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General Mills Reports Fiscal 2006 Results


- Net Sales Grew 4 Percent to $11.6 Billion
- Segment Operating Profits Increased 5 Percent to $2.1 Billion
- Diluted EPS of $2.90 Exceeded Targeted Range
- Company Provides Fiscal 2007 Outlook

06/29/2006, MINNEAPOLIS, MINN.-- -General Mills (NYSE: GIS) today reported results for the fourth quarter and full 2006 fiscal year.

For the fiscal year ended May 28, 2006, General Mills net sales grew 4 percent to $11.6 billion, outpacing 2 percent growth in unit volume. Segment operating profits increased 5 percent to $2.1 billion. Diluted earnings per share (EPS) totaled $2.90 including 8 cents of dilution from the impact of accounting for contingently convertible debt.
Net earnings and diluted EPS were below the prior year’s reported results, which included a $284 million after-tax gain from the divestitures of Lloyd’s refrigerated meats and the company’s interest in a European snacks joint venture (SVE). However, the 2006 EPS results exceeded the company’s target range, and represented good growth over prior-year results excluding the one-time gain.

Chairman and Chief Executive Officer Steve Sanger said, “Our fourth-quarter results were solid, with both sales and operating profit up 5 percent. For the year in total, all three of our operating segments achieved net sales gains and even stronger growth in operating profits. We coupled this good growth with improving returns on invested capital. And we returned nearly $1.4 billion in cash to shareholders through increased dividends and renewed share repurchases.”

Fourth Quarter Results
Net sales for the fourth quarter of 2006 grew 5 percent to $2.8 billion, driven by a 3 percent unit volume increase. Segment operating profits rose 5 percent for the 13-week period to $493 million. Fourth quarter net earnings in 2006 benefited from a favorable tax adjustment (discussed below in the section titled Corporate Items) that reduced the effective tax rate for the period to 31.4 percent, compared to 35.3 percent through the first nine months. The period also included restructuring expenses (discussed below in the sections titled Joint Ventures and Corporate Items). Net earnings of $222 million and diluted EPS of 61 cents were significantly below prior-year results that included the gain from divestitures.

U.S. Retail Segment Results
Net sales for General Mills’ domestic retail operations grew 3 percent in 2006 to exceed $8.0 billion, with unit volume up 2 percent for the year. Segment operating profits grew slightly faster than sales to reach nearly $1.8 billion.

Net sales for the Yoplait division grew 14 percent to exceed $1 billion for the first time. Meals division net sales grew 7 percent, led by strong growth of Progresso ready-to-serve soups and Hamburger Helper dinner mixes. Baking Products division net sales grew 6 percent and Snacks division net sales rose 5 percent with strong performance from new products such as Betty Crocker Warm Delights microwaveable desserts, Nature Valley Sweet n’ Salty nut bars and Turtle Chex Mix. Both Big G Cereals and the Pillsbury USA division reported net sales declines of 1 percent.

For the fourth quarter, U.S. Retail net sales grew 5 percent to nearly $1.9 billion, unit volume rose 3 percent, and operating profits increased 8 percent to $408 million. Advertising spending for the company’s U.S. Retail businesses rose 8 percent in 2006, including a $28 million increase in the final quarter of the year.

International Segment Results
International net sales grew 6 percent in 2006 to exceed $1.8 billion, with unit volume up 4 percent. Favorable currency exchange contributed 1 point of sales growth. Operating profits rose 18 percent to $201 million.

For the fourth quarter, International net sales grew 4 percent and unit volume was up 1 percent. Operating profits were down 13 percent from strong prior-year results that grew 46 percent.

Bakeries & Foodservice Segment Results
Net sales for the Bakeries & Foodservice division grew 2 percent in 2006 to nearly $1.8 billion. Unit volume matched prior-year levels, and operating profits increased 4 percent to $139 million.

Fourth quarter net sales grew 5 percent to $473 million and unit volume was up 1 percent, but segment operating profits were down 5 percent due to higher input costs.

Joint Ventures
After-tax earnings from joint ventures totaled $64 million in 2006, below prior-year results primarily due to the absence of Snack Ventures Europe earnings. In addition, fourth quarter results include $8 million of expenses related to the restructuring project under way for Cereal Partners Worldwide (CPW) in the United Kingdom. Earnings from ongoing joint venture operations grew 5 percent for the year, including the restructuring charge.

CPW unit volume grew 6 percent in 2006 and net sales grew 4 percent, restrained by unfavorable foreign exchange. Net sales for the Haagen-Dazs ice cream joint ventures in Asia were down 7 percent due to an unseasonably cold winter and increased competitive pressure in Japan. 8th Continent, the U.S. joint venture with DuPont, posted 14 percent net sales growth for its line of soy beverages.

