General Mills raised prices on cereal and yogurt. It’s working
General Mills, the owner of supermarket staples Cheerios, Haagen-Dazs ice cream and Progresso soup, said Wednesday that its latest earnings topped forecasts — largely because of higher prices.
The company, which also owns Wheaties, Lucky Charms and Annie’s, said that the actual sales volume of its products fell in North America and Europe during the quarter, although they did rise in Asia.
But thanks to price increases — as well as a boost from buying pet food maker Blue Buffalo last year — total sales still rose 8% compared to a year ago.
General Mills needed to raise prices to protect its profit margins, which were threatened by rising dairy inflation, Chief Financial Officer Donal Mulligan told analysts Wednesday. The company owns Yoplait, the yogurt maker.
It also helps to have some brands that people are willing to pay higher prices for. Although overall sales volume fell in the United States, General Mills still has several well-known brands that are very popular with consumers.
CEO Jeffrey Harmening said during the conference call that there was strong demand for Pillsbury baked goods, El Paso taco kits, Annie’s fruit snacks and Fiber One bars, for example.
The food industry has been tough for a lot of companies. Discount retailers Walmart and Target, along with warehouse king Costco, have all put pressure on food companies to keep prices low.
Meanwhile, consumers are increasingly shunning processed and packaged food in favor of fresher and organic products.
Kraft Heinz, for example, has plunged more than 25% this year because of slumping demand for its Oscar Mayer cold cuts, Jell-O and Kraft Macaroni & Cheese. The company had been so focused on cutting costs that it hasn’t done as much as rivals, including General Mills, to keep churning out new and upgraded brands.
Shares of cereal company Kellogg are down about 4% this year, too.
General Mills isn’t immune to problems. Shares are down about 5% since spring 2014.
But the company has found ways to put itself in a better spot than its competitors. For example, General Mills has taken steps to cash in on the organic trend, most notably with the acquisition of Annie’s in 2014. It also owns the organic brands Cascadian Farm and Muir Glen as well as Liberté yogurt.
That increasing shift towards organic food has helped it keep prices stable despite the emergence of Amazon, which now owns Whole Foods and has its own branded grocery service.
Shares of General Mills rose 4% Wednesday on the solid results. The stock is now up 26% this year.