Strategy

General Mills’ Q3 Profit Beats Estimates

The company's cost-cutting measures offset a 7% drop in U.S. sales as consumers continue to switch to foods they consider to be healthier.
Katie Kuehner-HebertMarch 23, 2016

General Mills’ third-quarter profit beat analysts’ estimates due to aggressive cost-cutting measures that offset weaker U.S. sales.

The Minneapolis firm said net income rose to $361.7 million, or 59 cents per share, for the quarter that ended Feb. 28, from $343.2 million, or 56 cents per share, a year earlier. Excluding items, the company earned 65 cents per share.

Net sales fell 8% to $4 billion, including a 3 point decline from the divestiture of General Mills’ Green Giant business. On a constant-currency basis, net sales fell 4%.

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Analysts on average had expected earnings of 62 cents per share on revenue of $4.08 billion, according to Thomson Reuters I/B/E/S.

“Our third-quarter financial results were in line with our expectations,” General Mills CEO Ken Powell said in a news release. Despite the sales decline, “our disciplined financial management has enabled us to expand our adjusted operating profit margin for the fifth consecutive quarter.”

As Reuters reports, processed food companies have been struggling as U.S. consumers switch to foods they consider to be healthier. General Mills’ third-quarter net sales in the U.S. totaled $2.48 billion, down 7% from the prior year.

The company has responded to weak U.S. sales by cutting jobs, selling plants and exiting less-profitable brands. In January, it replaced traditional varieties of six 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,” Powell told The Wall Street Journal. “Now would not be a good time to cut your innovation. If anything, you should accelerate it.”

After dropping sharply earlier in the day, General Mills shares on Wednesday closed up 0.36%, at $61.01. “Basically, General Mills profit growth is being driven by cost cutting and expense management, not sales growth,” the Minneapolis Star Tribune said. “It’s a conundrum the entire packaged food industry is facing.”

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