MINNEAPOLIS — Retail channel expansion continues to pay off for Blue Buffalo, as seen in General Mills’ third quarter financial reporting on March 18. Double-digit growth in the Food, Drug and Mass (FDM) channel and gains in e-commerce sales offset lingering declines in the pet specialty channel.
Pet food and treat sales for Blue Buffalo grew 11% to $384 million compared to year-ago sales of $346 million. This was driven largely by double-digit growth for the brand’s Life Protection Formula and Wilderness products.
Operating profit increased 29% to $94 million over the quarter, driven by “higher net sales, partially offset by higher media expense,” said Kofi Bruce, chief financial officer at General Mills.
Although Blue Buffalo is currently the company’s smallest segment in terms of sales, it was the only category to experience gains in the third quarter, with North America retail, convenience stores and foodservice, Europe and Australia, and Asia and Latin America all showing single-digit declines in net sales.
Expanded distribution to the FDM channel has driven 31% retail sales growth among customers loyal to Blue Buffalo for more than 18 months, as the segment continues to permeate the market from all fronts.
Pet specialty continued its decline, but General Mills said it plans to turn this tide with two new product distributions launching exclusively in that channel later this year: Baby Blue puppy formulas, and True Solutions functional diets.
“Blue Buffalo continues to drive strong year-to-date retail sales growth in the rapidly evolving e-commerce channel,” said Jeff Harmening, chief executive officer and chairman of General Mills.
General Mills said it expects to achieve 8% to 10% growth in its pet segment for its full-year fiscal 2020.
“We’re excited about the growth prospects ahead and continue to remain confident in the long-term opportunities for Blue Buffalo,” he added.
During the conference call detailing General Mills’ third quarter earnings, David Driscoll of DD Research asked if the company foresees a potential economic downturn caused by the global COVID-19 situation to affect premium pet food sales. Harmening responded by noting that the market did not see a decline in pet food purchases during the last recession in the United States, and that Blue Buffalo’s demand tends to be “pretty inelastic.”
“…to the extent that the US has some economic hardships as a result of this virus, we would anticipate the pet food category would still be a robust category,” Harmening added.
The company’s overall financial performance in the third quarter was flat, including net sales, operating profit and diluted earnings per share (EPS). Over the quarter, General Mills reported $4.18 billion in net sales, which fell slightly compared to year-ago sales of $4.19 billion.
Diluted EPS remained the same from year-ago at $0.74. Operating profit fell slightly to $650 million compared to $651 million from the third quarter of fiscal 2019.
In its nine-month assessment, General Mills reported a 1% decrease in net sales compared to year-ago sales, as well as an 18% increase in operating profit, and a 30% increase in diluted EPS.
As COVID-19 unfolds, temporary store closures in China impacted the company’s earnings over the quarter, especially for Haagen-Dazs sales. General Mills stated in a press release that the overall degree and breadth of COVID-19 impacts remains uncertain at this time.
“During the rapidly evolving situation related to COVID-19, our number one objective continues to be the health and safety of our consumers, employees, and other stakeholders. General Mills plays a critical role in making food to meet the needs of our consumers, and I’m proud of the way we’ve partnered with our retail customers in recent weeks to service consumers’ increased demand for food at home during this unique time. Looking forward, we’ll remain agile to adapt to changing demand patterns around the world as circumstances with COVID-19 continue to develop,” Harmening said.
Despite these setbacks, the company reaffirmed its guidance for fiscal 2020. General Mills even increased expectations for its adjusted operating profit from 2-4% growth to 4-6% growth, as well as its adjusted diluted EPS from 3-5% growth to 6-8% growth, by the end of May.
“Our outlook assumes we continue to operate our supply chain with minimal disruption, but this could change if the virus situation worsens materially,” Harmening said.
The company also stated that currency translation is expected to have an inconsequential impact on its fiscal 2020 operating profit and adjusted diluted EPS.
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