General Mills: «This was a terrific quarter»

Minneapolis / MN. (gm) General Mills Inc. reported results for the third quarter of fiscal 2008. Net sales for the 13 weeks ended February 24 rose twelve percent to 3,41 billion USD, fueled by six percent pound volume growth. Gross margin expanded to 39,8 percent of sales, as mark-to-market valuation of commodity positions, productivity and pricing offset significantly higher input costs. Segment operating profits grew 14 percent to 594 million USD including a 13 percent increase in consumer marketing investment. Net earnings grew 61 percent to 430 million USD including non-cash gains from mark-to-market valuation of commodity positions and a favorable ruling related to a tax contingency. (These non-cash items are discussed in «Corporate Items» below). Diluted earnings per share (EPS) totaled 1,23 USD including 0,36 USD from the commodity and tax items. Excluding these items, earnings per share would have totaled 0,87 USD in the quarter, up 18 percent from 0,74 USD per share a year ago.

Chief Executive Officer Ken Powell said, «This was a terrific quarter for General Mills, fueled by continued strong demand for our products in markets all around the world». Each of the company´s business segments reported net sales and operating profit growth for the quarter. These gains came on top of good growth in last year´s third quarter, when General Mills´ net sales grew six percent and earnings per share rose nine percent.

Through the first nine months of fiscal 2008, General Mills´ net sales increased eight percent to 10,18 billion USD, and pound volume grew three percent. Segment operating profits grew seven percent to 1,89 billion USD. Net earnings through nine months grew 21 percent to 1,11 billion USD. Diluted EPS for the year-to-date totaled 3,19 USD, including 0,39 USD from the non-cash commodity and tax items. Excluding these items, nine-month earnings per share would have totaled 2,80 USD, up ten percent from 2,55 USD last year.

«Our product innovation and consumer marketing investments are driving strong growth on the top line», Powell said, «and cost-savings efforts, together with pricing actions, are offsetting significantly higher input costs and protecting our margins. This performance has us on pace to deliver strong sales and earnings growth for fiscal 2008 in total».

U.S. Retail Segment Results

Third quarter net sales for General Mills´ U.S. Retail operations grew nine percent to 2,30 billion USD, with gains recorded by every division. Pound volume grew eight percent. Operating profits grew nine percent to 486 million USD.

Snacks division net sales grew 16 percent, reflecting continued strong consumer demand for Nature Valley grain snacks, Fiber One bars and fruit snacks. Baking Products division net sales also rose 16 percent fueled by double-digit volume growth. Yoplait division net sales grew 14 percent led by Yoplait Light yogurt, Yo-Plus yogurt with probiotic cultures and fiber, and introductory shipments of new Fiber One yogurt. Meals division net sales rose eight percent, reflecting growth by Progresso ready-to-serve soups and Green Giant frozen vegetables. Pillsbury USA division net sales also grew eight percent, including gains by Pillsbury refrigerated dough products and Totino´s pizza rolls. Net sales for Big G cereals grew three percent, led by Cheerios varieties and the Fiber One cereal franchise. Net sales for the company´s Small Planet Foods organic business rose 14 percent.

Through nine months, U.S. Retail segment net sales increased six percent to 6,85 billion USD. Pound volume grew three percent. Operating profits increased four percent including product recall expenses and a nine percent increase in consumer marketing investment year-to-date.

International Segment Results

Third-quarter net sales for General Mills´ consolidated international businesses grew 20 percent to 613 million USD. Pound volume contributed four points of growth, pricing and mix added five points of growth, and foreign currency exchange accounted for ten points of the increase. Sales in Latin America / South Africa and in the Asia / Pacific region rose at strong double-digit rates. Net sales in Europe rose 17 percent. In Canada, sales grew 13 percent for the quarter primarily reflecting favorable currency exchange.

Through the first nine months, International net sales rose 20 percent to 1,88 billion USD, including nine points of growth from foreign exchange. Operating profits rose 30 percent to 208 million USD.

Foodservice Segment Results

Third-quarter net sales for the Bakeries and Foodservice segment grew 13 percent to 492 million USD, due to price increases and favorable mix. Pound volume essentially matched prior-year levels. Operating profits grew 68 percent to 56 million USD, reflecting gains associated with grain merchandising activities.

Through nine months, Bakeries and Foodservice net sales grew six percent to 1,45 billion USD and operating profits rose 16 percent to 138 million USD.

Joint Venture Summary

After-tax earnings from joint ventures totaled 30 million USD in the third quarter of 2008 compared to 16 million USD in the same period last year. This year´s results include a net gain of eleven million USD after tax primarily from the sale of property associated with the previously announced restructuring of Cereal Partners Worldwide (CPW) manufacturing plants in the United Kingdom. Last year´s third-quarter earnings from joint ventures included a four million USD after-tax charge associated with the restructuring.

Net sales for the company´s joint ventures increased to 298 million USD from 249 million USD in last year´s third quarter. CPW net sales grew 21 percent, and net sales for the company´s Haagen-Dazs joint ventures in Asia grew ten percent. During the third quarter, the 8th Continent soymilk business was sold. Our after-tax share of the gain recorded in the third quarter was two million USD.

Through nine months, joint venture earnings totaled 80 million USD in 2008 compared to 58 million USD in 2007. These totals include a net eight million USD after-tax gain from the CPW restructuring activities in 2008 and after-tax expense of seven million USD last year.

Corporate Items

Restructuring, impairment and other exit costs totaled five million USD in the quarter, compared to one million USD in the period a year ago. Total corporate unallocated items represented a net gain of 106 million USD in the quarter, compared to expense of 36 million USD last year. The gain this year reflects 151 million USD net mark-to-market gains on hedges on open commodity positions and current grain inventories. Net interest expense for the quarter was 103 million USD this year compared to 107 million USD last year. The effective tax rate for the quarter was 32,5 percent including a 30 million USD discrete benefit associated with a favorable court decision on a tax matter. Last year´s third quarter tax rate was 33,6 percent. The company now estimates its effective tax rate for the full year, including the discrete item discussed above, will be approximately 34,0 to 34,5 percent.

Cash Flow Highlights

Cash flow from operations totaled 914 million USD through February 2008, compared to 1,15 billion USD through the first nine months of 2007. Increased working capital, primarily higher inventory levels and prices, was the key driver of change from last year. Year-to-date capital expenditures totaled 299 million USD compared to 249 million USD in the same period last year. Dividends through nine months grew to 395 million USD. On March 10 the company announced an increase in the quarterly dividend rate to 0,40 USD per share, payable May 01, to shareholders of record April 10, 2008. During the third quarter, General Mills repurchased approximately three million USD shares of common stock at an average price of approximately 55 USD per share. Average diluted shares outstanding for the third quarter totaled 350 million USD, down three percent from last year´s third-quarter average (source).