Fiscal 2014 results below expectations
Fiscal 2015 plans include strong innovation, producitivy savings, and new cost-reduction initiatives designed to sharpen efficiency and grown focus
MINNEAPOLIS, Minn. - General Mills (NYSE: GIS) today reported results for the fourth quarter and full fiscal year ended May 25, 2014.
Fiscal 2014 results summary
Net sales grew 1 percent to $17.9 billion.
- Adjusted segment operating profit totaled $3.2 billion, down 2 percent from year-ago results (please see Note 11 for reconciliation of this non-GAAP measure).
- Diluted earnings per share (EPS) totaled $2.83, up 1 percent from $2.79 a year ago.
- Adjusted diluted EPS, which excludes certain items affecting comparability of results, totaled $2.82. This was up 4 percent from $2.72 a year ago (please see Note 11 ).
General Mills Chairman and Chief Executive Officer Ken Powell said, “Our plans for 2014 called for sales and earnings growth consistent with our long-term business model, along with increased cash returns to shareholders. We made good progress building our worldwide food businesses, and we returned more than $2.7 billion in cash to shareholders through a 17 percent dividend increase and significant share repurchase activity. But our sales and operating profit results were disappointing. In the fourth quarter, promotional spending in developed markets was less effective than we planned and input cost inflation was a bit above our forecast. Net sales and adjusted gross margin fell short of our targets.”
Fiscal 2014 net sales increased 1 percent to $17.9 billion. Pound volume contributed 1 point of net sales growth, including 3 incremental months of contribution from the Yoki Alimentos and Yoplait Canada businesses added during fiscal 2013. Net price realization and mix also contributed 1 point of net sales growth, which was offset by negative foreign currency exchange effects. Adjusted gross margin, which excludes mark-to-market effects and the impact of Venezuela currency devaluation, declined 80 basis points. This reflected the impact of increased promotional spending that generated less volume than planned, along with change in business mix (please see Note 11 for reconciliation of this non-GAAP measure). Advertising and media expense declined 3 percent for the year, while other consumer marketing investment rose 2 percent. Adjusted segment operating profit was down 2 percent. Fiscal 2014 net earnings attributable to General Mills totaled $1.8 billion and diluted earnings per share totaled $2.83. Adjusted diluted EPS, which excludes certain items affecting comparability, totaled $2.82 in fiscal 2014 compared to $2.72 in the previous year.
Fourth Quarter financial summary
- Net sales totaled $4.3 billion, 3 percent below year-ago results.
- Adjusted segment operating profit of $733 million essentially matched year-ago levels (please see Note 11 ) for reconciliation of this non-GAAP measure).
- Diluted EPS totaled 65 cents per share.
- Adjusted diluted EPS of 67 cents was up 24 percent from 54 cents in last year’s fourth quarter (please see Note 11 ).
Fourth-quarter net sales declined 3 percent to $4.3 billion. Lower pound volume subtracted 2 points of net sales growth, while net price realization and mix added 1 point. Foreign currency exchange reduced net sales growth by 2 points in the quarter. Adjusted gross margin was 10 basis points below the year-ago level (please see Note 11 ) for reconciliation of this non-GAAP measure). Adjusted segment operating profit of $733 million essentially matched year-ago results. Net earnings attributable to General Mills totaled $405 million and diluted EPS totaled 65 cents. These results include a 6-cent per share gain on the sale of several Idaho grain elevators and a 9-cent per share charge associated with Venezuelan currency devaluation (please see Notes 2 and 3 for more discussion). Adjusted diluted EPS, which excludes these and certain other items affecting comparability, totaled 67 cents for the fourth quarter, up 24 percent from 54 cents a year earlier (please see Note 11 )
U.S. Retail Segment results
Fiscal 2014 net sales for General Mills’ U.S. Retail operations essentially matched year-ago results at $10.6 billion. Pound volume also was essentially even with last year’s level. The Snacks, Small Planet Foods and Big G cereal divisions led U.S. Retail sales performance for the year. New products launched during 2014 contributed more than 5 percent of annual U.S. Retail shipment volume. Advertising and media expense was 1 percent below last year’s level, while other consumer marketing spending increased 1 percent. U.S. Retail operating profit declined 3 percent to $2.3 billion.
Fourth-quarter net sales for the U.S. Retail segment declined 1 percent to $2.4 billion. Pound volume grew 1 percent in the quarter. This was offset by negative net price realization and mix, which reduced net sales growth by 2 percentage points. Segment operating profit totaled $502 million, 3 percent below year-ago results.
International Segment results
Fiscal 2014 net sales for General Mills’ consolidated international businesses grew 4 percent to $5.4 billion, reflecting contributions from new businesses added during fiscal 2013. Higher pound volume contributed 5 points of net sales growth, and net price realization and mix added 3 points. Foreign-currency translation effects reduced net sales growth by 4 points. On a constant-currency basis, International segment net sales grew 8 percent overall, with net sales up 38 percent in Latin America and up 9 percent in the Asia / Pacific region. Constant-currency net sales grew 5 percent in Canada, and declined 4 percent in Europe. Adjusted international segment operating profit, which excludes Venezuelan currency devaluation effects, totaled $535 million, up 4 percent from $515 million in fiscal 2013 (please see Note 11 for reconciliation of these non-GAAP measures).
