General Mills Inc.'s largest acquisition this year weighed down fiscal 2019 second-quarter results in its key North America business, even as top-line results beat analysts' expectations.
For the fiscal second quarter, sales within the company's pet segment fell 7% on a pro forma basis, which includes results from the Blue Buffalo brand. General Mills said the decline came one year after Blue Buffalo reported a 25% increase in sales following a major distribution expansion at U.S. retailers.
In response to the quarterly decline, General Mills Chairman and CEO Jeffrey Harmening said the company plans to introduce new varieties of the premium pet food in a bid to boost sales.
"We're not happy with that long-term trajectory," Harmening told analysts during a call to discuss the company's second-quarter results. But General Mills is still "optimistic that we can actually turn that performance around over time," he said.
General Mills bought Blue Buffalo in April for $8.33 billion. The brand produces food for dogs and cats with an emphasis on healthy and natural ingredients.
That focus is similar to human consumers' demand for healthier packaged foods, Harmening said Dec. 19, adding that Blue Buffalo is General Mills' bet on "the humanization of pet food."
"We see the same kind of trends that we do in human food," Harmening said.
Blue Buffalo's products have a higher price per pound than other products in the General Mills portfolio, CFO Donal Mulligan said during the Dec. 19 call.
Results for the entire business beat analyst expectations Dec. 19. Adjusted diluted EPS of 85 cents for the quarter ended Nov. 25 beat the mean consensus estimate for normalized EPS compiled by S&P Global Market Intelligence of 81 cents.
Adjusted net earnings attributed to General Mills of $512.4 million rose 7.9%, beating the mean consensus estimate for adjusted net income of $489.8 million.
Net sales rose 5% to $4.41 billion, while lower sales in North America helped pull organic sales across the entire business lower by 1% for the quarter.
Shares of the Minneapolis-based food company were 5.3% higher at $38.65 in morning trading on Dec. 19. General Mills reported second-quarter results before U.S. markets opened.