Minneapolis / MN. (gm) General Mills Inc. reported results for the second quarter of fiscal 2014. The 13-week period ending November 24 did not include Thanksgiving, while last year´s second-quarter results included the holiday. Q2/2014 summary:
- Net sales of 4,88 billion USD essentially matched year-ago results. In last year´s second quarter, net sales grew six percent.
- Segment operating profit of 920 million USD was four percent below strong year-ago results.
- Diluted earnings per share (EPS) totalled 84 cents, up two percent from the prior year.
- Adjusted diluted EPS, which excludes certain items affecting comparability, totalled 83 cents this year compared to 86 cents in last year´s second quarter.
Net sales for the second quarter of fiscal 2014 totalled 4,88 billion USD, with pound volume essentially matching prior-year levels. Net price realization and mix contributed one point of net sales growth. This was offset by the impact of foreign exchange translation, which reduced net sales growth by one percentage point. Second-quarter gross margin was above year-ago levels due to changes in mark-to-market valuation of certain commodity positions and grain inventories. Excluding mark-to-market effects, gross margin declined in the second quarter reflecting higher input costs. Advertising and media expense was three percent below year-ago levels. Total segment operating profit of 920 million USD was down four percent from prior-year results that grew ten percent. Second-quarter net earnings attributable to General Mills totalled 550 million USD and diluted earnings per share grew two percent to 84 cents per share. Adjusted diluted EPS, which excludes certain items affecting comparability, totalled 83 cents per share in the second quarter of fiscal 2014 compared to 86 cents a year ago.
Six Month Financial Summary
- Net sales through the first six months of fiscal 2014 grew four percent to 9,25 billion USD. Incremental contributions from new businesses added during the prior year accounted for two points of the net sales increase.
- First-half segment operating profit of 1,73 billion USD essentially matched year-ago results.
- First-half diluted EPS totalled 1,54 USD, down six percent from 1,64 USD a year ago.
- Adjusted diluted EPS totalled 1,53 USD for the first half of 2014 compared to 1,52 USD in last year´s first half.
Chairman and Chief Executive Officer Ken Powell said, «The second quarter was a difficult comparison to strong prior-year sales and earnings results for our businesses. In addition, the period included the highest quarterly input cost inflation we expect to see this fiscal year, and food and beverage industry sales in the U.S. and other developed markets slowed a bit during the quarter. Even so, our bottom-line results through the first half of the year are broadly consistent with our plans».
New products contributing to net sales growth in the first half included Yoplait blended Greek yoghurt, Fiber One 90 calorie lemon and cinnamon coffee cake bars, Old El Paso stand n´ stuff flour tortillas and frozen Mexican food items, Nature Valley Protein granola cereal and, in Brazil, Yoki Kit Facil dinner mixes. Established brands including Chex and Cinnamon Toast Crunch cereals, Progresso ready-to-serve soups, Totino´s frozen pizza and snacks and, in China, Wanchai Ferry frozen dim sum and Haagen Dazs ice cream, also contributed to net sales growth.
U.S. Retail Segment Results
Second-quarter net sales for General Mills´ U.S. Retail segment declined one percent to 2,97 billion USD. Lower pound volume reduced net sales growth by two percentage points, while net price realization and mix contributed one percentage point of net sales growth. The Snacks, Small Planet Foods and Big G divisions each contributed net sales growth in the quarter, while net sales for the remaining U.S. Retail divisions were lower. Advertising and media expense declined one percent in the period. Segment operating profit totalled 682 million USD, six percent below strong year-ago results.
Through the first six months of fiscal 2014, U.S. Retail segment net sales grew one percent to 5,55 billion USD. Lower pound volume reduced net sales growth by one percentage point, while net price realization and mix contributed two percentage points to net sales growth. First half segment operating profit of 1,29 billion USD essentially matched year-ago results including a one percent increase in advertising and media expense.
