General Mills Reports Fiscal 2008 Results
06/25/2008
Net Sales Grew 10 Percent to $13.7 Billion
Segment Operating Profits Increased 6 Percent to $2.4 Billion
Net Earnings Totaled $3.71 per Share Including Certain Non-cash Items
Company Sees Growth Continuing in Fiscal 2009
MINNEAPOLIS, MINN.---General Mills (NYSE: GIS) today reported results for the fourth quarter and full 2008 fiscal year. For the fiscal year ended May 25, 2008, General Mills net sales grew 10 percent to $13.7 billion. Volume (measured in pounds) contributed 3 points of sales growth. Segment operating profits grew 6 percent to $2.4 billion despite higher input costs and a 13 percent increase in consumer marketing expense. Net earnings grew 13 percent to $1.3 billion including non-cash net gains from mark-to-market valuation of certain commodity positions and a favorable ruling related to a tax contingency. (These non-cash items are discussed in the section titled Corporate Items below). Diluted earnings per share (EPS) totaled $3.71 including $0.19 from the commodity and tax items. Excluding these items, earnings per share would have totaled $3.52 for the year, up 11 percent from reported earnings of $3.18 per share a year ago.
Chairman and Chief Executive Officer Ken Powell said, “Fiscal 2008 was a strong year for General Mills. Sales and operating profit grew for all three of our major business segments. We posted particularly good growth in the fourth quarter, and we’ve carried momentum into the start of 2009.”
Fourth Quarter Results
Net sales for the fourth quarter of 2008 increased 13 percent to $3.5 billion. Volume contributed 3 points of sales growth, pricing and mix added 8 points, and foreign currency exchange accounted for 2 points of growth. Segment operating profits of $517 million rose 5 percent, despite higher input costs and a 20 percent increase in consumer marketing expense in the quarter. Net earnings were $185 million including a reduction of the mark-to-market valuation of certain commodity positions from a net gain of $168 million at the end of the third quarter to a net gain of $57 million at the end of the fiscal year. This reduction was primarily due to declines in key commodity market prices from the prevailing levels recognized last quarter. Excluding this $111 million pre-tax mark-to-market reduction, diluted earnings per share would have been 73 cents, up 18 percent from 62 cents per share reported for the fourth quarter a year ago.
U.S. Retail Segment Results
Fiscal 2008 net sales for General Mills’ domestic retail operations grew 7 percent to nearly $9.1 billion with volume contributing 3 points of growth. Segment operating profits rose 4 percent to reach $2.0 billion, including a 12 percent increase in consumer marketing expense.
Net sales for the Snacks division increased 12 percent in 2008, led by grain snacks such as Nature Valley granola bars and Fiber One bars. Yoplait sales grew 10 percent, fueled by Yoplait Light yogurt, Yo-Plus yogurt with probiotic cultures and fiber, and new Fiber One yogurt. Net sales for the Baking Products division grew 9 percent including gains for Betty Crocker cookie mixes, Gold Medal flour and the launch of Warm Delights Minis microwavable desserts. Small Planet Foods sales were up 6 percent. Big G cereals net sales rose 5 percent, with strong performance from core brands including Fiber One and the market-leading Cheerios franchise. The Meals division posted a 5 percent net sales increase, led by Progresso ready-to-serve soups. Sales for Pillsbury USA also grew 5 percent, reflecting growth by Totino’s frozen pizza and hot snacks, and Pillsbury refrigerated baked goods.
For the fourth quarter, U.S. Retail net sales grew 9 percent with volume up 6 percent. Yoplait, Big G and Pillsbury USA led the growth. Operating profit increased 5 percent, including 20 percent growth in consumer marketing expense for the period.
International Segment Results
Net sales for General Mills’ consolidated international businesses grew 21 percent in 2008 to $2.6 billion. Volume contributed 6 points of growth, price and mix were up 6 points, and favorable currency exchange added another 9 points. The company recorded sales growth in every region where it operates. In Canada, net sales grew 14 percent for the year, primarily reflecting favorable currency exchange. Net sales in Europe rose 19 percent. In the Asia-Pacific region, net sales grew 25 percent, and net sales in Latin America were up 31 percent. International segment operating profits rose 25 percent to $269 million despite higher input costs and double-digit growth in consumer marketing expense.
For the fourth quarter, International net sales grew 21 percent to $681 million. Volume increased 3 percent, price and mix contributed 9 points of growth, and foreign currency exchange added the remaining 9 points. Fourth-quarter operating profits rose 10 percent to $61 million.
