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General Mills reports fiscal 2014 first quarter results


Company reaffirms full-year outlook

MINNEAPOLIS, Minn. - General Mills (NYSE: GIS) today reported results for the first quarter of fiscal 2014.  The period includes three months of incremental contribution from new businesses (Yoplait Canada, Yoki Alimentos and Immaculate Baking Company) added in the previous year.

Fiscal 2014 first quarter financial summary

  • Net sales rose 8 percent to $4.37 billion, with new businesses contributing 5 percentage points of the growth.

  • Segment operating profit grew 6 percent to $812 million, including a 7 percent increase in advertising and media investment.

  • Diluted earnings per share (EPS) totaled 70 cents, below year-ago results that included a net benefit from a discrete tax item and higher mark-to-market valuation of certain commodity positions.

  • Adjusted diluted EPS, which excludes certain items affecting comparability, totaled 70 cents this year compared to 66 cents in last year’s first quarter. (Please see Note 8 for reconciliation of this non-GAAP measure.) 

Net sales for the 13 weeks ended Aug. 25, 2013, grew 8 percent to $4.37 billion.  Pound volume grew 8 percent, primarily reflecting acquisitions.  Price realization and mix contributed 1 point of net sales growth, and foreign exchange subtracted 1 point of growth. 

Gross margin was below year ago levels, reflecting changes in mark-to-market valuation of certain commodity positions, input cost inflation and the change in business mix.  Advertising and media expense was 7 percent higher than year-ago levels.  Total segment operating profit grew 6 percent to $812 million (please see Note 8 for reconciliation of this non-GAAP measure). 

First-quarter net earnings attributable to General Mills totaled $459 million and diluted earnings per share totaled 70 cents.  These results were below year-ago levels that included a net benefit of 16 cents per share from several discrete items.  Adjusted diluted EPS, which excludes certain items affecting comparability, totaled 70 cents in the first quarter of fiscal 2014, up 6 percent compared to 66 cents a year ago (please see Note 8).

Chairman and Chief Executive Officer Ken Powell said this performance represented a solid start to the new fiscal year.  “In particular, our net sales growth in the quarter reflects a healthy mix of gains from established brands, strong introductory shipments for new products, and contributions from new businesses added to our portfolio.  These first-quarter results have us on track to achieve the key financial targets we’ve set for fiscal 2014.”

New products contributing to net sales growth in the quarter included Yoplait Greek yogurt, Nature Valley Soft-baked Oatmeal Squares, Honey Nut Cheerios Medley Crunch cereal, Pillsbury gluten-free refrigerated dough products, new Helper dinner mix varieties and, in Brazil, new Yoki Kit Facil dinner mixes.  Established brands including Lucky Charms and Cinnamon Toast Crunch cereals, Progresso Light ready-to-serve soups, Yoplait Greek 100 calorie yogurt, Totino’s frozen pizza and snacks, Lärabar fruit and nut energy bars and, in China, Wanchai Ferry frozen dumplings and dim sum varieties, also contributed to net sales growth.

U.S. Retail segment results
First-quarter net sales for General Mills’ U.S. Retail segment totaled $2.58 billion, up 4 percent from a year earlier.  Pound volume grew 1 percent, and net price realization and mix contributed 3 percentage points of net sales growth.  The Snacks, Big G, Baking Products and Small Planet Foods divisions each contributed to the U.S. Retail segment net sales increase, and Yoplait and Frozen Foods division net sales matched year-ago results.  Meals division net sales declined slightly. U.S. Retail segment advertising and media expense increased 4 percent from year-ago levels, and segment operating profit grew 6 percent to $612 million.

International segment results
First-quarter net sales for General Mills’ consolidated international businesses grew 22 percent to reach $1.32 billion.  Pound volume grew 30 percent, driven by new businesses.  Price realization and mix subtracted 5 points of net sales growth, and foreign currency subtracted 3 points.  On a constant-currency basis, International segment net sales rose 25 percent overall, led by growth in Latin America and Canada.  Latin America net sales nearly tripled on a constant-currency basis including incremental contributions from Yoki, and constant-currency net sales in Canada rose 21 percent including the Yoplait business that transitioned to direct ownership in September 2012.  Constant-currency net sales in the Asia / Pacific region grew 13 percent, and declined 3 percent in Europe.  (Please see Note 8 below for reconciliation of this non-GAAP measure.)  International segment operating profit of $126 million essentially matched strong year-ago levels despite input cost inflation, negative foreign currency effects, and a 15 percent increase in advertising and media expense.

