General Mills Reports Strong Growth In Fiscal 2009 Second Quarter

Company Raises Full Year 2009 EPS Guidance

MINNEAPOLIS, MINN.--- General Mills (NYSE: GIS) today reported results for the second quarter of fiscal 2009. Net sales for the 13 weeks ended Nov. 23, 2008, increased 8 percent to $4.01 billion. Segment operating profits grew 9 percent to $782 million despite higher input costs and a 21 percent increase in consumer marketing investment. Net earnings totaled $378 million after a net reduction related to mark-to-market valuation of certain commodity positions and a net gain from the sale of the Pop Secret microwave popcorn business (these items are discussed below in the section titled Corporate Items). Diluted earnings per share (EPS) totaled $1.09 including a 49-cent net reduction related to mark-to-market valuation and a 22-cent gain from the sale of Pop Secret. Last year’s second quarter earnings of $1.14 per share included a 3-cent increase from mark-to-market valuation of certain commodity positions. Excluding the Pop Secret gain in 2009 and the mark-to-market impacts in both years, earnings per share for the second quarter of 2009 would have totaled $1.36, up from $1.11 in the period last year.

Chairman and Chief Executive Officer Ken Powell said, “We’re continuing to see strong consumer demand for our products in markets around the world. Our segment operating profit margin held steady despite higher input costs and the strong double-digit increase in consumer marketing to support our brands. Performance through the first half of 2009 has us solidly on track to deliver strong sales and earnings growth for the year.”

Through the first six months of 2009, General Mills’ net sales grew 11 percent to $7.51 billion. Segment operating profits increased 9 percent to $1.41 billion. Six-month net earnings totaled $657 million after a net reduction related to mark-to-market valuation of certain commodity positions and the net gain from the Pop Secret sale. Diluted earnings per share totaled $1.88 including a 65-cent net reduction related to mark-to-market valuation and a 21-cent gain from the Pop Secret sale. Last year’s six-month earnings per share of $1.95 included a 3-cent increase related to mark-to-market valuation of certain commodity positions. Excluding the Pop Secret gain in 2009 and mark-to-market valuation impacts from both years, six month earnings per share would have been $2.32 in 2009, up 21 percent from $1.92 in last year’s first half.

U.S. Retail Segment Results
Second-quarter net sales for General Mills’ U.S. Retail operations grew 10 percent to $2.79 billion. Pound volume growth contributed 5 points of the sales increase. Segment operating profits grew 9 percent to $638 million including 24 percent higher consumer marketing spending in the period. This brand-building included new advertising campaigns supporting both new and established products.

Net sales for the Baking Products division grew 16 percent due to strong sales of Betty Crocker dessert mixes and Gold Medal flour. Yoplait division net sales grew 14 percent reflecting continued good performance by Yoplait Light, Yo-Plus and Fiber One yogurts. Net sales for Pillsbury USA grew 12 percent led by Totino’s pizza and pizza rolls, and key Pillsbury refrigerated dough products. Meals division net sales rose 10 percent. Big G cereal net sales grew 8 percent in the second quarter. Net sales for the Snacks division matched prior year levels despite the absence of Pop Secret sales in the period this year. Net sales for the Small Planet Foods division grew 26 percent including results for the Lärabar business acquired in June 2008.

Through six months, U.S. Retail segment net sales rose 11 percent to $5.08 billion. Pound volume growth accounted for 5 points of the sales increase. Segment operating profits grew 10 percent to $1.16 billion.

International Segment Results
Second-quarter net sales for General Mills’ consolidated international businesses grew 2 percent to $676 million. Pricing and mix contributed 13 points of growth. Pound volume reduced net sales growth by 3 points, and the negative impact of foreign currency translation reduced net sales growth by 8 points. Sales on a constant currency basis matched or exceeded prior-year levels in every major geographic region in which the company competes. International segment operating profits totaled $80 million, down $5 million from prior-year levels due to the impact of foreign currency translation.

Through the first half, International segment net sales grew 8 percent to $1.37 billion. Pricing and mix contributed 11 points of growth, pound volume reduced net sales growth by 2 points, and foreign currency translation reduced net sales growth by 1 point. Operating profits grew 2 percent to $158 million despite the negative impact of foreign currency exchange.

Bakeries & Foodservice Segment
Second-quarter net sales for the Bakeries and Foodservice segment grew 6 percent to $550 million, as pricing and mix offset a 6 percent decline in pound volume. The sales growth included good performance in foodservice, bakery and convenience store channels. Cereal, yogurt and snack products all posted good sales gains. Operating profits grew 33 percent in the second quarter to $64 million reflecting pricing and positive sales mix.