International Segment Summary
Second-quarter net sales for General Mills´ consolidated international businesses grew two percent to 1,40 billion USD. Pound volume contributed two percentage points of net sales growth, and net price realization and mix contributed three percentage points of growth. Foreign currency exchange reduced net sales growth by three percentage points. On a constant-currency basis, International segment net sales rose five percent overall. Constant-currency net sales grew 22 percent in Latin America, led by Brazil. Sales growth in China drove a five percent increase in Asia-Pacific constant-currency sales. In Canada, constant-currency net sales grew four percent. Europe´s constant-currency net sales were two percent below prior-year results. International segment operating profit grew ten percent to 153 million USD.
Through the first six months of fiscal 2014, International segment net sales grew ten percent to 2,72 billion USD. Pound volume grew 14 percent, primarily reflecting incremental contributions during the first quarter from businesses added during 2013. Net price realization and mix reduced six-month net sales growth by one percentage point, and foreign currency exchange reduced growth by three percentage points. Segment operating profit grew five percent to 279 million USD including a two percent increase in advertising and media expense.
Convenience Stores and Foodservice
Second-quarter net sales for the Convenience Stores and Foodservice segment totalled 507 million USD, down two percent from year-ago levels due to negative net price realization and mix. Pound volume essentially matched year-ago levels. Segment operating profit totalled 85 million USD, down twelve percent from year-ago levels that grew 24 percent.
Through the first six months of fiscal 2014, Convenience Stores and Foodservice segment net sales totalled 975 million USD, down one percent from the previous year due to a decline in pound volume. Segment operating profit of 159 million USD was three percent below year-ago results.
Joint Venture Summary
Combined after-tax earnings from the Cereal Partners Worldwide (CPW) and Haagen-Dazs Japan (HDJ) joint ventures totalled 26 million USD in the second quarter, down from 33 million USD a year earlier primarily due to unfavorable foreign currency exchange effects for both ventures and increased consumer marketing investment at CPW. Constant-currency net sales grew two percent for CPW and increased eleven percent for HDJ. Through the first half of fiscal 2014, combined after-tax earnings from joint ventures totalled 50 million USD, ten percent below year-ago results.
Unallocated corporate items totalled 49 million USD of expense in the second quarter of fiscal 2014, compared to 127 million USD of expense a year earlier. Excluding the effects of mark-to-market valuation for certain commodity positions and grain inventories in both years, unallocated corporate items totalled 70 million USD of expense in this year´s second quarter compared to 79 million USD of expense a year earlier. Through the first six months of 2014, unallocated corporate items excluding mark-to-market effects totalled 143 million USD of expense this year compared to 140 million USD of expense in the prior year´s first half.
Net interest expense declined nine percent to 69 million USD in the second quarter of fiscal 2014, primarily reflecting change in debt mix. The effective tax rate was 33,3 percent in this year´s second quarter. Excluding items affecting comparability, the adjusted effective tax rate was 33,2 percent for the second quarter and 32,7 percent for the first half of 2014.
Cash Flow Items
Cash provided by operating activities totalled 1,0 billion USD through the first six months of 2014. Capital investments in the period totalled 269 million USD. Dividends paid rose to 490 million USD reflecting the 15 percent dividend rate increase that was effective August 01, 2013. During the first six months, General Mills repurchased 18 million shares of common stock at an aggregate price of 864 million USD. Average diluted shares outstanding totalled 655 million for the first half, two percent below the year-ago figure.
Powell said, «As we enter the second half of fiscal 2014, we expect our earnings growth to accelerate from first-half levels. We like our 2014 innovation and marketing plans, which include a strong slate of new items being introduced in the second half of the year. We expect our rate of input-cost inflation to ease in the second half. And last year´s growth was weighted toward the first half, making our second-half comparisons easier».
General Mills reaffirmed its guidance for fiscal 2014 adjusted diluted EPS of between 2,87 USD and 2,90 USD, but noted that foreign currency effects are now expected to be a greater headwind than originally estimated. Possible devaluation of the Venezuelan bolivar would likely reduce EPS to the low end of the company´s guidance range.