General Mills Profits Double in Q4

CEO Ken Powell said, “Our product categories are on-trend with consumer needs, and we’ve got a good line-up of product news and innovation planned for the new year, so we expect our business to generate good growth again in fiscal 2010."

02/07/09 General Mills has reported strong financial results for the fourth quarter and full 2009 fiscal year. Net sales for the fourth quarter grew 5 percent to $3.6 billion. Pound volume growth contributed 3 points of the sales increase. Foreign currency translation reduced sales growth by 3 points. Gross margin recovered from depressed prior-year levels. Consumer marketing spending in the final quarter grew 19 percent and, even with that strong reinvestment, segment operating profits rose 29 percent. Earnings after tax totaled $359 million, reflecting a net gain from mark-to-market valuation of certain commodity positions and a lower fourth-quarter tax rate. Diluted earnings per share reached $1.07 compared to $0.53 in last year’s fourth quarter. Excluding a loss on product lines divested in the fourth quarter of 2009, and the mark-to-market effects in both 2008 and 2009, EPS would have totaled $0.86, up 18 percent from $0.73 last year.

For the fiscal year ended May 31, 2009, General Mills net sales grew 8 percent to $14.7 billion. Volume (measured in pounds) contributed 2 points of sales growth. Foreign currency translation reduced sales growth by 2 percentage points. Gross margin essentially matched prior-year levels despite 9 percent inflation in the company’s input costs. Consumer marketing investment rose 16 percent in 2009, including strong growth in worldwide media spending. Segment operating profit increased 10 percent to exceed $2.6 billion. During 2009, the company incurred restructuring expenses totaling $42 million pre-tax, and recorded a net pre-tax gain of $85 million from divestitures. Net earnings grew 1 percent to $1.3 billion including a net decline in mark-to-market valuation of certain commodity positions, the net gain from divestitures, proceeds from an insurance recovery, and expense associated with a discrete tax item. (These items are discussed in the section titled Corporate Items below.) Diluted earnings per share (EPS) grew 2 percent to reach $3.80. Earnings per share excluding the mark-to-market, divestiture, tax and insurance items would total $3.98, a 13 percent increase from comparable earnings of $3.52 per share in fiscal 2008.
 
Chairman and Chief Executive Officer Ken Powell said, “In today’s very challenging economic environment, our leading food brands offer the quality, convenience and value that consumers are looking for and, as a result, our businesses are showing strong growth. In 2009, we held our margins in the face of sharply higher input costs, and we significantly increased the level of consumer marketing support for our brands. These actions have positioned General Mills to achieve another year of good growth in fiscal 2010.”

Fiscal 2009 net sales for General Mills’ U.S. Retail operations grew 11 percent to exceed $10 billion for the first time. Pound volume gains contributed 4 points of the net sales growth. Segment operating profits rose 12 percent to $2.2 billion, including a 19 percent increase in consumer marketing spending to support the company’s brands.
 
Net sales for Big G cereals rose 11 percent with strong performance from core brands including Fiber One and the market-leading Cheerios franchise. Baking Products net sales grew 18 percent including gains for Bisquick variety baking mix, Gold Medal flour and Betty Crocker dessert mixes. Yoplait posted a 14 percent net sales increase fueled by double-digit growth for Yoplait Light reduced-calorie yogurt. Pillsbury USA division net sales rose 12 percent, including strong growth from Totino’s pizza and pizza rolls, Pillsbury refrigerated dough products, and new Pillsbury Savorings frozen appetizers. Meals division net sales increased 8 percent, led by dinner mixes and Green Giant frozen vegetables. Net sales for the Snacks division grew 4 percent with particularly strong contributions from Nature Valley and Fiber One snack bars. For the company’s Small Planet Foods organic product lines, net sales grew 30 percent including the Lärabar business acquired during 2009.
 
Fourth-quarter U.S. Retail net sales rose 12 percent, with pound volume contributing 3 points of the growth. All seven operating divisions posted net sales increases, and for Big G cereals, Pillsbury USA, Baking Products, Yoplait and Small Planet Foods fourth-quarter sales grew double-digit. Operating profits rose 30 percent even with a 25 percent increase in consumer marketing spending in the period. This brand-building investment is expected to help drive continued good net sales growth into fiscal 2010.

Net sales for General Mills’ consolidated International businesses grew 1 percent in fiscal 2009 to $2.6 billion. Pound volume grew 1 percent, and foreign currency exchange reduced net sales growth by 9 percentage points. On a constant-currency basis, sales grew 10 percent overall and the company recorded sales growth in every region where it operates. In the Asia / Pacific region, constant-currency net sales grew 16 percent. In the Latin America region, net sales increased 22 percent. Net sales in Canada grew 7 percent. And in Europe, constant-currency net sales grew 4 percent. International segment operating profits declined 3 percent as foreign currency exchange reduced profit growth by 14 percentage points.
 
In the fourth quarter, International segment net sales declined 5 percent as reported, but foreign currency exchange reduced net sales growth by 17 percentage points. On a constant-currency basis, net sales increased 12 percent with pound volume up 5 percent in the quarter. Segment operating profits declined 12 percent to $54 million, reflecting negative foreign currency exchange effects.

Net sales for the Bakeries and Foodservice segment grew 1 percent to exceed $2.0 billion. Pound volume declined 6 percent, reflecting weak foodservice industry trends. However, segment operating profits grew 3 percent to reach $171 million. Prior-year results for Bakeries and Foodservice included unusually strong grain merchandising earnings that resulted from significant commodity price increases that year. Excluding grain merchandising earnings from both 2009 and 2008 results, Bakeries and Foodservice operating profits grew 15 percent in 2009, reflecting successful efforts to emphasize higher-margin product lines and customer channels.
 
In the fourth quarter, Bakeries and Foodservice net sales declined 9 percent, including the divestiture of two product lines. Pound volume essentially matched year-ago levels, and operating profits rose sharply primarily due to lower input costs year-over-year.

After-tax earnings from joint ventures totaled $92 million in 2009. Prior-year joint-venture earnings of $111 million included an $8 million net gain from restructuring actions at Cereal Partners Worldwide (CPW) and a $2 million gain from the sale of General Mills’ 50-percent share of the 8th Continent soymilk business. A tax adjustment in the fourth quarter and foreign exchange effects account for the remainder of the earnings decline.
 
General Mills’ proportionate share of joint-venture net sales totaled $1.2 billion in 2009. The company’s 50-percent share of CPW net sales exceeded $1 billion, and pound volume for the venture grew 4 percent. Net sales for the Haagen-Dazs ice cream venture in Japan totaled $197 million. Pound volume declined for the year, reflecting the difficult economic environment. Foreign exchange effects reduced joint venture net sales by 6 percentage points.
 
Fourth-quarter earnings from joint ventures totaled $12 million. That was below last year’s fourth-quarter earnings of $31 million, which more than doubled from 2007 results.

Powell said, “Our product categories are on-trend with consumer needs, and we’ve got a good line-up of product news and innovation planned for the new year, so we expect our business to generate good growth again in fiscal 2010. Our plans assume that world economic conditions remain challenging, and that foreign currency translation and transaction effects will reduce our reported sales and earnings growth rates. However, we expect the rate of input cost inflation to moderate, and we believe savings from our holistic margin management initiatives will exceed cost increases.”