General Mills Struggles to Lift Sales in North America, but Profit Margins Improve --update

By Annie Gasparro and Micah Maidenberg

General Mills Inc. said raising prices this year helped improve its profit margin despite record-high freight costs and disappointing sales growth.

The maker of Cheerios cereal and Yoplait yogurt has struggled this year with what it says are unprecedented logistics costs and higher food prices. Like other packaged-food makers, General Mills has started charging more for its food, even as the popularity of products such as cereal and yogurt falters.

For its fiscal second quarter, which ended Nov. 25, General Mills' adjusted gross profit margin rose slightly to 34.5%. But its North American retail sales fell 3%.

"Our job to do in the second half is to accelerate our sales growth while maintaining that same discipline," Chief Executive Officer Jeff Harmening said Wednesday in prepared remarks.

General Mills's shares rose 5% on Wednesday morning.

Grocery stores have recently started allowing more price increases from big brands, after pushing back in recent years to compete with lower-priced food retailers. Many of those price increases have come in the form of smaller packaging, new flavors or fewer discounts.

General Mills pointed to that strategy on Wednesday as a way to boost profitability. But fewer promotional displays and discounts in its cereal brands hurt sales in the latest quarter.

The company also wrote off $193 million in an impairment charge for Progresso, Food Should Taste Good, and Mountain High brands in the quarter, primarily because it now expects those product lines to generate weaker sales in the future.

In response to lackluster sales of some of its biggest brands, General Mills got into the faster-growing dog-food business with an $8 billion acquisition of Blue Buffalo Pet Products this year. Sales are rising as it brings the premium, natural pet food to more stores, but it hasn't been the savior investors expected. In the latest quarter, operating profit in the pet-food division fell 20% to $71 million due to higher costs, lower sales volume and factory startup costs.

General Mills is also working to shed older food brands that aren't core to its strategy. Mr. Harmening hasn't specified which ones are on the chopping block.

Overall, General Mills earned a profit of $343 million in the quarter, down 20% from a year earlier. Adjusted profit of 85 cents a share beat the 81 cents a share analysts expected, sending shares up 3% in early trading Wednesday. Sales climbed 5% to $4.41 billion, falling short of the $4.51 billion analysts polled by FactSet expected.

Write to Annie Gasparro at annie.gasparro@wsj.com and Micah Maidenberg at micah.maidenberg@wsj.com

(END) Dow Jones Newswires

December 19, 2018 09:04 ET (14:04 GMT)

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