In the fourth quarter, International segment net sales totaled $1.3 billion, down 7 percent compared to last year’s fourth quarter, which included an extra month of results for operations in Europe and Australia. Lower pound volume subtracted 6 points of net sales growth. Net price realization and mix added 4 points of net sales growth, while foreign currency exchange subtracted 5 points. Fourth quarter adjusted International segment operating profit increased 4 percent to $146 million (please see Note 11 for reconciliation of this non-GAAP measure).
Convenience Stores and Foodservice Segment results
Fiscal 2014 net sales for the Convenience Stores and Foodservice segment totaled $1.9 billion, 2 percent below prior-year results. Pound volume and negative price realization and mix each reduced net sales growth by 1 point. Segment operating profit of $307 million also was 2 percent below prior-year results.
In the fourth quarter, Convenience Stores and Foodservice net sales grew 1 percent to $508 million. Pound volume essentially matched prior-year results, while net price realization and mix contributed 1 point of net sales growth. Segment operating profit rose 14 percent to $86 million reflecting lower input costs and favorable business mix.
Joint Venture summary
Combined after-tax earnings from the Cereal Partners Worldwide (CPW) and Häagen-Dazs Japan (HDJ) joint ventures in fiscal 2014 fell 9 percent to $90 million, reflecting higher consumer marketing investment by CPW and negative foreign currency exchange effects for HDJ. Constant-currency net sales for CPW matched year-ago results, and for HDJ constant-currency net sales grew 9 percent. In the fourth quarter, after-tax earnings from joint ventures declined to $17 million, primarily due to lower net sales for CPW in Europe.
Unallocated corporate expense totaled $196 million in 2014, compared to $326 million in 2013. Excluding the effects of changes in mark-to-market valuation of certain commodity positions, unallocated corporate expense equaled $245 million this year compared to $330 million in 2013.
Restructuring, impairment and other exit costs totaled $4 million in 2014 compared to $20 million in 2013. Net interest expense in 2014 totaled $302 million, down 5 percent from the prior-year level due to changes in debt mix and rates. The effective tax rate for 2014 was 33.3 percent. Excluding certain items affecting comparability of results, the effective tax rate was 32.2 percent in 2014, compared to 32.3 percent in fiscal 2013. For the fourth quarter, the effective tax rate excluding items affecting comparability was 29.7 percent in 2014 compared to 34.7 percent last year (please see Note 11 for reconciliation of these non-GAAP measures).
Cash Flow items
Cash provided by operating activities totaled $2.5 billion in 2014, down from the previous year primarily reflecting cash flow effects from changes in current assets and liabilities. Capital investments totaled $664 million, including growth capacity for Greek yogurt and grain snacks. Dividends paid increased to $983 million. General Mills repurchased approximately 36 million shares of common stock in 2014 for a total of $1.7 billion. Average diluted shares outstanding declined 3 percent in 2014 to 646 million. Fourth-quarter average diluted shares outstanding declined 5 percent to 632 million.
Outlook for 2015
“Our Number One objective in the new fiscal year is to accelerate our topline growth,” Powell said. “Our fiscal 2015 plans include a strong new-product lineup, compelling news or renovation on many existing brands, and a full slate of consumer-focused marketing initiatives. In addition, supply chain cost-savings from our ongoing Holistic Margin Management (HMM) program are expected to exceed $400 million in 2015. We anticipate these savings will offset input cost inflation, which we estimate at 3 percent for the new year.
“Beyond HMM, we have started work on several new cost-reduction initiatives designed to boost our efficiency and sharpen business focus behind our key growth strategies,” Powell noted.
General Mills said it has begun a formal review of its North American manufacturing and distribution network with the goals of streamlining operations and identifying potential capacity reductions. The company also has initiated efforts focused on further reducing overhead costs. Together, the new cost-reduction initiatives are targeted to generate savings of $40 million pretax in fiscal 2015, with additional savings expected in fiscal 2016. The company plans to announce further details in the coming months as specific actions are determined.
General Mills fiscal 2015 net sales are expected to grow at a mid single-digit rate in constant currency, including the contribution of a 53rd week in the fiscal period. Adjusted segment operating profit also is expected to grow at a mid single-digit rate in constant currency. Benefit of the extra fiscal week will be reinvested to support increased advertising and digital media initiatives, along with project expenses related to several key fiscal 2016 product launches. Adjusted diluted EPS is expected to grow at a high single digit rate in constant currency. At current exchange rates, the company estimates a 3-cent headwind from currency translation in 2015.
General Mills will hold a briefing for investors today, June 25, 2014, beginning at 8:30 a.m. Eastern time. You may access the web cast here.
(Analysts) Kris Wenker (763) 764-2607
(Media) Kirstie Foster (763) 764-6364
Adjusted diluted EPS, adjusted segment operating profit, adjusted International segment operating profit, adjusted gross margin, International sales excluding foreign currency translation effects, and effective tax rate excluding items affecting comparability are each non-GAAP measures. Reconciliations of these measures to their relevant GAAP measures appear in Note 11 to the attached Consolidated Financial 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, including the statements under the caption “Outlook for 2015,” 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 the legal and regulatory environment, including labeling and advertising regulations and litigation; 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 or breach 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.