General Mills said its Asian sales for the third quarter were impacted by the Covid-19 outbreak after the US food major hinted last month that revenues from its Häagen-Dazs ice-cream shops in China would be disrupted.
Reporting its third-quarter and nine-month results today (18 March), Minnesota-based General Mills said quarterly net sales from Häagen-Dazs in Asia took a 50 basis-point hit in February amid a reduction in foot traffic at its ice cream shops and foodservice outlets as China imposed restrictions on people’s movements.
Also, the New York-listed firm said lower ice cream sales resulted in a 150 basis-point drop in adjusted operating profit for the quarter to 23 February, and a 130-point decline in the associated profit margin to 16.1%.
Chairman and chief executive Jeff Harmening said: “We began fiscal 2020 with three key priorities: accelerate our organic sales growth, maintain our strong margins, and reduce our leverage. Our focus and execution in a dynamic environment this year have kept us on track to achieve those goals. Our third-quarter results were broadly in line with our expectations, except for the negative impact in Asia of the Covid-19 virus outbreak.”
In terms of the outlook for the full-year, the Old El Paso Mexican brand owner maintained its forecast for organic sales growth but raised its guidance for adjusted operating profit, with increased shopping visits in North America and Europe, on the back of coronavirus, noted as being part of the reason.
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“The impact of the recent Covid-19 virus outbreak on the company’s full-year fiscal 2020 results is still uncertain,” General Mills said. “The company’s current outlook incorporates increased orders from retail customers in North America and Europe subsequent to the end of the third quarter in response to increased consumer demand for food at home, as well as headwinds in Häagen-Dazs shops and other foodservice channels resulting from lower consumer traffic.
“The most significant element of uncertainty in the company’s full-year outlook is the intensity and duration of increased demand for food at home across all its major markets. Additionally, the company’s outlook assumes its supply chain continues to operate with minimal disruption for the remainder of fiscal 2020.”
Organic net sales are expected to increase 1% to 2%, while reported net sales are seen rising by around one percentage point due to currency translation, the impact of divestitures enacted in fiscal 2019, and contributions from the 53rd week in its 2020 fiscal year.
Adjusted operating profit, in constant-currency terms, is expected to increase 4% to 6% from last year’s US$2.86bn, compared to the range reiterated only last month of 2% to 4%. “Holistic Margin Management productivity savings, a modest reduction in the outlook for input cost inflation, and continued tight control over administrative expenses”, were given as the reasons behind that upgrade.
General Mills’ third-quarter sales were flat at $4.18bn, but fell 1% over the nine months to $12.6bn.
Operating profit was also unchanged during the quarter at $650.8m but rose by 18% year-to-date to $2.12bn.
Third-quarter earnings before interest and tax climbed 5% to $571.3m and were up 27% for the year so far at $1.87bn.
On the bottom line, net earnings increased 1% for the quarter to $463.9m and rose 31% for the year to $1.58bn.
Wrapping up on coronavirus, General Mills said: “During the rapidly evolving situation related to Covid-19, our number one objective continues to be the health and safety of our consumers, employees, and other stakeholders.
“General Mills plays a critical role in making food to meet the needs of our consumers, and I’m proud of the way we’ve partnered with our retail customers in recent weeks to service consumers’ increased demand for food at home during this unique time. Looking forward, we’ll remain agile to adapt to changing demand patterns around the world as circumstances with Covid-19 continue to develop.”