Minneapolis / MN. (gm) General Mills Inc. reported results for the second quarter of fiscal 2015. Summary:
- Net sales for the 13 weeks ended November 23, 2014, totalled 4.71 billion USD, down three percent from last year´s second quarter results. On a constant-currency basis, quarterly net sales declined one percent.
- Segment operating profit totalled 847 million USD, down eight percent. In constant currency, segment operating profit declined six percent.
- Diluted earnings per share (EPS) totalled 56 cents compared to 84 cents in last year´s second quarter.
- Adjusted diluted EPS, which excludes certain items affecting comparability of results, totalled 80 cents in the second quarter of 2015 compared to 83 cents in last year´s second quarter. On a constant-currency basis, adjusted diluted EPS essentially matched prior-year results.
Constant-currency net sales, total and constant-currency segment operating profit, adjusted diluted EPS and adjusted diluted EPS in constant currency are each non-GAAP measures.
General Mills Chairman and Chief Executive Officer Ken Powell: «Second-quarter results were broadly in line with the updated outlook we provided in early November. Net sales declined for the quarter as anticipated, reflecting continued weak food-industry trends in the U.S. and slowing growth in key emerging markets. Adjusted diluted EPS came in slightly better than our estimate, primarily due to differences in expense timing. These quarterly results keep us on track to achieve the full-year fiscal 2015 targets announced last month».
Second-quarter net sales of 4.71 billion USD were three percent below year-ago results. Foreign currency exchange reduced net sales growth by two percentage points. Pound volume subtracted two points of net sales growth, and net price realization and mix contributed one point of growth. Gross margin was below year-ago levels reflecting the lower net sales and product mix. Advertising and media expense declined nine percent. Segment operating profit totalled 847 million USD, down eight percent from year-ago results. General Mills recorded restructuring charges totalling 233 million USD pre-tax in the second quarter, including 19 million USD recorded in cost of sales. Second-quarter net earnings attributable to General Mills totalled 346 million USD and diluted earnings per share (EPS) totalled 56 cents. Adjusted diluted EPS, which excludes restructuring expenses and certain other items affecting comparability, totalled 80 cents this year compared to 83 cents a year ago. Foreign currency exchange reduced 2015 second-quarter earnings per share by three cents.
Six Month Financial Summary
- Net sales through the first six months of fiscal 2015 declined three percent to 8.98 billion USD. On a constant-currency basis, net sales declined one percent.
- First-half segment operating profit totalled 1.54 billion USD, down eleven percent as reported and down ten percent in constant currency.
- Diluted EPS totalled 1.11 USD compared to 1.54 USD in last year´s first half.
- First-half adjusted diluted EPS totalled 1.41 USD this year compared to 1.53 USD a year ago. Foreign currency exchange reduced fiscal 2015 first half EPS by three cents.
Following a first quarter where year-to-year differences in merchandising expense depressed reported net sales and gross margin, results improved in the second quarter. Through the first six months, U.S. Retail segment Dollar market shares increased in categories representing 68 percent of the company´s sales volume in Nielsen-measured outlets. U.S. Retail products making particularly strong contributions to first-half net sales results included Yoplait Original Style and Greek yoghurt varieties, Fiber One cookies and Fiber One Streusel snack bars, Nature Valley breakfast biscuits, Cinnamon Toast Crunch and Cheerios Protein cereals; and Chex gluten-free oatmeal. In the Convenience Stores and Foodservice segment, Yoplait GoGurt and Parfait Pro yoghurt varieties, Nature Valley snacks, and bowlpack cereals were strong net sales contributors. International products posting strong first-half sales contributions included Old El Paso taco shells and dinner kits in Europe and Australia, Haagen Dazs Triple Sensations ice cream varieties in Europe and Asia, and Nature Valley snacks in Canada.
U. S. Retail Segment Results
Second-quarter net sales for General Mills´ U.S. Retail segment totalled 2.86 billion USD, down four percent from prior-year results. Lower pound volume subtracted three points of net sales growth, and unfavorable net price realization and mix subtracted one point of growth. During the quarter, the U.S. Retail businesses were realigned into five operating units. The Snacks and Yogurt operating units posted net sales gains for the quarter, while sales for the Cereal, Baking Products and Meals units declined. Advertising and media expense was ten percent below year-ago levels. Segment operating profit totalled 616 million USD, down ten percent primarily due to the net sales decline.
Through the first six months, U.S. Retail net sales totalled 5.31 billion USD, four percent below prior-year results. Lower pound volume subtracted three points of net sales growth and unfavorable net price realization and mix subtracted one point of growth. Segment operating profit totalled 1.07 billion USD, 17 percent below last year.
