General Mills Q1 Net Sales Up 7 Percent to $3.07 Billion

20/09/07 General Mills has said that net sales for the 13 weeks ended Aug. 26, 2007, rose 7 percent to $3.07 billion. Segment operating profits grew 9 percent to $578 million, including an 11 percent increase in consumer marketing expense during the quarter. Net earnings totaled $289 million, up 8 percent including restructuring costs. Diluted earnings per share (EPS) totaled 81 cents, up 9 percent from 74 cents a year ago.

Chairman and Chief Executive Officer Steve Sanger said, “This represents a very good start to the year.  Our continuing growth reflects broad-based sales momentum, and even stronger operating profit growth despite challenging input-cost inflation and increased consumer marketing investment to build our brands.”

First-quarter net sales for General Mills’ domestic retail operations grew 6 percent to $2.03 billion, with volume increases contributing 3 points of growth.  Operating profits also rose 6 percent to $473 million.

The Snacks division led U.S. Retail performance with a 16 percent net sales increase, reflecting strong sales and market share gains for Nature Valley grain snacks, Fiber One bars and fruit snacks.  Net sales for the Baking Products division rose 7 percent reflecting pricing and favorable mix.  Net sales for the Pillsbury USA division increased 6 percent with good contributions from Totino’s frozen pizza and snacks, as well as Pillsbury refrigerated dough products.  Meals division net sales grew 6 percent led by dinner mixes and Progresso ready-to-serve soups.  Big G cereal net sales increased 5 percent, including introductory shipments of new Cheerios Crunch Oat Cluster, Chocolate Chex, and two Curves cereals.  Net sales for the Yoplait division rose 3 percent, including contributions from new Yo-Plus probiotic yogurt and Fizzix carbonated yogurt.  Net sales for the company’s Small Planet Foods organic business were down 4 percent compared to last year’s first quarter, when sales grew 34 percent.

First-quarter net sales for General Mills’ consolidated international businesses grew 19 percent to $599 million.  Volume increases contributed 9 points of growth, and foreign exchange accounted for 7 points of the increase.  International segment operating profits grew 27 percent to $71 million. 
 
First-quarter net sales for Bakeries & Foodservice totaled $441 million, down 1 percent due in part to the absence of businesses divested during the past year.  Operating profits grew 17 percent to $34 million reflecting pricing and favorable sales mix.

After-tax earnings from joint ventures totaled $22 million in the first quarter of 2008 compared to $19 million in the same period last year.  Both periods included a $2 million after-tax charge associated with previously announced restructuring of the Cereal Partners Worldwide (CPW) manufacturing plants in the United Kingdom.  Net sales for CPW grew 26 percent in the quarter, including incremental contribution from the Uncle Tobys cereal business in Australia acquired in July 2006.  Net sales for the Haagen Dazs joint ventures in Asia matched prior year levels.  The 8th Continent joint venture in the U.S. (soy beverages) posted a 16 percent sales decline in the period. 

Corporate unallocated expense totaled $54 million in the first quarter of 2008, up from $43 million in the same period a year ago.  Advisory fees associated with recent financing activities accounted for $11 million of the increase.

Restructuring, impairment and other exit costs totaled $14 million expense in the first quarter of 2008, compared to $2 million income in the period a year ago. 

Net interest expense for the quarter totaled $113 million, up 8 percent due to higher debt levels.  During the quarter, the company repurchased all of the outstanding Series B-1 membership interests of its General Mills Cereals LLC (GMC) subsidiary (minority interests).  Capital appreciation of $8 million after-tax paid to the holders of the interests was recorded as a reduction to retained earnings, and net earnings used to calculate earnings per share were similarly reduced by $8 million.

The effective tax rate for the first quarter was 32.8 percent, down from 35.8 percent in last year’s first quarter due primarily to foreign and other tax credits.  The estimated full-year effective tax rate continues to be 34.5 to 35 percent.

Operating activities generated $20 million of cash in the first quarter of 2008, compared to $111 million generated in last year’s first quarter.  The change reflects increased working capital use in the period.

During the quarter, General Mills repurchased 21 million of the company’s common shares at an average price of approximately $58 per share.  Dividends grew to $132 million, reflecting two increases to the quarterly rate effective in February and August 2007.  Capital expenditures during the quarter were $68 million compared to $61 million in the same period a year ago.

Sanger said that with these good first-quarter results, General Mills was reaffirming its guidance for low single-digit net sales growth, mid single-digit growth in segment operating profits, and diluted EPS in the range of $3.39 to $3.43 for the full 2008 fiscal year.