General Mills reports weaker cereal, baking goods sales

December 17, 2014, 1:25 PM UTC
Boxes of Cheerios
Photograph by Justin Sullivan–Getty Images

General Mills has reported a 37% drop in fiscal second-quarter profit, as the food company reported weaker sales of cereal and baking products in the U.S. The cereal maker also booked $233 million in pretax restructuring charges. Here’s what you need to know about the company’s earnings report.

What you need to know: General Mills (GIS) and many other major food and beverage companies have faced massive challenges in the U.S., where food trends are being driven by younger Millennial consumers who experts say demand more flavorful items but are also less loyal to brands than prior generations. General Mills, which makes Cheerios, Lucky Charms and other breakfast items, reported a 4% drop in U.S. retail sales for the latest quarter. Sales were weaker for cereal, baking products and meals, offsetting increases for snacks and yogurts.

General Mills isn’t the only major food-and-beverage giant that’s facing challenges. Rival Kellogg’s (K) U.S. morning foods sales have also declined of late, as Americans have been buying less cereal and instead favor yogurts or freshly made alternatives like eggs and toast.

The big number: General Mills’ overall sales slid 3.4% to $4.71 billion for the period ended November 23, worse than the $4.78 billion in sales projected by analysts. Gross margin dropped to 34.4% from 36.1%. But profitability on an adjusted basis (which excludes restructuring charges and other items) was a bright spot: profit totaled 80 cents in the latest quarter, better than the 76 cents predicted by analysts surveyed by Bloomberg. General Mills trimmed advertising and media spending by 9%, so that helped the bottom line.

What you might have missed: Though sales trends have softened at General Mills, the company has made a few key moves to get itself in better position with consumers. The company paid $820 million to acquire organic food company Annie’s. Campbell’s Soup (CPB), which recently scooped up Bolthouse Farms, and other large players have signed a number of acquisitions recently to get a better position in the food aisle.

General Mills also isn’t giving up on cereal. The company brought back French Toast Crunch recently, and also launched a new brand of Cheerios that will include hints of quinoa and other “ancient grains.” The company has also added new flavors to its Cheerios Protein line recently, aiming to address consumers increased interest in adding more protein to their breakfast.