General Mills: Reports Fiscal 2014 First Quarter Results

Minneapolis / MN. (gm) General Mills 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. Summary:

  • Net sales rose eight percent to 4,37 billion USD, with new businesses contributing five percentage points of the growth.
  • Segment operating profit grew six percent to 812 million USD, including a seven percent increase in advertising and media investment.
  • Diluted earnings per share (EPS) totalled 70 US-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, totalled 70 US-Cents this year compared to 66 US-Cents in last year´s first quarter.

Net sales for the 13 weeks ended Aug. 25, 2013, grew eight percent to 4,37 billion USD. Pound volume grew eight percent, primarily reflecting acquisitions. Price realization and mix contributed one point of net sales growth, and foreign exchange subtracted one 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 seven percent higher than year-ago levels. Total segment operating profit grew six percent to 812 million USD. First-quarter net earnings attributable to General Mills totalled 459 million USD and diluted earnings per share totalled 70 US-Cents. These results were below year-ago levels that included a net benefit of 16 US-Cents per share from several discrete items. Adjusted diluted EPS, which excludes certain items affecting comparability, totalled 70 US-Cents in the first quarter of fiscal 2014, up six percent compared to 66 US-Cents a year ago.

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 have 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 yoghurt, Totino´s frozen pizza and snacks, Larabar 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 USD, up four percent from a year earlier. Pound volume grew one percent, and net price realization and mix contributed three 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 four percent from year-ago levels, and segment operating profit grew six percent to 612 million USD.

International Segment Results

First-quarter net sales for General Mills´ consolidated international businesses grew 22 percent to reach 1,32 billion USD. Pound volume grew 30 percent, driven by new businesses. Price realization and mix subtracted five points of net sales growth, and foreign currency subtracted three 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 three percent in Europe. International segment operating profit of 126 million USD 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 totalled 468 million USD, one percent below year-ago results. Pound volume declined three percent, while net price realization and mix contributed two points of net sales growth. Baking mixes, cereal and frozen breakfast items led sales performance in the quarter. Segment operating profit grew ten percent in the quarter to 74 million USD.

Joint Venture Summary

Combined after-tax earnings from the Cereal Partners Worldwide (CPW) and Haagen-Dazs Japan (HDJ) joint ventures totalled 24 million USD, up four percent from year-ago results. Constant-currency net sales for CPW grew one percent in the quarter, and constant-currency net sales for HDJ essentially matched strong prior-year levels.

Corporate Items

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

Net interest expense of 79 million USD was five 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 eight below for a reconciliation of this non-GAAP measure.)

Cash Flow Items

Cash provided by operating activities totalled 381 million USD in the first quarter. Capital investments in the period totalled 124 million USD. Dividends paid rose to 248 million USD, reflecting the 15 percent increase in the dividend rate year-over-year. During the first quarter, General Mills repurchased more than six million shares of common stock at an aggregate price of 327 million USD. Average diluted shares outstanding totalled 660 million for the first quarter of 2014, down one 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 USD to 2,90 USD.

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