Minneapolis-based cereals giant General Mills revealed yesterday [Thursday] that unit volume trends have fallen below expectations through the first two months of the company’s fiscal 2002 Q4.
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Plans had called for a low single-digit rate of unit volume growth in the Q4, but the company now estimates volumes will fall about 4% below the prior year’s results on a comparable basis. Q4 earnings per share before unusual items are now expected to be about 25 cents. Fiscal 2002 earnings per share before unusual items therefore are expected to total approximately US$1.70.
Chairman and CEO Steve Sanger said: “We are extremely disappointed by these volume trends. Some of the weakness does relate to external factors – specifically, the inventory reductions we are seeing by our retail trade customers and the economy’s continued impact on our foodservice business. However, we also have an insufficient level of product news and marketing innovation in our businesses at the moment. As a result, we are seeing below-category performance in several areas, particularly Meals and Pillsbury US.”
Sanger said General Mills is taking actions that will position the company to improve its performance in fiscal 2003. Underperforming product lines have been re-evaluated, and costs associated with the write-down of certain inventories are included in the company’s revised Q4 estimate.
In addition, the company has identified increased cost-savings opportunities from the combination with Pillsbury, and plans to reinvest these savings to support higher levels of brand-building marketing investment and capital expenditure in fiscal 2003.
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By GlobalDataAcquisition-related cost synergies in fiscal 2003 are expected to total at least US$350m, up from the previous estimate of US$250m. Cumulative cost savings by fiscal year 2004 are expected to total about US$475m, up from the original estimate of US$400m.
“We have completed detailed 2003 business plan reviews with each of our operating divisions, and concluded that several of our established product lines need increased levels of product innovation and marketing investment,” Sanger said. “These brand-building initiatives, together with an increased level of new-product introductory investment, will cause next year’s earnings to be below our previously stated goal of US$2.85 to US$2.95 per share before unusual items. However, we think these investments are key to our long-term growth.”
Based on its 2003 plans and the revised outlook for FY 2002, General Mills now expects its FY 2003 earnings per share before unusual items to be about US$2.60.
