General Mills 1Q17 Earnings Call Notes

General Mills’ (GIS) CEO, Ken Powell on Q1 2017 Results

Sales performance did not meet expectations

“our net sales performance did not meet our expectations due to the challenging macro environment, a difficult year-over-year comparison, and a slower start to the year on certain businesses.’

Total food and beverage retail sales have slowed because price appreciation has decelerated

“We have seen total U.S. food and beverage retail sales slow over the last few quarters. Units have held stable, but net price appreciation has decelerated from adding two points of growth a year ago to adding less than 50 basis points of growth in our first quarter.

12% growth in natural and organic food portfolio

“Now let’s turn to our natural and organic portfolio, where we’ve seen our top line results accelerate recently behind excellent ideas and great execution. For the most recent three-month period, our nine natural and organic brands posted 12% retail sales growth across natural and traditional channels. Annie’s and Larabar have been leading our growth so far this year. Retail sales for the Annie’s categories that existed at the time of acquisition, like mac ‘n cheese, crackers, and fruit snacks, were up 20% in the first quarter driven by continued distribution expansion and progress we’ve made moving Annie’s SKUs into the main aisle.”

Don Mulligan

Sales results did not meet expectations

“our organic net sales results did not meet our expectations. We expect our sales growth to improve in the balance of the year as we see continued growth in certain businesses as we execute a number of consumer first actions across our portfolio. We’ll also lap easier net sales comps in the remainder of the year.”

Tough comparisons

“Over the course of our remarks this morning, we’ll note the businesses that saw particularly challenging comparisons this quarter. ”

Sales down 7%

“Net sales totaled $3.9 billion, down 7% as reported. Organic net sales declined 4%. Total segment operating profit totaled $787 million, down 4% on a constant currency basis.”

Net sales down 8%, 5% excluding green giant divestiture

“U.S. retail net sales declined 8%. The snacks operating unit posted 2% net sales growth driven by excellent performance on Annie’s and Larabar. This was offset by declines in the other operating units. Organic net sales were down 5% from year-ago levels that were up 1%. The difference between reported and organic net sales results in U.S. retail primarily reflects the divestiture of Green Giant in fiscal ’16.”

Jeff Harmening

Focused on things we can control

Well David, this is Jeff. I think as we–as Ken started out his comments, the macro environment is tough. It’s tough globally, but our focus really is on what we control. One of the things that we’ve seen time and again is that when we focus on the things that we can control, we can have a lot of success. Gluten-free is a great example of that in the cereal category.

EGg prices account for a lot of deflation

“Big picture, we see in Nielsen data and certainly I have heard from a lot of our retailers over the last month in my direct conversation with them, is that we see prices deflationary, or the inflation reducing in the store over the course of the last quarter or so. As we look, and Ken shared with you earlier, as we look at the items in grocery that contain the UPC code, we have about half a percent growth – I think it’s 0.4%. A big portion of that is really reduction in egg pricing from a year ago, so if you strip out the pricing on eggs, it’s about 1% inflation, which is pretty consistent with the last couple of quarters. So we had the flu last year and the price of eggs was really high, and it’s a lot lower now, so that accounts for a lot”

Seeing appreciation in our categories though

“I’ve also heard from a lot of retailers about deflation in other parts non-UPC, so the perimeter of the store in things like dairy and meat, but what we’re seeing in our categories really is about 2.5% price appreciation in the first quarter, and that’s what we’re seeing in our Nielsen in our categories as well. “