Fourth quarter after-tax earnings from joint ventures totaled $10 million in 2006, down from $16 million last year due to the CPW restructuring expenses.

Corporate Items
Net interest expense in 2006 totaled $399 million, down 12 percent from the previous year due primarily to lower debt levels. Fourth quarter interest expense was $105 million in 2006 compared to $110 million in 2005. The effective tax rate for 2006 was 34.5 percent. This was below the anticipated rate of 35.3 percent due to adjustments in the fourth quarter to deferred tax liabilities associated with International segment brand intangibles.

Corporate unallocated expense totaled $123 million in 2006 compared to $32 million in 2005. The increase reflects higher employee benefit expense, particularly performance-based compensation; a $23 million charge to increase reserves for potential environmental cleanup expenses, and a $10 million charge taken during the first quarter to write down the asset value of a low income housing investment.

Restructuring and other exit costs totaled $30 million in 2006, including $14 million in the fourth quarter. In the previous year, the company recorded restructuring and other exit costs of $84 million, along with $18 million for associated expenses that were recorded as cost of sales.

Cash Flow Highlights
Cash flow from operations totaled $1.8 billion in 2006, up 3 percent from $1.7 billion in 2005. Capital expenditures in 2006 totaled $360 million, down from $434 million in 2005. Dividends paid in 2006 grew 8 percent to $1.34 per share. On June 26, 2006, the company announced a 1-cent increase in the quarterly dividend rate to 35 cents per share, effective with the August 1, 2006, payment.

General Mills renewed share repurchases in 2006, buying back 19 million shares at an average price of $47.35. As a result, average diluted shares outstanding declined from 409 million in 2005 to 379 million in 2006. The average diluted share balance in both years includes the impact of accounting for contingently convertible debt, as shown in note three to the consolidated financial statements. As a result of a refinancing and related actions taken during 2006, this accounting impact ended in December 2005. Excluding the impact of this accounting rule in both years, General Mills average diluted shares declined 4 percent in 2006 to 366 million.

Fiscal 2007 Outlook
Looking ahead to fiscal 2007, Sanger said, “We expect another year of good operating performance, consistent with our long-term growth goals. Our targets call for low single-digit growth in net sales and mid single-digit growth in segment operating profits. We anticipate this growth from our businesses will be partially offset by higher interest expense and a higher tax rate. In addition, beginning in the first quarter of 2007 our results will include stock option expense.”

The company has established a targeted range for 2007 earnings per share of $3.03 to $3.08, including an estimated 11 to 12 cent impact from the adoption of FAS 123(R) for stock-based compensation.

General Mills will hold a briefing for investors today, June 29, 2006, beginning at 8:00 a.m. EDT. You may access the web cast from General Mills’ corporate home page:

Total company segment operating profit is a non-GAAP measure. A reconciliation of this measure to the relevant GAAP measure, earnings before income taxes and earnings from joint ventures, is included in the attached Operating Segments schedule.

This press release contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 that are based on management’s current expectations and assumptions. These forward-looking statements, including the statements under the caption “Fiscal 2007 Outlook” and statements made by Mr. Sanger, are subject to certain risks and uncertainties that could cause actual results to differ materially from the potential results discussed in the forward-looking statements. In particular, our predictions about future net sales and earnings could be affected by a variety of factors, including: competitive dynamics in the consumer foods industry and the markets for our products, including new product introductions, advertising activities, pricing actions and promotional activities of our competitors; actions of competitors other than as described above; economic conditions, including changes in inflation rates, interest rates or tax rates; product development and innovation; consumer acceptance of new products and product improvements; consumer reaction to pricing actions and changes in promotion levels; acquisitions or dispositions of businesses or assets; changes in capital structure; changes in laws and regulations, including changes in accounting standards and labeling and advertising regulations; changes in customer demand for our products; effectiveness of advertising, marketing and promotional programs; changes in consumer behavior, trends and preferences, including weight loss trends; consumer perception of health-related issues, including obesity; changes in purchasing and inventory levels of significant customers; fluctuations in the cost and availability of supply chain resources, including raw materials, packaging and energy; benefit plan expenses due to changes in plan asset values and/or discount rates used to determine plan liabilities; foreign economic conditions, including currency rate fluctuations; and political unrest in foreign markets and economic uncertainty due to terrorism or war. The company undertakes no obligations to publicly revise any forward-looking statements to reflect future events or circumstances.


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