General Mills: reports fiscal 2016 first-quarter results

Minneapolis / MN. (gm) General Mills Inc. reported its fiscal 2016 first-quarter results. The company reported strong operating results and reaffirmed 106 full-year growth goals excluding impact of proposed Green Giant divestiture. Q1/2016 results summary:

• Net sales declined one percent to 4.21 billion USD. On a constant-currency basis, net sales increased four percent.
• Segment operating profit totalled 826 million USD, up 20 percent. In constant currency, total segment operating profit increased 23 percent.
• Diluted earnings per share (EPS) totalled 69 cents compared to 55 cents a year ago. Adjusted diluted EPS, which excludes certain items affecting comparability of results, totalled 79 cents in the first quarter of 2016, up 30 percent from 61 cents in last year’s first quarter. On a constant-currency basis, adjusted diluted EPS increased 36 percent.

General Mills and Chief Executive Officer Ken Powell said, «In July, we said our 2016 plans anticipated strong first-quarter growth thanks to our expanded Consumer First initiatives, the benefit of our cost-savings projects, and an easy prior-year comparison. Our U.S. Retail segment posted four percent net sales growth in the first quarter, with increases in our cereal, meals, yogurt, and snacks businesses. Net sales for the Convenience Stores and Foodservice segment increased one percent. And our International segment achieved five percent net sales growth in constant currency, led by excellent results in Europe and Canada. This strong net sales performance, combined with significant margin expansion efforts, drove double-digit growth in total segment operating profit and adjusted diluted EPS. These results represent a positive first step in delivering our full-year fiscal 2016 growth objectives».

Net sales for the 13 weeks ended August 30, 2015, declined one percent to 4.21 billion USD, as foreign currency exchange reduced net sales growth by five percentage points. On a constant-currency basis, net sales grew four percent, including two points of growth contributed by the Annie’s business acquired in October 2014. Pound volume was two percent above year-ago levels. Net price realization and mix contributed two points of net sales growth. Adjusted gross margin, which excludes mark-to-market effects and certain other items affecting comparability, increased 290 basis points due to improved net price realization and savings from our cost-reduction initiatives. Selling, general and administrative expenses (SG+A) declined six percent, driven by savings from Project Catalyst and a five percent decrease in advertising and media expense. Total segment operating profit rose 20 percent to 826 million USD. On a constant-currency basis, total segment operating profit increased 23 percent. The company posted restructuring and project-related charges totaling 95 million USD pre-tax in the first quarter, including 35 million USD recorded in cost of sales. Net earnings attributable to General Mills totalled 427 million USD and diluted earnings per share totalled 69 cents. Adjusted diluted EPS, which excludes certain items affecting comparability, totalled 79 cents compared to 61 cents a year ago. On a constant-currency basis, first-quarter adjusted diluted EPS increased 36 percent.

U.S. Retail Segment Results

First-quarter net sales for General Mills’ U.S. Retail segment totalled 2.53 billion USD, up four percent from the prior year. Pound volume contributed one point of net sales growth, and net price realization and mix added three points of growth. Annie’s contributed three points of net sales growth. The Cereal, Meals, Yogurt, and Snacks operating units posted net sales gains for the quarter, while sales for the Baking Products unit were comparable to last year. U.S. Retail segment operating profit totalled 630 million USD, up 38 percent from the year-ago period that saw a 25 percent profit decline. The increase in segment operating profit in the quarter was driven by a comparison to a year-ago period with high promotional expense, a decrease in SG+A expenses, and lower supply chain costs.

International Segment Results

First-quarter net sales for General Mills’ consolidated international businesses increased five percent in constant currency. On a reported basis, net sales declined eleven percent to 1.20 billion USD, as foreign currency exchange reduced net sales growth by 16 percentage points. Pound volume added four points of net sales growth, while net price realization and mix added one point of growth. Constant-currency net sales rose seven percent in Europe, five percent in Canada, three percent in the Asia/Pacific region, and three percent in Latin America. International segment operating profit declined 20 percent to 117 million USD, including 17 points of unfavorable foreign currency exchange. Constant-currency segment operating profit declined three percent compared to the year-ago period when profit increased 17 percent in constant currency.

Convenience Stores and Foodservice Segment Results

First-quarter net sales for the Convenience Stores and Foodservice segment increased one percent to 478 million USD, reflecting increased pound volume. Snacks, frozen meals, mixes, and cereal led sales performance in the quarter. Segment operating profit declined nine percent to 80 million USD, driven by higher input costs and a comparison to 18 percent profit growth in the year-ago period.

Joint Venture Summary

Combined after-tax earnings from the Cereal Partners Worldwide (CPW) and Häagen-Dazs Japan (HDJ) joint ventures totalled 26 million USD, essentially matching year-ago results. Constant-currency after-tax earnings from joint ventures grew 16 percent. Constant-currency net sales grew nine percent for HDJ, and were down two percent for CPW.

Corporate Items

Unallocated corporate items totalled 83 million USD net expense in the first quarter of fiscal 2016, compared to 119 million USD net expense a year earlier. Excluding mark-to-market valuation effects and restructuring and project-related charges, unallocated corporate items totalled 51 million USD net expense this year compared to 70 million USD net expense a year ago. Net interest expense totalled 75 million USD in this year’s first quarter, compared to 78 million USD a year ago. The effective tax rate was 32.7 percent in the first quarter. Excluding items affecting comparability, the adjusted effective tax rate was 32.3 percent for the first quarter, essentially matching the year-ago period.

Cash Flow Items

Cash provided by operating activities totalled 431 million USD in the first quarter, up 31 percent from the prior year due to higher net earnings. Capital investments in the period totalled 147 million USD. Dividends paid increased to 266 million USD. During the quarter, General Mills repurchased 2.7 million shares of common stock at an aggregate price of 152 million USD. Average diluted shares outstanding for the first quarter of 2016 totalled 616 million, down two percent from last year’s first-quarter average of 629 million.

Proposed Green Giant Divestiture

On September 3, 2015, General Mills announced the proposed sale of the Green Giant and Le Sueur vegetables businesses to B+G Foods, Inc., (NYSE: BGS) for 765 million USD in cash, subject to an inventory adjustment at closing. General Mills will continue to operate the Green Giant business in Europe and select other export markets under license from B+G Foods. The transaction, which is subject to regulatory approval, is expected to close by the end of the calendar year. General Mills expects to use the net proceeds for share repurchases and debt reduction. The company anticipates the transaction will be dilutive to fiscal 2016 earnings per share in the range of approximately five to seven cents, excluding transaction costs and a one-time gain on the sale.

Outlook

Powell said, «We’re pleased with our progress in the first quarter. At the same time, we know there is more work to be done to achieve our 2016 objectives. We remain focused on generating sustainable topline growth by expanding the impact of our Consumer First strategy while we continue to increase our efficiency and improve our margins». General Mills reiterated its full-year growth targets for 2016, which currently exclude any impact from the proposed Green Giant divestiture:

• Net sales in constant currency are expected to essentially match the 2015 levels that included a 53rd week.
• Total segment operating profit is expected to grow at a low single-digit rate in constant currency.
• Constant-currency adjusted diluted EPS is expected to grow at a mid single-digit rate from the base of 2.86 USD earned in fiscal 2015. At current exchange rates, the company estimates a 9-cent headwind from currency translation in 2016.