General Mills: reports fiscal Q3/2015 results

Minneapolis / MN. (gm) General Mills Inc. reported results for the third quarter of fiscal 2015. Summary: Net sales for the 13 weeks ended February 22, 2015, totalled 4.35 billion USD, down one percent from last year´s third-quarter results due to foreign currency effects. On a constant-currency basis, quarterly net sales grew three percent. Segment operating profit totalled 698 million USD, up one percent. In constant currency, segment operating profit rose three percent. Diluted earnings per share (EPS) totalled 56 cents compared to 64 cents a year ago. Adjusted diluted EPS, which excludes certain items affecting comparability of results, totalled 70 cents in the third quarter of 2015, up 13 percent from 62 cents in last year´s third quarter. On a constant-currency basis, adjusted diluted EPS grew 15 percent.

General Mills Chairman and Chief Executive Officer Ken Powell: «Our third-quarter results reflect strengthened operating performance. Our U.S. Retail segment posted net sales and profit growth including contributions from the Annie´s business acquired in October 2014. Constant-currency net sales and profit growth accelerated for our International segment. And the Convenience Stores and Foodservice segment led our operating results, with sales up six percent and profit up eleven percent».

Third-quarter net sales of 4.35 billion USD were one percent below year ago-results, as foreign currency exchange reduced net sales growth by four percentage points. On a constant-currency basis, net sales grew three percent, including one point of growth contributed by the Annie´s acquisition. Pound volume was one percent below year-ago levels. Net price realization and mix added four points of net sales growth. Gross margin was below year-ago levels, primarily reflecting negative product mix and restructuring charges. Selling, general and administrative expenses declined, driven by an eight percent decrease in advertising and media expense along with cost savings from restructuring actions. Segment operating profit rose one percent to 698 million USD. General Mills posted restructuring and project-related charges totalling 74 million USD pre-tax in the third quarter, including 25 million USD recorded in cost of sales.

Third-quarter net earnings attributable to General Mills totalled 343 million USD and diluted EPS totalled 56 cents. Adjusted diluted EPS, which excludes restructuring charges and certain other items affecting comparability, totalled 70 cents, up 13 percent from 62 cents in last year´s third quarter. Foreign currency exchange reduced 2015 third-quarter adjusted diluted EPS by approximately one cent.

Nine-month Results Summary

Net sales through the first nine months of fiscal 2015 totalled 13.3 billion USD, down two percent from 13.6 billion USD a year ago. On a constant-currency basis, nine-month net sales essentially matched year-ago results. Nine-month segment operating profit totalled 2.24 billion USD, down eight percent as reported and down six percent in constant currency. Diluted EPS totalled 1.67 USD compared to 2.18 USD a year ago. Adjusted diluted EPS totalled 2.11 USD this year to date, compared to 2.15 USD a year ago. Foreign currency exchange reduced fiscal 2015 nine-month adjusted diluted EPS by approximately four cents.

Through the first nine months of fiscal 2015, U.S. Retail segment Dollar market shares increased in categories representing 68 percent of the company´s sales volume in Nielsen-measured outlets. This included market share gains in RTE cereal, yoghurt and snacks. U.S. Retail products making particularly strong contributions to nine-month net sales results included Yoplait Original Style and Greek yoghurt varieties; Cinnamon Toast Crunch, Nature Valley granola and Cheerios Protein cereals; Fiber One snack bar varieties and Cascadian Farm organic grain snacks. In the Convenience Stores and Foodservice segment, Pillsbury frozen breakfast items, Yoplait yoghurt varieties and Big G bowlpack cereals were strong net sales contributors. International products posting strong nine-month sales contributions included Old El Paso dinner kits in Canada, Europe and Australia; Yoki and La Saltena meal products in Latin America; and Häagen-Dazs superpremium ice cream in the Asia / Pacific region.

U.S. Retail Segment Results

Third-quarter net sales for General Mills´ U.S. Retail segment totalled 2.65 billion USD, up one percent from prior-year results. Net price realization and mix contributed three points of net sales growth, while lower pound volume reduced sales growth by two points. The Annie´s business acquired in October 2014 contributed two points of net sales growth and one point of pound volume growth. The Yogurt and Snacks operating units drove the quarterly net sales increase. Cereal unit net sales were essentially unchanged from the prior-year level, while the Meals and Baking Products units posted net sales declines for the quarter. U.S. Retail segment operating profit grew one percent to 521 million USD.

Through nine months, U.S. Retail net sales totalled 7.96 billion USD, down three percent from year-ago results, with lower volume contributing two points of the net sales decline, and negative price realization and mix contributing one point of decline. Segment operating profit of 1.59 billion USD was twelve percent below prior-year results.

