General Mills: Reports Fiscal 2011 First-Quarter Results

Minneapolis / MN. (gm) General Mills Inc. said that results for the first quarter of fiscal 2011 met the company´s expectations, despite difficult comparisons to strong growth recorded in the previous year´s first quarter. This performance has the company on track to achieve its sales and earnings growth targets for the full 2011 fiscal year. Fiscal 2011 first quarter financial summary:

• Net sales grew one percent to 3,53 billion USD.
• Segment operating profit totalled 749 million USD, down two percent from very strong results a year earlier.
• Diluted earnings per share (EPS) grew 13 percent to 0,70 USD per share.
• Adjusted diluted EPS, which excludes certain items affecting comparability, totalled 0,64 USD per share, matching results in last year´s first quarter.

Net sales for the 13 weeks ended August 29, 2010, grew one percent to 3,53 billion USD. Pound volume contributed two points of net sales growth, while foreign currency translation reduced net sales growth by one point. Cost of goods sold for the quarter included a 72 million USD increase in mark-to-market valuation of certain commodity positions. Excluding mark-to-market valuation effects, gross margin was 70 basis points below strong prior-year levels. Advertising and media expense grew eight percent in the quarter. Segment operating profit totalled 749 million USD, down two percent from last year´s results, which were up 22 percent. First-quarter net earnings totalled 472 million USD including mark-to-market effects, and diluted earnings per share totalled 0,70 USD, up 13 percent from 0,62 USD per share a year ago. Excluding mark-to-market effects in both years, earnings per share would total 0,64 USD for the first quarter of 2011, matching year-ago results that grew 33 percent.

Chairman and Chief Executive Officer Ken Powell: «We are pleased to see continued growth in volume and net sales across our worldwide businesses. Consumer demand for our established brands remains strong, and new products are making good contributions to our sales results. This top line resilience, coupled with our continuing focus on holistic margin management (HMM), has us off to a solid start in 2011».

U.S. Retail Segment Results

First-quarter net sales for General Mills´ U.S. Retail segment increased two percent to 2,45 billion USD, reflecting good growth on top of year-ago sales that rose six percent. Pound volume contributed one point of the net sales increase, and price and mix contributed another point of growth. Segment operating profit of 615 million USD was three percent below last year´s strong result, reflecting increased input costs and a six percent increase in advertising expense.

Net sales for Big G cereals grew four percent, building on year-ago sales that were up nine percent. This reflected growth from established brands such as Multigrain Cheerios, Fiber One and Cinnamon Toast Crunch, along with contributions from new Chocolate Cheerios and Wheaties Fuel. Net sales for the Snacks division grew five percent including introductory shipments of new grain snack bars and fruit snack varieties. Yoplait net sales grew four percent including good contributions from Yoplait Light along with new Yoplait Greek yogurt varieties, and introductory shipments of Yoplait Splitz layered yogurts and Yoplait Original four-packs. Meals division net sales grew three percent in the quarter, led by gains on Green Giant frozen vegetables, Old El Paso Mexican foods, and new Wanchai Ferry and Macaroni Grill frozen entrees. Pillsbury division net sales declined three percent, reflecting a difficult comparison to double-digit sales growth a year earlier. Totino´s pizza and hot snacks recorded good sales performance, as did several new items including the Sweet Moments line of refrigerated ready-to-eat desserts.

Baking Products net sales were six percent below prior-year levels, but Betty Crocker cake and frostings posted gains, and new items including gluten-free Bisquick and Supreme cake mix varieties recorded good initial sales results. Net sales for the company´s Small Planet Foods organic and natural products increased 15 percent, reflecting growth from Cascadian Farm cereals and granola bars, along with double-digit sales increases for Larabar fruit and nut energy bars.

International Segment Results

First-quarter net sales for General Mills´ consolidated international businesses grew slightly to 660 million USD. Pound volume contributed four points of net sales growth, while foreign exchange reduced net sales growth by four points. On a constant-currency basis, International segment net sales grew four percent overall, led by gains of six percent in Europe and seven percent in the company´s Asia / Pacific region (see note seven to the consolidated financial statements below for discussion of this non-GAAP measure). Advertising and media expense increased 17 percent in the quarter. Including this increased brand-building investment, International segment operating profit totalled 62 million USD, one percent below prior-year results.

Bakeries and Foodservice Segment Results

First quarter net sales for the Bakeries and Foodservice segment grew slightly to 427 million USD. Despite a weak U.S. foodservice industry environment, pound volume grew three percent in the quarter including the impact of a divested product line, which reduced net sales growth by two points. Price and mix reduced net sales growth by three points in the quarter. Segment operating profit grew eleven percent to 72 million USD.

Joint Venture Summary

After-tax earnings from joint ventures grew nine percent to 26 million USD in the first quarter of 2011. Net sales for Cereal Partners Worldwide (CPW) increased one percent in the quarter, with volume contributing two points of net sales growth, price and mix adding one point of growth, and negative foreign exchange effects reducing net sales growth by two points. Net sales for Haagen Dazs Japan declined one percent, as lower volumes and prices were largely offset by favourable foreign exchange.

Corporate Items

Corporate unallocated items totalled twelve million USD of income in the first quarter compared to 70 million USD of expense in the period a year ago. This primarily reflects differences in the mark-to-market valuation of certain commodity positions, which increased 72 million USD in the first quarter of 2011 compared to a net reduction of 15 million USD in the first quarter last year. Excluding mark-to-market effects, unallocated corporate items totalled 60 million USD of expense in the first quarter of fiscal 2011 compared to 55 million USD of expense in the period a year ago. Net interest expense of 90 million USD was two percent below year-ago levels, reflecting a lower average debt level.

Cash Flow Items

Cash provided by operating activities totalled 178 million USD in the quarter, below year-ago levels due to increased use of working capital in the period. Capital investments totalled 133 million USD in the first quarter of 2011. Dividends paid increased to 184 million USD, reflecting the increase in the company´s dividend rate year over year. During the first quarter, General Mills repurchased 21 million USD shares of common stock for a total of 788 million USD. Average diluted shares outstanding for the first quarter were essentially unchanged from the year-ago level.

Outlook

As the second fiscal quarter begins, General Mills said it anticipates near-term financial results will continue tracking in line with year-ago levels, with accelerating sales and earnings growth expected as the year progresses. Ken Powell: «The global operating environment is still quite challenging, but our food businesses are resilient and continue to demonstrate high-quality growth». The company reaffirmed its full-year fiscal 2011 EPS guidance of 2,46 USD to 2,48 USD per share, excluding any mark-to-market effects. This would represent growth of seven to eight percent from adjusted earnings per share of 2,30 USD in fiscal 2010.