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General Mills Takes Another Hit, and It's Not Just Cereal That's to Blame

By Motley Fool Staff – Oct 1, 2017 at 7:02AM

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The packaged-food giant’s Q1 missed expectations, but the product segment that really lost ground might surprise you.

In this segment from the Motley Fool Money radio show, host Chris Hill, Million Dollar Portfolio's Jason Moser, Total Income's Ron Gross, and Motley Fool Pro and Options' Jeff Fischer discuss the difficulties facing packaged-food companies in general, and General Mills (GIS -0.43%) specifically. You probably already knew that cereal sales were flagging, as millennials don't eat as much of it, but the company's yogurt sales fell a remarkable 22%. And in the grocery business, declines tend to feed into further declines.

A full transcript follows the video.

This video was recorded on Sept. 22, 2017.

Chris Hill: Another tough week for packaged-food giant General Mills. First-quarter profits came in lower than expected as sales of yogurt in the United States continue to decline. I was unaware of that.

Ron Gross: Yeah, as I was, too. Twenty-two percent decline in yogurt sales for General Mills. Seven percent decline in cereal. Packaged-food companies in general, really struggling, whether it's Kraft or Kellogg or Campbell Soup. It turns out that people want fresh food. Who would've thunk? But it shows up in the numbers here. Revenue down 3.5%. They were worse than expected. You get a double whammy here. The worse that you do, the more the retailers shrink shelf space that you can put your goods on, and that creates this spiral of things are bad, we get less shelf space. Things get worse, we get less shelf space. So it continues to compound the problem.

One big red flag in general, if you ever hear a company say, "We expect the first half to be weak but we think things are going to pick up in the second half," I would say 80% or more of the time that does not happen. It's a way of kicking the can down the road. That's the case here as well.

Hill: And of course, General Mills, a big part of their business is breakfast cereal, and we've seen how breakfast-cereal sales have declined year over year for a while now in the U.S. In 2016, General Mills changed up one of its most popular cereals, Trix. They changed the formula and started selling all-natural Trix. The bright artificial colors were replaced with coloring from radishes, purple carrots, and turmeric. And I guess, Jason, people hated that, because this week, General Mills announced the return of what they are calling "Classic Trix."

Jason Moser: I can empathize with that sentiment. As a cereal aficionado, and one who probably buys Trix one out of every five or six cereal boxes in our house, when I got that first box of funky colors, it just didn't look right. I mean, it tasted the same. But even my kids were like, "What in the world is this?" Listen, I'm all for eating healthy. I'm all for having all sorts of options out there. But with those options, I want my Classic Trix.

Hill: I can't wait for, six months from now, when Classic Trix is outselling the all-natural one.

Moser: Oh, it will be.

Gross: They'll dump the other one, for sure.

Chris Hill has no position in any of the stocks mentioned. Jason Moser has no position in any of the stocks mentioned. Ron Gross has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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