General Mills (NYSE: GIS) today reported results for the second quarter ended November 25, 2018. Financial results for the second quarter and first six months of fiscal 2019 include contributions from Blue Buffalo Pet Products, Inc. ("Blue Buffalo"), which was acquired on April 24, 2018.
"I'm pleased that our results through six months keep us on track to deliver our full-year targets," said General Mills Chairman and Chief Executive Officer Jeff Harmening. "Our cost and capital discipline has driven profit growth ahead of our expectations in the first half. Our job to do in the second half is to accelerate our sales growth while maintaining that same discipline. We're taking actions to strengthen our second-half topline trends in North America Retail, led by U.S. cereal and snacks. On Blue Buffalo, we're driving strong in-market results, including year-to-date retail sales up 9 percent, and we'll fuel additional Blue growth in the second half by doubling distribution in the Food, Drug, and Mass channels. With strong first-half profit performance, good cost visibility, and confidence in our second-half growth plans, we are reaffirming our guidance for Blue Buffalo and for General Mills in total."
General Mills is pursuing its Consumer First strategy and executing against its three key global growth priorities to drive consistent topline growth: 1) competing effectively through strong innovation, effective consumer marketing, and excellent in-store execution; 2) accelerating growth on its four differential growth platforms including Häagen-Dazs ice cream, snack bars, Old El Paso Mexican food, and its portfolio of natural and organic food brands; and 3) reshaping its portfolio through growth-enhancing acquisitions and divestitures, including the acquisition of Blue Buffalo, the leading brand in the fast-growing wholesome natural pet food category in the U.S. By combining consistent topline growth, margin expansion, and disciplined cash conversion and cash returns, General Mills expects to generate top-tier total shareholder returns over the long term.
Second Quarter Results Summary
- Net sales increased 5 percent to $4.41 billion and were up 7 percent in constant currency, driven by the addition of Blue Buffalo. Organic net sales decreased 1 percent, driven by a decline in the North America Retail segment.
- Gross margin decreased 20 basis points to 34.2 percent of net sales. Adjusted gross margin, which excludes certain items affecting comparability, increased 10 basis points to 34.5 percent, driven by cost savings and benefits from price realization and mix, partially offset by higher input costs.
- Operating profit totaled $547 million, down 23 percent from last year due to higher restructuring, impairment, and other exit costs. Adjusted operating profit of $765 million increased 8 percent in constant currency, primarily driven by higher net sales and adjusted gross margin. Operating profit margin of 12.4 percent declined 450 basis points. Adjusted operating profit margin increased 40 basis points to 17.3 percent.
- Net earnings attributable to General Mills totaled $343 million, down 20 percent from a year ago, driven by lower operating profit and higher net interest expense, partially offset by a lower effective tax rate.
- Diluted EPS totaled $0.57, down 23 percent from the prior year. Adjusted diluted EPS, which excludes certain items affecting comparability of results, totaled $0.85 in the second quarter, up 2 percent from the prior year in constant currency, driven by higher adjusted operating profit and a lower effective tax rate, partially offset by higher net interest expense and higher average diluted shares outstanding in the quarter.
