The dollar has gotten really stronger in the last one year. This has affected the results of many companies which operate globally. Thus, many retailers have registered lower sales because of the unfavorable currency fluctuations. The consumer food retailer, General Mills (GIS, Financial), is one such company. Its third quarter results were affected by the stronger dollar. However, the numbers were in line with the Street’s expectations. Let’s check.
An overview of the results
Revenue for the quarter fell slightly to $4.35 billion from $4.38 billion in the previous year, owing to the currency fluctuations. However, the top line actually registered a growth of 3%, on a constant currency basis and was driven by higher demand for its products. Higher product prices and Annie’s acquisition helped revenue grow.
Revenue from the U.S rose 1% over last year and was primarily driven by higher sales of yogurt and snacks. Yogurt has become very popular with the health conscious people. Hence, it has become one of the brightest spots of the company. The International sales, however, dropped 7% during the quarter and were mainly affected by currency changes. But the same was up 6% on a constant currency basis. Convenience stores and food service segment registered remarkable growth. Revenue from this segment grew 6.6%, clocking in at $465 million.
On the contrary, sales of cereals and frozen foods have dropped in the U.S. since people have shifted to healthier food options. Therefore, the company expanded the natural and organic food segment. Further, it acquired Annie’s for $820 million in October last year. This buyout helped to gain in volume.
The gross margin of the retailer dropped 90 basis points to 33.2% due to unfavorable product mix. However, the bottom line topped expectations. Earnings stood at $0.70 per share as against the analysts’ estimate of $0.62 per share. Moreover, General Mills plans to eliminate 800 jobs in the U.S. by the end of this year, which will help in reducing costs further and maximizing profits. Under a restructuring program, it will shut plants in California and Massachusetts and is engaged in the holistic margin management by finding ways to trim costs and by launching new initiatives.
Hurdles
There are some hurdles for the company which makes its journey challenging. Firstly, the food industry is suffering from higher input costs, which are eating into the margins. Also, change in customer preference has been a matter of concern. People now look for more protein based food and fresh food and demand for cereals have declined. Thus, categories such as cereals, baking products and Green Giant vegetables were not strong enough this quarter.
However, one of the best strategies of the food retailer is its expansion of the yogurt business. It has regained its presence in the yogurt business. In fact, Yoplait sales were up 17% this quarter and U.S. Retail sales under the Yoplait Greek banner were up 43%.
The future
Thus, General Mills has a number of ways to overcome the existing hurdles. Through strategies such as, cost cutting program, expansion of organic food and the growing yogurt business it will have a great future. Also, it will be focusing on advertising its products such as promoting Cheerios as gluten free. Hence, a great quarter and an affirmed guidance for the year makes General Mills lucrative.
