General Mills Fiscal 2007 Results Exceed Targets

29/06/07 General Mills has reported results for the fourth quarter and full 2007 fiscal year. For the fiscal year ended May 27, 2007, General Mills net sales grew 6 percent to $12.4 billion, outpacing 4 percent growth in unit volume. Segment operating profits increased 7 percent to $2.3 billion.  Diluted earnings per share (EPS) totaled $3.18, up 10 percent from $2.90 in 2006.

Chairman and Chief Executive Officer Steve Sanger said, “For the second year in a row, all three of our business segments achieved solid gains in net sales and operating profit.  We increased our level of consumer marketing investment, which will help sustain our brands’ growth momentum going forward.  And we returned $1.8 billion in cash to shareholders through increased dividends and share repurchases.” Total return to General Mills shareholders in fiscal 2007 through stock price appreciation and dividends exceeded 19 percent.

Net sales for the fourth quarter of 2007 increased 7 percent to $3.1 billion, driven by 5 percent unit volume growth.  Segment operating profits of $492 million matched prior year levels despite higher input costs and a 16 percent increase in consumer marketing expense in the quarter.  Net earnings grew 1 percent to $224 million.  These results included restructuring and impairment expenses discussed below in the sections titled Joint Ventures and Corporate Items.  Fourth-quarter diluted earnings per share rose 2 percent to 62 cents.

Fiscal 2007 net sales for General Mills’ domestic retail operations grew 4 percent to nearly $8.5 billion.  Unit volume also increased 4 percent.  Segment operating profits rose 5 percent to reach nearly $1.9 billion. 

Net sales for the Snacks division increased 10 percent to exceed $1 billion for the first time, led by grain snacks such as Nature Valley granola bars and new Fiber One bars.  Yoplait sales grew 6 percent, led by Yoplait light varieties, Go-gurt and Yoplait Kids yogurt fortified with DHA Omega 3.  Net sales for the Meals division grew 5 percent, reflecting strong growth of Progresso ready-to-serve soups and Hamburger Helper mixes.  Net sales for Pillsbury USA and the Baking Products division each grew 3 percent.  Big G cereals posted a 2 percent sales increase, with strong performance from the market-leading Cheerios franchise and new cereals introduced during the year.

For the fourth quarter, U.S. Retail net sales and unit volume each grew 6 percent.  Operating profit declined 2 percent, primarily due to double-digit growth in consumer marketing expense for the period.

International net sales grew 16 percent in 2007 to exceed $2.1 billion.  Unit volume grew 8 percent and favorable currency exchange contributed 4 points of sales growth.  Operating profits rose 11 percent to $216 million despite double-digit growth in consumer marketing expense.

For the fourth quarter, International net sales grew 19 percent to $564 million, driven by a 10 percent increase in unit volume.  Operating profits grew even faster, rising 24 percent to $56 million. 

Net sales for the Bakeries & Foodservice division grew 5 percent to exceed $1.8 billion.  Unit volume grew 1 percent, and pricing, favorable sales mix and productivity boosted operating profits 28 percent to $148 million.

Fourth-quarter net sales for Bakeries & Foodservice increased 1 percent to $466 million.  Unit volume declined 2 percent, reflecting the loss of contributions from divested product lines, and operating profits of $30 million were down 3 percent.

After-tax earnings from joint ventures totaled $73 million in 2007, up 6 percent on strong earnings growth for Cereal Partners Worldwide (CPW).  These results include restructuring expense of $8 million after-tax in both years related to the CPW plant restructuring under way in the United Kingdom. 

Fourth quarter after-tax earnings from joint ventures totaled $15 million, up from $12 million a year earlier.  CPW restructuring expenses included in the quarterly results totaled $1 million in 2007 and $8 million in 2006.

Net interest expense in 2007 totaled $427 million, up 7 percent from the previous year due to higher rates and changes in the mix of debt.  Fourth quarter interest expense was $105 million, unchanged from last year.  The effective tax rate for 2007 was 34.3 percent, largely consistent with the prior year.  This year’s fourth quarter tax rate was 30.5 percent, reflecting a settlement of tax audits and increased benefits of our international tax structure.
 
Corporate unallocated expense totaled $163 million in 2007, up from $123 million in the prior year.  At the beginning of 2007, General Mills adopted accounting standard SFAS 123R for stock-based compensation, and this had an incremental expense impact of $69 million for the year.  

Restructuring, impairment and other exit costs totaled $39 million in 2007, including $41 million in the fourth quarter.  This compares to $30 million of restructuring, impairment and other exit costs recorded in 2006. 

“We expect fiscal 2008 to be another year of strong operating performance, consistent with our long-term goals,” Sanger said.  “Our growth model calls for low single-digit growth in net sales, mid single-digit growth in segment operating profits, and high single-digit growth in earnings per share.  We expect to meet these targets in 2008 despite the estimated 5 percent input-cost inflation and increased consumer marketing investment that is included in our plans.”