Convenience Stores and Foodservice segment results
First-quarter net sales for the Convenience Stores and Foodservice segment totaled $468 million, 1 percent below year-ago results.  Pound volume declined 3 percent, while net price realization and mix contributed 2 points of net sales growth.  Baking mixes, cereal and frozen breakfast items led sales performance in the quarter.  Segment operating profit grew 10 percent in the quarter to $74 million.

Joint Venture summary
Combined after-tax earnings from the Cereal Partners Worldwide (CPW) and Häagen-Dazs Japan (HDJ) joint ventures totaled $24 million, up 4 percent from year-ago results.  Constant-currency net sales for CPW grew 1 percent in the quarter, and constant-currency net sales for HDJ essentially matched strong prior-year levels.

Corporate items
Unallocated corporate items totaled $74 million of expense in this year’s first quarter, compared to $21 million of income a year ago.  Mark-to-market valuation of certain commodity positions represented a $1 million net increase in expense in the first quarter of 2014 compared to a $82 million net decrease in expense in last year’s first quarter.  Excluding these mark-to-market effects, unallocated corporate items totaled a net $73 million of expense this year compared to a net $61 million of expense a year ago.  

Net interest expense of $79 million was 5 percent below year-ago levels, primarily due to changes in debt mix.  The effective tax rate was 32.3 percent in this year’s first quarter.  Excluding mark-to-market effects in both 2014 and 2013, along with a discrete tax item recorded in the first quarter of 2013, the adjusted effective tax rate was 32.2 percent in this year’s first quarter compared to 31.4 percent a year ago. 

Cash flow items
Cash provided by operating activities totaled $381 million in the first quarter.  Capital investments in the period totaled $124 million.  Dividends paid rose to $248 million, reflecting the 15 percent increase in the dividend rate year-over-year.  During the first quarter, General Mills repurchased more than 6 million shares of common stock at an aggregate price of $327 million.  Average diluted shares outstanding totaled 660 million for the first quarter of 2014, down 1 percent from year-ago levels.

Outlook
Powell said, “We continue to be excited about our 2014 business plans, which call for sales and earnings growth consistent with our long-term model, along with strong cash returns to shareholders through dividend growth and share repurchase activity.”  The company reaffirmed its full-year fiscal 2014 guidance of low single-digit growth in net sales, mid single-digit growth in segment operating profit, and adjusted diluted EPS of $2.87 to $2.90. 

‚ÄčCorporate Items Unallocated corporate items totaled $74 million of expense in this year’s first quarter, compared to $21 million of income a year ago. Mark-to-market valuation of certain commodity positions represented a $1 million net increase in expense in the first quarter of 2014 compared to a $82 million net decrease in expense in last year’s first quarter. Excluding these mark-to-market effects, unallocated corporate items totaled a net $73 million of expense this year compared to a net $61 million of expense a year ago. Net interest expense of $79 million was 5 percent below year-ago levels, primarily due to changes in debt mix. The effective tax rate was 32.3 percent in this year’s first quarter. Excluding mark-to-market effects in both 2014 and 2013, along with a discrete tax item recorded in the first quarter of 2013, the adjusted effective tax rate was 32.2 percent in this year’s first quarter compared to 31.4 percent a year ago. (Please see Note 8 below for a reconciliation of this non-GAAP measure.) Cash Flow Items Cash provided by operating activities totaled $381 million in the first quarter. Capital investments in the period totaled $124 million. Dividends paid rose to $248 million, reflecting the 15 percent increase in the dividend rate year-over-year. During the first quarter, General Mills repurchased more than 6 million shares of common stock at an aggregate price of $327 million. Average diluted shares outstanding totaled 660 million for the first quarter of 2014, down 1 percent from year-ago levels. Outlook Powell said, “We continue to be excited about our 2014 business plans, which call for sales and earnings growth consistent with our long-term model, along with strong cash returns to shareholders through dividend growth and share repurchase activity.” The company reaffirmed its full-year fiscal 2014 guidance of low single-digit growth in net sales, mid single-digit growth in segment operating profit, and adjusted diluted EPS of $2.87 to $2.90.

Contact:
(Analysts) Kris Wenker (763) 764-2607
(Media) Maerenn Jepsen (763) 764-6061

(Full release with consolidated earnings statements)


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 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 i n 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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