General Mills (NYSE: GIS) reported results for the fourth quarter and full fiscal year ended May 27, 2012.
Fiscal 2012 results summary
- Net sales grew 12 percent to $16.7 billion. The international Yoplait acquisition completed in July 2011 contributed 7 points of net sales growth.
- New products generated 5 percent of U.S. Retail segment delivery volume, with particularly strong contributions from Fiber One 90-calorie brownie snack bars, Peanut Butter Multi-Grain Cheerios and Yoplait yogurt and granola parfaits.
- Segment operating profit rose 2 percent to exceed $3 billion, including contributions from the Yoplait International acquisition, significantly higher input costs year-over-year and increased advertising investment.
- Diluted earnings per share (EPS) totaled $2.35.
- Adjusted diluted EPS, which excludes certain items affecting comparability of results, totaled $2.56 compared to $2.48 a year ago.
- During fiscal 2012, General Mills completed or announced four strategic acquisitions: Yoplait S.A.S. (international--yogurt); Food Should Taste Good (U.S.--natural salty snacks); Parampara Foods (India--convenient meals) and Yoki Alimentos S.A., (Brazil--snacks and convenient meals).
General Mills Chairman and Chief Executive Officer Ken Powell said, “Fiscal 2012 was characterized by the highest input-cost inflation we’ve experienced in more than three decades, and this cost pressure constrained our earnings growth. In addition, slow economic recovery kept many consumer budgets under pressure. In this environment, we took strategic actions that increased our worldwide sales base and strengthened our portfolio. In particular, we increased advertising and media investment on our base business, we sustained a high level of new-product activity worldwide, and we made several acquisitions that expand our participation in fast-growing food categories and emerging markets.”
General Mills net sales in fiscal 2012 increased 12 percent to $16.7 billion. Price realization and mix contributed 3 points of net sales growth, and pound volume contributed 9 points of net sales growth, including 12 points of pound volume growth from the Yoplait acquisition. Foreign exchange did not have a material effect on total net sales growth for the year. Gross margin as a percent of net sales was below year-ago levels due to higher input costs and the change in business mix to include the Yoplait acquisition. Input cost inflation exceeded 10 percent for the year. The company’s advertising and media expense rose 8 percent in fiscal 2012. Segment operating profit increased 2 percent to exceed $3 billion for the first time in company history. Earnings attributable to General Mills totaled $1.6 billion and diluted earnings per share totaled $2.35, below prior-year levels due primarily to mark-to-market effects, as well as restructuring charges recorded in the fourth quarter of fiscal 2012. Adjusted diluted earnings per share, which excludes restructuring expenses, mark-to-market effects, and certain other items affecting comparability of results year to year, totaled $2.56 compared to $2.48 a year ago.
Fourth-quarter results summary
- Fourth-quarter 2012 net sales grew 12 percent to $4.1 billion. The international Yoplait acquisition contributed 9 points of net sales growth.
- Segment operating profit grew 9 percent to $737 million.
- Diluted EPS totaled $0.49.
- Adjusted diluted EPS totaled $0.60, up 15 percent from $0.52 a year ago. (See Note 8 for a reconciliation of this non-GAAP measure.)
Net sales for the fourth quarter of 2012 totaled $4.1 billion. Price realization and mix contributed 1 point of net sales growth. Pound volume contributed 12 points of net sales growth, including 16 points of pound volume growth from the Yoplait acquisition. Foreign exchange reduced fourth quarter net sales growth by one percentage point. Gross margin as a percent of net sales was below the prior year. Advertising and media expense grew 11 percent in the fourth quarter, and segment operating profit grew 9 percent to $737 million. Net earnings attributable to General Mills totaled $325 million, including a restructuring charge of $64 million after tax, and diluted EPS totaled $0.49 in the fourth quarter. Adjusted diluted EPS totaled $0.60 compared to $0.52 in last year’s fourth quarter.
U.S. retail segment results
Fiscal 2012 net sales for General Mills’ U.S. Retail operations grew 3 percent to $10.5 billion. . Price realization and mix contributed 9 points of net sales growth for the year. Pound volume grew for the Snacks and Small Planet Foods divisions, and essentially matched year-ago levels for Big G cereals, but fell for U.S. Retail overall, reducing net sales growth by 6 percentage points. Segment operating profit declined 2 percent, reflecting higher input costs, lower volume and a 5 percent increase in advertising and media expense.
Net sales for the Big G cereal division grew 4 percent to $2.4 billion, with contributions from established brands such as Honey Nut Cheerios, Cinnamon Toast Crunch and Chex varieties, and new cereals including Peanut Butter MultiGrain Cheerios and Fiber One 80 Calories. Snacks division net sales grew 15 percent, led by Fiber One and Nature Valley snack bar varieties. The Pillsbury and Baking Products divisions each posted 3 percent net sales gains for the year. Meals division net sales essentially matched prior-year results. Yoplait USA net sales declined 5 percent, as lower volumes on certain established product lines offset strong growth by Yoplait Go-gurt and Yoplait Greek varieties. Small Planet Foods division net sales grew 19 percent, including strong gains by Larabar natural fruit and nut bars, and Cascadian Farm organic cereals and grain snack bars.
Fourth-quarter net sales for the U.S. Retail segment grew 3 percent to $2.4 billion. Price realization and mix contributed 10 points of net sales growth, Pound volume declined, reducing net sales growth by 7 percentage points. Segment operating profit grew 4 percent to $536 million, including a 6 percent increase in advertising and media expense for the period.
