General Mills Reports 3% Rise in Q3 Sales

General Mills said that, based on strong year-to-date operating performance and business momentum, the company is raising its guidance for fiscal 2010 earnings. The new fiscal 2010 EPS guidance represents growth of 15 percent from 2009 earnings per share.

25 Mar 2010 --- General Mills has reported that net sales for the 13 weeks ended February 28, 2010 (Q3), grew 3 percent to $3.63 billion. Foreign currency translation contributed 1 point of net sales growth. Pound volume matched year-ago levels, despite the loss of 1 point of growth from divested products. Gross margin expanded, reflecting favorable mix, strong supply chain productivity, and commodity costs that were below year-ago levels for the period. The company increased its consumer marketing investment during the quarter, with advertising and media expense up 33 percent. Including this increased investment, total segment operating profit grew 8 percent to $607 million. Third-quarter net earnings totaled $332 million, including a net reduction in the mark-to-market valuation of certain commodity positions. Diluted earnings per share (EPS) totaled $0.96, up 13 percent from $0.85 in the third quarter a year ago. Excluding mark-to-market effects in both years and certain items in fiscal 2009 that affect comparability of results (please see Note 8 to the Consolidated Financial Statements below), diluted earnings per share would total $0.97 for this year’s third quarter, up 23 percent from $0.79 last year.

Chairman and Chief Executive Officer Ken Powell said, “Results for the third quarter reflect continued good sales growth, margin strength, and significant marketing reinvestment in our brands. General Mills is on track to deliver excellent performance for the full 2010 fiscal year. As we move into the final quarter, our plans include strong levels of marketing reinvestment and targeted merchandising initiatives designed to fuel continuing growth for our brands in fiscal 2011.”

Through the first nine months of fiscal 2010, General Mills net sales grew 2 percent to $11.23 billion. Foreign currency translation had minimal impact. Pound volume matched prior-year levels despite the loss of 2 points of growth from divested products. Segment operating profits increased 14 percent to $2.26 billion, including a 29 percent increase in advertising and media investment. Nine-month net earnings grew to $1.32 billion. Diluted earnings per share totaled $3.87 compared to $2.73 in last year’s first nine months. Excluding certain items affecting comparability of results, year-to-date diluted EPS would total $3.78, up 21 percent from $3.12 a year ago (please see Note 8 below).

Third-quarter net sales for General Mills’ U.S. Retail segment rose 3 percent to $2.57 billion. Pound volume matched last year’s levels. This was solid performance, given that last year’s third-quarter net sales grew 8 percent. Operating profits grew 9 percent to reach $534 million, including a 27 percent increase in advertising and media expense for the period.

Net sales for Big G cereals grew 6 percent in the quarter, led by strong introductory sales of new Chocolate Cheerios and Wheaties Fuel, and gains by several established brands such as Multigrain Cheerios and Lucky Charms. Snacks division net sales grew 15 percent with strong contributions by fruit snacks, Fiber One bars and Nature Valley granola bar varieties. Yoplait division net sales grew 2 percent, including good performance by new Yoplait Delights and Yoplait Greek style yogurt. Net sales for the Pillsbury division rose 2 percent led by Pillsbury Toaster Strudel, Totino’s pizza and Pillsbury refrigerated dough products. Meals division net sales declined 2 percent, as lower sales of Progresso ready-to-serve soup offset strong gains by Old El Paso Mexican products, Green Giant frozen vegetables, and Helper and Restaurant Favorites dinner mixes. Baking Products net sales declined 8 percent, reflecting flour prices that were below year-ago levels and competitive merchandising activity in dessert mixes. Net sales for the Small Planet Foods natural and organic business grew at a strong double-digit rate, with good performance by Cascadian Farm cereal and granola bars, Muir Glen tomatoes and Larabar varieties.

Through nine months, U.S. Retail segment net sales rose 4 percent to $7.88 billion. Pound volume growth accounted for 1 point of the sales increase. Segment operating profits grew 14 percent to $1.89 billion.

