General Mills 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings.

Promotional spend less effective, input costs above expectations

“In the fourth quarter, promotional spending in developed markets was less effective than we planned and input cost inflation was a bit above our forecast.”

Revenue up slightly, operating profit down, EPS up

‘Net sales for 2014 grew 1% to reach $17.9 billion. On a constant currency basis, net sales increased 2%. Adjusted segment operating profit fell 2% to $3.2 billion. Net earnings attributable to General Mills, totaled more than $1.8 billion and diluted earnings per share were $2.83. Adjusted diluted EPS grew 4% to reach $2.82.”

More an more players competing for shelf space

“It really for us related to execution. We just see more and more of the players interested in getting merchandising. There are limited number of places in the store to get that high quality that we want, which is really good placement on end-aisle displays coupled with the feature support that we know drives efficient merchandising.”

Consumer definition of healthy cereals is changing…more focus on protein

“The consumer definition of health is changing in the cereal category. Clearly, they are interested in protein, clearly there are things that they – some consumers want to avoid like gluten, and so you’re going to see us build on those trends with new product offerings and continued renovation.”

More competitors

“Our view is just the sheer number of new items and number of new competitors certainly in a – for instance in yogurt space, just lots of people coming in with new items. And so the competition for a limited number of quality display options, I would say is increasing.”

Dairy inflation moderating

“We also of course are seeing some moderating dairy inflation; and it’s always hazardous to predict what commodity prices are going to do as well, as you know. But we’re encouraged by what we are seeing on that front.”

Modelling 3% inflation for 2015 FY

“Yes, we have 3% inflation as you know we have a fairly broad market basket”

Snacking is a trend

“clearly snacking is a trend, a positive trend, and so maybe that is a key factor of that and we’re very focused on the snacking trend, and it’s not just the snacks in our snack businesses, we see yogurt becoming more and more of a snack food and in fact one of the reasons for the resurgence of our core Yoplait businesses is that we’re seeing more snack usage and we’re actually talking about the product and its snack versatility in advertising.”

We are a marketing company, understanding the changing consumer is our job

“We are marketing company so our job is to understand the change and capitalize on it, find opportunity there, and so I think it’s more than one change, as I tried to say. But it’s more snacking, it’s changing definitions of health and wellness, but as we get clear, I think, understanding of those and better understanding of what exactly the consumer wants there, we will get better at giving them, giving those products to her and these again should become opportunities for us.”

General Mills 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Sales decline profit decline

“In the third quarter, net sales totaled nearly $4.4 billion, 1% below last year. On a constant currency basis, net sales in the quarter matched year ago levels. Adjusted segment operating profit totaled $690 million, 10% below year ago results.”

Weak input inflation

“For the fourth quarter, we expect input inflation will be well below year ago levels, and that will help drive strong expansion in our underlying gross margin. Our full year estimate for input cost inflation continues to be 3%. That’s despite the higher dairy inflation we’re seeing.”

Baking is on trend

“Dessert mixes and refrigerated dough enjoy high household penetration rates, and people shop these categories nearly every month, because baking is on trend.”

Digital an increasing part of ad spend for baking

“Since 2008, our U.S. media spending has grown nearly 50%, and the mix has changed. TV advertising is still the largest part of our advertising budget, but we’ve significantly increased our use of digital media.

Digital media and communication technologies align particularly well on baking businesses. That’s because our consumers have always had an interest in recipes, cookbooks, and sharing food ideas.”

A third of total baking ad spend

“While TV is still a significant part of our budget too, our use of digital media is growing at a strong double digit rate, and it now represents more than a third of our total media spending.”

Focus of digital strategy

“We know consumers are putting their grocery lists on their smartphones. They’re looking online for recipes, and they’re watching cooking videos on YouTube. The goal of our digital initiatives is to be on the right mobile device, at the right time, with the right message, and we have some well-known equities to leverage.”

Weather impact

“Just in terms of the nature of the weather impact, basically, on our side, it really just disrupted plant operations and logistics. So we lost 62 days of production, which would be 3% or 4%, which hasn’t happened in a long time to us, think decades. And that would be the result of people not being able to get into work safely, or not having inputs arrive. And so there was that impact. There’s an even greater logistics impact, as trucks couldn’t move, and the rail system becomes less efficient.”

Driving good returns from digital marketing

“as we go to market digitally, we see strong returns there, and that helps manage our margins as well.”

Slow improvement, emphasis on slow

“I would say that things are slowly improving, and our comment at CAGNY was that for next year, we’re affirming our growth model. But you know, we continue to see slow improvement, with an emphasis on slow. And I think we’ve been saying that consistently, and our predictions have been accurate over the last several years.”

General Mills FY 1Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“Sales totaled $4.4 billion, up 8%. Segment operating profit increased 6% to $812 million ”

“international net sales on a constant currency basis. Sales grew 25% overall, led by Latin America, where sales increased nearly 200%. This includes strong contributions from Yoki and double-digit growth in our base business. In Canada, sales increased 21%, led by incremental contributions from Yoplait. Sales for the Europe region declined 3%, reflecting the difficult operating environment there. And sales in the Asia-Pacific region increased 13%, led by double-digit growth in China.”

