MINNEAPOLIS _ Yogurt sales again fell sharply for General Mills over the summer, driving a broader plunge in sales and profits for its latest quarter. Executives said it will be another few months before new products begin to help.
The food processor, headquartered in suburban Minneapolis, beat investor expectations on profitability despite a 4 percent drop in net profit for the June-to-August period, its fiscal first quarter. But it missed on sales with a bigger-than-expected 7 percent decline.
The company's stock traded down about 1 percent Wednesday morning.
Executives touted productivity measures that led to an improvement in profit margin, but investors expressed worry about the ongoing sales pressure, which is being felt by many giant food companies due in part to ultralow commodity prices and shifts in consumer tastes.
"Sales were really disappointing," said Brittany Weissman, an analyst with Edward Jones. "Yogurt especially weighed on U.S. retail sales. When you have a category that is so big and is supposed to be one of your growth categories, that is concerning."
General Mills is moving resources out of its foundational businesses, which have slow growing or declining sales, and in to its higher-growth businesses like yogurt, Mexican food, cereal and snacks. Yet those categories saw a 2 percent overall drop in sales. Don Mulligan, General Mills' chief financial officer, attributed this nearly entirely to the 15 percent drop in U.S. yogurt sales.
The company is feverishly working to resuscitate its U.S. yogurt business by changing several products. Its premium yogurt line Liberte, made with whole milk and organic ingredients, and Annie's yogurt is gradually rolling out across the U.S.
Jeff Harmening, president and chief operating officer, said he expects these initiatives to have a positive impact on yogurt sales in early 2017, which is the second half of the company's fiscal year.
"So, it's not a swift turnaround," Harmening said.
Most of General Mills' organic and natural products saw immense growth in the first quarter of fiscal year 2017, which ended Aug. 28. Larabar, a line of snack bars made entirely out of fruits and nuts, grew a staggering 48 percent and Annie's Homegrown organic products were up 28 percent.
U.S. sales of cereal _ the biggest business of General Mills _ dropped 4 percent last quarter after a positive turn around at the end of fiscal year 2016 in May.
Powell notes that much of these declines were impacted by an extraordinarily strong first quarter last year, making comparisons tough.
But there were several bright spots in cereal. The major changes the company has made to several of its products are paying off. Gluten free Cheerios grew 2 percent and seven cereal varieties that transitioned to no artificial colors or flavors grew 3 percent.
In its foundational brands, Progresso soup was the key culprit in an 8 percent sales decline. "Our soup was down double digits, but we sold to consumers was what we expected," Harmening said. "It was really a matter of inventories."
The company sold more soup to retailers over the summer months than what consumers bought, said Ken Powell, General Mills chief executive, and "we expect those to normalize going forward."
Adjusted earnings per share were 78 cents, beating expectations. Consensus among 15 analysts tracked by Thomson Reuters predicted earnings of 75 cents per share.
The company met Wall Street's forecast of $3.9 billion in net sales. This is a 7 percent decline compared to the same period last year. When adjusted for the sale of its Green Giant business, the impact of foreign exchange rates and other abnormal conditions, General Mills "organic" net sales declined 4 percent.
The company reaffirmed its full-year outlook for 2017, making headway toward the goals during the first quarter, but missing its anticipated rate of profit growth.
It saw operating profit margin expand 30 basis points to 16.5 percent of net sales.
"We made good progress against our adjusted profit," Powell said, but had a "slower start to net sales growth."
Executives concluded fiscal year 2016, which ended May 31, with growth targets considered aggressive for a packaged foods company. General Mills said it would aim for its operating profit margin to surpass 18 percent this fiscal year and 20 percent in the next fiscal year.
General Mills has been a consumer staples darling with investors since last quarter when the company announced its forecast of 6 percent to 8 percent growth in earnings per share during fiscal year 2017. Wall Street reacted, skyrocketing stock prices over the summer months, peaking out at an all-time high of $72.95 on July 6. Prices hovered in the $70-per-share range until the company reaffirmed on Sept. 7 expectations that its first quarter would be below its full-year growth target. General Mills' stock cooled, trading around $65 since.