International Segment Summary
Second-quarter net sales for General Mills´ consolidated international businesses decreased six percent to 1.32 billion USD. Pound volume matched year-ago levels, and favorable net price realization and mix contributed three points of net sales growth. Foreign currency exchange reduced net sales growth by nine percentage points. On a constant-currency basis, International segment net sales grew three percent overall, with gains of four percent in Europe, two percent in the Asia / Pacific region and 14 percent in Latin America. These gains were partially offset by a seven percent net sales decline in Canada that reflected business disruption caused by a fire at a co-packer. Advertising and media expense declined five percent. Segment operating profit totalled 134 million USD, down twelve percent as reported and down two percent in constant currency.
Through the first six months of fiscal 2015, International segment net sales totalled 2.67 billion USD, down two percent. Foreign currency exchange reduced net sales growth by seven percentage points. On a constant-currency basis, net sales grew five percent reflecting favorable net price realization and mix. Pound volume essentially matched prior-year levels. Six-month segment operating profit totalled 280 million USD, up one percent as reported and up seven percent in constant-currency.
Convenience Stores and Foodservice
Second-quarter net sales for the Convenience Stores and Foodservice segment grew four percent to reach 530 million USD. Net price realization and mix contributed five points of net sales growth. Pound volume was one percent below year-ago levels. Yoghurt, snacks, cereal and frozen breakfast items led sales performance in the quarter. Segment operating profit grew 13 percent to 96 million USD.
Through the first half of 2015, Convenience Stores and Foodservice net sales grew three percent to 1.00 billion USD. Net price realization and mix contributed four points of net sales growth, while pound volume reduced sales growth by one point. Six-month segment operating profit increased 15 percent to 184 million USD.
Joint Venture Summary
Combined after-tax earnings from the Cereal Partners Worldwide (CPW) and Haagen-Dazs Japan (HDJ) joint ventures totalled 27 million USD, up four percent. Constant-currency after-tax earnings from joint ventures grew 13 percent. Constant-currency net sales grew five percent for HDJ and declined three percent for CPW. Through the first six months of 2015, after-tax joint-venture earnings totalled 53 million USD, up six percent as reported and up nine percent in constant currency.
Unallocated corporate items totalled 73 million USD net expense in the second quarter of fiscal 2015, compared to 49 million USD net expense a year earlier. Excluding mark-to-market valuation effects and restructuring costs in both years, unallocated corporate items totalled 49 million USD net expense this year compared to 70 million USD net expense a year ago.
General Mills recorded restructuring, impairment and other exit costs totalling 215 million USD pre-tax during the second quarter. An additional 19 million USD of restructuring expense was recorded in cost of sales.
Net interest expense rose 13 percent to 77 million USD in the second quarter, reflecting increased debt due in part to the acquisition of Annie´s completed on October 21, 2014. The effective tax rate was 31.8 percent in this year´s second quarter. Excluding items affecting comparability, the adjusted effective tax rate was 33.5 percent for the second quarter and 33.0 percent for the first half of 2015.
Cash Flow Items
Cash provided by operating activities totalled 863 million USD through the first six months of 2015, down from the prior year primarily due to increased cash use from changes in working capital and lower net earnings. Cash payments related to restructuring actions totalled ten million USD through the first half of 2015. Capital investments through the first six months totalled 318 million USD. Dividends paid year-to-date rose to 503 million USD.
During the first half of 2015, General Mills repurchased nearly 19 million shares of common stock for an aggregate purchase price of 969 million USD. The average number of diluted shares outstanding decreased by 31 million during the first half, reflecting the impact of repurchase activity during both fiscal 2014 and 2015.
Powell said, «The operating environment remains challenging but, as we move into the second half of our fiscal year, we expect to renew sales and profit growth». The company´s second-half marketing plans include a strong line-up of new product introductions worldwide, along with product news on many key established brands. Savings from the company´s ongoing Holistic Margin Management (HMM) program are targeted to exceed 400 million USD in fiscal 2015, and several incremental cost-reduction actions launched this year are expected to contribute to margin improvement in the second half. The company said these initiatives to streamline its North American supply chain network and reduce overhead costs are on track to generate 40 million USD in cost savings in the second half of fiscal 2015. Cumulative annual savings from these efforts are expected to total between 260 and 280 million USD in fiscal 2016, and exceed 350 million USD in fiscal 2017.
General Mills reaffirmed its fiscal 2015 full-year targets. Net sales in constant currency are expected to grow at a low single-digit rate from the 2014 base of 17.9 billion USD. This includes an estimated two points of sales growth from the 53rd week in fiscal 2015 and approximately 120 million USD of incremental sales from the Annie´s acquisition. Total segment operating profit in constant currency is expected to decline at a low single-digit rate from prior-year results of 3.15 billion USD. Fiscal 2015 adjusted diluted earnings per share – which excludes mark-to-market valuation effects, currency devaluation and restructuring costs – are expected to grow at a low-single-digit rate in constant currency from the base of 2.82 USD earned in fiscal 2014. At current exchange rates the company estimates a five-cent EPS headwind from currency translation in 2015.