General Mills's Revenue Growth Weaker Than Expected--3rd Update

By Chelsey Dulaney And Julie Jargon 

General Mills Inc. on Wednesday reported weaker-than-expected revenue in its latest quarter, as the maker of Cheerios cereal and Hamburger Helper struggles with changing consumer tastes and a strong dollar.

The Minneapolis-based company has been cutting jobs and closing plants as it struggles with Americans' growing aversion to packaged foods. General Mills said Wednesday that it expects its cost-cutting efforts to save $285 million to $310 million in its new fiscal year.

General Mills isn't alone--established food-and-beverage makers such as Kellogg Co. and Coca-Cola Co. are also grappling with lagging demand for their shelf-stable foods and sugary drinks, as people turn to healthier, fresher options.

In June, General Mills announced plans to strip artificial flavors and colors from the remaining 40% of its cereals that still contain them, including Trix and Reese's Puffs.

The company this summer is also labeling five of its Cheerios cereal varieties gluten-free and later this year plans to make gluten-free Lucky Charms. Although the oats in its Cheerios and Lucky Charms are naturally free of gluten--a protein mixture found in wheat, rye, and barley to which some people are allergic--General Mills developed a mechanical filter to separate the oats from gluten-containing grains that can come into contact with them.

"The reality of the changing food values of our consumers is central to what we're doing," Chief Executive Ken Powell said in an interview. "It's not just the elimination of gluten and artificial colors, but the products we're launching are simpler."

The company has benefitted from its acquisition of organic-food company Annie's Inc. last year for $820 million.

In the fiscal fourth quarter, U.S. retail sales grew 4.6% to $2.55 billion.

In its international segment, sales fell 8.8% to $1.22 billion on currency effects, which brought down sales growth by 18 percentage points.

Convenience stores and food-service-segment sales grew 3.9% to $527.5 million.

General Mills reported a total profit of $186.8 million for the quarter, or 30 cents a share, down from $404.6 million, or 65 cents a share, a year earlier. Excluding restructuring-related charges, a tax item and other special costs, earnings were 75 cents a share.

Revenue ticked up 0.4% to $4.3 billion. Excluding currency fluctuations, sales would have increased 6%.

Analysts polled by Thomson Reuters expected a per-share profit of 71 cents and revenue of $4.53 billion.

Gross margin improved to 35.3% from 34.6% in the prior year.

The company forecast a mid- to single-digit increase in adjusted earnings next year, excluding currency fluctuations, and flat sales growth compared with the prior year.

Write to Chelsey Dulaney at [e-mail] and Julie Jargon at [e-mail]

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