General Mills Reports Fiscal 2014 First Quarter Results

MINNEAPOLIS, Sept. 18, 2013 /PRNewswire/ -- General Mills (NYSE: GIS) today 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.

Fiscal 2014 First Quarter Financial Summary

• Net sales rose 8 percent to $4.37 billion, with new businesses contributing 5 percentage points of the growth.
• Segment operating profit grew 6 percent to $812 million, including a 7 percent increase in advertising and media investment.
• Diluted earnings per share (EPS) totaled 70 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, totaled 70 cents this year compared to 66 cents in last year's first quarter. (Please see Note 8 below for reconciliation of this non-GAAP measure.)

Net sales for the 13 weeks ended Aug. 25, 2013, grew 8 percent to $4.37 billion.  Pound volume grew 8 percent, primarily reflecting acquisitions.  Price realization and mix contributed 1 point of net sales growth, and foreign exchange subtracted 1 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 7 percent higher than year-ago levels.  Total segment operating profit grew 6 percent to $812 million (please see Note 8 below for reconciliation of this non-GAAP measure).  First-quarter net earnings attributable to General Mills totaled $459 million and diluted earnings per share totaled 70 cents.  These results were below year-ago levels that included a net benefit of 16 cents per share from several discrete items.  Adjusted diluted EPS, which excludes certain items affecting comparability, totaled 70 cents in the first quarter of fiscal 2014, up 6 percent compared to 66 cents a year ago (please see Note 8).

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've 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 yogurt, 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, up 4 percent from a year earlier.  Pound volume grew 1 percent, and net price realization and mix contributed 3 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 4 percent from year-ago levels, and segment operating profit grew 6 percent to $612 million.

International Segment Results

First-quarter net sales for General Mills' consolidated international businesses grew 22 percent to reach $1.32 billion.  Pound volume grew 30 percent, driven by new businesses.  Price realization and mix subtracted 5 points of net sales growth, and foreign currency subtracted 3 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 3 percent in Europe.  (Please see Note 8 below for reconciliation of this non-GAAP measure.)  International segment operating profit of $126 million 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 totaled $468 million, 1 percent below year-ago results.  Pound volume declined 3 percent, while net price realization and mix contributed 2 points of net sales growth.  Baking mixes, cereal and frozen breakfast items led sales performance in the quarter.  Segment operating profit grew 10 percent in the quarter to $74 million.

Joint Venture Summary

Combined after-tax earnings from the Cereal Partners Worldwide (CPW) and Haagen-Dazs Japan (HDJ) joint ventures totaled $24 million, up 4 percent from year-ago results. Constant-currency net sales for CPW grew 1 percent in the quarter, and constant-currency net sales for HDJ essentially matched strong prior-year levels.

Corporate Items

Unallocated corporate items totaled $74 million of expense in this year's first quarter, compared to $21 million of income a year ago.  Mark-to-market valuation of certain commodity positions represented a $1 million net increase in expense in the first quarter of 2014 compared to a $82 million net decrease in expense in last year's first quarter. Excluding these mark-to-market effects, unallocated corporate items totaled a net $73 million of expense this year compared to a net $61 million of expense a year ago. 

Net interest expense of $79 million was 5 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 8 below for a reconciliation of this non-GAAP measure.)

Cash Flow Items

Cash provided by operating activities totaled $381 million in the first quarter.  Capital investments in the period totaled $124 million.  Dividends paid rose to $248 million, reflecting the 15 percent increase in the dividend rate year-over-year.  During the first quarter, General Mills repurchased more than 6 million shares of common stock at an aggregate price of $327 million.  Average diluted shares outstanding totaled 660 million for the first quarter of 2014, down 1 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 to $2.90. 

General Mills will hold a briefing for investors today, Sept. 18, 2013, beginning at 8:30 a.m. Eastern time.  You may access the web cast from General Mills' internet home page: generalmills.com.

Adjusted diluted EPS, total segment operating profit, international sales excluding foreign currency translation effects, and adjusted effective tax rate are each non-GAAP measures.  Reconciliations of these measures to their relevant GAAP measures appear in Note 8 to the attached Consolidated Financial Statements.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations and assumptions. These forward-looking statements, including the statements under the caption "Outlook," and statements made by Mr. Powell, are subject to certain risks and uncertainties that could cause actual results to differ materially from the potential results discussed in the forward-looking statements. In particular, our predictions about future net sales and earnings could be affected by a variety of factors, including: competitive dynamics in the consumer foods industry and the markets for our products, including new product introductions, advertising activities, pricing actions, and promotional activities of our competitors; economic conditions, including changes in inflation rates, interest rates, tax rates, or the availability of capital; product development and innovation; consumer acceptance of new products and product improvements; consumer reaction to pricing actions and changes in promotion levels; acquisitions or dispositions of businesses or assets; changes in capital structure; changes in laws and regulations, including labeling and advertising regulations; impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets, or changes in the useful lives of other intangible assets; changes in accounting standards and the impact of significant accounting estimates; product quality and safety issues, including recalls and product liability; changes in consumer demand for our products; effectiveness of advertising, marketing, and promotional programs; changes in consumer behavior, trends, and preferences, including weight loss trends; consumer perception of health-related issues, including obesity; consolidation in the retail environment; changes in purchasing and inventory levels of significant customers; fluctuations in the cost and availability of supply chain resources, including raw materials, packaging, and energy; disruptions or inefficiencies in the supply chain; volatility in the market value of derivatives used to manage price risk for certain commodities; benefit plan expenses due to changes in plan asset values and discount rates used to determine plan liabilities; failure or breach of our information technology systems; foreign economic conditions, including currency rate fluctuations; and political unrest in foreign markets and economic uncertainty due to terrorism or war. The company undertakes no obligation to publicly revise any forward-looking statement to reflect any future events or circumstances.

