Friendly pointed to a “below par” level of innovation in marketing from branded cereal competitors over the last couple of years for the decline in volumes

Friendly pointed to a “below par” level of innovation in marketing from branded cereal competitors over the last couple of years for the decline in volumes

US food giant General Mills today (6 September) warned sales and volumes in North America remain "muted".

Speaking at the Barclays Capital Back to School Conference, CFO Don Mulligan said the group's overall performance to date is "consistent with plans" but admitted the operating environment in the US remains a "challenge".

"Food industry sales and volume trends in North America remain muted," Mulligan said. "Our input costs in the period are above year-ago levels and as we've indicated previously, our plans call for first-quarter adjusted EPS to be below year-ago levels."

However, Mulligan said it was "too early" to determine what impact the environment had had on group volumes.

"Our business is seasonal between September and March so a lot of our pricing adjustments will be coming right now and in fourth period. But in few categories that weren't seasonal, we are seeing traction with the trade."

He added of total company volumes: "We do have the same expectations we shared in July - flattish in the first quarter and then strengthening as the year unfolds."

Separately, the group said its outlook for the US cereal category remains positive despite falling sales volumes in the category over the last two years.

COO of US retail Ian Friendly told attendees that since 1983 - the year he joined the firm - the category has demonstrated "reliable" low- to mid-single digit volume and dollar sales growth over time.

However, he added: "Over recent months, some analysts have questioned the future prospects for the US cereal category and I understand why. The category's pound volume has declined in the last two years."

Friendly pointed to a "below par" level of innovation in marketing from branded cereal competitors over the last couple of years as the "first and foremost" reason for the decline.

He added: "The second factor behind the recent category volume decline is recent price increases. The sharp increase in input costs last year lead to a significant increase in cereal pricing. We see both of these contributed to the pound volume decline and we see both of these issues as cyclical and not structural."

Friendly said category dollar volume grew in 2012 and therefore expects category pound volume to "resume its historical growth trend".

In June, the Cheerios cereal maker reported annual sales from its Big G cereal division grew 4% to $2.4bn. Volumes were flat year-on-year.

However, Friendly added cereal is a "key traffic driver for its customers" and gives the company "confidence" in the growth potential of the category.

"Breakfast at home is thriving. Our US cereal business has delivered strong performance through the recession," Friendly told analysts. "We are working to keep the momentum going in 2013."

"Our outlook for the cereal category remains quite positive," Friendly said. "We expect category volume dynamics to improve. We don't expect to see net sales and earnings growth in the first quarter due to year-over-year differences in merchandising, but we do expect sales and earnings growth in 2013 in total. And beyond 2013, growth prospects for US cereal remain excellent due to cereal's broad-based popularity and health profile."

General Mills reaffirmed its sales and earnings targets for the 2013 fiscal year of adjusted diluted EPS of $2.65. The firm said it sees first-quarter results (to be reported on 19 September) in line with company expectations, which called for adjusted diluted EPS to be below last year's first-quarter results.