General Mills to step up efficiency drive, warns of earnings decline

General Mills to step up efficiency drive, warns of earnings decline

General Mills has lowered its forecasts for annual sales and earnings, blaming "continued weak food industry trends" in the US and "slowing growth" in key emerging markets.

The company said today (7 November) its operating profit for the financial year ending in May, excluding the impact of currency exchange, is expected to see a low single-digit decline from last year's level of US$3.15bn.

The forecast includes the anticipated positive impact of cost savings - such as a $400m reduction in cost of goods and $40m in projects to streamline North American operations. General Mills' prior forecasts had pointed to mid-single digit constant currency growth in operating profit.

Adjusted earnings per share is now expected to grow in the low single digits from the $2.82 earned last year. Previously, the company had predicted high single-digit growth in earnings per share.

Net sales are now expected to grow in the low single-digits from last year's base of $17.9bn. This includes the contribution of around US$120m from recently-acquired US natural and organic food maker Annie's and the benefit of an additional week of trading in the year, the company noted.

General Mills has been hit by difficulties at its US retail business in particular. The company stressed its market share is up in key categories in the country, including yoghurt, cereal, grain and fruit snacks. However, according to Nielsen data, General Mills' composite dollar share is down 15 basis points due to declines in frozen vegetables and dessert mixes.

General Mills stressed it is stepping up efforts to reduce costs from its North American supply chain. "By fiscal 2016, cumulative annual savings from these efforts are expected to total between $260m and $280m. Cumulative annual savings in fiscal 2017 are expected to exceed 2016 levels," the company said today.

Shares in General Mills were down 3.36% at 09:32 ET, dropping to $51.48.

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General Mills Updates Targets For Fiscal 2015 Growth And Multi-Year Cost Savings Initiatives

MINNEAPOLIS, Nov. 7, 2014 /PRNewswire/ -- General Mills (NYSE: GIS) said today that in response to continued weak food-industry trends in the U.S. and slowing growth in key emerging markets, the company is reducing its sales and earnings expectations for the fiscal year ending in May 2015.

General Mills fiscal 2015 net sales in constant currency are now expected to grow at a low single-digit rate from the 2014 base of $17.9 billion. This includes an estimated 2 points of sales growth from the 53(rd) week in fiscal 2015 and approximately $120 million of incremental sales from the Annie's organic and natural food businesses acquired Oct. 21, 2014. Annie's will be consolidated into General Mills' 2015 results on a one-month lag basis.

Total segment operating profit in constant currency is expected to decline at a low single-digit rate from prior-year results of $3.15 billion. This includes more than $400 million in cost of goods savings from holistic margin management (HMM), along with $40 million in savings from projects initiated this year to streamline the company's North American supply chain and further reduce overhead costs.

Fiscal 2015 adjusted diluted earnings per share are expected to grow at a low single-digit rate in constant currency from the base of $2.82 earned in fiscal 2014. This includes an estimated contribution from Annie's of one cent per share. Adjusted diluted earnings per share for the second quarter ending Nov. 23, 2014, are expected to be between $0.75 and $0.77. This compares to adjusted diluted EPS of $0.83 earned in the prior year's second quarter.

Previously, General Mills had been targeting mid single-digit constant-currency growth in net sales and segment operating profit, and high single-digit constant-currency growth in adjusted diluted EPS for fiscal 2015.

General Mills said that its International and Convenience Stores & Foodservice operating segments remain on track to achieve their full-year operating profit growth targets for fiscal 2015. The company's U.S. Retail operating segment is now expected to show an operating profit decline for fiscal 2015. In Nielsen-measured U.S. retail outlets, General Mills fiscal 2015 year-to-date (YTD) sales are growing in key categories such as yogurt, grain snacks, fruit snacks and frozen pizza. The company's YTD market shares are flat or up in categories representing 75 percent of the company's sales volume in measured outlets. Businesses posting market share increases include cereal, yogurt, grain and fruit snacks, ready-to-serve soup, and frozen pizza and hot snacks. General Mills' YTD composite dollar share in measured outlets is 15 basis points below the prior year, led by market share declines in frozen vegetables and dessert mixes. The company is making tactical adjustments in its marketing plans for these categories in response to competitive activity.

Update on Recently Announced Cost Savings Initiatives
In June 2014, General Mills announced the initiation of projects designed to generate cost savings and fuel accelerated topline growth for the company. These projects focus on streamlining the company's North American supply chain network and reducing overhead costs. Together, these initiatives are expected to generate $40 million in cost savings in fiscal 2015. The company said today that by fiscal 2016, cumulative annual savings from these efforts are expected to total between $260 and $280 million. Cumulative annual savings in fiscal 2017 are expected to exceed 2016 levels.

Original source: General Mills