General Mills Shifting Resources Away From Green Giant

MINNEAPOLIS (Minneapolis Star Tribune/TNS) —

General Mills acknowledged the weakness in its Green Giant vegetable business Wednesday, taking a $260 million charge as it redirects money to more promising ventures.

With the Green Giant asset write-down and other charges, General Mills posted fiscal fourth quarter net earnings of $187 million, or 30 cents per share, down 53 percent from a year ago. Excluding one-time charges, though, profits rose 12 percent over a year ago, beating analysts’ estimates.

General Mills’ sales for the fourth quarter ending May 31 were $4.3 billion, essentially the same as a year ago, but short of analysts’ estimates of $4.5 billion.

In other words, it was a mixed-bag quarter for the packaged-food giant, based in the Minneapolis suburb of Golden Valley. And it capped a fiscal year in which General Mills – like packaged-food makers generally – slogged through with a mediocre U.S. performance, as consumer tastes shifted somewhat from traditional processed foods.

“General Mills is keenly aware of consumers’ changing food habits and how (it is) impacting our industry,” CEO Ken Powell told analysts in a conference call Wednesday.

To fight back, Mills is upping innovation and investment in its key cereal and yogurt businesses, and emphasizing its growing organic and natural-foods operation, Powell said. The company’s cereal initiatives include removing any trace of gluten from five Cheerios offerings, which together make up 90 percent of the iconic brand’s sales.

Oats – the grist for Cheerios – don’t contain gluten, but traces of the wheat protein can still exist in the cereal-manufacturing process.

“This is a major initiative,” Powell said in an interview with the Star Tribune. “Thirty percent of consumers have said they have a concern with avoiding gluten, and many of those have left the cereal aisle.”

General Mills, not unlike most of the U.S. cereal sector, has suffered declining sales the past couple of years. But cereals marketed as gluten-free – notably Mills’ Chex line – have done well.

Some money going into General Mills’ cereal offensives will be rerouted from its stagnant Green Giant business.

“We made a strategic decision to redirect certain resources supporting our Green Giant business in our U.S. retail segment to other businesses within the segment,” the company said in a press statement. “Therefore, future sales and profitability projections in our long-range plan for this business declined.”

The frozen-and-canned-vegetable business, Green Giant’s home, is a mature industry. Green Giant’s strength is in frozen vegetables packed in sauces, a higher end of the market. But fresh produce seems to be taking an increasing bite out of that business, as its sales have been falling.

“I’m a little bit surprised at how far Green Giant has fallen,” one stock analyst said on General Mills’ conference call Wednesday. “It’s not every day we see an impairment charge to this degree.”

Asset-impairment charges recognize the decline in value of a brand or business line. With the charge, General Mills is basically saying it will spend less money on Green Giant – particularly marketing – and therefore, the business is worth less going forward.

Still, Green Giant is not a money loser. “It’s a good, profitable brand,” Powell told the Star Tribune.

Its growth prospects simply aren’t as good as those in other General Mills businesses, he said. “Every year, we have to look at the opportunities we have and where to invest.”

Reuters reported earlier this year that General Mills might sell Green Giant. Powell said General Mills doesn’t comment on such speculation.

Despite a tough fiscal 2015, General Mills’ U.S. results improved during its fiscal fourth quarter. Sales increased 5 percent over a year ago to $2.5 billion, up 13 percent over a year ago.

The company’s international division saw fourth-quarter sales drop 9 percent to $1.2 billion due to negative currency effects. In constant currency, sales increased 9 percent.

General Mills’ convenience stores and food services segment topped a strong year with a bang-up fourth quarter. Its sales grew 4 percent to $527 million, and its operating profit rose 17 percent.

The company is forecasting that its fiscal 2016 sales will essentially match 2015’s, and that its constant-currency adjusted earnings per share will grow at a mid-single-digit rate.

In trading Wednesday, General Mills stock rose $1.37, or 2.5 percent, to $57.09.

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