June 28, 2017 / 11:08 AM / a year ago

General Mills posts first sales beat in a year, shares rise

(Reuters) - Cheerios cereal maker General Mills Inc (GIS.N) reported a better-than-expected quarterly profit and its first sales beat in a year, sending its shares up as much as 4.1 percent.

General Mills breakfast cereal is shown for sale in Carlsbad, California, U.S., June 27, 2017. REUTERS/ Mike Blake

U.S. packaged food makers, including General Mills, Conagra Brands Inc (CAG.N) and Kellogg Co (K.N), have been struggling with sluggish demand as more consumers shift to fresh foods and products seen as healthier.

The sector is expected to come under renewed pressure with the entry of online giant Amazon.com Inc (AMZN.O) into the brick-and-mortar grocery stores business through its deal to buy Whole Foods Market Inc WFM.O.

However, on a post-earnings call General Mills Chief Executive Jeff Harmening played down the impact.

“There are a variety of customers who participate in e-commerce, and so it’s not going to be just one winner,” he said.

General Mills - the first packaged foods maker to report since the Amazon-Whole Foods deal - has “great relationships” with both companies, Harmening said.

The company sells its Annie’s line of organic foods at Whole Foods, while it sells a broad range of products on Amazon.

Harmening, who took over in June, said the company would be more competitive on pricing this year, and concentrate on improving sales, which have fallen for the past two years.

“We missed the mark last year on promotional spending, on soup and refrigerated dough. So in fiscal 2018, our goal is to be in the zone on pricing during the key season,” he said.

In a bid to shore up margins, General Mills had been aggressively cutting back on promotions on high-margin products such as Progresso soups and Pillsbury dough, at a time when rivals were slashing prices.

This weighed on sales, and the company said in March it would slow down the pace of the pull back on promotions.

The company on Wednesday forecast adjusted earnings to increase 1-2 percent for the year ending May 2018, with a 1 cent impact from currency translation.

This implies an adjusted profit of $3.10-$3.13 per share, coming in below analysts’ average estimate of $3.20, according to Thomson Reuters I/B/E/S.

General Mills’ profit has topped analysts’ estimates in the past three quarters, helped by its cost-cutting strategy.

Selling and other expenses fell 10.2 percent in the fourth quarter, with advertising and media expenses dropping 17 percent.

Excluding items, the company earned 73 cents per share, beating the average analysts’ estimate of 71 cents.

Net sales fell 3.1 percent to $3.81 billion, but beat the estimate of $3.75 billion.

The company’s shares gave up some of their gains and were up 2 percent at $56.61 in late morning trading.

Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Sriraj Kalluvila

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