MINNEAPOLIS General Mills, Inc.’s data-driven approach to winning in the marketplace is proving to be a significant success, according to company executives in a presentation. Despite the positive shifts in product portfolios and culturally-informed marketing approach, long-term financial targets won’t be met this fiscal year due to a challenging operating environment.
Jeffrey L. Harmening, Chairman and Chief Executive Officer, addressed the audience Feb. 22 at The Consumer Analyst Group of New York.
Harmening gave an update to his colleagues on the company’s Accelerate strategic framework, which was first introduced a full year ago.
Accelerate is a company’s plan for long-term profitable growth. It relies heavily on success in North America which accounted to 85% of General Mills sales for the year ended May 30, 2021, Mr. Harmening said. According to Mr. Harmening, the company has made numerous acquisitions and divestitures in recent years to focus on five global platforms (cereals, pet food, ice creams, snack bars, Mexican food and Mexican food), as well as many local gems. He estimates that 50% of General Mills’ sales are through global platforms, while 30% is generated by local gems.
We have turned over approximately 15% of our net sales base by acquisitions and divestitures since fiscal 2018, Mr. Harmening stated. This has also increased our growth exposure by around a full point. We have agreed to divest lower margin, higher growth businesses, such as yogurt in Europe and Brazil, and dough from Europe and Argentina. High-growth businesses such as Blue Buffalo pet food, Nudges True Chews, and Top Chews dog treats were acquired. These acquisitions have been successfully integrated into the General Mills portfolio. They will continue to fuel their expansion.
Blue Buffalo’s net sales grew by $600 million in the past year, which is a 10% compound annual rate.
General Mills achieved its long-term sales growth targets at 2% to 3.3% in the last two years, according to Mr. Harmening.
Chief strategy and growth officer Dana M. McNabb said that the company has used data in order to better connect with consumers. This has helped the company determine which product attributes should be highlighted in its marketing and which celebrities to endorse.
Ms. McNabb explained that the challenge was to make cereal more appealing for its convenience, taste and health benefits. Cheerios has a heart-shaped O this year. We are encouraging consumers to invest their hearts in their health and get the support of Ice-T, a celebrity coach. Lucky Charms turned into Loki Charms in connection to Disney Plus last summer, and the boxes sold out within seconds. This reinforces the power of limited, exclusive offerings that reintroduce your brands to consumers. Recent collaborations between Cinnamon Toast Crunch and Chloe Kim, snowboarder and influencer, allowed us to talk about Chloe’s obsession with Cinnamon Toast Crunchs addictive taste. These three brands are the most prominent in the US cereal category. They have shown up in culture in a way which has driven significant penetration gains. It has also helped to expand Big Gs category leadership with our US market share increasing more than a whole point this year.
Ms. McNabb stated that data insights from the company showed that African Americans are the fastest-growing vegan population in America. Everything Legendary was recently invested in by the company’s venture accelerator 301 INC. She said that the business is a plant-based meat company with a passion for taste, and it targets the Black community.
Kofi Bruce, chief financial officer, updated analysts on company’s financial outlook. He said that supply-chain issues will cause difficulties in the third quarter.
He stated that earnings growth in the back half of the company’s earnings will be more weighted to Q4 as we anticipate, which is higher than previously thought. Due to recent supply issues in North America, our refrigerated dough, pizza, and hot snacks platforms have resulted in short-term production shut downs and lower customer service levels during Q3. We expect that our net sales growth in Q3 will be slower than our retail sales performance. Our third-quarter adjusted operating profits will be lower than last year and will likely drop from the high single digits to the low double digits. We have taken measures to address supply constraints and we expect to improve our customer service and deliver strong top/bottom-line growth in fourth quarter.
Bruce stated that this year’s profitability slump is in contrast to previous years, when General Mills had achieved its goal of achieving a mid-single-digit increase in operating profits.
General Mills expects full fiscal 2022 organic net sales growth of 4% to 5%, constant-currency adjusted operating profit to fall 1% to 4%, and constant-currency adjusted diluted earnings per shares to range from 2% to 1%.