International Segment Summary

Third-quarter net sales for General Mills´ consolidated international businesses decreased seven percent to 1.23 billion USD due to foreign exchange effects. Pound volume matched year ago levels, and net price realization and mix added six points of net sales growth. This was offset by foreign currency exchange, which reduced net sales growth by 13 points in the third quarter. On a constant-currency basis, international segment net sales grew six percent in the quarter, including gains of three percent in the Europe region, four percent in both the Canada and the Asia / Pacific regions, and 20 percent in Latin America. International segment operating profit totalled 108 million USD, down two percent as reported but up ten percent in constant currency.

Through the first nine months of fiscal 2015, International segment net sales totalled 3.91 billion USD, down three percent. Foreign currency exchange reduced net sales growth by eight percentage points. On a constant-currency basis, net sales grew five percent reflecting favorable net price realization and mix. Pound volume essentially matched year ago levels. Nine-month segment operating profit growth totalled 389 million USD, essentially matching year-ago levels as reported and up eight percent on a constant-currency basis.

Convenience Stores and Foodservice

Third-quarter net sales for the Convenience Stores and Foodservice segment grew six percent to reach 465 million USD. Net price realization and mix contributed seven points of net sales growth, while pound volume subtracted one point of sales growth. Frozen breakfast items, yoghurt, and cereal led sales performance in the quarter. Segment operating profit grew eleven percent to reach 69 million USD. Through nine months, Convenience Stores and Foodservice segment net sales grew four percent to reach 1.47 billion USD. Net price realization and mix contributed five points of net sales growth, while pound volume subtracted one point of growth. Segment operating profit through the first nine months of fiscal 2015 grew 14 percent to 252 million USD.

Joint Venture Summary

Combined after-tax earnings from the Cereal Partners Worldwide (CPW) and Häagen-Dazs Japan (HDJ) joint ventures totalled 13 million USD, significantly below prior-year results due to foreign exchange effects and a four million USD asset impairment charge for CPW´s South Africa business. Constant-currency after-tax earnings from joint ventures declined 36 percent. Constant-currency net sales declined three percent for CPW but grew seven percent for HDJ. Through the first nine months of fiscal 2015, after-tax earnings from joint ventures totalled 66 million USD, down nine percent as reported and down five percent in constant currency.

Corporate Items

Unallocated corporate items totalled 112 million USD net expense in the third quarter of fiscal 2015, compared to 19 million USD net expense a year earlier. Excluding mark-to-market valuation effects, restructuring and project-related charges, Annie´s integration expenses and a seven million USD foreign exchange loss in this year´s third quarter related to balance sheet re-measurement for our Venezuelan subsidiary, unallocated corporate items totalled 32 million USD net expense this year compared to 42 million USD net expense a year ago.

General Mills recorded restructuring, impairment and other exit costs totalling 49 million USD pre-tax during the third quarter. An additional 22 million USD of restructuring charges and three million USD of project-related charges were recorded in cost of sales.

Net interest expense rose six percent to 80 million USD, reflecting a higher debt level partially offset by a lower average interest rate. The effective tax rate was 25.5 percent in the third quarter. Excluding items affecting comparability, the adjusted effective tax rate was 27.5 percent for the third quarter and 31.3 percent for the first nine months of 2015.

Cash Flow Items

Cash provided by operating activities totalled 1.56 billion USD through the first nine months of 2015, down from the prior year primarily due to lower net earnings. Cash payments related to restructuring and project-related actions totalled 47 million USD through the first nine months of 2015. Capital investments through the first nine months totalled 491 million USD. Dividends paid year-to-date totalled 751 million USD.

During the first nine months of 2015, General Mills repurchased 22 million shares of common stock for an aggregate purchase price of 1.16 billion USD. The average number of diluted shares outstanding decreased by 30 million through the first nine months, reflecting the impact of repurchase activity during both fiscal 2014 and 2015.

Outlook

Ken Powell said, «Our operating results are beginning to show the positive effects of our companywide focus on putting the Consumer First. Where we have made improvements to established brands, launched new items, and developed marketing messages that respond to consumers´ evolving preferences, we are seeing growth in our businesses. We are developing plans for fiscal 2016 designed to build on this momentum and expand the impact of our Consumer First strategic focus».

General Mills said it continues to expect strong growth in the fourth quarter of fiscal 2015, including incremental contributions from the Annie´s acquisition and the benefit of one extra week in the period. The company also 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 extra week and 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 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 seven-cent reduction to fiscal 2015 adjusted diluted EPS from currency translation.