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General Mills shifts resources away from weakening Green Giant

MINNEAPOLIS – General Mills acknowledged the weakness in its Green Giant vegetable business Wednesday, taking a $260 million charge as it redirects money to more promising ventures.

With the Green Giant asset write-down and other charges, General Mills posted fiscal fourth-quarter net earnings of $187 million, or 30 cents per share, down by 53 percent from a year ago. Excluding one-time charges, though, profits rose by 12 percent over a year ago, exceeding analysts’ estimates.

General Mills’ sales for the fourth quarter ending May 31 were $4.3 billion, essentially the same as a year ago, but short of analysts’ estimates of $4.5 billion.

In other words, it was a mixed-bag quarter for the packaged-foods giant, based in the Minneapolis suburb of Golden Valley. And it capped a fiscal year in which General Mills – like makers of packaged foods in general – slogged through with a mediocre U.S. performance, as consumer tastes shifted somewhat from traditional processed foods.

“General Mills is keenly aware of consumers’ changing food habits and how that it’s impacting our industry,” CEO Kendall J. Powell told analysts in a conference call Wednesday.

To fight back, Mills is upping innovation and investment in its key cereal and yogurt businesses, and emphasizing its growing organic and natural foods operation, Powell said. The company’s cereal initiatives include removing any traces of gluten from its five Cheerios offerings, which together make up 90 percent of the iconic brand’s sales. The company operates a Cheerios factory on Buffalo’s waterfront.

Oats – the grist for Cheerios – don’t contain gluten, but traces of the wheat protein can still exist in the cereal manufacturing process.

“This is a major initiative,” Powell said in an interview. “Thirty percent of consumers have said they have a concern with avoiding gluten and many of those have left the cereal aisle.”

General Mills, not unlike most of the U.S. cereal sector, has incurred declining sales in the last couple of years. But cereals marketed as gluten-free – notably Mills’ Chex line – have done well. Some money going into General Mills’ cereal initiatives will be rerouted from its stagnant Green Giant business.

“We made a strategic decision to redirect certain resources supporting our Green Giant business in our U.S. retail segment to other businesses within the segment,” the company said in a news release. “Therefore, future sales and profitability projections in our long-range plan for this business declined.”

The frozen and canned vegetable business, Green Giant’s home, is a mature industry. Green Giant’s strength is in frozen vegetables packed in sauces, a higher end of the market. But fresh produce seems to be taking an increasing bite out of that business, as its sales have been falling.

“I’m a little big surprised at how far Green Giant has fallen,” one stock analyst said in a conference call Wednesday. “It’s not every day we see an impairment charge to this degree.”

Asset impairment charges recognize the decline in value of a brand or business line. With the charge, General Mills basically is saying it will spend less money on Green Giant – particularly marketing – therefore the business is worth less going forward.

Still, Green Giant is not a money loser. “It’s a good, profitable brand,” Powell said.

Its growth prospects simply aren’t as good as those in other General Mills businesses, he said. “Every year, we have to look at the opportunities we have and where to invest.”

Despite a tough fiscal 2015, General Mills’ results in the United States improved during its fourth quarter. Sales increased by 5 percent over a year ago, to $2.5 billion, up by 13 percent over a year ago. The company’s International Division saw fourth-quarter sales drop by 9 percent, to $1.2 billion, because of negative currency effects. In constant currency, sales rose by 9 percent.

The company is forecasting that its fiscal 2016 sales will essentially match 2015’s, and that its constant-currency adjusted earnings per share will grow at a rate in the middle single digits.