General Mills Profits Up 50% in Q2

Second-quarter gross margin increased at a double-digit rate, reflecting strong operating performance and commodity costs that were below year-ago levels for the period.

18 Dec 2009 --- General Mills has reported record results for the second quarter of fiscal 2010. Net sales for the 13 weeks ended November 29, 2009, grew 2 percent to $4.08 billion, led by 4 percent growth in U.S. Retail net sales. The comparison was difficult – in last year’s second quarter, total company net sales grew 8 percent and U.S. Retail net sales grew 10 percent. Foreign currency translation contributed 1 point of net sales growth. The contribution from pound volume was flat, including the loss of 2 points of growth from divested products. U.S. Retail pound volume grew 2 percent above last year’s second-quarter level, which was up 5 percent.

Chairman and Chief Executive Officer Ken Powell said, “Consumers around the world continue to focus on nutritious, convenient food choices that help them make breakfast, lunch and dinner for their families at good value. Demand for our leading brands remains strong. These good sales levels, combined with the accumulating benefits of our holistic margin management (HMM) efforts, are continuing to drive terrific operating performance in our manufacturing plants. This strong, fundamental business momentum has enabled us to raise our EPS targets for the full year.”

Second-quarter gross margin increased at a double-digit rate, reflecting strong operating performance and commodity costs that were below year-ago levels for the period. General Mills increased its consumer marketing investment during the quarter, including a 37 percent increase in advertising and media expense. Segment operating profit grew 13 percent to $880 million. Second-quarter net earnings totaled $566 million, including a net gain related to mark-to-market valuation of certain commodity positions (this non-cash item is discussed below in the section titled Corporate Items). Diluted earnings per share (EPS) totaled $1.66, up from $1.09 in last year’s second quarter, which included a net reduction in mark-to-market valuation and a gain on the sale of a business. Excluding the divestiture gain last year and mark-to-market impacts in both years, second-quarter earnings would total $1.54 in fiscal 2010, up 13 percent from comparable earnings of $1.36 per share in fiscal 2009.

Through the first six months of fiscal 2010, General Mills net sales grew 1 percent to $7.60 billion. Net sales in last year’s first half grew 11 percent. Foreign currency translation reduced 2010 first-half sales growth by 1 percentage point. The contribution from pound volume was flat despite the loss of 2 points of growth from divested products. Segment operating profits increased 16 percent to $1.65 billion, including a 27 percent increase in advertising and media investment. Six-month net earnings totaled $986 million. Diluted earnings per share totaled $2.91 compared to $1.88 in last year’s first half. Excluding last year’s divestiture gain and mark-to-market valuation effects in both years, earnings per share would total $2.82 for the first half of fiscal 2010, up 22 percent from comparable earnings of $2.32 a year ago.

Second-quarter net sales for General Mills’ U.S. Retail segment rose 4 percent to $2.89 billion. Pound volume contributed 2 points of the growth. This was solid performance, given that last year’s second-quarter net sales grew 10 percent and pound volume contributed 5 points of that increase. Operating profits for the second quarter grew 13 percent to reach $718 million, including a 29 percent increase in advertising and media expense for the period.

Net sales for Big G cereals grew 10 percent in the quarter, led by Chex cereal varieties, the Cheerios franchise and Fiber One cereals. Snacks division net sales grew 6 percent with strong contributions by Fiber One and Nature Valley grain snack bars and several fruit snack varieties. Net sales for the Baking Products division increased 5 percent led by Betty Crocker dessert mixes. Yoplait division net sales also grew 5 percent, reflecting continued gains by Yoplait Light and strong introductory sales of Yoplait Delights yogurt parfaits. Net sales for the Pillsbury division rose 1 percent with good performance by Pillsbury refrigerated dough products, Totino’s pizza and Pizza Rolls snacks, and Pillsbury Savorings appetizers. Meals division net sales essentially matched strong year-ago levels, with Green Giant frozen vegetables, Progresso ready-to-serve soups and Old El Paso Mexican foods recording good gains. Net sales for the Small Planet Foods natural and organic business were 2 percent below prior-year levels reflecting soft organic food industry trends, however Cascadian Farm cereals and the Larabar line recorded market share gains.

Through six months, U.S. Retail segment net sales rose 5 percent to $5.31 billion. Pound volume growth accounted for 2 points of the sales increase. Segment operating profits grew 16 percent to $1.36 billion.

Second-quarter net sales for General Mills’ consolidated international businesses grew 7 percent to $724 million. Foreign currency translation contributed 4 points of sales growth, and net price realization and mix contributed 3 points of growth. Pound volume matched year ago levels, including the loss of 2 points of growth from divested products. International segment operating profits declined 3 percent, reflecting transactional foreign currency effects on cost of sales and a strong double-digit increase in advertising and media expense.

Through six months, International segment net sales increased 1 percent to $1.39 billion. Net price realization and mix contributed 5 points of net sales growth. Foreign currency translation reduced the growth rate by 3 points. Pound volume subtracted 1 point of net sales growth, including the loss of 2 points of growth from divestitures. First-half segment operating profits of $147 million were 8 percent below last year’s first half due to negative foreign currency effects and increased advertising investment.

Second-quarter net sales for the Bakeries & Foodservice segment declined 16 percent to $464 million, reflecting the absence of divested products and the impact of indexed prices on certain product lines. Pound volume reduced net sales growth by 10 percentage points, including the loss of 8 points of growth from divested products. Segment operating profits grew 32 percent to $85 million, reflecting strong plant operating performance and lower input costs.

Through the first half, Bakeries & Foodservice segment net sales declined 16 percent to $897 million, reflecting the impact of divestitures and indexed prices on certain product lines. However, segment operating profits through the first six months grew at a strong double-digit rate to $146 million.

“Our businesses are growing, and General Mills people in our plants, sales teams and offices worldwide are delivering great performance,” said Powell. “As we move into the second half of fiscal 2010, we plan to make additional reinvestments in marketing and merchandising programs to fuel continued growth for our brands this year and into fiscal 2011.”

General Mills said that, based on strong first-half operating performance and business momentum, the company is raising its guidance for fiscal 2010 earnings to a range of $4.52 to $4.57 per share, excluding any impact from mark-to-market effects. Previously, the company’s 2010 EPS guidance had been a range of $4.40 to $4.45 excluding any mark-to-market impact.

The new fiscal 2010 EPS guidance represents growth of 14 to 15 percent from 2009 earnings per share of $3.98 excluding items affecting comparability. The double-digit growth is anticipated despite the absence of divested businesses, one less week in this fiscal year, and the expectation that foreign currency exchange will reduce 2010 reported results.