General Mills Reports Fiscal 2014 Second-Quarter Results
19 Dec 2013 --- General Mills (GIS) reported results for the second quarter of fiscal 2014. The 13-week period ending Nov. 24, 2013 did not include Thanksgiving, while last year's second-quarter results included the holiday.
Net sales for the second quarter of fiscal 2014 totaled $4.88 billion, with pound volume essentially matching prior-year levels. Net price realization and mix contributed 1 point of net sales growth. This was offset by the impact of foreign exchange translation, which reduced net sales growth by 1 percentage point. Second-quarter gross margin was above year-ago levels due to changes in mark-to-market valuation of certain commodity positions and grain inventories. Excluding mark-to-market effects, gross margin declined in the second quarter reflecting higher input costs. (Please see Note 9 below for reconciliation of this non-GAAP measure.) Advertising and media expense was 3 percent below year-ago levels. Total segment operating profit of $920 million was down 4 percent from prior-year results that grew 10 percent (please see Note 9 below). Second-quarter net earnings attributable to General Mills totaled $550 million and diluted earnings per share grew 2 percent to 84 cents per share. Adjusted diluted EPS, which excludes certain items affecting comparability, totaled 83 cents per share in the second quarter of fiscal 2014 compared to 86 cents a year ago (please see Note 9 below).
Six Month Financial Summary
- Net sales through the first six months of fiscal 2014 grew 4 percent to $9.25 billion. Incremental contributions from new businesses added during the prior year accounted for 2 points of the net sales increase.
- First-half segment operating profit of $1.73 billion essentially matched year-ago results (please see Note 9 below).
- First-half diluted EPS totaled $1.54, down 6 percent from $1.64 a year ago.
- Adjusted diluted EPS totaled $1.53 for the first half of 2014 compared to $1.52 in last year's first half (please see Note 9 below).
Chairman and Chief Executive Officer Ken Powell said, "The second quarter was a difficult comparison to strong prior-year sales and earnings results for our businesses. In addition, the period included the highest quarterly input cost inflation we expect to see this fiscal year, and food and beverage industry sales in the U.S. and other developed markets slowed a bit during the quarter. Even so, our bottom-line results through the first half of the year are broadly consistent with our plans."
New products contributing to net sales growth in the first half included Yoplait blended Greek yogurt, Fiber One 90 calorie lemon and cinnamon coffee cake bars, Old El Paso stand n' stuff flour tortillas and frozen Mexican food items, Nature Valley Protein granola cereal and, in Brazil, Yoki Kit Facil dinner mixes. Established brands including Chex and Cinnamon Toast Crunch cereals, Progresso ready-to-serve soups, Totino's frozen pizza and snacks and, in China, Wanchai Ferry frozen dim sum and Haagen Dazs ice cream, also contributed to net sales growth.
Second-quarter net sales for General Mills' U.S. Retail segment declined 1 percent to $2.97 billion. Lower pound volume reduced net sales growth by 2 percentage points, while net price realization and mix contributed 1 percentage point of net sales growth. The Snacks, Small Planet Foods and Big G divisions each contributed net sales growth in the quarter, while net sales for the remaining U.S. Retail divisions were lower. Advertising and media expense declined 1 percent in the period. Segment operating profit totaled $682 million, 6 percent below strong year-ago results.
Through the first six months of fiscal 2014, U.S. Retail segment net sales grew 1 percent to $5.55 billion. Lower pound volume reduced net sales growth by 1 percentage point, while net price realization and mix contributed 2 percentage points to net sales growth. First half segment operating profit of $1.29 billion essentially matched year-ago results including a 1 percent increase in advertising and media expense.
Second-quarter net sales for General Mills' consolidated international businesses grew 2 percent to $1.40 billion. Pound volume contributed 2 percentage points of net sales growth, and net price realization and mix contributed 3 percentage points of growth. Foreign currency exchange reduced net sales growth by 3 percentage points. On a constant-currency basis, International segment net sales rose 5 percent overall. Constant-currency net sales grew 22 percent in Latin America, led by Brazil. Sales growth in China drove a 5 percent increase in Asia-Pacific constant-currency sales. In Canada, constant-currency net sales grew 4 percent. Europe's constant-currency net sales were 2 percent below prior-year results. (Please see Note 9 below for reconciliation of these non-GAAP measures.) International segment operating profit grew 10 percent to $153 million.
