The restructuring at General Mills continues.
The US food group yesterday (8 January) announced plans to close two plants – one in the US and one Canada – as it looks to cut costs amid declining sales.
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In June, General Mills said it had put its manufacturing network in the US under review to streamline its operations and look at ways to capacity.
Three months later, the company set out plans to shut two facilities in the US – moves that it said would affect around 570 posts. Within a fortnight, a further announcement was made, with news of a further round of job cuts. General Mills said a further 700 to 800 jobs would go.
In the Cheerios maker’s last financial year, which ran to 25 May, General Mills reporting a year of flat US retail sales and falling operating profit. It was a year that compounded consecutive years of under-pressure domestic sales. According to Athlos Research principal Jonathan Feeney, General Mills’ US retail business has seen sales fall on an organic basis since its 2009 financial year.
Parts of General Mills’ portfolio face significant challenges, with cereal under almost structural pressure and yoghurt fiercely competitive. Moreover, in the US, there is an increasing movement away from processed foods to more natural alternatives, affecting sales and profits of traditionally established brands that benefited from pricing power.
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By GlobalDataDespite General Mills’ ongoing “holistic margin management” programme, it was clear the company needed to look again at its cost base. In that context, plant closures are not a huge surprise.
However, the latest closures could be an indication General Mills may have realised it has to make deeper cuts than it may have first envisaged.
At the time of writing, General Mills had not responded to questions on whether that was the case. The plants in Indiana and Ontario may have already have been lined up for closure but the announcements come amid continued pressure on General Mills’ sales. Just before Christmas, the company reported a fall in half-year profits as sales continued to slide.
More closures could be in the offing and, while sales remain soft, help General Mills’ profitabilility.
However, looking further ahead, growing the top line will be key to General Mills’ long-term growth. Last year, the company swooped to buy Annie’s, a deal analysts estimated equated to 27 times the US natural and organic food business’ expected EBITDA.
General Mills may need to again turn to M&A to kick-start its growth in the US but deals may not be straight-forward. “Ultimately, it probably will take more acquisitions to really turn things around, but valuations are pretty expensive today. And the problem is that the profits on the newer, smaller clean-label brands are typically lower than for big, established brands due to economies of scale,” Sanford Bernstein analyst Alexia Howard tells just-food.