Through the first six months, Bakeries and Foodservice net sales rose 11 percent to $1.07 billion. Lower pound volume reduced net sales growth by 5 points. Segment operating profits grew 10 percent to $91 million.

Joint Venture Summary
After-tax earnings from joint ventures totaled $33 million in the second quarter of 2009, up from $28 million a year ago. Last year’s second quarter included a $1 million after-tax charge associated with a restructuring of the Cereal Partners Worldwide (CPW) manufacturing plants in the United Kingdom. Joint venture net sales grew 1 percent in the second quarter, reflecting negative impact from foreign currency translation and the absence of revenues in 2009 from the 8th Continent soymilk business that was sold in February 2008.

Through six months, after-tax earnings from joint ventures totaled $64 million, up 28 percent from $50 million after tax earned in last year’s first half. Prior-year joint venture results included restructuring charges of $3 million after-tax.

Corporate Items
Corporate unallocated expense totaled $292 million in the second quarter of 2009, up from $26 million in the same period a year ago. This year’s second-quarter expense includes a negative mark-to-market impact of $269 million on certain commodity hedge positions and grain inventories, primarily reflecting declines in the market prices of commodities from levels at the end of the first quarter on August 24, 2008. In last year’s second quarter, the company recorded an $18 million mark-to-market gain, along with an $11 million gain on the sale of a corporate investment.

In this year’s second quarter, the company recorded a $129 million gain on the sale of the Pop Secret microwave popcorn business.

Restructuring, impairment and other exit costs totaled $2 million in the second quarter of 2009. These costs all related to previously announced restructuring actions. In last year’s second quarter, the company recorded restructuring, impairment and other exit costs of $3 million, and also recorded $17 million of associated costs (primarily accelerated depreciation) in cost of sales.

Net interest expense totaled $98 million in the second quarter of 2009, down from $116 million in last year’s second quarter due to lower debt levels and rates. The effective tax rate for the quarter was 33.4 percent down from 36.5 percent a year ago, primarily due to tax credits. Through the first six months, the effective tax rate was 34.1 percent, generally in line with the expected full-year rate of 34 to 34.5 percent.

Cash Flow Highlights
Cash flow from operations totaled $364 million through November 2008 compared to $444 million through the first half of last year. Capital expenditures through the first half totaled $241 million compared to $186 million last year. Dividends through six months grew to $294 million. The company repurchased 19 million shares of common stock during the first half, including 11 million shares repurchased during the second quarter.

Outlook
Powell said, “The economic environment is challenging, but our brands are a good fit with consumers’ need for great-tasting, healthy, convenient foods at good value. We’ll continue to support the sales momentum in our businesses with product news, new product introductions and ongoing increases in consumer marketing investment.

The company reaffirmed its 2009 input cost inflation estimate of 9 percent and said that foreign currency translation is now expected to reduce reported sales and earnings for the year. Despite these headwinds, the company increased its full-year earnings guidance to $3.83 to $3.87 per share before any impact from mark-to-market valuation and excluding the Pop Secret gain. Previously, 2009 earnings guidance was $3.81 to $3.85 per share before the mark-to-market impact and the Pop Secret gain.
Total company segment operating profit is a non-GAAP measure. Reconciliation of this measure to the relevant GAAP measure (operating profit) appears in the attached operating segment results schedule. Earnings per share excluding mark-to-market valuation of certain commodity positions and the divestiture gain is also a non-GAAP measure. Reconciliation of this measure to the relevant GAAP measure (earnings per share) appears in Note 8 to the attached consolidated financial statements.

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 “Outlook” and statements made by Mr. Powell, 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; economic conditions, including changes in inflation rates, interest rates, tax rates or the availability of capital; 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 labeling and advertising regulations; impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets, or changes in the useful lives of other intangible assets; changes in accounting standards and the impact of significant accounting estimates; product quality and safety issues, including recalls and product liability; changes in consumer 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; consolidation in the retail environment; 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; disruptions or inefficiencies in the supply chain; volatility in the market value of derivatives used to hedge price risk for certain commodities; benefit plan expenses due to changes in plan asset values and discount rates used to determine plan liabilities; failure of our information technology systems; resolution of uncertain income tax matters; 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 obligation to publicly revise any forward-looking statements to reflect any future events or circumstances.