General Mills: Reports Fiscal 2009 Third-Quarter Results

Minneapolis / MN. (gm) General Mills Inc. reported results for the third quarter of fiscal 2009. Net sales for the 13 weeks ended February 22, 2009, grew four percent to 3,54 billion USD. Foreign currency translation reduced sales growth by three percentage points. Pound volume was one percent below prior-year levels that grew six percent. Gross margin for the quarter declined, reflecting unusually strong grain-merchandising profits last year and higher input costs this year. Consumer marketing expense grew six percent as the company invested in brand-building initiatives in markets worldwide. Segment operating profits totaled 560 million USD, below prior-year levels due to higher input costs, lower grain-merchandising profits, and the negative impact of foreign currency exchange. Net earnings for the third quarter include gains from mark-to-market valuation of certain commodity positions in both years, a gain from an insurance settlement in 2009, and the impact of a discrete tax item that represented a gain in 2008 and an expense in 2009. Diluted earnings per share (EPS) totaled 0,85 USD in the third quarter of 2009 compared to 1,23 USD in last year´s third quarter including these items. Excluding the items, EPS would have totaled 0,79 USD in this year´s third quarter compared to 0,87 USD a year ago.

Chairman´s Comment

Chairman and Chief Executive Officer Ken Powell: «Our results this quarter reflect a difficult comparison against strong prior-year results, as well as significantly higher input costs in the current period. We are pleased to see continued growth in consumer demand for our products in markets around the world, as third-quarter net sales for our U.S. Retail operations rose eight percent, and International segment net sales increased ten percent on a constant-currency basis.

In the fourth quarter, we expect our input cost inflation will be well below our estimated full-year inflation rate of nine percent. The benefits of this lower input cost inflation and an extra selling week this year will contribute to strong segment operating profit growth for the final quarter. The operating environment is very challenging; however, our good performance through the first nine months of fiscal 2009 has enabled us to modestly increase our full-year earnings guidance».

Through the first nine months of fiscal 2009, General Mills´ net sales increased eight percent to 11,05 billion USD. Pound volume contributed one point of sales growth, and foreign currency exchange reduced sales growth by one point. Segment operating profits grew four percent to 1,97 billion USD despite higher input costs, negative foreign exchange effects, and a 15 percent increase in consumer marketing expense for the year-to-date. Diluted EPS through nine months totaled 2,73 USD in 2009 compared to 3,19 USD in 2008. Excluding mark-to-market effects and the discrete tax item from both years, and excluding gains from the insurance recovery and the sale of Pop Secret popcorn in 2009, nine-month EPS would total 3,12 USD; up eleven percent from 2,80 USD in 2008.

U.S. Retail Segment Results

Third-quarter net sales for General Mills´ U.S. Retail operations grew eight percent to 2,50 billion USD. Pound volume increased one percent from prior-year levels, which grew eight percent. Operating profits grew one percent despite higher input costs and an eleven percent increase in consumer marketing investment.

Big G cereal sales grew 13 percent. Baking Division net sales rose 16 percent. Pillsbury Division net sales grew 15 percent. Yoplait Division sales grew seven percent. Meals Division net sales grew five percent. Snacks Division net sales were four percent below last year´s levels. Net sales for the Small Planet Foods Division matched prior-year levels.

Through nine months, U.S. Retail net sales increased ten percent to 7,57 billion USD. Pound volume grew four percent. Operating profits rose seven percent to 1,65 billion USD despite significant input cost increases and 17 percent growth in consumer marketing investment for the year-to-date.

International Segment Results

Third-quarter net sales for General Mills consolidated international businesses declined five percent to 580 million USD, as foreign currency exchange reduced sales growth by 15 percentage points. Sales on a constant-currency basis grew ten percent with pound volume contributing one point of growth, and pricing and mix contributing nine points. International segment operating profits totaled 49 million USD, down from prior-year levels due to foreign exchange impacts and higher input costs. Through nine months, International net sales grew four percent as reported to 1,95 billion USD. Foreign currency exchange reduced sales growth by six points. Sales on a constant-currency basis grew ten percent, as pound volume declined one percent, and pricing and mix contributed eleven points of growth. Operating profits totaled 207 million USD, essentially matching prior-year levels despite unfavorable foreign exchange and increased consumer marketing investment.

Foodservice Segment Results

Third-quarter net sales for the Bakeries and Foodservice segment declined six percent to 462 million USD. Pound volume declined twelve percent, reflecting difficult industry conditions. Operating profits were significantly below prior-year results that included unusually strong gains from grain-merchandising activities.

Through nine months, Bakeries and Foodservice net sales grew five percent to 1,53 billion USD and operating profits totaled 113 million USD. Subsequent to the end of the quarter, the company announced an agreement to sell a portion of its frozen unbaked bread dough business to Pennant Foods. The company expects to close the transaction and record a loss on the asset sale during the fourth quarter of 2009.

Joint Venture Summary

After-tax earnings from joint ventures totaled 16 million USD in the third quarter of 2009 compared to 30 million USD in the same period last year. Prior-year results included a net gain of eleven million USD from restructuring activities at Cereal Partners Worldwide (CPW), as well as a two million USD gain on the sale of our 50-percent share of the 8th Continent soy milk business.

Through nine months, after-tax earnings from joint ventures totaled 80 million USD in 2009, matching prior-year levels. Nine-month net sales for CPW grew five percent, with pound volume up three percent and favorable foreign exchange. Net sales for the Häagen-Dazs ice cream venture in Japan also grew five percent, as favorable foreign exchange offset a volume decline.

Cash Flow Highlights

Cash flow from operations through the first nine months of 2009 totaled 1,13 billion USD, up 24 percent from 914 million USD in the period last year primarily due to improved working capital trends. Fixed asset investments through the first nine months of 2009 totaled 351 million USD. Dividends through nine months increased to 438 million USD. On March 09, 2009, the company announced a quarterly dividend of 0,43 USD per share, payable May 01, 2009, to shareholders of record April 09, 2009. Through nine months, the company repurchased 18,9 million USD shares of common stock for a total of 1,23 billion USD. Average diluted shares outstanding for the third quarter totaled 340 million USD, down approximately three percent from last year´s third-quarter average (source).