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Declining Sales but Reduced Costs as Well
General Mills ($GIS) has been going through declining sales. In the first quarter it experienced a 7% revenue decline year over year, dropping to $3.91 billion. New sales of organic products slipped 4%. In fact, $GIS states that though emerging markets saw increased sales for its organic and natural products, they were offset by declining sales for its US Yogurt and Foundation business. The company’s first quarter net earnings slipped to $409 million from $426.6 million in the corresponding quarter the previous year.
However, the company did experience declining cost of sales by 6%. There was also a 12% decrease in the SG&A expenses (selling, general & administrative expenses), while the operation margin had an expansion of 30 basis points to top 16.5% of net sales. The adjusted operating margin had an expansion of 80 basis points to top 19.2% of net sales.
Lower Domestic Sales but Cost Cutting in Place
General Mills is facing weaker domestic sales while it’s also benefiting from cost cutting and reduced expenses. The decline in domestic sales could be blamed on the increasing health consciousness of consumers, while the reduced expenses have been achieved by reducing headcount and discontinuing the sales of brands that are less profitable.
According to General Mills CEO Ken Powell, the discouraging net sales performance is the result of the tough macro environment. The tough year-over-year comparison and a slow start to the year made by some of its businesses are also pointed out by him as factors. Powell highlights the company’s Consumer First focus as one of the many steps taken to improve net sales performance. He also claims there were encouraging results in its global portfolio as a result of adapting to changing consumer interests.
Initiatives to Improve Net Sales Performance
Powell continues to believe that the company’s Consumer First initiatives will help improve its net sales performance for organic products. There are cost saving initiatives as well as the Holistic Margin Management program. These measures are expected to help achieve the company’s fiscal 2017 profit goals and the target of attaining 20% adjusted operating profit margin as fiscal 2018 comes by. Till then, the company’s investors can be encouraged by the fact that General Mills’ Q1 profit expansion and its EPS results do reflect continued progress.
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