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Jul 01, 2015

General Mills reports fourth quarter and full year fiscal 2015 results

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Fiscal 2016 plans include increased levels of core brand renovation, strong new product innovation and continued progress on cost savings initiatives

MINNEAPOLIS, Minnesota -- General Mills (NYSE: GIS) today reported results for the fourth quarter and full fiscal year ended May 31, 2015. Fiscal 2015 was a 53-week year, with the extra week falling in the fourth quarter.

Fourth Quarter Financial Summary

  • Net sales of $4.3 billion essentially matched year-ago levels. On a constant-currency basis, fourth-quarter net sales were up 6 percent.
  • Total segment operating profit increased 9 percent to $800 million. In constant currency, total segment operating profit increased 13 percent.
  • Diluted earnings per share (EPS) totaled 30 cents compared to 65 cents a year ago.
  • Adjusted diluted EPS of 75 cents rose 12 percent from 67 cents in last year’s fourth quarter. On a constant-currency basis, adjusted diluted EPS increased 18 percent. The extra week contributed approximately 4 cents to adjusted diluted EPS.

Fiscal 2015 Financial Summary

  • Net sales declined 2 percent to $17.6 billion. On a constant-currency basis, net sales increased 1 percent.
  • Total segment operating profit declined 4 percent to $3.0 billion. In constant currency, total segment operating profit declined 2 percent.
  • Diluted EPS totaled $1.97 compared to $2.83 a year ago.
  • Adjusted diluted EPS, which excludes certain items affecting comparability of results, totaled $2.86 in fiscal 2015, up 1 percent from $2.82 a year ago. On a constant-currency basis, adjusted diluted EPS increased 4 percent.
  • Cash returned to shareholders in fiscal 2015 totaled $2.2 billion, including an 8 percent increase in dividends paid per share and share repurchases that reduced average diluted shares outstanding by 4 percent.

Constant-currency net sales, total segment operating profit, total segment operating profit growth rate in constant currency, adjusted diluted EPS, and adjusted diluted EPS growth rate in constant currency are each non-GAAP measures. Please see Note 10 to the Consolidated Financial Statements below for reconciliation of these measures to the relevant GAAP measures.

Chairman and Chief Executive Officer Ken Powell said, “General Mills fiscal 2015 operating performance was mixed. Our Convenience Stores & Foodservice segment recorded good sales growth, increased its operating profit margin, and delivered record profit results. Our International segment also achieved good margin expansion and profit growth in constant currency. However, sales and profit declined for U.S. Retail – our largest operating segment. We returned our U.S. yogurt business to growth, and our brands gained share in categories representing 65 percent of our U.S. Retail measured sales volume, but overall sales trends reflected the impact of changing consumer food preferences.

“Our actions to respond to evolving consumer food interests – including bolstering our natural and organic portfolio with the addition of Annie’s – helped strengthen our business performance in the second half of the year,” Powell continued. “This Consumer First product and marketing focus, combined with our significant productivity and cost-savings programs, positions General Mills to deliver stronger growth in 2016.”

Fourth Quarter Results
Fourth-quarter net sales of $4.3 billion essentially matched year-ago levels. Pound volume contributed 3 points of net sales growth, including incremental contributions from the Annie’s organic foods business acquired in October 2014 and an extra week in this year’s period. Net price realization and mix also contributed 3 points of growth. These factors were offset by a 6 point reduction in net sales from foreign currency exchange effects. On a constant-currency basis, net sales increased 6 percent. Adjusted gross margin, which excludes mark-to-market effects and certain other items affecting comparability, increased 70 basis points due to net price realization (please see Note 10 below for reconciliation of this non-GAAP measure). Selling, general, and administrative expenses declined due to a 6 percent decrease in advertising and media expense, and savings from restructuring actions (please see Note 6 for more information on our restructuring actions). Total segment operating profit increased 9 percent to $800 million. The company recorded an intangible asset impairment charge of $260 million, a $79 million charge related to the repatriation of foreign earnings, and restructuring and project-related charges totaling $35 million pretax (please see Note 3, Note 9, and Note 6 below for more information on these charges). Net earnings attributable to General Mills totaled $187 million and diluted EPS totaled 30 cents. Adjusted diluted EPS, which excludes certain items affecting comparability, totaled 75 cents for the fourth quarter, up 12 percent from 67 cents a year ago. On a constant-currency basis, fourth-quarter adjusted diluted EPS increased 18 percent.

