Milling & Baking News - December 27, 2022 - 18

©STEVE CUKROV, JJAVA AND MAGDAL3NA - STOCK.ADOBE.COM
TUES | 12 27 202 2
General Mills prioritizing margin
recovery in improved environment
MINNEAPOLIS - While General Mills,
Inc. has seen some modest improvement
to its operating environment in recent
months, inflation and supply constraints
have continued to pressure the company's
margins.
During a Dec. 20 conference call with
analysts to discuss second-quarter results,
Kofi Bruce, chief financial officer, said the
company is working to return its attention
to holistic margin management practices.
" So structurally, we view our job to
kind of claw back about 150 basis points of
margin versus our sort of pre-pandemic
level, " Mr. Bruce said. " I think the stable
environment from a supply chain standpoint
will be one of the first and the most
important things.
" And then second, it will be probably a
return to more historic levels of inflation,
moderation of inflation, which - who
Retail sales in the Pillsbury US Refrigerated
Dough business have climbed by more than
50% over the past five years.
disruptions remain well above historical
averages, and we aren't forecasting a
return to pre-pandemic levels of supply
disruptions or customer service during
this fiscal year, " Mr. Harmening said.
General Mills' net income for the
second quarter ended Nov. 27 was $606
million, equal to $1.01 per share on the
common stock, an increase of 1% from the
prior-year quarter when the company
earned $597 million, or 98¢ per share.
Sales were $5.22 billion, up 4% from
$5.02 billion in the same period a year ago.
The North America Retail segment
posted second-quarter net sales of $3.37
billion, an increase of 11% from $3.04 billion
in the year-ago quarter. General Mills
said the increase was driven by favorable
net price realization and mix, partially
offset by lower pound volume and a
2-point headwind from the Helper and
Suddenly Salad divestiture.
Net sales rose 18% in US Snacks, 10% in
US Meals & Baking Solutions, and 10% in
US Morning Foods. Segment volume was
down 8 basis points in the quarter.
Retail sales in the US cereal business
were up 20% compared to 2018, Mr. Harmening
said.
" We've gained two-and-a-half share
points over that time and solidified our
No. 1 position in the category, " he said.
General Mills has grown retail sales in
knows when that's coming. But we're certainly
positioning our business to make
sure that we're taking the cost out as we
have the opportunity to do so. "
As some logistics challenges have eased,
General Mills has been able to improve customer
service levels, said Jeff Harmening,
chief executive officer, in prepared remarks
accompanying the release of second-quarter
results. By the close of the second quarter,
which ended Nov. 27, service levels in
US Retail had reached the high-80% range,
which was up from the mid-80% range in the
first quarter, though still below the normal
range of 98% to 99%, the company said.
" Despite these improvements, supply
18
MILLING & BAKING NEWS
the Pillsbury US Refrigerated Dough business
by nearly 50% over the past five years,
to nearly $2 billion, Mr. Harmening said.
" Our most recent messaging with
consumers highlights the many ways to
conveniently 'make homemade' using
Pillsbury dough products outside the
oven, " he said. " And we are leveraging our
data and connected commerce capabilities
to personalize our messages. For example,
by targeting our 'make homemade' messaging
to consumers who recently purchased
an air fryer, we were able to drive
lower cost-per-click and convert a higher
share of our new Pillsbury consumers,
further building confidence in the value
of our first-party data. "
Retail sales in US fruit snacks were
up nearly 70% since fiscal 2018 to more
than $800 million. The company's market
share of fruit snacks reached 54% of the
category.
" We accomplished these results despite
being capacity constrained for much of that
time, " Mr. Harmening said. " But we completed
a $100 million capacity expansion on
fruit snacks in Q1, which has allowed us to
execute new channel expansion plans for
e-commerce and convenience stores. "
Second-quarter net sales for the Pet
segment essentially matched year-ago
levels at $593 million, with favorable net
price realization and mix offset by lower
pound volume. Organic net sales were
flat. Net sales performance was negatively
impacted by a reduction in retailer inventory,
with all-channel retail sales up high
single digits in the quarter.
Pet segment operating profit dropped
34% to $87 million compared with $132 million
a year ago. The decrease was driven
primarily by high-teens input cost inflation,
a significant increase in costs related
to capacity expansion and supply chain
disruptions, and lower volume, including
the impact of the retailer inventory reduction,
according to General Mills. These
headwinds were partially offset by favorable
net price realization and mix.
" On the cost side, we continue to forecast
total input cost inflation of approximately
14% to 15% for the full year, including
double-digit inflation in the second
half, " Mr. Harmening said. " Volume elasticities
continued to remain below historical
levels in the first half, particularly in
North America Retail. We are watching
these trends closely, but we do not expect
a return to pre-pandemic elasticity levels
during fiscal 2023. "
General Mills' operating profit margin
of 15.3% in the second quarter was
down 60 basis points from the year-ago
quarter. Adjusted operating profit margin
was 16.9%, up 60 basis points. Items
affecting comparability included mark-tomarket
effects of $25.1 million, Investment
activity of $35.7 million, product recall
of $2.9 million, restructuring charges of
$11.6 million, acquisition integration costs
of $2.8 million and transaction costs of
$1.8 million. MBN
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Milling & Baking News - December 27, 2022

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