General Mills adjusting to a market that is changing quickly
The first significant publicly traded food and beverage company, General Mills, Inc., to disclose its quarterly sales and earnings figures amid the global coronavirus outbreak that is affecting people’s daily lives, is this one. The majority of the queries from analysts taking part in the business’s conference call centered on the future and how the outbreak may effect the company, even though the financial results were for the third quarter ended Feb. 23, weeks before the state and federal response to the outbreak increased. The management gave a brief reaction, saying that it was too soon to tell.
On March 18, chairman and CEO Jeffrey L. Harmening stated, “Since the beginning of March, we’ve seen increased customer orders and higher retail sales takeaway in Nielsen-measured channels.” “We believe takeaway for the week ending March 14 will be many times higher across all channels. Our US retail sales numbers for the week ended March 7 were up low double digits, including Pet.
“We anticipate that overall at-home food demand will remain elevated in Q4, and the bulk of any unwind will happen in fiscal ’21,” even if we estimate this short-term stock up demand will add in the upcoming months. This portion of our forecast is somewhat unclear, and we will send you an update prior to the conclusion of the fiscal year if there is a significant change in the prognosis.
The management’s first concern is maintaining the supply chain’s functionality. According to Mr. Harmening, General Mills’ service levels exceed 90%, and the supply chain has so far functioned “very well.”
“We are still producing food, that much I can assure you of.” he remarked. “Our retailers are still carrying merchandise,”
According to Jonathan J. Nudi, group president of North America Retail, General Mills’ facilities are operating close to capacity and beyond the throughputs that have been scheduled for the past few of weeks. Working with retailers to “simplify the supply chain” has become a new focus.
According to him, there are situations when this could include carrying fewer stock-keeping units (SKUs), carrying the large soup SKUs, and dropping some of the tail brands.
Shipments in full pallet quantities rather than mixed layers on pallets can be among the other modifications. Making trade-offs about direct-store delivery to merchants might also be part of it.
General Mills is advising all employees who feel sick to stay at home and is providing paid sick leave in an effort to stop the virus from spreading to its manufacturing facilities.
Mr. Harmening stated, “We anticipate continuing production through the course of our normal actions.” At some of our sites, the only thing we’ve changed is that we’ve experienced social separation. We are therefore encouraging folks to do it at different times rather than having everyone congregate in the lunch ring over time. Additionally, take breaks at various times rather than all at once.
In order to keep the supply chain running, he continued, General Mills had “worked through a number of contingencies,” though he did not specify what they may be.
Analysts also centered their concerns on potential similarities between the company’s experiences during the peak of the outbreak in China, where it operates food manufacturing and restaurant operations, and what might occur in the United States.
According to Mr. Harmening, “nearly half of our Häagen-Dazs stores in Greater China had been temporarily closed.” “We saw a significant decline in Häagen-Dazs sales in Asia for the month of February, with a total decline of 90% in traffic and shops and substantial declines in other foodservice outlets in China.”
Conversely, sales in its frozen dumpling business have increased by double digits.
“Demand is still high even as our shop business opens up and China resumes work, it’s very evident that we’ve increased household penetration in China,” he stated. “Thus, while I’m not sure the lessons we learned in China will apply everywhere, at least here at home, we’re seeing a rise in the consumption of Wanchai Ferry dumplings.”
Third-quarter outcomes are unchanged.
In the third quarter, General Mills generated $454 million in net income, or 75¢ per share on common stock. This is a modest increase over the $447 million, or 74¢ per share, earned during the same time last year.
The quarter’s sales of $4.18 billion were somewhat lower than the $4.2 billion in sales for the same period last year.
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More precisely, sales at the $2.5 billion North America Retail business unit decreased by 1%. The US Meals & Baking operating unit saw a 2% decline in net sales, while the US Cereal, US Snacks, and US Yogurt operating units saw 1% declines. Operating unit sales in Canada increased by 6%.
The business reports that the Pet segment’s third-quarter net sales climbed 11% to $384 million, driven by favorable contributions from volume growth, favorable net price realization, and favorable mix. Double-digit growth in Blue’s two biggest product lines, Life Protection Formula and Wilderness, drove the company’s net sales success.
At $465 million, net sales in the Convenience Store & Foodservice segment decreased by 2%. The decrease was mostly caused by flours and mixes, while low-single digit increases in cereals, frozen baked goods, and yogurt helped to balance the fall.
Chief financial officer Kofi A. Bruce stated that management anticipates organic net sales growth to “step up significantly” during the fourth quarter. Retail in North America and the Pet segment’s additional month of results will be its main drivers.
“The large increase in growth investments in brand building and capabilities will somewhat offset the robust increase in gross profit dollars in the quarter,” he stated, citing the rapid growth in net sales. Regarding the effects of COVID-19, we’ll continue to adapt as our markets’ needs for food consumed at home as opposed to away from home change. Our forecast is based on the assumption that we maintain our excellent supply chain performance through the end of the year with little to no disruption.