General Mills Profit Tops Estimates, Helped by Cost Cuts

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  • Foodmaker repeats forecasts for yearly sales and profit
  • Company has cut jobs in Project Compass restructuring plan

General Mills Inc., the maker of Cheerios cereal, posted first-quarter profit that beat analysts’ estimates, helped by cost cuts and a more effective promotional strategy.

Net income rose 24 percent to $426.6 million, or 69 cents a share, from $345.2 million, or 55 cents, a year earlier, the Minneapolis-based company said Tuesday in a statement. Excluding some items, profit, was 79 cents a share. The average of analysts’ estimates compiled by Bloomberg was 69 cents.

General Mills has been trimming costs as U.S. consumers shift toward breakfast options that are seen as healthier or more natural, hurting sales across the packaged-food industry. The company has eliminated jobs under its Project Compass restructuring plan and is focusing more on promoting its organic products.

"It wasn’t tough to beat last year’s first-quarter profit," said David Palmer, an analyst at RBC Capital Markets LLC. "Last year, they had questionable returns and inefficient promotions. Now that those distractions are gone, General Mills can start stabilizing its core brands."

Forecasts Maintained

General Mills repeated its forecasts that net sales, excluding the effects of currency fluctuations, would be little changed and that profit per share would increase by a mid-single-digit percentage rate, excluding some items. The outlook doesn’t factor in the effects of the company’s plan, announced earlier this month, to sell its Green Giant and Le Sueur vegetable businesses to B&G Foods Inc. for about $765 million.

General Mills rose 0.6 percent to $57.13 at the close in New York. The shares have climbed 7.1 percent this year.

The company is working to attract younger eaters with new offerings and improved versions of its traditional products. Earlier this year, General Mills said it would remove artificial flavors and colors from all of its cereals. It also has added gluten-free Cheerios and Chex and plans to sell gluten-free Lucky Charms.

Those moves follow General Mills’ acquisition of Annie’s Inc. last year for around $800 million, which added products such as organic cheddar crackers and gluten-free ginger snaps.

Going Gluten-Free

"Over a quarter of Americans want to avoid gluten in their diet," Palmer said. "General Mills is in the best position to market a mass brand as gluten-free. Next quarter, we’ll see how the program has come together."

The push has yet to revive consistent sales growth. Revenue fell 1.4 percent to $4.21 billion in the first quarter, trailing analysts’ projections and marking the seventh decline in the last eight quarters.

As revenue has struggled, General Mills has turned to cost cuts to maintain its profitability. In June, the company said it would eliminate 675 to 725 jobs to reduce administrative costs by about $45 million to $50 million a year.

The efficiency push has started to bear some fruit. General Mills’ adjusted gross margin, which measures gross profit as a portion of sales, expanded to 37.7 percent from 34.8 percent a year earlier.

"The judgment for General Mills will come in the next few months," Palmer said. "Cereal will be the the scorecard as we look to see how they do stabilizing their largest product."