General Mills said it has made a “solid start” to its financial year and reaffirmed its longer-term growth and earnings targets, which will be driven by innovation.
Speaking at the Barclays Back to School conference, General Mills CFO Don Mulligan said the company, which is due to deliver its first-quarter results on 18 September, delivered “good” growth in the period.
“The business is off to a solid start. We expect to deliver good sales growth in the quarter, including contributions from new products and three months of incremental contribution from Yoplait Canada and Yoki in Brazil,” he revealed.
Last year, General Mills acquired Brazilian business Yoki and attained sales and distribution rights to Yoplait branded yoghurt in Canada. New business made a contribution to the top line, Mulligan said.
The group is also driving sales growth through product launches. The maker of Old El Paso and Green Giant has outlined a raft of product launches it plans to roll out this year across its five key categories – cereal, yogurt, convenient meals, snacks and super premium ice cream.
“These categories are on trend with consumer demand for great tasting nutritious and convenient food at a good value. As a result, retail sales for these categories are projected to grow at mid to high single digit rates in the years ahead. Our brands hold leading positions in these advantage categories,” Mulligan said.
General Mills has laid out plans to to launch more than 200 products in the first six months of 2014 as it looks to reverse declining market share trends, notably in US yoghurt and cereal. More products are expected to be introduced later in the year.
Speaking in Boston yesterday (5 September), Mulligan again laid out General Mills’ move to strengthen its innovation pipeline.
In particular, the company has struggled to drive growth in the competitive cereal and yoghurt categories and, with organic sales growth of 1% reported for fiscal 2013, General Mills has conceded it lost share to rivals when it delivered its full-year results in June.
General Mills has responded by ramping up its NPD efforts and Mulligan said the strategy is reaping early rewards.
“In the US, the Greek segment has lead category growth in the recent years. Sales for our Greek yoghurt business are now significantly outpacing the segment. Over the last 12 months we have added almost 3 points of Greek segment market share,” he revealed.
The company has also seen “good” sales growth and share gains in its largest European yoghurt markets – the UK and France – Mulligan said. “Our 2014 innovation efforts are just getting started,” he added.
In cereal, Mulligan suggested the category – which is experiencing a period of slow growth – will get moving as innovation and product news generates consumer excitement. General Mills is also increasing the marketing investment behind its cereal brands.
“We have been asked, what will get this category growing again at its historical low single-digit rate. There is really no mystery to that. Ready to eat cereal grows based on the collective product news, innovation and marketing that the branded players bring to the category. Our 2014 cereal efforts are just getting started,” he emphasised.
General Mills has targeted low-single digit net sales growth for fiscal 2014, with sales expected to exceed $18bn. The company anticipates operating profit to grow “faster” than revenues, Mulligan said.
“We expect operating profit to grow faster than sales reflecting a robust pipeline of productive initiatives and stronger profit contributions from new businesses. We expect to deliver high single digit growth in adjusted diluted earnings per share to a range of $2.87 to $2.90.”
While Mulligan said first-quarter gross margins would be hit by input cost inflations and changes to the business mix, he guided to higher full-year gross margins.
“We expect to have higher gross margins this year. We expect inflation to be about in that 3% range that we have got to in July. We do see the inflation a bit more front loaded, though, as we roll over some of the cost that really start to spike about a year or so ago. So we expect higher inflation in the first half than the back half. We do expect inflation throughout the year, though, in each of our quarters. The first quarter is also impacted by business mix. The business that we brought, typically Yoki in Brazil, has a lower gross margin, so it dilutes our company gross margin, but again, that’s a one-time impact that we will see in Q1 this year.”
For the highlights of General Mills’ NPD pipeline, click here.