US food industry heavyweight General Mills said it is “expecting volume improvement in all of our segments,” after reporting fourth-quarter results which saw net sales drop by 6% year-on-year.
The Cheerios cereal and Old El Paso Mexican food range manufacturer told analysts in a post-results call yesterday (26 June), that it intends to drive better volume results through reinvestment and improving the value equation for consumers.
CEO Jeff Harmening said: “My expectation is that we would improve our volume performance this coming year, which was down 3% this current year. We would improve our volume performance across our different segments.”
He added: “Improving value is really the number one mission we have to get competitiveness.”
"We're still seeing inflation of 3% to 4% in the broader environment and so the job to do is create more value for our consumers.”
General Mills, like other major food industry players, has hiked prices in recent times in an attempt to maintain margins against a backdrop of soaring supply chain inflation.
Now the emphasis is on attracting consumers who may have drifted towards cheaper private-label offerings. Harmening said: “We are increasing our coupon spending and we have the research that tells us that it's highly effective when we do that. So we'll do that. Are there some price points we have to sharpen? There are, but there always are.”
But he said pricing actions are not the only tool it will use to rebuild volumes with increased promotional activity also on the cards.
“If you look before pandemic, it's kind of back to that level of promotional intensity,” Harmening said, adding “we'll be pulling all the levers we can to make sure that consumers know the value of our big brands”.
That promotional activity includes bringing back the Pillsbury Doughboy character.
“We’re bringing the Doughboy back after a few years and private-label, they don't have a Doughboy, we do,” Harmening said.
Asked about plans to rebuild the balance sheet via a focus on volume rather than creating value through premiumisation, Harmening said: “I don't see it as a trade-off between volume and premiumisation, I think it's an and.”
He added: “I think the reason you hear us talking about volume is obviously our volumes were down versus a year ago and so that's really the job for us to do is to get back to that.”
More generally, General Mills talked about “difficult market conditions in both Brazil and China” which contributed to a year-on-year organic sales decline of 10% in its international segment in Q4.”
In its Q4 reporting period – ending 26 May – General Mills’ net sales decreased 6% year-on-year to $4.7bn. Operating profit of $779m was down 5% while adjusted operating profit of $800m was down 10%.
The company reported a 2% decline in volumes on an organic basis. General Mills' core North America Retail division saw volumes slide 6% organically.
Over the full-year period, net sales of $19.9bn were down 1% from the prior year, while operating profit of $3.4bn essentially matched year-ago results. Adjusted operating profit of $3.6bn was up 4%.
Commenting on the results, Robert Moskow, an analyst with TD Cowen, said: “The sequential improvement in volume growth that management had been hoping for between Q3 and Q4 did not materialise. Category growth remains muted and the company has yet to engineer the market share recovery they expected.”
Fellow analyst John Baumgartner, of Mizuho Securities, noted: “Volume trends are expected to improve but it provides little solace for already skittish investors.”