Bakeries & Foodservice Segment Results
Net sales for the Bakeries & Foodservice division grew 11 percent to exceed $2.0 billion. Pricing actions related to higher input costs more than offset a 3 percent volume decline attributable in part to the absence of volume from businesses divested in the past year. Sales in the bakery channel were up 19 percent, and sales to foodservice distributors and restaurant customers grew at a mid single-digit rate. Pricing and grain merchandising earnings drove 12 percent operating profit growth for the year.
Fourth-quarter net sales for Bakeries & Foodservice increased 23 percent to $572 million. Operating profits of $27 million were down 7 percent driven by grain merchandising results.
Joint Ventures
After-tax earnings from joint ventures totaled $111 million in 2008. These results include a net $8 million after-tax gain from an asset sale associated with Cereal Partners Worldwide (CPW) restructuring activities in the United Kingdom. Last year’s joint venture results included an $8 million after-tax charge associated with the restructuring actions. Excluding restructuring impacts from both years, joint venture earnings would be $103 million in 2008, up 27 percent from $81 million last year. CPW net sales grew 23 percent in 2008, and net sales for the company’s Haagen-Dazs joint ventures in Asia grew 16 percent.
Fourth quarter after-tax earnings from joint ventures totaled $31 million, up from $15 million a year earlier. Net sales for CPW grew 25 percent in the quarter, and net sales for the Haagen-Dazs joint ventures increased by a strong double digit rate.
Corporate Items
Restructuring, impairment and other exit costs totaled $21 million for the year. In addition, $18 million of associated costs (primarily accelerated depreciation of assets in facilities to be sold) are included in corporate unallocated expense in our operating segment results, and are recorded in cost of sales in the consolidated statements of earnings.
Total corporate unallocated expense was $157 million, down from $163 million last year. This year’s total includes the $57 million net gain related to mark-to-market valuation of certain commodity positions. Fourth-quarter corporate unallocated expense was $183 million. Excluding the $111 million reduction in mark-to-market valuation, fourth-quarter corporate unallocated expense would have been $72 million compared to $44 million in the same period last year.
Net interest expense in 2008 totaled $422 million, down 1 percent from the previous year. Fourth quarter interest expense was $90 million, down 14 percent from last year due to lower rates. The effective tax rate for 2008 was 34.4 percent including the effect of a favorable tax ruling recognized in the third quarter. Last year’s effective tax rate was 34.3 percent.
Cash Flow Items
Cash flow from operations totaled $1.7 billion in 2008. Capital expenditures totaled $522 million for the year. Dividends per share in 2008 grew 9 percent to $1.57. On June 23, 2008, the company announced an increase in the quarterly dividend rate to $0.43 per share, payable August 1, 2008 to shareholders of record July 10, 2008. During 2008, General Mills repurchased about 25 million shares of common stock at an average price of $58. Average diluted shares outstanding declined from 360 million in 2007 to 347 million in 2008.
Fiscal 2009 Outlook
Commenting on fiscal 2009, Powell said, “Our plans call for another year of good sales and earnings growth despite an estimated 9 percent increase in supply chain costs. Net sales are expected to grow at a mid single-digit rate, driven primarily by price and mix. Segment operating profits are also expected to grow at a mid single-digit rate, in line with our long-term model.”
Diluted earnings per share will continue to include mark-to-market valuation of commodity positions, but the company cannot predict its effect on earnings. Assuming no mark-to-market impact in fiscal 2009, earnings are expected to be between $3.78 and $3.83 per share for the year, representing growth of 7 to 9 percent from the $3.52 EPS excluding tax and commodity items in fiscal 2008.
General Mills will hold a briefing for investors today, June 25, 2008, beginning at 9:00 a.m. EDT. You may access the web cast from General Mills’ corporate home page: www.generalmills.com.
Total company segment operating profit is a non-GAAP measure. Reconciliation of this measure to the relevant GAAP measure (operating profit) appears in the attached operating segment results schedule. Earnings per share excluding certain non-cash items is also a non-GAAP measure. Reconciliation of this measure to the relevant GAAP measure (earnings per share) appears in Note 9 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 management’s current expectations and assumptions. These forward-looking statements, including the statements under the caption "Fiscal 2009 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 or tax rates; 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 customer 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 hedge price risk for certain commodities; benefit plan expenses due to changes in plan asset values and discount rates used to determine plan liabilities; failure of our information technology systems; resolution of uncertain income tax matters; 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 statements to reflect any future events or circumstances.
For Further Information, Contact:
(Analysts) Kris Wenker (763) 764-2607
(Media) Tom Forsythe (763) 764-6364
