news has been a theme across these brands, whether that’s new marshmallow news each quarter on Lucky Charms or cinnamon news on Cinnamon Toast Crunch, which has driven 43 consecutive months of market share gains for the brand,” Nudi said. “We’re planning to extend our cereal momentum in the second half behind some exciting innovation and impactful marketing executions.

General Mills is expanding its Nature Valley line with new layered granola nut bars and soft-baked filled squares.
“Chocolate Peanut Butter Cheerios, which launched in October, is off to a great start, and is turning at the top of the category. We’ll continue to fuel this new product in the second half with strong in-store support.”

In the coming quarter, the company plans to launch several new cereal varieties, including Blasted Shreds shredded wheat cereal in Cinnamon Toast Crunch and peanut butter chocolate flavors, “in an effort to invigorate the $400 million shredded wheat segment by delivering satiety and taste,” Nudi said.

“And we’ll tap into the fast-growing nut butter channel with new almond butter and peanut butter varieties of our Nature Valley Granola cereals,” he added.

In 2018, General Mills plans to launch Blasted Shreds cereals and nut butter Nature Valley Granola cereals.
While yogurt sales slumped in the quarter, new products have been “tremendously successful thus far, led by Oui by Yoplait, which already makes up almost 10 percent of our US yogurt portfolio,” Nudi said.

“Oui’s glass jar and unique positioning really stand out on shelf, which has helped drive strong consumer trial, and we’re seeing acceleration in repeat purchases,” he said. “Retailers love Oui, because it is driving more sales from current consumers and attracting new yogurt buyers. Through the first four months on shelf, Oui is the largest launch in the category over the past five years.

“And Yoplait Mix-Ins, targeted toward traditional yogurt lovers looking for great-tasting snack options, is the second-largest launch in the category this year.

New Oui by Yoplait flavors will include raspberry, key lime mango and blackberry.
“While innovation is critical to our US yogurt strategy, it’s also critical that we stabilize our two large core platforms in kid yogurts and Original Style Yoplait.”

Executives expect Oui by Yoplait to drive more than $100 million in year-one sales.

“We know there’s a lot more work to be done in yogurt, so we are not taking any victory laps in that category, to be clear,” Nudi said. “But I like the way that that team’s really operating. They’re focused on playing our game and looking for opportunities and certain it’s going to be growing in the future and bringing fundamental innovation. And we did it in a really scrappy way, innovating quickly and closely with consumers.

Yoplait FruitSide yogurts will debut from General Mills next year.
“This truly is consumer-first innovation. And by being in market and iterating over time, we got to a product that we know really resonates with consumers and really works hard. So the actual process that we use to create Oui, we’re actually moving it across all of our (operating units) in the US and really around the world to make sure that we move more quickly and make sure that we’re connected as closely to the consumer as we can. And we believe that’s going to help our pipeline as we move forward and make our innovation even more impactful.”

Net earnings attributable to General Mills in the first six months of the year totaled $835.2 million, equal to $1.46 per share, down 6 percent from $890.8 million, or $1.50 per share. Net sales dipped to $7,967.9 million, down 0.6 percent from $8,020 million in the same period of the prior year.

Don Mulligan
Donal Leo Mulligan, executive vice president and CFO of General Mills.

For the full year, the company expects organic net sales growth of flat to down 1 percent, said Donal Leo Mulligan, executive vice president and chief financial officer.

“This translates to a 300- to 400-basis-point improvement over our fiscal ‘17 performance,” Mulligan said. “In addition, we now estimate currency translation will increase reported net sales by approximately 1 percentage point for the full year. We continue to project total segment operating profit growth to be in a range between flat and up 1 percent on a constant currency basis.

“...we now expect adjusted operating profit margin to be below last year’s levels. We continue to expect adjusted diluted EPS will increase between 1 percent and 2 percent in constant currency.” 

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