Full Year Results
Fiscal 2015 net sales decreased 2 percent to $17.6 billion. Pound volume reduced net sales growth by 1 percent, including incremental contribution from the extra week. Net price realization and mix contributed 2 points of net sales growth. This was offset by a 3 point reduction in net sales growth from foreign currency exchange effects. On a constant-currency basis, net sales increased 1 percent. Adjusted gross margin declined 70 basis points, reflecting volume deleverage. Selling, general, and administrative expenses decreased 4 percent due to a 5 percent decrease in advertising and media expense, along with savings from restructuring actions. Total segment operating profit declined 4 percent to $3.0 billion. Restructuring, impairment, and other exit costs, along with project-related costs recorded in cost of sales, totaled $617 million. Fiscal 2015 net earnings attributable to General Mills totaled $1.2 billion and diluted EPS totaled $1.97. Adjusted diluted EPS totaled $2.86 in fiscal 2015, up 1 percent from $2.82 earned last year. On a constant-currency basis, adjusted diluted EPS increased 4 percent.

Contributions from the 53rd Week
General Mills estimates that the extra week contributed roughly 1 point of net sales growth in fiscal 2015, and 6 points of net sales growth in the fourth quarter. Earnings contributed by the extra week totaled approximately $0.04 per diluted share.

U.S. Retail Segment Results
Fiscal 2015 net sales for General Mills’ U.S. Retail segment declined 1 percent to $10.5 billion, reflecting lower pound volume. Annie’s contributed 1 point of net sales growth and 1 point of pound volume growth. The Snacks and Yogurt operating units led U.S. Retail sales performance for the year. Cereal unit net sales declined, but the company’s brands increased their share of U.S. cereal category sales. Advertising and media expense was 6 percent below last year’s level. U.S. Retail operating profit declined 7 percent to $2.2 billion.

Fourth-quarter net sales for the U.S. Retail segment increased 5 percent to $2.5 billion. Pound volume contributed 3 points to net sales growth, while net price realization and mix added another 2 points. Segment operating profit totaled $565 million, 13 percent above year-ago results.

International Segment Results
Fiscal 2015 net sales for General Mills’ consolidated international businesses declined 5 percent to $5.1 billion due to foreign currency exchange effects. Pound volume essentially matched year-ago levels, and net price realization and mix contributed 6 points of net sales growth. Foreign-currency translation effects reduced net sales growth by 11 points. On a constant-currency basis, International segment net sales increased 6 percent overall, including gains of 17 percent in Latin America, 5 percent in the Asia / Pacific region, and 5 percent in Europe. Constant-currency net sales in Canada essentially matched year-ago levels. Advertising and media expense for the segment declined 5 percent. International operating profit totaled $523 million, down 2 percent as reported but up 9 percent in constant currency (please see Note 10 below for reconciliation of these non-GAAP measures). In the fourth quarter, International segment net sales totaled $1.2 billion, down 9 percent compared to the prior year, as foreign currency exchange effects reduced net sales growth by 18 points. On a constant-currency basis, net sales increased 9 percent. Pound volume added 2 points of net sales growth, while net price realization and mix added 7 points. Fourth-quarter International segment operating profit totaled $134 million, down 8 percent as reported but up 12 percent on a constant-currency basis (please see Note 10 below).

Convenience Stores and Foodservice Segment Results
Fiscal 2015 net sales for the Convenience Stores and Foodservice segment totaled $2.0 billion, 4 percent above prior-year results. Pound volume added 1 point of net sales growth, while net price realization and mix added 3 points. The yogurt, frozen breakfast, snacks, and cereal platforms led net sales growth for the year. Segment operating profit totaled $353 million, an increase of 15 percent.

