General Mills Reports Results for Fiscal 2007 Third Quarter
Net Sales Grew 6 Percent to $3.05 Billion
Diluted Earnings per Share Increased 9 Percent to 74 Cents
Company Raises Full-year Guidance
MINNEAPOLIS, MINN.---General Mills, Inc. (NYSE: GIS) today reported results for the third quarter of fiscal 2007. Net sales for the 13 weeks ended Feb. 25, 2007, were $3.05 billion, up 6 percent from the same period a year ago. Unit volume grew 5 percent worldwide. Gross margin improved by 80 basis points and segment operating profits increased 9 percent to $522 million. Net earnings after tax also rose 9 percent to $268 million, as the impact of a lower tax rate offset incremental stock-based compensation expense (from the adoption of SFAS 123R) and higher interest expense. Diluted earnings per share (EPS) totaled 74 cents, up 9 percent from 68 cents in last year’s third quarter.
General Mills Chairman and Chief Executive Officer Steve Sanger said, “This was another quarter of broad-based sales growth and margin expansion for the company. We’re generating a combination of good unit volume gains, favorable mix and supply chain productivity, which is helping to offset input cost inflation. As a result, we have been able to increase our level of consumer marketing investment and also raise our earnings guidance for the year.”
Through the first nine months of fiscal 2007, General Mills’ net sales increased 6 percent to $9.38 billion. Segment operating profits grew 9 percent to $1.77 billion. Earnings after tax totaled $920 million, up 6 percent from last year’s nine-month results. Diluted earnings per share grew 11 percent to $2.55, including 11 cents of incremental expense related to the adoption of SFAS 123R for stock-based compensation.
U. S. Retail Segment
Net sales for General Mills’ domestic retail operations grew 5 percent in the third quarter to $2.11 billion, driven by 5 percent unit volume growth. Operating profits grew 6 per-cent to $447 million, as volume leverage and productivity offset higher input costs.
Net sales for the Meals division grew 10 percent, led by double-digit growth for Progresso soups along with gains for Helper dinner mixes and Green Giant vegetables. Yoplait division net sales rose 9 percent as Yoplait Light yogurt varieties and Yoplait Kids yogurt continued to generate strong growth. Baking Products division net sales grew 11 percent reflecting strong unit volume growth, particularly in nonmeasured channels. The Snacks division posted an 8 percent net sales gain including introductory volume for new Fiber One bars and continuing growth for Nature Valley snack bars. Net sales for the Pillsbury USA division rose 3 percent, led by core refrigerated dough products, Totino’s frozen pizza rolls and Toaster Strudel. Big G cereal unit volume matched prior-year levels but net sales declined 4 percent due to year-over-year differences in the timing of price promotion activity. Net sales for the company’s Small Planet Foods organic business grew 15 percent in the quarter.
Through the first nine months of 2007, net sales for the U.S. Retail segment were up 4 percent to $6.46 billion, reflecting 3 percent unit volume growth and net price realization. Segment operating profit grew 7 percent to $1.49 billion year-to-date.
Net sales for the company’s consolidated international businesses rose 15 percent in the third quarter to $510 million. Unit volume grew 6 percent, price and mix added 5 points, and foreign exchange contributed 4 points of sales growth. Operating profit rose 17 percent to $42 million.
Through the first nine months of 2007, net sales for General Mills’ consolidated international businesses grew 15 percent to $1.56 billion. Operating profit increased 7 percent to $160 million.
Bakeries and Foodservice Segment
Third-quarter net sales for General Mills’ Bakeries and Foodservice segment grew 5 percent to $436 million, reflecting a 1 percent unit volume increase and net price realization. Segment operating profit increased to $33 million, compared to $18 million in last year’s third quarter due to pricing and favorable mix.
Through the first nine months of 2007, net sales for the Bakeries and Foodservice segment were up 7 percent to $1.36 billion. Operating profit rose 39 percent to $118 million.
Joint Venture Summary
Earnings after tax from joint ventures totaled $16 million in the third quarter, in line with prior-year results despite a $4 million after-tax charge associated with previously announced restructuring of the Cereal Partners Worldwide (CPW) manufacturing plants in the United Kingdom. Net sales for CPW grew 22 percent in the quarter. This included contributions from the Uncle Tobys business in Australia that CPW acquired in July 2006. Net sales for the Haagen-Dazs joint ventures in Asia increased 12 percent. Net sales for the 8th Continent soy beverage joint venture in the U.S. were down 5 percent, reflecting lower unit volume.
Through nine months, earnings from joint ventures totaled $58 million after tax, including CPW restructuring expenses of $7 million. Prior-year earnings of $57 million after tax through nine months did not include any CPW restructuring expense.
Corporate unallocated expense totaled $35 million pretax in the third quarter of 2007 compared to $19 million pretax in 2006. This year’s results include the effects of adopting SFAS 123R for stock-based compensation, which represented $9 million incremental pretax expense ($6 million after tax, or 2 cents per share) in the third quarter. Restructuring and other exit items expense totaled $1 million pretax in the third quarter of 2007 (adjustments to previously announced restructuring actions) compared to $5 million pretax expense in last year’s third quarter. Net interest expense for the quarter was up 7 percent to $107 million due to higher rates and changes in mix of debt. The effective tax rate for the quarter was 33.5 percent. This reflects the year-to-date impact of a change in the annual effective tax rate from 35.8 percent to 35.5 percent, along with a discrete tax benefit of $4 million primarily from research and development tax credits. In last year’s third quarter, the effective tax rate was 34.7 percent.
Cash Flow Summary
Cash flow from operations totaled $1.15 billion through February 2007, compared to $1.23 billion through the first nine months of 2006. Year-to-date capital expenditures totaled $249 million in 2007 compared to $191 million in the same period last year. Dividends through nine months grew to $377 million. On March 12, 2007, the company announced a quarterly dividend at the prevailing rate of 37 cents per share payable May 1, 2007, to shareholders of record April 10, 2007. During the third quarter, the company repurchased approximately 94 thousand shares of common stock at an average price of approximately $57 per share.
In the fourth quarter, General Mills expects input costs to be above both current year-to-date and year-ago levels. Consumer marketing expense is expected to be above year-ago levels, reflecting continued reinvestment in brand-building activities. The company has initiated evaluations of certain assets that may result in impairment or restructuring charges. Tax planning activities may result in a further reduction to the 2007 effective tax rate.
“Our businesses are performing very well in the aggregate and financial performance through the first nine months of this year is ahead of our plans,” said Sanger. “We are raising our guidance for 2007 diluted earnings per share to a range of $3.14 to $3.16.” General Mills guidance is on an as-reported basis, including restructuring expense, as well as an estimated 12 cents of incremental stock-based compensation expense under SFAS 123R. Previously, the company had targeted diluted EPS of between $3.09 and $3.13 per share.
Total company segment operating profit is a non-GAAP measure. A reconciliation of this measure to the relevant GAAP measure, operating profit, appears in the attached consolidated operating segment results schedule.
General Mills will hold a briefing for investors today, March 22, 2007, beginning at 8:30 a.m. EDT. You may access the web cast from General Mills’ corporate home page at www.generalmills.com.
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