On the money: General Mills optimistic about outlook for US cereal, yoghurt
General Mills has insisted it is upbeat about the prospects for its US cereal and yoghurt businesses, its two largest in the country and under scrutiny from analysts.
The Cheerios cereal and Yoplait yoghurt owner yesterday (19 December) reported higher first-half sales and profits but said sales from its domestic Big G cereals and Yoplait yoghurt divisions fell.
Barclays Capital analyst Andrew Lazar described the performance from the two businesses as "weak". Alexia Howard at Sanford Bernstein, meanwhile, said the results were "sluggish".
Speaking to analysts after the first-half figures were published, Ian Friendly, COO of General Mills' US retail business, was optimistic about the outlook for the company's domestic cereal arm despite the fall in sales over the last six months.
"Now I'm sure you noticed that our first half cereal net sales and market share were below year-ago levels. Other players in the category had more merchandising activity in the first half of the year," Friendly told analysts. "We've got more merchandising planned for the second half, including introductory support for our new items. With a great lineup of new products and strong levels of marketing support behind new and established brands, we remain very excited about our US cereal business, and we expect sales growth for Big G in the second half of this year."
The US yoghurt sector has seen rapid growth in recent years, driven by the booming Greek yoghurt segment. However, analysts have expressed concern over the distribution General Mills has secured for its yoghurt products and the company remains far behind rivals Danone and category leader Chobani.
General Mills has launched a range of products and invested more in marketing its yoghurt. Friendly insisted General Mills had seen "signs of stabilisation" for its core Yoplait business and was increasing its share of the buoyant Greek segment.
General Mills is set to launch more Yoplait yoghurt products and invest more behind a second brand, Liberté, including the roll out of a Greek line.
"We expect to see increasing momentum across our US yogurt business in the second half of this year," Friendly said. "It's a very volatile category. I think the jury is out. We'll have to look in May to see if for the year, how it all nets out. I would expect that every period in the back half gets better. As I shared in my remarks, our Greek business seems to be really gaining nice traction, and our core business is stabilizing well. So I'm guardedly optimistic around our share in the back half. But I think we're still kind of progressing from what had been a more challenging place."
In a note to investors, Howard said General Mills, which upped its target for annual adjusted earnings per share, was "hitting its bottom-line financial guidance solidly".
However, she added: "Organic sales growth remains sluggish, mainly due to competitive dynamics in US cereals and yogurt. Since these are the two largest categories in the US, it will be important for the company to stabilise and begin to reverse these trends early in 2013 without triggering further price actions by competitors. If innovation is successfully adopted by consumers, this may be feasible as trends are improving sequentially in yogurt, but we see more risk here than for other companies that are facing less intense competitive pressures."
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