GENERAL MILLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1)     The accompanying Consolidated Financial Statements of General Mills, Inc. (we, us, our, General Mills, or the Company) have been prepared in accordance with accounting principles generally accepted in the United States for annual and interim financial information. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature.

(2)     In the first quarter of fiscal 2014, we changed the name of our Bakeries and Foodservice operating segment to Convenience Stores and Foodservice. The businesses included in this segment were unchanged.

(3)     Our consolidated results for the first quarter of fiscal 2014 include operating activity from the acquisitions of Yoki Alimentos S.A. in Brazil (second quarter of fiscal 2013), Immaculate Baking Company in the United States (third quarter of fiscal 2013), and the assumption of the Canadian Yoplait franchise license (second quarter of fiscal 2013). Collectively, these items are referred to as "new businesses" in comparing our fiscal 2014 results to fiscal 2013 within this release.

(4)     During the first quarter of fiscal 2014, we did not undertake any new restructuring actions. We recorded restructuring charges of $3 million in our International segment related to a productivity and cost savings plan approved in the fourth quarter of fiscal 2012. These restructuring actions are expected to be completed by the end of fiscal 2014 and we expect to record approximately $6 million related to these actions in fiscal 2014. In the first quarter of fiscal 2014, we paid $8 million in cash related to previously announced restructuring actions.

(5)     For the first quarter of fiscal 2014, unallocated corporate items totaled $74 million of expense compared to $21 million of income in the same period last year. We recorded a $1 million net increase in expense related to the mark-to-market valuations of certain commodity positions and grain inventories in the first quarter of fiscal 2014, compared to a $82 million net decrease in expense in the first quarter of fiscal 2013.

(6)     Basic and diluted earnings per share (EPS) were calculated as follows:

(7)     The effective tax rate for the first quarter of fiscal 2014 was 32.3 percent compared to 22.7 percent for the first quarter of fiscal 2013. The 9.6 percentage point increase was primarily related to the restructuring of our General Mills Cereals, LLC (GMC) subsidiary during the first quarter of fiscal 2013 which resulted in a $67 million decrease to deferred income tax liabilities related to the tax basis of the investment in GMC and certain distributed assets, with a corresponding discrete reduction to income taxes.

(8)     We have included five measures in this release that are not defined by generally accepted accounting principles (GAAP): (1) diluted earnings per share excluding mark-to-market valuation of certain commodity positions and grain inventories ("mark-to-market effects"), restructuring costs reflecting employee severance expense ("restructuring costs"), and a discrete tax item related to a subsidiary ("tax item") (collectively, these 3 items are referred to as "certain items affecting comparability" in this footnote), (2) earnings comparisons as a percent of net sales excluding certain items affecting comparability, (3) total segment operating profit, (4) net sales growth rates for our International segment in total and by region excluding the impact of changes in foreign currency exchange, and (5) effective income tax rates excluding certain items affecting comparability. We believe that these measures provide useful supplemental information to assess our operating performance. These measures are reconciled below to the measures as reported in accordance with GAAP, and should be viewed in addition to, and not in lieu of, our diluted earnings per share and operating performance measures as calculated in accordance with GAAP.

Diluted EPS excluding certain items affecting comparability follows:

Earnings comparisons as a percent of net sales excluding certain items affecting comparability follows:

A reconciliation of total segment operating profit to the relevant GAAP measure, operating profit, is included in the Statements of Operating Segment Results.

The reconciliation of International segment and region net sales growth rates as reported to growth rates excluding the impact of foreign currency exchange below demonstrates the effect of foreign currency exchange rate fluctuations from year to year. To present this information, current period results for entities reporting in currencies other than United States dollars are translated into United States dollars at the average exchange rates in effect during the corresponding period of the prior fiscal year, rather than the actual average exchange rates in effect during the current fiscal year. Therefore, the foreign currency impact is equal to current year results in local currencies multiplied by the change in the average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.

A reconciliation of the effective income tax rate as reported to the effective income tax rate excluding certain items affecting comparability follows:

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SOURCE General Mills

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