General Mills’s pricing strategy was a double-edged sword in its third quarter, helping profits beat analysts’ estimates but contributing to a seventh straight quarterly sales decline.
As rivals have been slashing prices to compete for retailers’ shelves, General Mills has opted instead to limit discounting in a bid to boost margins. That translated into adjusted third quarter earnings of 72 cents per share, topping the average analyst estimate by one cent.
But the top line showed a 5.2% decline in net sales to $3.79 billion in the third quarter ended Feb. 26, reflecting weak demand for General Mills’ yogurt and baking products
Chief Executive Ken Powell said the results “finished in line with our expectations” but admitted the pricing strategy weighed down sales. “Our net sales declined due primarily to gaps in pricing and promotional activity in key U.S. businesses,” he said in a news release.
Jeff Harmening, General Mills’ chief operating officer, told analysts on an earnings call that the price gap with its competitors was one of the company’s “biggest challenges” so far this year.
“We haven’t had the promotion mix right and we haven’t been as competitive in pricing as we could have been,” he said.
As Reuters reports, retailers including Wal-Mart, Target, and Amazon are currently embroiled in a price war that has made it crucial for them to stock cheaper products. “2017 does seem to be developing into a ‘tug-of-war’ between the retailers and food manufacturers, where pressure is mounting on retailers to become sharper on price points,” Bernstein analyst Alexia Howard said.
General Mills is also facing lackluster demand for its processed foods as consumer tastes shift toward fresh foods and items seen as healthier, while its yogurt business — which in 2016 accounted for 16% of total sales — has been struggling.
The company said third-quarter net sales for its North America retail segment, its largest business division, fell 7% from the prior year, “driven primarily by double-digit declines in the U.S. Meals & Baking and U.S. Yogurt operating units.”