General Mills Reports Strong Growth In Fiscal 2009 Second Quarter

Despite headwinds, the company increased its full-year earnings guidance to $3.83 to $3.87 per share before any impact from mark-to-market valuation and excluding the Pop Secret gain.

18/12/08 General Mills has reported results for the second quarter of fiscal 2009. Net sales for the 13 weeks ended Nov. 23, 2008, increased 8 percent to $4.01 billion.  Segment operating profits grew 9 percent to $782 million despite higher input costs and a 21 percent increase in consumer marketing investment.  Net earnings totaled $378 million after a net reduction related to mark-to-market valuation of certain commodity positions and a net gain from the sale of the Pop Secret microwave popcorn business (these items are discussed below in the section titled Corporate Items).   Diluted earnings per share (EPS) totaled $1.09 including a 49-cent net reduction related to mark-to-market valuation and a 22-cent gain from the sale of Pop Secret.  Last year’s second quarter earnings of $1.14 per share included a 3-cent increase from mark-to-market valuation of certain commodity positions.  Excluding the Pop Secret gain in 2009 and the mark-to-market impacts in both years, earnings per share for the second quarter of 2009 would have totaled $1.36, up from $1.11 in the period last year.

Chairman and Chief Executive Officer Ken Powell said, “We’re continuing to see strong consumer demand for our products in markets around the world.  Our segment operating profit margin held steady despite higher input costs and the strong double-digit increase in consumer marketing to support our brands.  Performance through the first half of 2009 has us solidly on track to deliver strong sales and earnings growth for the year.”

Through the first six months of 2009, General Mills’ net sales grew 11 percent to $7.51 billion.  Segment operating profits increased 9 percent to $1.41 billion.  Six-month net earnings totaled $657 million after a net reduction related to mark-to-market valuation of certain commodity positions and the net gain from the Pop Secret sale.  Diluted earnings per share totaled $1.88 including a 65-cent net reduction related to mark-to-market valuation and a 21-cent gain from the Pop Secret sale.  Last year’s six-month earnings per share of $1.95 included a 3-cent increase related to mark-to-market valuation of certain commodity positions.  Excluding the Pop Secret gain in 2009 and mark-to-market valuation impacts from both years, six month earnings per share would have been $2.32 in 2009, up 21 percent from $1.92 in last year’s first half.

Second-quarter net sales for General Mills’ U.S. Retail operations grew 10 percent to $2.79 billion. Pound volume growth contributed 5 points of the sales increase. Segment operating profits grew 9 percent to $638 million including 24 percent higher consumer marketing spending in the period.  This brand-building included new advertising campaigns supporting both new and established products.

Net sales for the Baking Products division grew 16 percent due to strong sales of Betty Crocker dessert mixes and Gold Medal flour.  Yoplait division net sales grew 14 percent reflecting continued good performance by Yoplait Light, Yo-Plus and Fiber One yogurts.  Net sales for Pillsbury USA grew 12 percent led by Totino’s pizza and pizza rolls, and key Pillsbury refrigerated dough products.  Meals division net sales rose 10 percent.  Big G cereal net sales grew 8 percent in the second quarter.  Net sales for the Snacks division matched prior year levels despite the absence of Pop Secret sales in the period this year.  Net sales for the Small Planet Foods division grew 26 percent including results for the Lärabar business acquired in June 2008.
Through six months, U.S. Retail segment net sales rose 11 percent to $5.08 billion.  Pound volume growth accounted for 5 points of the sales increase.  Segment operating profits grew 10 percent to $1.16 billion. 

Second-quarter net sales for General Mills’ consolidated international businesses grew 2 percent to $676 million.  Pricing and mix contributed 13 points of growth.  Pound volume reduced net sales growth by 3 points, and the negative impact of foreign currency translation reduced net sales growth by 8 points.  Sales on a constant currency basis matched or exceeded prior-year levels in every major geographic region in which the company competes.  International segment operating profits totaled $80 million, down $5 million from prior-year levels due to the impact of foreign currency translation.

Through the first half, International segment net sales grew 8 percent to $1.37 billion.  Pricing and mix contributed 11 points of growth, pound volume reduced net sales growth by 2 points, and foreign currency translation reduced net sales growth by 1 point.  Operating profits grew 2 percent to $158 million despite the negative impact of foreign currency exchange.

Second-quarter net sales for the Bakeries and Foodservice segment grew 6 percent to $550 million, as pricing and mix offset a 6 percent decline in pound volume. The sales growth included good performance in foodservice, bakery and convenience store channels.  Cereal, yogurt and snack products all posted good sales gains.  Operating profits grew 33 percent in the second quarter to $64 million reflecting pricing and positive sales mix.

Through the first six months, Bakeries and Foodservice net sales rose 11 percent to $1.07 billion.  Lower pound volume reduced net sales growth by 5 points.  Segment operating profits grew 10 percent to $91 million.

After-tax earnings from joint ventures totaled $33 million in the second quarter of 2009, up from $28 million a year ago.  Last year’s second quarter included a $1 million after-tax charge associated with a restructuring of the Cereal Partners Worldwide (CPW) manufacturing plants in the United Kingdom.  Joint venture net sales grew 1 percent in the second quarter, reflecting negative impact from foreign currency translation and the absence of revenues in 2009 from the 8th Continent soymilk business that was sold in February 2008.

Through six months, after-tax earnings from joint ventures totaled $64 million, up 28 percent from $50 million after tax earned in last year’s first half.  Prior-year joint venture results included restructuring charges of $3 million after-tax.

Corporate unallocated expense totaled $292 million in the second quarter of 2009, up from $26 million in the same period a year ago.  This year’s second-quarter expense includes a negative mark-to-market impact of $269 million on certain commodity hedge positions and grain inventories, primarily reflecting declines in the market prices of commodities from levels at the end of the first quarter on August 24, 2008.  In last year’s second quarter, the company recorded an $18 million mark-to-market gain, along with an $11 million gain on the sale of a corporate investment. 

In this year’s second quarter, the company recorded a $129 million gain on the sale of the Pop Secret microwave popcorn business.

Restructuring, impairment and other exit costs totaled $2 million in the second quarter of 2009.  These costs all related to previously announced restructuring actions.  In last year’s second quarter, the company recorded restructuring, impairment and other exit costs of $3 million, and also recorded $17 million of associated costs (primarily accelerated depreciation) in cost of sales.

Net interest expense totaled $98 million in the second quarter of 2009, down from $116 million in last year’s second quarter due to lower debt levels and rates.  The effective tax rate for the quarter was 33.4 percent down from 36.5 percent a year ago, primarily due to tax credits.  Through the first six months, the ef