Minneapolis / MN. (gm) General Mills Inc. reported results for the fourth quarter and full fiscal year ended May 29, 2011. Fiscal 2011 Results Summary: Net sales grew two percent to 14,9 billion USD. Segment operating profit rose four percent to exceed 2,9 billion USD. Diluted earnings per share (EPS) increased 20 percent to 2,70 USD. Excluding certain items affecting comparability, diluted earnings per share grew to 2,48 USD, up eight percent from 2,30 USD in fiscal 2010.
Chairman and Chief Executive Officer Ken Powell: «This past year represented a challenging operating environment for food manufacturers, as we experienced the return and rapid acceleration of cost inflation for various food ingredients and energy. We are generally pleased with our 2011 sales and profit results, which met the key targets we set for the year and represent performance consistent with our long-term growth model».
General Mills net sales in fiscal 2011 increased two percent to 14,9 billion USD. Increased pound volume contributed one point of net sales growth, and price and mix contributed one point of growth. Foreign currency translation had no meaningful impact on the net sales growth rate. Gross margin expanded to 40,0 percent, reflecting increased mark-to-market valuation for certain commodity positions as well as effective holistic margin management (HMM) cost-saving initiatives. Excluding mark-to-market effects, gross margin was 39,4 percent. Following a 24 percent increase in media investment during fiscal 2010, media expense declined seven percent in 2011. Segment operating profit rose four percent to exceed 2,9 billion USD, led by the company´s International and Bakeries and Foodservice segments. Net earnings grew 18 percent to 1,8 billion USD, including a net increase in mark-to-market valuation of certain commodity positions along with a net benefit from certain tax items. Diluted earnings per share grew 20 percent to 2,70 USD. Earnings per share excluding the mark-to-market effects and tax items would total 2,48 USD.
Fourth-quarter Results Summary
Fourth-quarter 2011 net sales grew three percent to 3,6 billion USD. Segment operating profit grew 14 percent to 675 million USD. Diluted EPS grew 55 percent to 0,48 USD. Excluding certain items affecting comparability, fourth quarter EPS would total 0,52 USD this year, up 27 percent from 0,41 USD a year ago.
Net sales for the fourth quarter of 2011 totalled 3,6 billion USD. Pound volume declined four percent from strong year-ago levels, reflecting reduced depth and frequency of trade promotion in the period. Price realization and mix contributed six points of net sales growth. Foreign currency translation added one point of sales growth for the quarter. Gross margin of 37,5 percent was above year-ago levels due to mark-to-market effects, HMM cost savings and price realization. Media expense was nine percent below year-ago levels that increased ten percent. Segment operating profit grew 14 percent, reflecting double-digit increases for the Bakeries and Foodservice and International segments. Net earnings reached 320 million USD, up 51 percent from year-ago results that included a 35 million USD tax charge (five cents per share) related to federal health care reform and 40 million USD pre-tax expense (four cents per share) associated with a debt refinancing. Diluted earnings per share grew 55 percent to 0,48 USD per share. Earnings per share excluding mark-to-market effects and certain tax items in both years would total 0,52 USD in the fourth quarter of 2011 compared to 0,41 USD a year ago.
U.S. Retail Segment Results
Fiscal 2011 net sales and pound volume for General Mills´ U.S. Retail operations generally matched strong year ago levels. Total U.S. Retail segment net sales were 10,2 billion USD. Net sales for the Big G cereal division were two percent below year-ago sales that grew five percent. Meals division net sales declined one percent, as growth for Old El Paso Mexican products, Progresso soup, and Wanchai Ferry and Macaroni Grill frozen entrees was offset by softness in Helper dinner mixes and Green Giant canned vegetables. Pillsbury division net sales declined two percent, reflecting lower sales for Totino´s frozen pizza. Baking Products division net sales were four percent below year-ago results. Snacks division net sales grew five percent in fiscal 2011, led by Nature Valley and Fiber One grain snack bars. Yoplait division net sales grew one percent. And net sales for the Small Planet Foods organic and natural foods division rose 13 percent, led by double-digit growth by Lärabar fruit and nut bars. U.S. Retail segment operating profit of 2,3 billion USD was two percent below year-ago levels, reflecting higher input costs. Media expense, which rose 22 percent in 2010, was down nine percent in 2011.
Fourth-quarter net sales results for the U.S. Retail segment reflected significant year-over-year differences in in-store merchandising activity and pricing. This year´s fourth-quarter net sales declined two percent, as strong price realization was offset by a six percent decline in pound volume. In last year´s fourth quarter, pound volume grew eight percent on a comparable-weeks basis, while net sales grew four percent. U.S. Retail segment operating profit grew four percent for the quarter.
