General Mills is looking for a new “small” brand

Shortly after announcing the sale of Yoplait, General Mills plans to replace the underperforming brand with a grab-and-go acquisition.

The Minnesota-based maker of Cheerios and Totino’s cereals is looking to expand its pet food, snacks and food service offerings, areas of rapid growth for the company, which has struggled to boost sales.

“Where we have competitive advantages, where we see growth and synergies, that’s where we’ll continue to look,” Chief Executive Officer Jeff Harmening said Wednesday. “Those will be things that are going to be bolted onto existing categories, particularly in categories where we have a legitimate chance to win, which are largely our global businesses.”

Harmening made the comments after the company announced that profits in the latest quarter fell 14% to $580 million.

Although the company was considered to buy Twinkies cookie maker Hostess, which was sold to Smucker’s last year for $5.6 billion, General Mills is not looking to make such a large deal, at least in the short term.

“Our near-term focus (is) on additional acquisitions, with the most likely deal size being $1 (billion) to $2 billion,” Harmening said, “which would be more similar to our acquisitions of Annie’s or Tyson Pet Treats, as opposed to Blue Buffalo.”

That’s why the company is unlikely to buy Unilever’s ice cream business, which includes Ben & Jerry’s, which could be sold for $20 billion, analysts estimate. Bernstein analyst Alexia Howard wrote that protein bar and shake maker Simply Good Foods may also be a bit too big of a target compared with the “small deals they seem to be looking for.”

Harmening said there are many smaller opportunities that could “increase our growth.”

“We’re always looking for potential acquisition candidates,” he said. “But we’re also disciplined in how we think about making those acquisitions.”

General Mills announced last week that it would sell its North American yogurt business, which includes Yoplait and Go-Gurt, for $2.1 billion after nearly a half-century as a pioneer in the category in the United States.

An influx of popular new brands and styles has eroded Yoplait over the past decade. Despite attempts to meet demand for Greek, low-sugar, high-protein varieties, the once-dominant brand has never recovered.

Proceeds from the sale will also be returned to investors.

“We expect to be able to return this cash to shareholders and still be able to deliver on our portfolio ambitions of $1 billion to $2 billion without any real change in the company’s leverage,” said Chief Financial Officer Kofi Bruce.

The sale is part of General Mills’ “Accelerate” strategy, which aims to focus on its best-performing brands and divest those that no longer contribute significantly.

The company has also sold its Hamburger Helper and European cake businesses in recent years, while also adding pet treats, a pizza crust maker and a European pet food company. Since buying Blue Buffalo for $8 billion in 2018, the company says 30% of its portfolio has changed.

General Mills met expectations for the fiscal quarter ending in August, with sales down 1% to $4.8 billion. Adjusted earnings per share came in at $1.07, slightly above analysts’ targets.

Howard said that while overall sales are improving, General Mills faces increasing competition and is struggling to maintain or increase market share in some categories.

“Part of this may simply be the economic recovery as competitor brands regain market share following increased supply chain pressures in 2022, but we wonder if younger consumers’ preferences are changing over time,” she wrote.

Piper Sandler analyst Michael Lavery wrote that the company still needs to convince financially strapped customers to spend money on branded products by “refining its brand messaging to attract these consumers.”

General Mills management confirmed its financial forecasts for next year: sales growth of 1% to 2% and a decline in operating profit of 1% to 2%.