Chocolate peanut butter Cheerios on the horizon

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MINNEAPOLIS — General Mills Inc.’s latest results disappointed investors, but executives said the company is on track to meet financial goals for its new fiscal year and revealed a potential hit product — chocolate peanut butter Cheerios.

Recalibrating a financial model gone slightly awry, General Mills executives and staffers are now trying to slow down the drop-off in sales they saw over the last two years when they were lifting profits. They’re also trying to fix missteps in several product lines, including yogurt, soup and refrigerated foods.

The results issued Wednesday for the June to August quarter, the first of its new fiscal year, showed the company, headquartered outside the Twin Cities, making progress on both goals. But it missed the consensus expectations of investment analysts, and the company’s shares tumbled 5 percent in response. General Mills shares are now down 16 percent for the year and trading at their lowest price since January 2015.

Executives attributed the miss on analysts’ targets to inventory streamlining at retailers and an accounting rule change that affected the timing of some recognition of revenue. In reports published after the results, analysts said they understood the explanation but noted General Mills was now under considerably more pressure to hit its full-year sales target.

Executives said the company can do it, pointing to new products and the payoff they are seeing from increased marketing on certain existing items, including Nature Valley snacks, Gogurt yogurts for kids and Gushers fruit snacks for kids and teens. The launch of a new French-style yogurt this summer, called Oui by Yoplait, exceeded expectations and provided a glimmer of positive news in a product category where General Mill has lost ground to competitors.

“We are pleased that the areas where we’ve invested marketing spending are the ones where we’ve seen the best results,” chief executive Jeff Harmening said.

The company has gone through some turnover in the top ranks of its marketing executives and it hired new advertising agencies last year. Harmening said those agencies are starting to deliver for the company.

“The change is not so much what was bad before but what is good now. … It’s amazing what a fresh pair of eyes can do for a business,” he said. He said he believes a soon-to-launch campaign for Pillsbury products will be some of the best advertising the company has done recently.

And the release next month of chocolate peanut butter Cheerios, the flagship brand in the company’s largest product group, will be “the biggest launch we’ve had in quite some time,” Harmening said.

Chocolate peanut butter cereals generate $500 million in annual consumer sales and he expects the arrival of Cheerios brand into the flavor category will make a splash.

“We’ve got a big pond to fish in both in terms of the brand and in terms of the flavor,” Harmening said, adding he ate the new cereal for breakfast Wednesday morning. “This stuff tastes really, really good. Chocolate peanut butter you would expect to taste good, but this really delivers.”

For the three months ended Aug. 27, the first quarter of General Mills’ fiscal year 2018, the company’s profit fell 1 percent to $404.7 million, or 69 cents a diluted share. Adjusted for one-time costs and benefits, the company earned 71 cents a share, which was below the 77 cents a share consensus forecast of analysts surveyed by Zack’s Investment Research.

Revenue was $3.77 billion, down 3.5 percent from $3.9 billion a year ago.

During its fiscal years 2016 and 2017, executives concentrated on boosting the company’s operating profit margin, but that came at a cost of lower sales. The pace of revenue declines peaked during a three-month period in spring 2016 with a drop of nearly 9 percent. For full-year fiscal 2018, the company has told investors to expect a sales decline of 1 percent to 2 percent.