General Mills Reports Results for Fiscal 2008 Second Quarter
12/19/2007
Net Sales Increased 7 Percent to $3.70 Billion
Diluted Earnings Per Share Grew to $1.14 Including Product Recall Expenses
MINNEAPOLIS, MINN.---General Mills (NYSE: GIS) today reported results for the second quarter of fiscal 2008. Net sales for the 13 weeks ended Nov. 25, 2007, rose 7 percent to $3.70 billion. Segment operating profits essentially matched last year’s second quarter at $716 million, including higher input costs, a 10 percent increase in consumer marketing investment and $20 million pre-tax expense associated with a product recall of frozen pepperoni pizza. Net earnings totaled $391 million including restructuring and associated costs of $20 million pre-tax, $13 million after tax. Diluted earnings per share (EPS) totaled $1.14, up 6 percent from $1.08 a year ago. Product recall expenses reduced 2008 second-quarter EPS by 4 cents.
Through the first six months of 2008, General Mills’ net sales increased 7 percent to $6.78 billion. Segment operating profits grew 4 percent to $1.29 billion. Net earnings through six months grew 4 percent to $679 million. Diluted EPS for the year to date totaled $1.95 per share, up 8 percent from $1.81 in last year’s first half.
Chief Executive Officer Ken Powell said, “Our worldwide operations are continuing to generate good growth in fiscal 2008. Each of our three business segments reported net sales gains for the second quarter and first half. And segment operating profits were up 4 percent through the first six months despite significant input cost inflation, recall expenses and double-digit growth in our consumer marketing investment. This performance has us on track to achieve our full-year growth targets.”
U.S. Retail Segment Results
Second-quarter net sales for General Mills’ U.S. Retail operations grew 3 percent to $2.52 billion. Unit volume fell 2 percent and operating profits declined 2 percent to $584 million. Product recall expenses reduced U.S. Retail operating profit by $20 million in the quarter.
Snacks division net sales grew 12 percent, fueled by continued strong sales and market share gains for Nature Valley grain snacks, Fiber One bars and fruit snacks. Yoplait division net sales increased 11 percent, reflecting pricing, continued strong performance from Yoplait Light yogurt, and good initial results from new products including Yo-Plus yogurt with probiotic cultures and fiber. Net sales for Big G cereals grew 3 percent, following 5 percent growth in the first quarter of 2008. Baking Products net sales also increased 3 percent. Meals division net sales grew 1 percent, led by Progresso ready-to-serve soups. Pillsbury USA division sales declined 2 percent including the impact of the frozen pizza recall. Net sales for the company’s Small Planet Foods organic business rose 14 percent.
Through six months, U.S. Retail segment net sales increased 5 percent to $4.55 billion. Unit volume matched prior-year levels, and operating profits increased 1 percent to $1.06 billion.
International Segment Results
Second-quarter net sales for General Mills’ consolidated international businesses grew 22 percent to $666 million. Volume increases contributed 8 points of growth, pricing and mix added 5 points of growth, and foreign exchange accounted for 9 points of the increase. Sales grew in every major geographic region in which the company competes. Latin America led net sales growth in the quarter, driven by market share gains and pricing actions taken in key countries. Asia/Pacific and Europe grew net sales at double-digit rates. Net sales in Canada increased 2 percent. International segment operating profits grew 36 percent to $84 million.
Through the first half, International segment net sales grew 20 percent to $1.27 billion and operating profits increased 32 percent to $155 million.
Bakeries and Foodservice Segment
Second-quarter net sales for the Bakeries and Foodservice segment grew 8 percent to $517 million, reflecting price increases taken to counter rising input costs. Unit volume declined 1 percent and operating profits were 14 percent below last year’s second-quarter results, when profits increased 40 percent.
Through six months, Bakeries and Foodservice segment net sales increased 4 percent to $958 million and operating profits totaled $82 million compared to $85 million in last year’s first half. 2008 first-half results included approximately $3 million of expenses for conversion from brokers to a direct sales force for a portion of this business.
Joint Venture Summary
After-tax earnings from joint ventures totaled $28 million in the second quarter of 2008 compared to $23 million in the same period last year. Both periods include charges of $1 million after tax associated with previously announced restructuring of the Cereal Partners Worldwide (CPW) manufacturing plants in the United Kingdom.
Net sales for the company’s joint ventures grew 17 percent in the second quarter to $309 million, led by a 21 percent sales increase for CPW. Net sales for the Häagen-Dazs joint ventures in Asia increased 4 percent. Net sales for 8th Continent (U.S. soy beverage joint venture) declined 15 percent.
Through six months, after-tax earnings from joint ventures totaled $50 million in 2008 compared to $43 million in the first half of 2007. These totals include CPW restructuring expenses of $3 million in each period.
Corporate Items
Restructuring, impairment and other exit costs totaled $3 million of expense in the second quarter, compared to $1 million of income in the period a year ago. Associated costs (primarily accelerated depreciation of assets in facilities to be sold) of $17 million are included in corporate unallocated expense in our operating segment results, and are recorded in cost of sales in the consolidated statements of earnings. Total corporate unallocated expense was $26 million in the second quarter of 2008, down from $40 million in the same period a year ago, primarily due to a net $15 million mark-to-market gain on commodity hedges and an $11 million gain on the sale of a corporate investment.
Net interest expense for the second quarter totaled $116 million, up 5 percent due to higher debt levels. The effective tax rate for the quarter was 36.5 percent compared to 35.9 percent in the same period a year ago.
Cash Flow Highlights
Cash flow from operations totaled $444 million through November 2007, down from $565 million through the second quarter of last year primarily due to higher working capital. Capital expenditures through the first six months totaled $186 million in fiscal 2008 compared to $150 million last year. Dividends through six months grew to $259 million. The company repurchased 21 million shares of common stock during the first half of fiscal 2008 at an average price of $58 per share. In October 2007, the company issued 14 million shares to Lehman Brothers under a forward purchase contract and received $750 million in cash, which was used to retire outstanding debt.
Outlook
Looking ahead to the second half of fiscal 2008 Powell said, “We expect our good sales momentum to continue, with contributions from additional new product introductions, selected pricing actions and ongoing investment in brand-building activities. For the year in total, we now estimate that our net sales will grow at a mid-single digit rate, exceeding our long-term goal of low single-digit sales growth.”
The company expects input cost inflation will be higher in the second half than in the first half, and that full-year inflation will be greater than originally estimated. However, above-plan results through the first half, pricing and increased productivity savings are expected to offset this cost pressure. General Mills reaffirmed its fiscal 2008 earnings per share guidance of $3.39 to $3.43.
Total company segment operating profit is a non-GAAP measure. A reconciliation of this measure to the relevant GAAP measure, operating profit, appears in the attached consolidated operating segment results schedule.
General Mills will hold a briefing for investors today, December 19, 2007, beginning at 8:30 a.m. EST. You may access the web cast from General Mills’ corporate home page at www.generalmills.com.
This press release contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 that are based on management’s current expectations and assumptions. These forward-looking statements, including the statements under the caption "Outlook" 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 or tax rates; 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 customer 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 hedge 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; resolution of uncertain income tax matters; 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 statements to reflect any future events or circumstances.
For Further Information, Contact:
(Analysts) Kris Wenker (763) 764-2607
(Media)Kirstie Foster (763) 764-6364
