General Mills: Reports Q4 And Full Year Fiscal 2015 Results

Minneapolis / MN. (gm) General Mills Inc. 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 USD essentially matched year-ago levels. On a constant-currency basis, fourth-quarter net sales were up six percent. Total segment operating profit increased nine percent to 800 million USD. In constant currency, total segment operating profit increased 13 percent. Diluted earnings per share (EPS) totalled 30 cents compared to 65 cents a year ago. Adjusted diluted EPS of 75 cents rose twelve 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 four cents to adjusted diluted EPS.

Fiscal 2015 Financial Summary

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

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. yoghurt 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. 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 USD essentially matched year-ago levels. Pound volume contributed three 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 three points of growth. These factors were offset by a six point reduction in net sales from foreign currency exchange effects. On a constant-currency basis, net sales increased six 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 ten below for reconciliation of this non-GAAP measure). Selling, general, and administrative expenses declined due to a six percent decrease in advertising and media expense, and savings from restructuring actions (please see Note six for more information on our restructuring actions). Total segment operating profit increased nine percent to 800 million USD. The company recorded an intangible asset impairment charge of 260 million USD, a 79 million USD charge related to the repatriation of foreign earnings, and restructuring and project-related charges totalling 35 million USD pre-tax. Net earnings attributable to General Mills totalled 187 million USD and diluted EPS totalled 30 cents. Adjusted diluted EPS, which excludes certain items affecting comparability, totalled 75 cents for the fourth quarter, up twelve 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 two percent to 17.6 billion USD. Pound volume reduced net sales growth by one percent, including incremental contribution from the extra week. Net price realization and mix contributed two points of net sales growth. This was offset by a three point reduction in net sales growth from foreign currency exchange effects. On a constant-currency basis, net sales increased one percent. Adjusted gross margin declined 70 basis points, reflecting volume deleverage. Selling, general, and administrative expenses decreased four percent due to a five percent decrease in advertising and media expense, along with savings from restructuring actions. Total segment operating profit declined four percent to 3.0 billion USD. Restructuring, impairment, and other exit costs, along with project-related costs recorded in cost of sales, totalled 617 million USD. Fiscal 2015 net earnings attributable to General Mills totalled 1.2 billion USD and diluted EPS totalled 1.97 USD. Adjusted diluted EPS totalled 2.86 USD in fiscal 2015, up one percent from 2.82 USD earned last year. On a constant-currency basis, adjusted diluted EPS increased four percent.

Contributions from the 53rd Week

General Mills estimates that the extra week contributed roughly one point of net sales growth in fiscal 2015, and six points of net sales growth in the fourth quarter. Earnings contributed by the extra week totalled approximately 0.04 USD per diluted share.

U.S. Retail Segment Results

Fiscal 2015 net sales for General Mills’ U.S. Retail segment declined one percent to 10.5 billion USD, reflecting lower pound volume. Annie’s contributed one point of net sales growth and one 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 six percent below last year’s level. U.S. Retail operating profit declined seven percent to 2.2 billion USD.

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

International Segment Results

Fiscal 2015 net sales for General Mills’ consolidated international businesses declined five percent to 5.1 billion USD due to foreign currency exchange effects. Pound volume essentially matched year-ago levels, and net price realization and mix contributed six points of net sales growth. Foreign-currency translation effects reduced net sales growth by eleven points. On a constant-currency basis, International segment net sales increased six percent overall, including gains of 17 percent in Latin America, five percent in the Asia / Pacific region, and five percent in Europe. Constant-currency net sales in Canada essentially matched year-ago levels. Advertising and media expense for the segment declined five percent. International operating profit totalled 523 million USD, down two percent as reported but up nine percent in constant currency.

In the fourth quarter, International segment net sales totalled 1.2 billion USD, down nine 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 nine percent. Pound volume added two points of net sales growth, while net price realization and mix added seven points. Fourth-quarter International segment operating profit totalled 134 million USD, down eight percent as reported but up twelve percent on a constant-currency basis.

Convenience Stores and Foodservice Segment Results

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

In the fourth quarter, Convenience Stores and Foodservice net sales grew four percent to 527 million USD, driven by increases in pound volume. Segment operating profit rose 17 percent to 101 million USD reflecting the extra week and favorable business mix.

Joint Venture Summary

Combined after-tax earnings from the Cereal Partners Worldwide (CPW) and Haagen-Dazs Japan (HDJ) joint ventures in fiscal 2015 declined six percent to 84 million USD, 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 two percent for CPW but grew six percent for HDJ. In the fourth quarter, after-tax earnings from joint ventures totalled 18 million USD, up nine percent as reported and up 23 percent in constant currency.

Other Income Statement Items

Unallocated corporate items totalled 414 million USD net expense in 2015, compared to 258 million USD net expense in 2014. Excluding mark-to-market valuation effects and other items affecting comparability, unallocated corporate items totalled 227 million USD net expense this year compared to 245 million USD net expense a year ago.

Restructuring, impairment, and other exit costs totalled 544 million USD in 2015 compared to four million USD in 2014. An additional 60 million USD of restructuring charges and 13 million USD of project-related charges were recorded in cost of sales.

Net interest expense in 2015 totalled 315 million USD, an increase of four 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 nine 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.

Cash Flow Items

Cash provided by operating activities totalled 2.5 billion USD in 2015, essentially matching the previous year. Capital investments totalled 712 million USD, 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 USD. General Mills repurchased approximately 22 million shares of common stock in 2015 for a total of 1.2 billion USD. Average diluted shares outstanding declined four 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 USD in savings in fiscal 2016, and annual savings of 45 to 50 million USD 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 USD in fiscal 2016 and more than 400 million USD by fiscal 2017.

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 two 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 USD earned in fiscal 2015. At current exchange rates, the company estimates a four-cent headwind to fiscal 2016 adjusted diluted EPS from currency translation.

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