General Mills reports results for fiscal 2013 third quarter

Company Raises Full-year Outlook

March 20, 2013

MINNEAPOLIS, Minn. - General Mills (NYSE: GIS) today reported results for the third quarter of fiscal 2013. Contributions from new businesses in this period primarily reflect operating results for Yoki Alimentos in Brazil and Yoplait Canada.

Fiscal 2013 Third Quarter Financial Summary

• Net sales grew 8 percent to $4.43 billion. New businesses contributed 6 points of net sales growth. Excluding new businesses, net sales grew 2 percent with 1 point of growth from higher pound volume.
• Segment operating profit grew 11 percent to $749 million.
• Diluted earnings per share (EPS) totaled 60 cents, up from 58 cents a year ago.
• Adjusted diluted EPS, which excludes certain items affecting comparability, totaled 64 cents this year compared to 55 cents in last yearrsquo;s third quarter. (Please see Note 10 to the consolidated financial statements below for reconciliation of this non-GAAP measure.)

Net sales for the 13 weeks ended Feb. 24, 2013, grew 8 percent to $4.43 billion. Pound volume contributed 9 points of net sales growth, primarily reflecting the addition of Yoki and Yoplait Canada. Volume growth excluding new businesses contributed 1 percentage point of growth. Net price realization and mix reduced the net sales growth rate by 1 percentage point. Foreign currency exchange did not have a material effect on sales growth in the quarter. Gross margin was below year-ago levels primarily reflecting higher input costs. Total marketing spending in the quarter was weighted toward in-store promotional support for new product introductions and established brands; advertising and media expense was below strong year-ago levels. Total segment operating profit increased 11 percent to $749 million. (Please see Note 10 for reconciliation of this non-GAAP measure.) Third-quarter net earnings attributable to General Mills grew to $398 million and diluted EPS increased to 60 cents. Adjusted diluted EPS, which excludes certain items affecting comparability (see Note 10 below) grew 16 percent to 64 cents.

Chairman and Chief Executive Officer Ken Powell said the third-quarter results reflected gains across the company's worldwide operations. Our sales and volume growth reflects contributions from new businesses and from established products. Operating profit results for the quarter were particularly good, with double-digit increases for both our U.S. Retail and Bakeries and Foodservice segments," he said.

Products making the strongest contributions to U.S. Retail net sales growth in the third quarter included new items such as Honey Nut Cheerios Medley Crunch cereal, Fiber One Protein bars, Yoplait Greek 100 yogurt and frozen Green Giant Seasoned Steamers vegetables, along with established brands such as Cheerios and Lucky Charms cereals, Progresso ready-to-serve soups, Nature Valley grain snack bars, Totino's frozen snacks and pizzas, Betty Crocker SuperMoist cake and pouch cookie mixes, and Pillsbury Grands! refrigerated biscuits. In the Bakeries and Foodservice segment, the Yoplait Parfait Pro yogurt line, Pillsbury hot breakfast items, and new Minibon cinnamon rolls made strong contributions to third-quarter sales. Yoplait yogurt varieties in Europe, along with Häagen-Dazs super-premium ice cream and Wanchai Ferry frozen dim sum varieties in China helped drive International sales growth.

Nine-month Financial Summary Through the first nine months of fiscal 2013, General Mills sales grew 6 percent to $13.36 billion. New businesses contributed 5 points of the net sales growth. Pound volume contributed 8 points of net sales growth, reflecting contributions from new businesses. Net price realization and mix subtracted 1 point of net sales growth, and foreign exchange also subtracted 1 point of growth. Segment operating profit increased 9 percent to $2.48 billion. (Please see Note 10 for reconciliation of this non-GAAP measure.) Net earnings attributable to General Mills increased 20 percent to $1.49 billion and diluted EPS rose to $2.24. Adjusted diluted EPS totaled $2.16 through the first nine months, up 10 percent from $1.96 a year ago.

U.S. Retail Segment Results Third-quarter net sales for General Mills' U.S. Retail segment grew 2 percent to $2.66 billion due to net price realization and mix. The Snacks, Small Planet Foods, Baking Products and Meals divisions each recorded net sales gains. Sales for the Frozen Foods division essentially matched year ago levels, and Big G sales declined 2 percent. Yoplait sales were 4 percent below year-ago levels, showing sequential improvement from 2013 second-quarter results. Advertising and media expense was 6 percent below strong year-ago levels. U.S. Retail segment operating profit increased 13 percent to $577 million.

Through the first nine months of fiscal 2013, U.S. Retail segment net sales rose 1 percent to $8.14 billion and segment operating profit increased 7 percent to $1.88 billion.

International Segment Results Third-quarter net sales for General Mills' consolidated international businesses grew 24 percent to $1.30 billion, including 20 points of sales growth from new businesses. Pound volume contributed 33 points of net sales growth, including 31 points from new businesses. Net price realization and mix reduced net sales growth by 8 percentage points, and foreign-currency translation subtracted 1 point of net sales growth. On a constant-currency basis, International segment net sales grew 25 percent overall, with sales up 16 percent in the Asia / Pacific region, sales more than doubling in Latin America including Yoki, and sales up 21 percent in Canada including Yoplait. Constant-currency net sales grew 1 percent in Europe. (Please see Note 10 below for reconciliation of this non-GAAP measure.) International segment operating profit including the impact of Venezuelan currency devaluation essentially matched prior-year results at $96 million. Excluding foreign exchange effects, international operating profit increased at a double-digit rate.