Through the first six months of fiscal 2014, International segment net sales grew 10 percent to $2.72 billion. Pound volume grew 14 percent, primarily reflecting incremental contributions during the first quarter from businesses added during 2013. Net price realization and mix reduced six-month net sales growth by 1 percentage point, and foreign currency exchange reduced growth by 3 percentage points. Segment operating profit grew 5 percent to $279 million including a 2 percent increase in advertising and media expense.
Second-quarter net sales for the Convenience Stores and Foodservice segment totaled $507 million, down 2 percent from year-ago levels due to negative net price realization and mix. Pound volume essentially matched year-ago levels. Segment operating profit totaled $85 million, down 12 percent from year-ago levels that grew 24 percent.
Through the first six months of fiscal 2014, Convenience Stores and Foodservice segment net sales totaled $975 million, down 1 percent from the previous year due to a decline in pound volume. Segment operating profit of $159 million was 3 percent below year-ago results.
Combined after-tax earnings from the Cereal Partners Worldwide (CPW) and Haagen-Dazs Japan (HDJ) joint ventures totaled $26 million in the second quarter, down from $33 million a year earlier primarily due to unfavorable foreign currency exchange effects for both ventures and increased consumer marketing investment at CPW. Constant-currency net sales grew 2 percent for CPW and increased 11 percent for HDJ. Through the first half of fiscal 2014, combined after-tax earnings from joint ventures totaled $50 million, 10 percent below year-ago results.
Corporate Items
Unallocated corporate items totaled $49 million of expense in the second quarter of fiscal 2014, compared to $127 million of expense a year earlier. Excluding the effects of mark-to-market valuation for certain commodity positions and grain inventories in both years, unallocated corporate items totaled $70 million of expense in this year's second quarter compared to $79 million of expense a year earlier. Through the first six months of 2014, unallocated corporate items excluding mark-to-market effects totaled $143 million of expense this year compared to $140 million of expense in the prior year's first half. (Please see Note 6.)
Net interest expense declined 9 percent to $69 million in the second quarter of fiscal 2014, primarily reflecting change in debt mix. The effective tax rate was 33.3 percent in this year's second quarter. Excluding items affecting comparability, the adjusted effective tax rate was 33.2 percent for the second quarter and 32.7 percent for the first half of 2014 (Please see Note 9 for reconciliation of this non-GAAP measure).
Cash provided by operating activities totaled $1.0 billion through the first six months of 2014. Capital investments in the period totaled $269 million. Dividends paid rose to $490 million, reflecting the 15 percent dividend rate increase that was effective Aug. 1, 2013. During the first six months, General Mills repurchased 18 million shares of common stock at an aggregate price of $864 million. Average diluted shares outstanding totaled 655 million for the first half, 2 percent below the year-ago figure.
Powell said, "As we enter the second half of fiscal 2014, we expect our earnings growth to accelerate from first-half levels. We like our 2014 innovation and marketing plans, which include a strong slate of new items being introduced in the second half of the year. We expect our rate of input-cost inflation to ease in the second half. And last year's growth was weighted toward the first half, making our second-half comparisons easier."
General Mills reaffirmed its guidance for fiscal 2014 adjusted diluted EPS of between $2.87 and $2.90, but noted that foreign currency effects are now expected to be a greater headwind than originally estimated. Possible devaluation of the Venezuelan bolivar would likely reduce EPS to the low end of the company's guidance range.
General Mills will hold a briefing for investors beginning at 8:30 a.m. Eastern time. You may access the web cast from General Mills' internet home page: generalmills.com.
Adjusted diluted EPS, total segment operating profit, gross margin excluding mark-to-market effects, international sales excluding foreign currency translation effects, and adjusted effective tax rate are each non-GAAP measures. Reconciliations of these measures to their relevant GAAP measures appear in Note 9 to the attached Consolidated Financial Statements.
