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Why Did General Mills’ Revenue Fall in Fiscal 2Q17?

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Revenue sources

General Mills (GIS) classifies its business into three operating segments: US Retail, International, and Convenience Stores and Foodservice. In fiscal 2Q17, US Retail accounted for 61.3% of total revenues, while International and Convenience Stores and Foodservice accounted for 26.8%, and 11.9%, respectively.

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Fiscal 2Q17 performance

General Mills posted revenue of $4.1 billion in fiscal 2Q17, which represents a decline of 7.1% from $4.4 billion in fiscal 2Q16. The decline in organic sales contributed 4%, while acquisition and divestitures contributed 3% of the decline. Of the 4% organic decline, the decline in organic pound volume contributed -7%, which was offset by 3% due to a rise in products prices and positive sales mix.

Individually, the U.S. Retail business fell 9% while International and Convenience Stores and Foodservice fell 5%, and 4%, respectively. Of the 9% decline in U.S. Retail business, 6% was due to an organic net sales decline and 3% was due to the divestiture of Green Giant. The company’s management blamed the slowdown in the food industry and lower marketing support for the decline in its sales.

Moving to the international segment, we see that the organic net sales decline contributed 1% while acquisition, divestitures, and the strengthening US dollar contributed 2% each to the revenue decline in this segment.

The revenue from Asia-Pacific was unchanged under constant-currency terms. However, revenue from Latin America fell 2% in constant-currency terms due to acquisitions and divestitures. Moving to Europe, we find that growth in Haagen-Dazs and Old El Paso was offset by a decline in Yogurt sales, posting a decline of 3% in constant-currency terms. Canada posted a sales decline of 7%, mostly due to the divestiture of Green Giant.

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Lastly, the Convenience Stores and Foodservice segments’ revenue fell 4% due to a decline in market index pricing. During the quarter, the cereal, yogurt, snacks, mixes, and biscuits platforms posted net sales growth of 2%. However, the non-focus business posted a decline of 10%, which brought the revenue from the segment down.

Peer comparisons

During the same period, peers Kellogg (K), B&G Foods (BGS), and Pinnacle Foods (PF) posted revenue growth of -1.9%, 49.2%, and 19.3%, respectively.

Outlook

For the next four quarters, analysts are expecting General Mills to post revenue of $15.6 billion, which represents a decline of 2.9% from $16.1 billion in the corresponding quarters of the previous year.

Next, we’ll look at General Mills’ margins in fiscal 2Q17.

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