Cost Cuts Boost Margins At General Mills

   (FROM THE WALL STREET JOURNAL 3/24/16) 
   By Annie Gasparro 

Cost-cutting helped General Mills Inc. book a higher profit in its latest quarter, but the Cheerios maker is still struggling with weakening U.S. demand for its cereal and yogurt.

The Minneapolis-based company's sales fell 8% to $4 billion for the three months ended Feb. 28, trimmed by the sale of its Green Giant vegetable business and foreign-exchange headwinds that cut the value of overseas revenue.

But its effort to close factories and reduce corporate spending helped lift profit by 5.4% to $361.7 million, beating analysts' expectations.

Cost-cutting efforts "have been very effective as we're seeing nice [profit] margin expansion this year," Chief Executive Ken Powell said in an interview Wednesday. "But you can't sustain the business on cost-cutting alone."

The 150-year-old food company says restoring growth for its U.S. cereal sales is a priority. Consumers are eating less of processed oats and grains for breakfast, switching to higher-protein, portable meals such as Greek yogurt and breakfast sandwiches.

In January, General Mills replaced traditional varieties of Golden Grahams, Trix and four other cereals with more-natural versions that don't use artificial food dyes.

Sales of those cereals rose 6% in January and February from a year earlier, compared with a 6% decline in fiscal 2015.

"We're in an environment where the consumer attitudes about food are changing very rapidly," Mr. Powell said. "Now would not be a good time to cut your innovation. If anything, you should accelerate it."

General Mills said it expects to close out its fiscal year ending in May with a rise in U.S. cereal sales on a comparable basis, following a 3.3% decline last year.

The company also has to tackle challenges to its dairy business. Yogurt sales, driven by its Yoplait brand, fell 10% in the latest quarter.

With milk costs down, other yogurt brands offered significant discounts, while General Mills said it held pricing steady to protect profitability.

Mr. Powell said that in the next couple of months it will become more competitive on pricing and hopes to regain shelf space in retailers.

General Mills reported fiscal third-quarter earnings of $361.7 million, or 59 cents a share, up from $343.2 million, or 56 cents, a year earlier. Excluding certain items, adjusted earnings fell to 65 cents a share from 70 cents.

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Anne Steele contributed to this article

(END) Dow Jones Newswires

March 24, 2016 02:47 ET (06:47 GMT)

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