Third-quarter net sales for General Mills’ consolidated international businesses grew 11 percent to $644 million. Foreign currency effects contributed 8 points of sales growth, and net price realization and mix added 1 point of growth. Pound volume contributed 2 points of growth, despite the loss of 2 points of growth from divested products. International segment operating profits declined due to foreign currency effects, including a $14 million loss from currency devaluation in Venezuela. Advertising and media expense increased at a strong double-digit rate in the period.

Through nine months, International segment net sales increased 4 percent to $2.03 billion. Net price realization and mix contributed 4 points of net sales growth. Foreign currency translation did not have a meaningful impact. Pound volume was comparable to last year, despite the loss of 2 points of growth from divestitures. Year-to-date segment operating profits of $172 million were below last year due to foreign currency effects and increased advertising investment.

Third-quarter net sales for the Bakeries and Foodservice segment declined 10 percent to $414 million, reflecting the absence of divested products and certain commodity-indexed prices that were below year-ago levels. Pound volume reduced net sales growth by 5 percentage points, including the loss of 9 points of growth from divested products. Segment operating profits rose to $48 million from $22 million a year ago, reflecting lower input costs and strong operating performance.

Through nine months, Bakeries and Foodservice segment net sales declined 14 percent to $1.31 billion, reflecting the impact of divestitures and lower prices. However, year-to-date segment operating profits grew at a strong double-digit pace to $194 million.

After-tax earnings from joint ventures increased to $24 million in the third quarter. Excluding foreign currency effects, net sales for Cereal Partners Worldwide (CPW) rose 5 percent and net sales for Häagen-Dazs Japan declined 8 percent. Foreign exchange contributed to reported joint-venture results. Through the first nine months, joint venture earnings totaled $86 million after-tax, up 8 percent from the year-ago period.

Corporate unallocated items represented $40 million net expense in the third quarter of fiscal 2010 compared to $46 million net income in last year’s third quarter. The change primarily reflects differences in the mark-to-market valuation of certain commodity positions, which represented a net reduction of $5 million this year and a net gain of $71 million in last year’s third quarter. In addition, last year’s results included a $41 million pretax gain for the receipt of insurance proceeds related to a plant fire in Argentina.

Restructuring, impairment and other exit costs totaled $6 million in the third quarter of 2010, compared to $1 million a year ago.

Net interest expense for the quarter declined 4 percent to $94 million, reflecting lower debt levels. The effective tax rate for the quarter was 33.8 percent. Last year’s third-quarter tax rate of 45.7 percent included a $53 million discrete tax expense item. Excluding this tax item, the effective tax rate in last year’s third quarter was 35.3 percent.

General Mills operating activities generated $1.56 billion of cash in the first nine months of fiscal 2010, up from $1.13 billion in the period a year ago due to strong net earnings growth. Capital expenditures during the first nine months totaled $419 million compared to $351 million a year ago. Dividends grew 9 percent in the first nine months to $478 million. On March 15, 2010, General Mills announced a quarterly dividend at the prevailing rate of $0.49 per share, payable May 3, 2010, to shareholders of record April 12, 2010. Expected dividends per share in fiscal 2010 of $1.92 represent a 12 percent increase over the $1.72 per share paid in fiscal 2009. During the first nine months of fiscal 2010, General Mills repurchased 5.5 million of the company’s common shares at an average price of $58.49 per share. Average diluted shares outstanding through nine months totaled 341 million, down approximately 2 percent from year-ago levels.

General Mills said that, based on strong year-to-date operating performance and business momentum, the company is raising its guidance for fiscal 2010 earnings to a range of $4.57 to $4.59 per share, excluding any impact from mark-to-market effects. Previously, the company’s 2010 EPS guidance had been a range of $4.52 to $4.57, excluding any mark-to-market impact.

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

Powell said, “As we look forward to fiscal 2011, we will be building on a solid foundation. Our market categories are growing. Our brand positions are strong, and we have a full line-up of product news and innovation planned for the new year. Most important, we are running on a strong and sustainable business model. This gives us confidence in our prospects for continuing growth.”