General Mills Inc. reported results for the fourth quarter and full fiscal year ended May 29, 2011.
Chairman and Chief Executive Officer Ken Powell said in a prepared statement, "This past year represented a challenging operating environment for food manufacturers, as we experienced the return and rapid acceleration of cost inflation for various food ingredients and energy. We're generally pleased with our 2011 sales and profit results, which met the key targets we set for the year and represent performance consistent with our long-term growth model."
General Mills net sales in fiscal 2011 increased 2 percent to $14.9 billion. Increased pound volume contributed 1 point of net sales growth, and price and mix contributed 1 point of growth. Foreign currency translation had no meaningful impact on the net sales growth rate. Gross margin expanded to 40.0 percent, reflecting increased mark-to-market valuation for certain commodity positions as well as effective holistic margin management (HMM) cost-saving initiatives. Excluding mark-to-market effects, gross margin was 39.4 percent. Following a 24 percent increase in media investment during fiscal 2010, media expense declined 7 percent in 2011. Segment operating profit rose 4 percent to exceed $2.9 billion, led by the company's International and Bakeries and Foodservice segments. Net earnings grew 18 percent to $1.8 billion, including a net increase in mark-to-market valuation of certain commodity positions along with a net benefit from certain tax items. Diluted earnings per share grew 20 percent to $2.70. Earnings per share excluding the mark-to-market effects and tax items would total $2.48. (Please see Note 9 to the consolidated financial statements below for a reconciliation of this non-GAAP number).
Net sales for the fourth quarter of 2011 totaled $3.6 billion. Pound volume declined 4 percent from strong year-ago levels, reflecting reduced depth and frequency of trade promotion in the period. Price realization and mix contributed 6 points of net sales growth. Foreign currency translation added 1 point of sales growth for the quarter. Gross margin of 37.5 percent was above year-ago levels due to mark-to-market effects, HMM cost savings and price realization. Media expense was 9 percent below year-ago levels that increased 10 percent. Segment operating profit grew 14 percent, reflecting double-digit increases for the bakeries and foodservice and International segments. Net earnings reached $320 million, up 51 percent from year-ago results that included a $35 million tax charge (5 cents per share) related to federal health care reform and $40 million pre-tax expense (4 cents per share) associated with a debt refinancing. Diluted earnings per share grew 55 percent to $0.48 per share. Earnings per share excluding mark-to-market effects and certain tax items in both years would total $0.52 in the fourth quarter of 2011 compared to $0.41 a year ago.
Fiscal 2011 net sales and pound volume for General Mills' U.S. retail operations generally matched strong year ago levels. Total U.S. Retail segment net sales were $10.2 billion. Net sales for the Big G cereal division were 2 percent below year-ago sales that grew 5 percent. Meals division net sales declined 1 percent, as growth for Old El Paso Mexican products, Progresso soup, and Wanchai Ferry and Macaroni Grill frozen entrees was offset by softness in Helper dinner mixes and Green Giant canned vegetables. Pillsbury division net sales declined 2 percent, reflecting lower sales for Totino's frozen pizza.
Baking products division net sales were 4 percent below year-ago results. Snacks division net sales grew 5 percent in fiscal 2011, led by Nature Valley and Fiber One grain snack bars. Yoplait division net sales grew 1 percent. And net sales for the Small Planet Foods organic and natural foods division rose 13 percent, led by double-digit growth by Larabar fruit and nut bars. U.S. Retail segment operating profit of $2.3 billion was 2 percent below year-ago levels, reflecting higher input costs. Media expense, which rose 22 percent in 2010, was down 9 percent in 2011.
Fourth-quarter net sales results for the U.S. retail segment reflected significant year-over-year differences in in-store merchandising activity and pricing. This year's fourth-quarter net sales declined 2 percent, as strong price realization was offset by a 6 percent decline in pound volume. In last year's fourth quarter, pound volume grew 8 percent on a comparable-weeks basis, while net sales grew 4 percent. U.S. retail segment operating profit grew 4 percent for the quarter.
Net sales for General Mills' consolidated international businesses grew 7 percent in 2011 to $2.9 billion. Pound volume contributed 6 points of net sales growth, and price and mix contributed 1 point of net sales growth. Foreign currency translation did not have a meaningful impact on fiscal 2011 net sales growth. On a constant-currency basis, net sales grew 7 percent overall, including gains of 7 percent in Europe and 9 percent in the Asia/Pacific region. International segment operating profit totaled $291 million, up sharply from year-ago results that included unfavorable foreign currency effects. Media investment was essentially unchanged versus last year.
In the fourth quarter, international segment net sales grew 16 percent to $778 million, with pound volume contributing 6 points of growth, price and mix adding 3 points and foreign currency translation contributing 7 points. Segment operating profit rose sharply to reach $72 million.
Net sales for the bakeries and foodservice segment grew 6 percent in fiscal 2011 to $1.8 billion. Pound volume essentially matched prior-year levels, while pricing and mix contributed 6 points of net sales growth. Net sales to foodservice distributors and operators grew 3 percent, net sales to convenience store and vending customers grew 11 percent, and net sales to bakery and national restaurant accounts increased 6 percent. Segment operating profit rose 16 percent to $306 million, reflecting net price realization, effective customer channel and product strategies, and increased grain merchandising earnings.
In the fourth quarter, bakeries and foodservice segment net sales grew 11 percent to $502 million, as a 4 percent decline in pound volume was offset by strong contributions from price realization and mix. Segment operating profit grew at a double-digit rate in the fourth quarter to reach $90 million.
Fourth-quarter after-tax earnings from joint ventures increased to $30 million. CPW net sales grew 10 percent, with foreign exchange contributing 8 points of growth. Earnings growth for the quarter also reflected timing differences of tax-related expenses.
"We expect fiscal 2012 to be another year of good sales and earnings growth for General Mills," said Powell. "Our business plan assumes significantly higher costs for ingredients and energy – we're estimating 2012 input cost inflation of 10 to 11 percent. We expect our HMM discipline of cost savings, mix management and price realization to largely – but not completely – offset this cost pressure. We believe the operating environment in many developed markets will remain challenging over the next 12 months. As a result, our plan assumes 2012 pound volume will be slightly below 2011 levels. We believe that expected net price realization, together with a strong line-up of new products and marketing initiatives, should drive mid single-digit growth in our net sales in 2012."
The company said that segment operating profits are expected to grow at a low single-digit rate in fiscal 2012, including increased media investment that is expected to grow at least in line with sales. Diluted earnings per share are expected to increase to approximately $2.60 to $2.62 before any effects of mark-to-market valuation. This EPS guidance represents growth of 5 to 6 percent from 2011 results of $2.48 per share excluding mark-to-market effects and certain tax items.
The guidance provided above for General Mills' fiscal 2012 results does not include any impact from the anticipated acquisition of a controlling interest in the international Yoplait business. The company continues to expect this transaction will be completed during the first quarter of fiscal 2012.
General Mills will hold a briefing for investors today, June 29, 2011, beginning at 8:30 a.m. Eastern time. You may access the web cast from General Mills' internet home page: generalmills.com.