International segment results
Net sales for General Mills’ consolidated International businesses grew 46 percent to reach $4.2 billion, including 37 points of net sales growth from acquisitions. Pound volume contributed 65 points of net sales growth, including 63 points of growth from the acquisition. Price realization and mix subtracted 20 points of net sales growth, reflecting the addition of the Yoplait International acquisition, and foreign exchange contributed 1 point of growth. On a constant-currency basis, International segment net sales grew 45 percent overall, with sales essentially doubling in Europe, and gains of 28 percent in Canada, 17 percent in the Asia / Pacific region and 14 percent in Latin America. (Please see Note 8 for a reconciliation of this non-GAAP measure.) Advertising and media expense grew 21 percent for the year. Segment operating profit grew 47 percent to reach $430 million.
In the fourth quarter, International segment net sales grew 46 percent to $1.1 billion. Pound volume contributed 75 points of net sales growth, all from the Yoplait acquisition. Price realization and mix subtracted 23 points of net sales growth, and foreign exchange subtracted 6 points of growth. Segment operating profit grew 66 percent in the fourth quarter to reach $119 million.
Bakeries and foodservice segment results
Net sales for the Bakeries and Foodservice segment grew 8 percent in fiscal 2012 to $2.0 billion. Pound volume contributed 1 point of net sales growth, and price realization and mix contributed 7 points of growth. Net sales to foodservice distributors and operators grew 8 percent, net sales to convenience store and vending customers grew 8 percent, and net sales to bakery and national restaurant accounts also increased 8 percent. As anticipated, segment operating profit of $287 million was below prior-year levels that included strong grain merchandising earnings.
In the fourth quarter, Bakeries and Foodservice segment net sales grew 2 percent to $511 million, reflecting 3 points of growth from higher pound volume, while price realization and mix subtracted one point of growth. Segment operating profit of $81 million was below strong prior-year levels.
Joint venture summary
After-tax earnings from joint ventures totaled $88 million in 2012. This was below 2011 levels primarily due to higher effective tax rates and a particularly difficult operating environment for Haagen Dazs Japan (HDJ). Net sales for Cereal Partners Worldwide (CPW) grew 4 percent. Net sales for HDJ grew 11 percent, primarily reflecting favorable currency translation effects.
In the fourth quarter, after-tax earnings from joint ventures totaled $16 million, below prior-year levels due to start-up expenses associated with the addition of new capacity for CPW, and a higher tax rate.
Unallocated corporate items represented net expense of $348 million in 2012 compared to net expense of $184 million in 2011. This primarily reflects changes in mark-to-market valuation of certain commodity positions year-over-year. Excluding mark-to-market effects in both years, unallocated corporate items totaled $244 million net expense this year compared to $279 million net expense a year ago.
Restructuring, impairment and other exit costs totaled $102 million in 2012, up from $4 million in 2011. The increase reflects charges associated with a companywide productivity and savings plan announced in the fourth quarter of fiscal 2012. Please see Note 3 for discussion of these restructuring actions.
Net interest expense in 2012 totaled $352 million, $6 million above prior-year results reflecting increased debt levels following the Yoplait acquisition. The effective tax rate for 2012 was 32.1 percent. Excluding certain items affecting comparability in both 2012 and 2011, the effective tax rate was 32.4 percent in 2012 compared to 33.2 percent in 2011. (Please see Note 8 below for a reconciliation of this non-GAAP measure.) For the fourth quarter, the effective tax rate excluding items affecting comparability was 31.1 percent in 2012 compared to 35.0 percent in 2011.
Cash flow items
Cash provided by operating activities totaled $2.4 billion in 2012, including a $200 million voluntary contribution to the company’s domestic pension plan made during the fourth quarter. Cash from operations increased from last year’s results primarily due to targeted reductions of working capital. Capital investments totaled $676 million in 2012, up 4 percent including investments in international Yoplait operations. Dividends paid rose to $800 million, up 10 percent. On June 26, 2012, the company announced an 8 percent increase in the quarterly dividend rate, effective with the August 1, 2012 payment. Share repurchases of $313 million in 2012 were below year-ago levels, reflecting the company’s funding decisions for the Yoplait acquisition.
“We expect fiscal 2013 to be another year of good growth for General Mills, reflecting sales and profit increases from our base business along with contributions from newly acquired operations,” said Powell. “We plan to balance our 2013 earnings growth with reinvestment designed to support our longer-term progress. These initiatives include increased marketing and merchandising investments in U.S. yogurt and select other product lines; investment to support the Canadian Yoplait yogurt business being assumed from the current licensee on September 1, 2012; and investments designed to accelerate our business growth in emerging markets, particularly China.”
General Mills expects fiscal 2013 net sales to grow at a mid-single-digit rate. The company’s business plan assumes input cost inflation of 2 to 3 percent. Segment operating profits are expected to increase slightly faster than sales, reflecting strong holistic margin management (HMM) initiatives and significant administrative cost savings. Media investment is expected to at least match the fiscal 2012 level of $914 million worldwide. Increased pension expense (reflecting a lower discount rate and a lower asset return assumption) and a higher tax rate are expected to reduce earnings growth in 2013 by a combined total of 8 cents per share, while increased share repurchases are expected to contribute to EPS growth for the year.
The fiscal 2013 guidance provided above does not include any contribution from the anticipated acquisition of Yoki Alimentos, S.A., a Brazilian food company. General Mills expects this transaction will close during the first half of fiscal 2013. The company plans to finance the acquisition with a combination of cash and debt. General Mills estimates its adjusted diluted EPS for fiscal 2013 will total approximately $2.65. This includes an estimated 2 to 3-cents per share drag from partial-year results for Yoki. Adjusted diluted EPS excludes one-time integration costs, mark-to-market valuation of certain commodity positions and restructuring expenses.