Companies and Brands

Cost-Cutting Is How Food Processors Aim to Grow

Paul Ausick
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General Mills
General Mills Inc.
When General Mills Inc. (NYSE: GIS) reported fourth-quarter and full-year results Wednesday morning, the company said it has begun a formal review of its North American manufacturing and distribution network with an eye toward “streamlining operations and identifying potential capacity reductions.” This almost certainly translates to closing plants and firing workers although the company stopped short of admitting it. General Mills did say that it will announce details in the coming months as it determines what actions it will take.

In its outlook for the 2015 fiscal year, General Mills is looking to “accelerate topline growth” by introducing new products and increasing its supply-chain cost saving efforts by reducing expenses by more than $400 million to offset cost inflation the company estimates at 3%.

The packaged foods maker reported fourth quarter adjusted diluted earnings per share (EPS) of $0.67 on revenues of $4.28 billion which were well below consensus estimates for EPS of $0.72 and $4.4 billion in revenue. For the full year the company reported EPS of $2.82 on revenues of $17.91 billion compared with the consensus estimates for EPS of $2.87 on revenues of $18.08 billion.

Other packaged foods makers are also struggling with slowing U.S. sales. Mondelez International Inc. (NASDAQ: MDLZ), the maker of Oreo cookies among other products, is merging its coffee business with European giant D.E. Master Blenders 1753. Mondelez also gets a larger share of its revenue from outside the U.S.

ConAgra Foods Inc. (NYSE: CAG) is combining the two approaches. The company will close two plants in New York by early 2015, cutting more than 400 employees. ConAgra has also taken a 44% stake in Ardent Mills which will be the largest milling operation in the U.S. with total sales of $4.3 billion. Privately held Cargill and CHS Inc. (NASDAQ: CHSCP) hold 44% and 12%, respectively, of Ardent Mills.

General Mills stock was down more than 4% in premarket trading Wednesday morning, but the stock bounced back to trade lower by about 3.5% late in the afternoon. The stock’s 52-week range is $46.70 to $55.64.

ALSO READ: Monsanto Boosts Buyback After Clearing Low Bar

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