In the fourth quarter, Convenience Stores and Foodservice net sales grew 4 percent to $527 million, driven by increases in pound volume. Segment operating profit rose 17 percent to $101 million reflecting the extra week 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 2015 declined 6 percent to $84 million, reflecting unfavorable foreign currency exchange and an asset impairment charge at CPW in South Africa. Constant-currency after-tax earnings from joint ventures essentially matched year-ago levels. Constant-currency net sales declined 2 percent for CPW but grew 6 percent for HDJ. In the fourth quarter, after-tax earnings from joint ventures totaled $18 million, up 9 percent as reported and up 23 percent in constant currency (please see Note 10 below for reconciliation of these non-GAAP measures).

Other Income Statement Items
Unallocated corporate items totaled $414 million net expense in 2015, compared to $258 million net expense in 2014. Excluding mark-to-market valuation effects and other items affecting comparability, unallocated corporate items totaled $227 million net expense this year compared to $245 million net expense a year ago (please see Note 7 below for more information on unallocated corporate items). Restructuring, impairment, and other exit costs totaled $544 million in 2015 compared to $4 million in 2014. An additional $60 million of restructuring charges and $13 million of project-related charges were recorded in cost of sales.

Net interest expense in 2015 totaled $315 million, an increase of 4 percent from the prior-year level reflecting a higher debt level partially offset by a lower average interest rate. The effective tax rate for 2015 was 33.3 percent, including a charge in the fourth quarter related to the repatriation of foreign earnings (please see Note 9 below for more information on our effective tax rate). Excluding that charge and certain other items affecting comparability of results, the effective tax rate was 30.5 percent in 2015, compared to 32.2 percent in fiscal 2014. For the fourth quarter, the effective tax rate excluding items affecting comparability was 28.4 percent in 2015 compared to 29.7 percent last year (please see Note 10 below for reconciliation of these non-GAAP measures).

Cash Flow Items
Cash provided by operating activities totaled $2.5 billion in 2015, essentially matching the previous year. Capital investments totaled $712 million, including investments to launch gluten free Cheerios in the U.S. and Yoplait in China in fiscal 2016. Dividends paid increased to $1.0 billion. General Mills repurchased approximately 22 million shares of common stock in 2015 for a total of $1.2 billion. Average diluted shares outstanding declined 4 percent in 2015 to 619 million.

Update on Cost Savings Initiatives
On June 25, 2015, General Mills announced Project Compass, a new initiative designed to enable our International segment to accelerate long-term growth through increased organizational effectiveness and reduced administrative expense. The company expects this initiative to generate $25 to $30 million in savings in fiscal 2016, and annual savings of $45 to $50 million by fiscal 2017. The company now anticipates the combination of Project Compass and the cost-reduction projects initiated in fiscal 2015 will generate cost savings of $285 to $310 million in fiscal 2016 and more than $400 million by fiscal 2017 (please see Note 6 below for more information).

Outlook
“Where we had consumer-focused news and innovation on our brands in fiscal 2015, we generated growth,” Powell said. “We expect to expand the impact of our Consumer First strategic focus across our worldwide operations in fiscal 2016 to generate sustainable topline growth. Our plans include a strong line-up of core brand renovation and new product innovation. We will have six months of incremental contribution from the Annie’s business. And we will drive significant productivity from our ongoing Holistic Margin Management (HMM) program and our new cost-savings initiatives.” General Mills anticipates the combination of HMM and cost savings projects will more than offset input cost inflation, estimated at 2 percent for 2016.

On a constant-currency basis, General Mills fiscal 2016 net sales are expected to essentially match the 2015 levels that included a 53rd week. Total segment operating profit is expected to grow at a low single-digit rate in constant currency. Constant-currency adjusted diluted EPS is expected to grow at a mid single-digit rate from the base of $2.86 earned in fiscal 2015. At current exchange rates, the company estimates a 4-cent headwind to fiscal 2016 adjusted diluted EPS from currency translation.

General Mills will hold a briefing for investors today, July 1, 2015, beginning at 8:30 a.m. Eastern time. You may access the web cast from General Mills’ internet home page: generalmills.com.

Contact:

(analysts) Jeff Siemon:  763-764-2301

(media) Kirstie Foster:  763-764-6364




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,” 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; effectiveness of restructuring and cost savings initiatives; 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.