General Mills’ Pet Segment Grows in Q2, but Pet Specialty Continues to Decline
General Mills had a great second quarter in its pet segment, said Jeff Harmening, chairman and CEO of Minneapolis-based General Mills, during the company’s Q2 2020 earnings call with investors. The growth was driven by positive contributions in the food, drug and mass and e-commerce channels, positive price mix and the timing of shipments in advance of holiday merchandising, he said.
Net sales for the segment’s second quarter, which ended Nov. 24, increased 16 percent to $389 million, compared to net sales of $335 million in the year-ago period.
“Retail sales were up more than 100 percent in the food, drug and mass channel as we benefited from our expansion to new customers and the launch of Wilderness into the channel and last year’s fourth quarter,” Harmening said. “Importantly, retail sales for food, drug and mass customers who have carried Blue [Buffalo] more than 12 months were up 45 percent in the second quarter.”
Segment operating profit increased 14 percent to $81 million, driven primarily by higher net sales, partially offset by higher media expense.
While the overall pet segment increased, retail sales in pet specialty continue to decline by double digits, although this was expected, Harmening said.
“With regard to pet specialty, the results aren’t particularly surprising,” Harmening said. “It doesn’t mean we liked them and we’re not working to turn them around.”
Harmening attributed the “tough results” in pet specialty to various factors.
“One is that two of our biggest players were down on distribution quite a bit,” Harmening said. “And until we start lapping, which should be in the back half of the year, we will continue to be down. The second [reason] is we haven’t had a lot of off-shelf placements on marketing in those channels, which we’re also looking to turn around.”
Harmening also pointed toward the e-commerce channel, which interacts “quite a bit” with pet superstores.
“We’ve had strong performance in e-commerce over the years including this latest quarter,” Harmening said. “And so that probably accounts for some of those declines as well. But we’re working. It’s an important channel for us.”
Year-to-date, the pet segment reported $756.5 million, up 11 percent, driven by positive contributions from volume growth and positive net price realization and mix, according to company officials. All-channel retail sales were up double digits in the first half of the year.
Segment operating profit totaled $162 million, compared to $85 million in the prior year, driven primarily by a $53 million one-time purchase accounting inventory adjustment in the year-ago period as well as higher net sales, according to company officials.
For the full year, Harmening said that he expects the company to remain on track to deliver 8 percent to 10 percent like-for-like growth in the pet segment, excluding the benefit of the calendar differences in fiscal 2020.
“We remain confident in the long-term opportunities for Blue Buffalo and we’re excited about the growth prospects ahead,” Harmening said.
Overall, General Mills reported net sales of $4.42 billion for its second quarter, compared to $4.41 billion in the year-ago period. Year-to-date, the company reported net sales of $8.42 billion, compared to $8.51 billion in the year-ago period.