General Mills Q1 Profit Declines as Costs Bite

The company reaffirmed its full-year fiscal 2012 EPS guidance of $2.59 to $2.61, excluding any mark-to-market effects and integration costs for the Yoplait acquisition.

Sep 22 2011 --- General Mills has reported results for the first quarter of fiscal 2012.  During this period, the company acquired a controlling interest in the international Yoplait yogurt business.  General Mills’ consolidated financial statements for the first quarter include one month of results for this business. General Mills has reported results for the first quarter of fiscal 2012.  During this period, the company acquired a controlling interest in the international Yoplait yogurt business.  General Mills’ consolidated financial statements for the first quarter include one month of results for this business.

Net sales for the 13 weeks ended Aug. 28, 2011, grew 9 percent to $3.85 billion.  Foreign exchange contributed 2 points of net sales growth, and price realization and mix contributed 5 points of growth.  Pound volume contributed 2 points of net sales growth, including 5 points of growth from the Yoplait acquisition. Gross margin was below year-ago levels due to higher input costs and the change in business mix to include the Yoplait acquisition.  Advertising and media expense increased 7 percent.  Segment operating profit declined 3 percent to $727 million.  First-quarter net earnings attributable to General Mills totaled $406 million, and diluted earnings per share totaled 61 cents.  Adjusted diluted earnings per share, which excludes the effects of mark-to-market valuation of certain commodity positions, totaled 64 cents in the first quarters of both 2012 and 2011.  (Please see Note 6 to the consolidated financial statements below for a reconciliation of this non-GAAP measure.)
Chairman and Chief Executive Officer Ken Powell said, “Our net sales grew 6 percent before the Yoplait acquisition, with gains across all three of our business segments.  This reflects good net price realization, resilient consumer demand for our established products, and good early response to new items launched during the quarter. This start to the year has General Mills on track to achieve the key growth targets we’ve set for fiscal 2012.”

First-quarter net sales for General Mills’ U.S. retail segment grew 3 percent to $2.51 billion.  Pound volume reduced net sales growth by 4 points, while price and mix contributed 7 points of net sales growth.  Segment operating profit of $585 million was 5 percent below prior year levels, reflecting higher input costs and a 6 percent increase in advertising and media expense.

 Net sales for Big G cereals increased 1 percent in the first quarter, including growth from established brands such as Chex and Cinnamon Toast Crunch along with contributions from new Cinnamon Burst Cheerios, Cocoa Puffs Brownie Crunch and Fiber One 80 calorie cereal.  Net sales for the Snacks division grew 17 percent, led by Nature Valley and Fiber One snack bar varieties.  Sales for the Baking Products division grew 5 percent and sales for the Pillsbury division rose 4 percent.  Meals division net sales were 4 percent below year-ago levels, reflecting lower shipment volumes for dinner mixes, canned vegetables and soup.  Yoplait division net sales declined 3 percent.  Net sales for the Small Planet Foods division grew 13 percent led by Cascadian Farm cereal and Larabar varieties.

First-quarter net sales for General Mills’ consolidated international businesses grew 30 percent to reach $856 million.  Pound volume contributed 28 points of net sales growth, including 26 points of growth from the Yoplait acquisition.  Price and mix subtracted 8 points of net sales growth, and foreign currency exchange contributed 10 points of net sales growth.  On a constant-currency basis, International segment net sales grew 20 percent overall, with gains of 36 percent in Europe, 15 percent in the Asia / Pacific region, 12 percent in Latin America and 8 percent in Canada.  (Please see Note 6 below for a reconciliation of this non-GAAP measure.)  Advertising and media expense grew 9 percent.  International segment operating profit totaled $81 million, up 30 percent from year-ago levels.

First-quarter net sales for the Bakeries and Foodservice segment grew 13 percent to $481 million.  Pound volume declined, reducing net sales growth by 2 points.  Price and mix contributed 15 points of net sales growth.  Customer channel performance was strong with net sales to convenience stores up 6 percent, sales to foodservice distributors up 5 percent, and net sales to bakeries and national restaurant accounts up 18 percent.  Segment operating profit of $61 million was below year-ago levels due to higher input costs and lower grain merchandising earnings year-over-year.

After-tax earnings from the Cereal Partners Worldwide (CPW) and Haagen Dazs Japan (HDJ) joint ventures totaled $28 million, 7 percent above year-ago results due to good sales performance.  Business results for HDJ include disruption following the earthquakes and tsunami in March; nevertheless, net sales rose at a double-digit pace.  CPW net sales grew 19 percent with volume contributing 6 points of growth.

Unallocated corporate items totaled $88 million of expense in this year’s first quarter compared to $12 million of income a year ago.  This primarily reflected differences in the mark-to-market valuation of certain commodity positions, which represented a $38 million net increase in expense in the first quarter of 2012 compared to a $72 million net decrease in expense in last year’s first quarter.  Excluding mark-to-market effects, unallocated corporate items totaled a net $50 million of expense this year compared to $60 million expense last year.  Net interest expense of $85 million was 5 percent below year ago levels, reflecting lower rates and changes in the mix of debt.  The effective tax rate for the quarter was 32.1 percent.  Excluding mark-to-market effects, the effective tax rate was 32.4 percent this year compared to 32.8 percent a year ago.  (Please see Note 6 below for a reconciliation of this non-GAAP measure.)

Cash provided by operating activities totaled $441 million in the quarter, an increase from last year’s first-quarter results due primarily to reduced cash use for working capital in the period.  Capital investments totaled $133 million in the first quarter of 2012.  Dividends paid rose to $200 million, reflecting the increase in the dividend rate year-over-year. During the first quarter, General Mills repurchased approximately 3 million shares of common stock for a total of $110 million.  Average diluted shares outstanding totaled 667 million for the first quarter of 2012 compared to 672 million in last year’s first quarter.
 
“A challenging first-quarter comparison is now behind us, and we expect General Mills to show earnings growth over the next nine months, with the pace of growth strengthening as the year unfolds,” Powell said.  The company reaffirmed its full-year fiscal 2012 EPS guidance of $2.59 to $2.61, excluding any mark-to-market effects and integration costs for the Yoplait acquisition.