“over 90% of the U.S. household purchase cereal each year, and on average they buy a box nearly every other week.”

“Over the last three decades cereal retail sales have nearly tripled reaching $9.4 billion today.”

“The number of breakfast occasions increases as the U.S. population expands. Breakfast at home is growing and today represents over 80% of all breakfast occasions. And cereal is the most popular breakfast food at home by far, featured in a commanding 32% of these morning meals.”

“Today, one out of every eight boxes of cereals sold in the U.S. is a variety of Cheerios. And Honey Nut Cheerios is Americas’ top-selling cereal brand.”

“We’ve noted that year-over-year declines in spot prices for certain commodities, notably corn and wheat, have prompted some questions about the potential for broad-based deflation in input costs. At General Mills, we buy and manage a very broad basket of commodities. So while some spot prices like grains are down others like dairy are up.

All-in, we still expect inflation of roughly 3% across our supply chain costs for the fiscal year that will end next May. In longer-term, we continue to believe that the trend on food industry input costs will be inflationary, driven by rising global demand for food and energy.”

“while many of you have commented on the softening in emerging market economies overall. I mean I do want to point out that our business continues to be very strong in emerging markets.”

“We had a very strong quarter in China and we’re seeing terrific growth in Brazil. And I think the reason is that we are selling Center of Plate, very basic everyday food items to these consumers”

“These consumers continue to have growing disposable income and we’re seeing tremendous growth in emerging markets and we think that’s going to continue.”

“retailers know how important this category is to driving traffic to their store. It is still nearly $10 billion category and as you know a lot of retailers there trying to figure out how to drive traffic to their center stores and cereals still remain strategically incredibly important for them. The second thing I would say is even the tail of cereals on a SKU basis generates a lot of more productivity than a number of different categories within the center stores. So we haven’t heard a lot of noise about retailers questioning the space that they allocate to cereal or questioning the strategic importance of it.”

” think you’ve heard that the retailers are reducing inventory modestly across the entire store and we’re just serious part of that.”

“QSRs have picked up breakfast as a growth platform. Having said that breakfast at home is growing, and so it’s not really in our view taking a lot of occasions away. It’s basically, I think and our research suggests that it’s really going after those who have skipped breakfast in the past predominantly and we’re picking up as many of those skippers as they are. And so I think there both actually growing.”

“In my 21 years at General Mills, I’ve seen growth in the cereal category written-off a couple different times. I will just bring up a couple of examples. The first one is when bagels become phenomenon in the U.S. And everyone has got to move to bagels and no one was going to eat cereal anymore. And then low and behold we innovated on cereal and brought some new taste varieties and new textures into the category and the category rebounded.

The second time is when Atkins diet craze came a long and again everyone was going to move away from carbohydrates at that point. And then we brought whole grain news to the category. We brought fiber news to the category. We tend to be able to innovate our way out of this. And so the short answer is no, I don’t see anything different about this time period than I saw the first two time periods around, but it’s been comment on the branded manufacturers to bring the news and adapt in this highly adaptable category.”

General Mills FY 4Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“productivity, we continue to see our productivity grow. We are still very much online to meet or exceed our commitment to get $4 billion of COGS productivity in this decade. So that will be a contributing factor, certainly.

The other two are more in the mix bucket. We continue to see strong performance out of our bakeries and food service business as we continue to even heighten our focus on the key product platforms and customer channels where, with our branded products and our direct sales force, we can make a difference, both in terms of volume and importantly mix benefit.

And then the other mix, and we actually saw that as we came out of ’13, is stronger baselines in our U.S. retail business, which will contribute to better gross margins as well. As a matter of fact, that was probably the key reason that we were able to beat our previous guidance for F13, is that our baseline volume in U.S. retail was better than we had originally participated at the beginning of the quarter. It allowed us to exceed our original guidance by $0.01, and it will help to contribute to some margin expansion in F14 as well.”

“prices are stable. Inflation is moderate, and we think will be quite manageable for us”

“Where we see baselines that are a little bit weaker or declining, it always has something to do with what we’re doing or not doing, and fundamentally would come back to not the right kind of innovation.

And so as I mentioned earlier, take yellow box Cheerios as an example. As we’ve shifted and refreshed our advertising, particularly in the second half of this year, we’ve seen that brand first stabilize in Q3 – I think share was down just a couple of basis points – and then continue to strengthen in Q4. This is yellow box Cheerios.

And this is all behind better messaging and around the health benefits of that product. So we look at it as down to us. It’s about the quality of our messaging and our innovation, and we’re encouraged by what we’re beginning to see in the Cheerios franchise as an example.”

“the way we look at it, we see plenty of evidence that when we get the message right, when we get the innovation right, these brands respond. We’re seeing that in Chex, we’re beginning to see that in Cheerios, and we have a very strong program of innovation and marketing and consumer promotion next year. So we think we’ll continue to see those franchises strengthen.”

” we’re not victims here. If we get the innovation right, we’ll do just fine. It’s on us”