Through the first nine months of 2013, International segment net sales grew 23 percent to $3.76 billion, and segment operating profit increased 16 percent to $361 million.

Bakeries and Foodservice Segment Results Third-quarter net sales for the Bakeries and Foodservice segment totaled $470 million, essentially matching year-ago results. Price realization and mix contributed 1 percentage point of net sales growth; while lower pound volume reduced net sales growth by 1 point. Segment operating profit grew 13 percent in the quarter to $75 million, reflecting favorable mix, lower manufacturing costs, and increased grain merchandising earnings.

Through the first nine months of 2013, Bakeries and Foodservice segment net sales declined 1 percent to $1.46 billion, and segment operating profit increased 16 percent to $239 million.

Joint Venture Summary Combined after-tax earnings from the Cereal Partners Worldwide (CPW) and Häagen-Dazs Japan (HDJ) joint ventures totaled $21 million in the third quarter, up 37 percent from year-ago levels. Constant-currency net sales grew 1 percent for CPW, and 5 percent for HDJ. Through the first nine months of 2013, after-tax earnings from joint ventures increased 6 percent to $77 million.

Corporate Items Unallocated corporate items totaled $101 million net expense in this year's third quarter compared to $6 million net expense a year ago. Excluding the effects of mark-to-market valuation of certain commodity positions in both years, unallocated corporate items totaled $76 million net expense this year compared to $53 million net expense a year ago. The increase primarily reflects higher pension expense in the period.

This year's third quarter results included $6 million of restructuring expenses related to actions taken in previous fiscal years. Net interest expense declined to $77 million in the quarter, reflecting changes in debt mix. The effective tax rate was 30.8 percent compared to 32.7 percent a year earlier. Excluding certain items affecting comparability, the effective tax rate was 30.8 percent this year compared to 32.0 percent a year ago. (Please see Note 10 for reconciliation of this non-GAAP measure.)

Cash Flow Items Cash provided by operating activities totaled $2.15 billion through the first nine months of 2013, up 29 percent from year-ago levels. Capital investments through the first nine months totaled $412 million. Dividends paid increased 9 percent to $652 million. During the first nine months of 2013, General Mills repurchased approximately 19 million shares of common stock for a total of $745 million. Average diluted shares outstanding totaled 665 million in the third quarter of 2013, approximately 2 million shares lower than in last year's third quarter.

Outlook for 2013 Fourth Quarter and Annual Results In the fourth quarter, General Mills said it expects supply chain costs to be above year-ago levels. The company continues to estimate fiscal 2013 input cost inflation of 3 percent. Fourth-quarter spending to support in-store merchandising also is expected to be above year-ago levels. Adjusted diluted earnings per share for the fourth quarter are expected to be below year-ago results that grew 15 percent. Including this fourth quarter outlook, General Mills increased its guidance for fiscal 2013 adjusted diluted EPS to a range of $2.66 to $2.68, excluding mark-to-market effects, a net tax benefit recorded in the first quarter, and restructuring and integration costs.

"We are continuing to see slow, but steady, improvement in the operating environment," Powell said. "Trends in our established businesses are improving, and integration of our new businesses is going smoothly. We're preparing to launch a promising slate of new products as our new fiscal year begins this summer, and our plans for fiscal 2014 call for high single-digit EPS growth, consistent with our long-term model."

General Mills will hold a briefing for investors today, March 20, 2013, beginning at 8:30 a.m. Eastern time. You may access the web cast from our internet home page.

Adjusted diluted EPS, total segment operating profit, 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 10 to the attached Consolidated Financial Statements.

Contacts: (analysts) Kris Wenker: 763-764-2607 (media) Kirstie Foster: 763-764-6364

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This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations and assumptions. These forward-looking statements, including the statements under the caption "Outlook for 2013 Fourth Quarter and Annual Results," and statements made by Mr. Powell, are subject to certain risks and uncertainties that could cause actual results to differ materially from the potential results discussed in the forward-looking statements. In particular, our predictions about future net sales and earnings could be affected by a variety of factors, including: competitive dynamics in the consumer foods industry and the markets for our products, including new product introductions, advertising activities, pricing actions, and promotional activities of our competitors; economic conditions, including changes in inflation rates, interest rates, tax rates, or the availability of capital; product development and innovation; consumer acceptance of new products and product improvements; consumer reaction to pricing actions and changes in promotion levels; acquisitions or dispositions of businesses or assets; changes in capital structure; changes in laws and regulations, including labeling and advertising regulations; impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets, or changes in the useful lives of other intangible assets; changes in accounting standards and the impact of significant accounting estimates; product quality and safety issues, including recalls and product liability; changes in consumer demand for our products; effectiveness of advertising, marketing, and promotional programs; changes in consumer behavior, trends, and preferences, including weight loss trends; consumer perception of health-related issues, including obesity; consolidation in the retail environment; changes in purchasing and inventory levels of significant customers; fluctuations in the cost and availability of supply chain resources, including raw materials, packaging, and energy; disruptions or inefficiencies in the supply chain; volatility in the market value of derivatives used to manage price risk for certain commodities; benefit plan expenses due to changes in plan asset values and discount rates used to determine plan liabilities; failure of our information technology systems; foreign economic conditions, including currency rate fluctuations; and political unrest in foreign markets and economic uncertainty due to terrorism or war. The company undertakes no obligation to publicly revise any forward-looking statement to reflect any future events or circumstances.

 

 

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