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General Mills Reports Strong Results for Fiscal 2010 First Quarter


Company Raises Full-year EPS Guidance by 20 Cents per Share

MINNEAPOLIS, MINN.---General Mills (NYSE: GIS) today reported strong results for the first quarter of fiscal 2010.

Fiscal 2010 First Quarter Financial Highlights
• Net Sales Increased to $3.52 Billion, Led by 6 Percent Growth in U.S.
Retail Sales
• Segment Operating Profit Increased 21 Percent to $768 million.
• Earnings per Share Grew at a Strong Double-digit Rate to $1.25
• Excluding Certain Items Affecting Comparability , Earnings per Share
Grew 33 Percent to $1.28, Exceeding the Consensus of
Analyst Estimates

Net sales for the 13 weeks ended Aug. 30, 2009, grew 1 percent to $3.52 billion, led by 6 percent growth in U.S. Retail net sales. The comparison was difficult, as the company’s net sales grew 14 percent in last year’s first quarter. Foreign currency translation reduced 2010 first-quarter sales growth by 2 percentage points. Pound volume matched year-ago levels, reflecting the loss of 2 points of growth from divested product lines.

Gross margin for the quarter increased at a double-digit rate, reflecting strong operating performance in the company’s manufacturing facilities as well as recovery from depressed year-ago margin levels. The company increased its consumer marketing investment during the period, including a 16 percent increase in advertising and media expense. Segment operating profit grew 21 percent to $768 million. First-quarter net earnings totaled $421 million after a net reduction related to mark-to-market valuation of certain commodity positions (this non-cash item is discussed below in the section titled Corporate Items). Diluted earnings per share (EPS) totaled $1.25, up 58 percent from 79 cents per share in last year’s first quarter. Excluding mark-to-market impact in both years, earnings per share would total $1.28 for the first quarter of 2010, up 33 percent from 96 cents per share in the period last year.

Chairman and Chief Executive Officer Ken Powell said, “We’re very pleased with this start to the year. We’re seeing continuing strong consumer demand for our products. These good sales levels, combined with the effects of our companywide focus on holistic margin management (HMM), are driving terrific operating performance in our manufacturing plants. In addition, our commodity and fuel costs for the quarter were below year-ago levels, helping us to recover margin that was lost in the same quarter last year. These factors drove first-quarter earnings growth that was well ahead of our expectations. As a result we’ve raised our EPS targets for the full year.”

U.S. Retail Segment Results
First quarter net sales for General Mills’ U.S. Retail segment rose 6 percent to reach $2.42 billion, reflecting good growth on top of year-ago sales that increased 13 percent. Pound volume contributed 2 points of the growth, including a 1 point reduction from the Pop Secret popcorn line divested last year. Operating profits grew 21 percent to reach $637 million, including a 19 percent increase in advertising and media expense for the period.

Net sales for Big G cereals grew 9 percent in the quarter, led by Multigrain Cheerios, Fiber One, Trix, Cinnamon Toast Crunch, and new gluten-free Chex varieties. The Meals division recorded a 4 percent net sales increase, including gains from Hamburger Helper and Macaroni Grill dinner mixes, Old El Paso Mexican products, and Green Giant frozen vegetables. Pillsbury net sales grew 12 percent with good performance by Totino’s Pizza Rolls, Pillsbury refrigerated cookie dough and Pillsbury Toaster Strudel. Net sales for Yoplait grew 4 percent, reflecting continued growth for Yoplait Light yogurt and introductory shipments of Yoplait Delights yogurt parfaits and YoPlus Light probiotic yogurt. Snacks net sales, led by Nature Valley grain snacks and Fiber One bars, increased 1 percent despite the loss of 7 points of growth from the Pop Secret divestiture. Net sales for Baking Products rose 3 percent, with gains by Betty Crocker dessert mixes including new gluten-free items. Net sales for the company’s Small Planet Foods organic and natural business were down 5 percent.

International Segment Results
First-quarter net sales for General Mills’ consolidated international businesses declined 4 percent to $662 million, as foreign currency exchange reduced net sales growth by 9 percentage points. Pound volume reduced net sales growth by 1 percentage point, including a 2 point decline from divested product lines. International segment operating profits declined 13 percent to $70 million, due to negative foreign currency translation and transaction effects.

Foodservice Segment Results
First-quarter net sales for the Foodservice segment declined 16 percent to $433 million, reflecting the absence of divested product lines and the impact of indexed bakery flour prices that were below year-ago levels. Pound volume reduced net sales growth by 10 percentage points, reflecting a 10 point reduction from divested product lines. Segment operating profits more than doubled to $61 million, reflecting favorable sales mix, manufacturing and logistics efficiencies, and commodity and fuel costs that were below year-ago levels.

Joint Venture Summary
After-tax earnings from joint ventures totaled $24 million in the first quarter of 2010. This was below year-ago levels, reflecting negative foreign exchange impact and lower volume. Net sales for Cereal Partners Worldwide (CPW) declined 7 percent. Pound volume was 1 percent below the prior year, and foreign exchange also reduced net sales growth. Net sales for Haagen Dazs Japan declined 12 percent. Foreign currency exchange contributed to net sales, but volume was below prior year levels, reflecting weak market conditions.

Corporate Items
Corporate unallocated expense totaled $76 million in the first quarter, down from $159 million in last year’s first quarter. This primarily reflects differences in the mark-to-market valuation of certain commodity positions. These mark-to-market effects were a net reduction of $15 million in the first quarter of 2010 compared to a net reduction of $91 million in the year-ago period.

Restructuring, impairment and other exit items totaled $1 million of income in the first quarter of 2010, compared to $3 million of expense in the period a year ago. Net interest expense of $92 million was up 6 percent, primarily reflecting last year’s shift in the company’s debt mix to longer-term notes and bonds. Total debt of $7.18 billion was slightly below prior-year levels. The effective tax rate for the quarter was 33.8 percent, consistent with the company’s estimated full-year rate.

Cash Flow Items
General Mills operating activities generated $275 million of cash in the first quarter of 2010, up 22 percent from $226 million the same period last year. Capital expenditures during the quarter totaled $126 million compared to $129 million a year ago. Dividends grew 6 percent to $156 million. During the quarter, General Mills repurchased 4 million of the company’s common shares at an average price of $54.87 per share. Average diluted shares outstanding for the quarter declined 4 percent to 336 million.

Fiscal 2010 Outlook
Powell said, “Over the past several years, we’ve focused intently on a business model that uses supply chain productivity, sales mix management, and other cost savings efforts to protect our margins from the pressure of rising input costs. This helps us limit price increases and also allows us to direct significant resources back into our business, in the form of ongoing product innovation and increased consumer marketing support. This reinvestment fuels continuing strong sales trends for our brands, which offer consumers high quality, nutritious and convenient foods at very good values. That’s helping us drive growth for our food categories in markets around the world. This model is working well, it’s sustainable, and so we’re sticking with it.”

General Mills said that it plans to invest some of its first-quarter earnings growth in additional 2010 consumer marketing programs. The company also raised its 2010 full-year EPS guidance to a range of $4.40 to $4.45 per share excluding any impact from mark-to-market effects. Previously, the company’s 2010 EPS guidance had been a range of $4.20 to $4.25 per share excluding any mark-to-market impact. The new EPS guidance for 2010 represents growth of 11 to 12 percent from comparable earnings of $3.98 in fiscal 2009.


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