General Mills New Segment Structure Improves Momentum, Driven By “Morning Foods” Sales

Breakfast foods, including cereal and yogurt, are leading growth across General Mills’ portfolio, with sales increasing 4% during FY Q3 2021, according to an earnings report released today. During a call with investors and analysts, the global food giant highlighted its “solid execution in a highly volatile environment,” reporting that net sales growth has remained virtually flat at $4.5 billion, while organic net sales were up 4%.

Growth in its U.S. Morning Foods (+4%) and Snacks (+3%) portfolios also helped General Mills to offset a 2% decline in both U.S. and Canadian Meals and Baking Solutions divisions. General Mill’s Chairman and CEO Jeff Harmening said the segments’ weak performance was primarily driven by “lower customer service and reduced on-shelf availability” due to supply shortages in the refrigerated dough, pizza and hot snacks categories.

“We responded urgently to address the problems,” he stated. “Our actions drove a sharper rebound than we expected at the end of the third quarter, and we’re seeing that improvement continue into Q4.”

According to Harmening, the company’s ability to urgently respond and adapt to the volatile operating environment can be partially attributed to its new operating structure, which was announced last June and took full effect in Q3. The company consolidated its cereal and yogurt brands under a single division called ‘Morning Foods’ and moved its business in Europe, Asia, Australia and Latin America into an ‘International’ segment. Its c-store business was also shifted away from foodservice operations and into its North American Retail arm to accelerate an omnichannel approach for its snack brands.

The company said it saw sales accelerate in almost all of the newly formed segments with North America retail increasing 1% to $2.81 billion, Pet (+30%), North American Foodservice up 22% to $437 million with the one exception being its International business which decreased 23% $721 million due to the impact of its divested European yogurt business last March.

However, the company was quick to note this quarterly International sales decrease will bring “a 3-point net headwind” to overall net sales and highlighted how that segment of business is accelerating compared to pre-pandemic levels, specifically with Mexican food and ice cream products.

“General Mills was accelerating as we entered the pandemic, and we’ve built on that momentum over the past two years,” said Harmening. “Our worldwide net sales are up nearly $2 billion, or 11%, from two years ago, and our earnings have outpaced net sales growth with adjusted diluted earnings per share up 12%. We’ve grown household penetration on many of our biggest brands around the world.”

The company has also raised its full year FY22 outlook based on its performance this quarter and in line with its inflation projections. While General Mills was unable to reach earnings targets due to unexpected inflationary pressures in the last quarter, Harmening said the company feels it has a “good handle” on both rising costs and its pricing mix, noting that better-than-expected volumes have been the primary contributor to raising its guidance.

General Mills also stated it is focused on being “a force for good” around the world from fighting for food security, to supporting regenerative agricultural practices to its current focus on supplying aid to Ukraine. The company also noted that it recognizes Russia’s invasion has further contributed to market inflation and volatility in certain areas.

“This quarter, we focus our attention on Russia’s invasion of Ukraine and the growing humanitarian crisis in the region,” stated Harmening. “We’ve taken action to support those impacted in Ukraine and neighboring countries, with a particular focus on food security. Through General Mills and our Cereal Partners Worldwide joint venture, we have provided funding to our partners at the European Food Banks Federation and the International Federation of Red Cross Societies, and we’ve made direct food donations for people in need.”