General Mills Inc. reported results for the third quarter of fiscal 2012.
Net sales for the 13 weeks ended Feb. 26, 2012 grew 13 percent to $4.12 billion. Price realization and mix contributed 3 points of net sales growth, and pound volume contributed 10 points of net sales growth, including 13 points of pound volume growth from the Yoplait acquisition.
Foreign exchange did not have a material effect on sales growth rate in the quarter. 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. Advertising and media expense was 8 percent higher in the period. Segment operating profit rose 1 percent to $675 million.
Third-quarter net earnings attributable to General Mills totaled $392 million and diluted earnings per share totaled 58 cents. Adjusted diluted earnings per share, which excludes certain items affecting comparability of results year to year, totaled 55 cents for the third quarter of 2012 compared to 56 cents a year ago.
Chairman and Chief Executive Officer Ken Powell said in a prepared statement, “Our third-quarter results reflect strong worldwide sales growth for our business, but the 10 to 11 percent input cost inflation we’re experiencing this year pressured our margins. In the fourth quarter, we expect to generate continued good sales momentum and we anticipate that gross margin contraction will ease somewhat. This should result in renewed earnings growth as we wrap up 2012 and move into the new fiscal year.”
Through the first nine months of fiscal 2012, General Mills net sales grew 12 percent to $12.59 billion. Price realization and mix contributed 4 points of net sales growth, and pound volume contributed 8 points of net sales growth, including 11 points of pound volume growth from the Yoplait acquisition. Foreign exchange did not have a material effect on our sales growth rate. Segment operating profit of $2.28 billion essentially matched year-ago levels. Net earnings attributable to General Mills totaled $1.24 billion and diluted EPS totaled $1.86 per share. Adjusted diluted EPS, which excludes certain items affecting comparability of results year-to-year, totaled $1.96 through the first nine months of 2012, matching our year-ago results.
Third-quarter net sales for General Mills’ U.S. retail segment grew 4 percent to $2.61 billion. Pound volume grew for the Big G cereal and Snacks divisions, but fell for U.S. Retail overall, reducing net sales growth by 5 percentage points. Price realization and mix contributed 9 points of net sales growth in the quarter.
Segment operating profit of $512 million declined 4 percent, reflecting higher input costs, lower volume and a 2 percent increase in advertising and media expense. Net sales for Big G cereals grew 6 percent, with gains by established brands such as Honey Nut Cheerios and Cinnamon Toast Crunch, along with good contributions from new products including Peanut Butter MultiGrain Cheerios. Baking Products division net sales grew 11 percent led by Betty Crocker dessert mixes.
Net sales for the snacks division grew 7 percent, reflecting strong growth by Nature Valley and Fiber One snack bars. Meals division net sales grew 6 percent, including gains by Green Giant vegetables, Helper dinner mixes, and Progresso soups. Small Planet Foods posted an 8 percent net sales increase led by Larabar fruit and nut energy bars, and Cascadian Farm organic cereals and grain snacks. Pillsbury USA division net sales matched year-ago levels. Net sales for the Yoplait division fell 3 percent, as gains by Go-Gurt, Yoplait Greek and Mountain High yogurt were offset by volume declines on certain established product lines.
Through nine months, U.S. retail segment net sales grew 3 percent to $8.06 billion. Pound volume reduced net sales growth by 6 points, while price realization and mix contributed 9 points of growth. Advertising and media expense grew faster than sales, up 5 percent through the first nine months. Segment operating profit totaled $1.76 billion, down 4 percent from year-ago levels.
Third quarter net sales for General Mills’ consolidated international businesses grew 51 percent to reach $1.04 billion, including 43 points of net sales growth from the Yoplait acquisition. Pound volume contributed 74 points of net sales growth, including 72 points of growth from the acquisition. Price realization and mix subtracted 21 points of net sales growth, and foreign exchange subtracted 2 points of growth. On a constant-currency basis, International segment net sales grew 53 percent overall, with sales more than doubling in Europe, and gains of 37 percent in Canada, 15 percent in the Asia / Pacific region and 12 percent in Latin America. (Please see Note 7 for a reconciliation of this non-GAAP measure.) Advertising and media expense grew 31 percent in the quarter. International segment operating profit totaled $96 million, up 40 percent from year-ago levels.
Through nine months, international segment net sales rose 46 percent to $3.06 billion, including 35 points of growth from the Yoplait acquisition. Pound volume contributed 62 points of net sales growth, foreign exchange contributed 3 points of growth, and price realization and mix subtracted 19 points. Segment operating profit grew 41 percent to reach $310 million.
Third-quarter net sales for the Bakeries and Foodservice segment grew 6 percent to $469 million. Price realization and mix contributed 6 points of net sales growth, while pound volume did not have a material effect on net sales growth in the quarter. Customer channel performance was strong, with net sales to convenience stores up 8 percent, sales to foodservice distributors up 14 percent, and sales to bakeries and national restaurant accounts up 1 percent. Segment operating profit of $66 million was generally in line with year-ago levels despite significantly higher input costs and comparison to year-ago results that included strong grain merchandising earnings.
Through the first nine months of fiscal 2012, bakeries and foodservice net sales grew 10 percent to $1.47 billion. Pound volume held generally even with year-ago levels, while price realization and mix contributed 10 points of net sales growth. Segment operating profit of $206 million was 5 percent below year-ago results that included strong levels of grain merchandising earnings.
After-tax earnings from the Cereal Partners Worldwide (CPW) and Haagen Dazs Japan (HDJ) joint ventures totaled $16 million, up from year-ago results that included a tax restructuring charge and increased media investment for CPW. Net sales for CPW grew 3 percent, while net sales for HDJ were 10 percent above year-ago levels. Through nine months, after-tax earnings from joint ventures totaled $73 million, up 9 percent.
Unallocated corporate items totaled $6 million net expense in the third quarter of 2012, down from $28 million net expense in last year’s third quarter. Excluding mark-to-market effects in both years, unallocated corporate items totaled $53 million net expense this year compared to $61 million net expense a year ago. This year’s third quarter included $4 million of Yoplait integration costs. 2011 third quarter expense included an $11 million charge to increase an environmental liability.
Net interest expense of $96 million was up 13 percent, reflecting higher debt levels following the Yoplait acquisition. The effective tax rate for the third quarter was 32.7 percent. Excluding certain items affecting comparability, the effective tax rate was 32.0 percent in this year’s third quarter and 31.6 percent a year ago.
Cash provided by operating activities totaled $1.66 billion in the first nine months of 2012, an increase from last year’s results primarily due to targeted reductions of working capital in the period. Capital investments totaled $424 million in the first nine months of 2012. Dividends paid rose to $600 million, reflecting the increase in the dividend rate year-over-year. During the first nine months, General Mills repurchased approximately 8 million shares of common stock, including 3 million shares purchased in the third quarter.
General Mills reaffirmed its fiscal 2012 adjusted diluted EPS guidance of $2.53 to $2.55. This guidance excludes mark-to-market valuation effects, and integration costs for the Yoplait acquisition. “Fiscal 2012 has represented a challenging operating environment, with the highest level of commodity inflation that we’ve seen in 30 years,” Powell said. “But sales of our leading food brands remain strong in markets around the world, putting General Mills on pace to achieve record-level net sales and adjusted diluted earnings per share.”