International Segment Results
Net sales for General Mills´ consolidated International businesses grew seven percent in 2011 to 2,9 billion USD. Pound volume contributed six points of net sales growth, and price and mix contributed one point of net sales growth. Foreign currency translation did not have a meaningful impact on fiscal 2011 net sales growth. On a constant-currency basis, net sales grew seven percent overall, including gains of seven percent in Europe and nine percent in the Asia/Pacific region. International segment operating profit totalled 291 million USD, up sharply from year-ago results that included unfavourable foreign currency effects. Media investment was essentially unchanged versus last year.
In the fourth quarter, International segment net sales grew 16 percent to 778 million USD, with pound volume contributing six points of growth, price and mix adding three points and foreign currency translation contributing seven points. Segment operating profit rose sharply to reach 72 million USD.
Bakeries and Foodservice Segment Results
Net sales for the Bakeries and Foodservice segment grew six percent in fiscal 2011 to 1,8 billion USD. Pound volume essentially matched prior-year levels, while pricing and mix contributed six points of net sales growth. Net sales to foodservice distributors and operators grew three percent, net sales to convenience store and vending customers grew eleven percent, and net sales to bakery and national restaurant accounts increased six percent. Segment operating profit rose 16 percent to 306 million USD, reflecting net price realization, effective customer channel and product strategies, and increased grain merchandising earnings.
In the fourth quarter, Bakeries and Foodservice segment net sales grew eleven percent to 502 million USD, as a four percent decline in pound volume was offset by strong contributions from price realization and mix. Segment operating profit grew at a double-digit rate in the fourth quarter to reach 90 million USD.
Joint Venture Summary
After-tax earnings from joint ventures totalled 96 million USD in 2011. This was below 2010 levels primarily due to the previously reported increase in service cost allocation for Cereal Partners Worldwide (CPW), our joint venture with Nestle. General Mills´ proportionate share of joint-venture net sales increased four percent to 1,2 billion USD, led by higher sales for CPW. Foreign exchange did not have a meaningful impact on fiscal 2011 net sales growth.
Fourth-quarter after-tax earnings from joint ventures increased to 30 million USD. CPW net sales grew ten percent, with foreign exchange contributing eight points of growth. Earnings growth for the quarter also reflected timing differences of tax-related expenses.
Corporate Items
Unallocated corporate items represented expense of 184 million USD in 2011 compared to expense of 203 million USD in 2010. This primarily reflects favorability in the mark-to-market valuation of certain commodity positions year-over-year. Several other items also affected comparability of results.
Net interest expense in 2011 totalled 346 million USD, down from prior-year expense that included costs for the fourth-quarter debt refinancing. The effective tax rate for 2011 was 29,7 percent. Excluding certain items affecting comparability in both 2011 and 2010, the effective tax rate would be 33,2 percent in 2011 compared to 33,4 percent in 2010. For the fourth quarter, the effective tax rate excluding items affecting comparability would be 35,0 percent in 2011 and 33,4 percent in 2010.
Cash Flow Items
Fiscal 2011 cash flow from operations totalled 1,5 billion USD, including a 200 million USD voluntary contribution to the company´s domestic pension plan made during the fourth quarter. In the fourth quarter, the company also made an expected federal tax payment, totalling 385 million USD, related to the settlement of an Internal Revenue Service (IRS) review of corporate income tax adjustments for fiscal years 2002 to 2008.
Capital expenditures in 2011 totalled 649 million USD, reflecting new manufacturing capacity to support fast-growing product lines such as grain snack bars and multi-pack yoghurt, as well as investments in cost-savings related projects. Shareholder dividends totalled 729 million USD in 2011, reflecting a 17 percent increase in the annual dividend paid per share. On June 28, 2011, the company announced a nine percent increase in the quarterly dividend rate, effective with the August 01, 2011 payment. The company repurchased 32 million shares of common stock during fiscal 2011 for 1’164 million USD.
Outlook
«We expect fiscal 2012 to be another year of good sales and earnings growth for General Mills», said Powell. «Our business plan assumes significantly higher costs for ingredients and energy – we are estimating 2012 input cost inflation of ten to eleven percent. We expect our HMM discipline of cost savings, mix management and price realization to largely – but not completely – offset this cost pressure. We believe the operating environment in many developed markets will remain challenging over the next twelve months. As a result, our plan assumes 2012 pound volume will be slightly below 2011 levels. We believe that expected net price realization, together with a strong line-up of new products and marketing initiatives, should drive mid single-digit growth in our net sales in 2012».
The company said that segment operating profits are expected to grow at a low single-digit rate in fiscal 2012, including increased media investment that is expected to grow at least in line with sales. Diluted earnings per share are expected to increase to approximately 2,60 USD to 2,62 USD before any effects of mark-to-market valuation. This EPS guidance represents growth of five to six percent from 2011 results of 2,48 USD per share excluding mark-to-market effects and certain tax items.
The guidance provided above for General Mills´ fiscal 2012 results does not include any impact from the anticipated acquisition of a controlling interest in the international Yoplait business. The company continues to expect this transaction will be completed during the first quarter of fiscal 2012.
