After a challenging year, General Mills wants to achieve “balanced” sales and profit growth. Simon Harvey looks at the key takeaways from this week’s annual investor day.

After 12 months characterised by falling sales in its largest geographical segment of North America, particularly snacks, General Mills chief executive Jeff Harmening is resting his strategy on innovation and brand-building to turnaround some of the US group’s legacy business.

It’s understandable Harmening, entering his third term as CEO, is seeking “balanced” growth in General Mills’ top- and bottom-line results amid a disparity in sales and profits last year. While a 7% increase in annual group sales is commendable, an 8% slide in net income is sure to rattle investors, and more importantly, revenues in North American Retail where snacks play a significant role, continue to suffer.

Snack bars is the main category grabbing all the attention, with General Mills having previously recognised it needs more innovation behind the better-for-you Nature Valley brand and further development of the Fiber One dietary snack line that has slipped out of favour with consumers. Emphasising a commitment to snacks, Harmening is putting his weight behind what he calls the four “accelerator platforms” of Häagen-Dazs ice cream, natural and organic, snack bars and the Old El Paso Mexican food range.

But yogurt needs some loving too. Addressing the Berstein Strategic Decisions Conference in New York in May, Harmening admitted General Mills had been struggling in the yogurt sector for the past five years, essentially because it hadn’t been innovating fast enough to keep abreast of trends, particularly in Greek yogurt, a market that, too, has seen intense competition following a period of rapid growth.

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Still, Yoplait continues to feature among General Mills’ eight US$1bn brands, along with Nature Valley, Häagen-Dazs, Cheerios cereals, Old El Paso, Pillsbury frozen foods, Betty Crocker and the recent pet-care addition to the group portfolio, Blue Buffalo.  

Speaking at General Mills’ annual investor day on Tuesday (9 July), Jon Nudi, the president of North America Retail, which accounted for 59% of the group’s $16.9bn sales last year, outlined the objective for fiscal 2020: “It’s about keeping cereal growing, it’s about improving yogurt where we were still down last year; we want to get back to growth on yogurt. Improving our snacks bars business, which is the biggest drag we have – down 4% last year – and then competing effectively in the rest of the category.” 

To its credit, General Mills has made some inroads toward stabilising yogurt but still has work to do. US sales fell 2% in fiscal 2019, slowing from the 11% decline the previous year and the 19% drop in 2017. It has new products in store, such as Yoplait Smoothie yogurts, and with Goodbelly Probiotics, a US firm in which it invested last year, it is launching a lactose-free variant.

France “not particularly productive”

General Mills is keeping an eye on what it sees as challenges for its business in Europe.

“I would probably say the most uncertainty is Europe, and certainly with Brexit, although we grew in the UK this past year,” Harmening said. “But is the UK going to exit or are they not going to exit, what does that mean, how do you build inventory, how do you not? Our team navigated it really well but it is still one of the big risks.

“The other for us is the business environment in France is not particularly productive. There is quite a bit of inflation and pricing in France is not the easiest to come by, and so that’s going to continue to be a tough market. That’s probably the place that’s the most challenging from a business environment standpoint.”

Bethany Quam, the president of General Mills’ combined Europe and Australia division, put further emphasis on France as she presented an objective to “compete effectively” in yogurt, which accounts for 40% of net sales within her segment. 

“We are navigating a difficult environment in France, where roughly 75% of our yogurt sales are generated,” she says, adding other key drivers for the division include ice cream (Häagen-Dazs), snack bars and Mexican (Old El Paso).

Yogurt aside, she says General Mills is “still in the early stages” of expanding in central and eastern Europe with Häagen-Dazs, but recently launched the brand in Poland and Czech Republic.

For snack bars, Quam says Nature Valley and Fiber One grew at a compound annual rate of 35% in the past three years. She adds with the snack bars on the shelves in 20 export destinations in Europe and Australia, as well as a category share of 11%, “there’s plenty of growth ahead”.

“Funnel” of innovation

Strategy-wise, innovation and brand-building lay at the centre of General Mills’ objectives for fiscal 2020 to revitalise organic sales (flat in 2019) by improving the North America Retail business and realising more opportunities in pet care. 

Organic growth guidance has been set at 1-2%, not enough to change Morgan Stanley’s stance on the stock, according to research led by equity analyst Dara Mohsenian.

“We remain equal-weight post the investor day, underpinned by our view that General Mills’ long-term organic top-line growth is in the muted +1% long term, although we note Mills’ recent execution has been solid and FY20 looks achievable with significant base business reinvestment embedded in the plan,” Morgan Stanley says in a note to clients.  

General Mills also aims to maintain “strong margins” through its long-standing Holistic Margin Management (HMM) programme, as well as its Strategic Revenue Management initiative.

In the long term, finance chief Don Mulligan says General Mills is targeting low-single-digit organic growth, and mid-single-digit (MSD) expansion in adjusted operating profit margins, which were 16.9% last year, compared to 15.7% in 2015.

However, Harmening was asked during the Q&A to explain why MSD margin growth is still a “good algorithm”.

“The first key for us is getting back to sustainable sales growth, and to try to make money while we’re doing that,” the CEO explains. “MSD profit growth is really important to our long-term algorithm. Hitting our profit target and accelerating organic growth is really the task to do and we think we have the initiatives to do it and to do it efficiently.”

“We are focused on getting better and faster with the way we innovate”

Nevertheless, Mulligan cited potential headwinds as input inflation, brand-building investments and bolstering “key capabilities”. But cost savings from HMM and actions under SRM, along with contributions from Blue Buffalo, will provide impetus, the company believes.
General Mills has learnt lessons from the past in being too slow to innovate, as Nudi explains: “The reality is most innovation doesn’t work and estimates would say 10% of all innovation sticks for three-plus years. So we believe we have to have a big funnel of ideas and one of the things we are focused on is getting better and faster with the way we innovate. 

“In some cases in the past we might have brought something to market as the trend was leaving the market because it took two or three years to get there. Through a consumer-first design process we are able to get from idea to market in less than a year, and as a result of that, we think we are going to be at the front-end of some of these trends. We believe innovation is critically important, particularly in many of our big categories.”

“Meaningful M&A activity”

M&A still features in General Mills’ aspirations, although CFO Mulligan reiterates “large-scale” deals remain on hold. Harmening also repeated previous comments he will continue to offload businesses but said they won’t be given away in a fire sale.

General Mills is looking to trim 5% of its portfolio even in an environment where other global packaged food companies are offloading assets but not getting back what they paid for them. It was a question put to Harmening as to why it’s timely to pursue divestitures.

“We will continue to look for opportunities to divest in order to enhance our growth profile, and focus on our most important businesses, but only if we think we can generate returns for shareholders,” Harmening says. “We are not going to give anything away just to say that we’ve done it. I’d rather come back and tell our investors, we’ve decided not to divest because we couldn’t get the price we think would value shareholders, than to come back and say we are strategically right but actually for shareholders we were wrong.” 

Cash generation was a component CFO Mulligan touched upon as giving General Mills the means to cut leverage after paying down debt. It aims to reduce net debt-to-EBITDA to 3.5 times by the end of fiscal 2020, from 3.9. 

“We do feel good about our cash generation,” Mulligan says. “We paid over $1.3bn in debt this year and there’s no reason why we won’t be in that same kind of zip code as we go into fiscal ’20. We think that our earnings growth will get us to three times. As we get to that point we are getting close to our pre-Buffalo ratio….then we will start looking at what I would call a more normalised capital allocation policy, both a dividend increase and more meaningful M&A activity.”


In previous presentations, Harmening emphasised the importance of e-commerce and the challenges it poses, allied with competition from direct-store-delivery and discounters. The US retail sector is “probably as tough as it ever has been in the food sector”, he said in May. 

Sean Walker, president of the Asia and Latin America division, which includes the Middle East, says the company is utilising technology in emerging markets to accelerate sales. E-commerce food solutions are “highly developed” compared to the US, he points out.  

Walker uses the example of South Korea, where 20% of grocery sales are driven through e-commerce. The country is one of the key markets in which General Mills seeks to generate sales, along with China, Taiwan and Hong Kong.

China, Brazil and India are the three-largest markets in Walker’s division, accounting for more than 60% of $1.7bn in sales.

“In China, we are seeing rapid advancements in the speed and availability of home-delivery solutions, particularly through mobile technology,” Walker says. “Our e-commerce business grew almost 40% in China last year and Häagen-Dazs holds the leading share position on Alibaba and T-Mall. We expect to generate double digit e-commerce growth again in fiscal 20 as we leverage real time, data driven insights to develop targeted marketing strategies.”

Overall, Morgan Stanley holds a balanced view on General Mills, although it has concerns about its ability to spur growth in its legacy business. 

 “We believe General Mills’ +1-2% FY20 organic sales growth guidance is achievable with Blue Buffalo entering the organic sales base, but see a limited top-line contribution from the legacy portfolio with muted category growth toward the low-end of food peers, continued challenges in US snack bars, and limited sales mix contribution from the higher growth international business,” the analysts wrote.

General Mills has shown it wants to respond more quickly to changes in the operating environment but can it keep ahead of the competition and utilise brand building and innovation effectively? And there are bound to be setbacks, as in the decline in snacks and North America Retail.

It might also be a different landscape this time next year, both internally and externally, should General Mills press head with divestitures and acquisitions.

“It’s a dynamic market and I think the rate of change is going to increase,” Harmening says. “We’ve certainly come to grips with that and it can either be a challenge or an opportunity, it depends on what you make of it. Anytime you see change, the question is: can you change better than anyone else around you and do it faster than anyone else around you?”