What Recession? General Mills Quarterly Profit Up 50 Percent

We don’t normally report quarterly financials, but this one’s worth heralding. Second-quarter profits surged nearly 50 percent at General Mills Inc., as the Minneapolis food company enjoyed strong operating performance and commodity costs that were below year-ago levels. The company raised its full-year earnings per share guidance to a range of $4.52-4.57, up from the earlier $4.40-4.45 per share.

"Consumers around the world continue to focus on nutritious, convenient food choices that help them make breakfast, lunch and dinner for their families at good value,” said Chairman and CEO Ken Powell. “Demand for our leading brands remains strong. These good sales levels, combined with the accumulating benefits of our holistic margin management (HMM) efforts, are continuing to drive terrific operating performance in our manufacturing plants.”

Net earnings for the quarter were $565.5 million, up 49.5 percent from the $378.2 million earned in the same period of fiscal 2009. The figures were for the 13 weeks ended Nov. 29, 2009. General Mills’ fiscal year ends about May 30, 2010.

The net earnings figure far outpaced other metrics. Net sales grew 2 percent to $4.08 billion, led by 4 percent growth in U.S. retail sales. Segment operating profit increased 13 percent to $880 million. Diluted earnings per share grew at 52 percent to $1.66.

Through the first six months of fiscal 2010, General Mills’ net sales grew 1 percent to $7.60 billion.

Net sales for Big G cereals grew 10 percent in the quarter, led by Chex cereal varieties, the Cheerios franchise and Fiber One cereals.

The company noted it increased its consumer marketing investment during the quarter, including a 37 percent increase in advertising and media expense.

Second-quarter net earnings totaled $566 million, including a net gain related to mark-to-market valuation of certain commodity positions. Diluted earnings per share (EPS) totaled $1.66, up from $1.09 in last year's second quarter, which included a net reduction in mark-to-market valuation and a gain on the sale of a business. Excluding the divestiture gain last year and mark-to-market impacts in both years, second-quarter earnings would total $1.54 in fiscal 2010, up 13 percent from comparable earnings of $1.36 per share in fiscal 2009.

Six-month Financial Results Summary

Through the first six months of fiscal 2010, General Mills net sales grew 1 percent to $7.60 billion. Net sales in last year's first half grew 11 percent. Foreign currency translation reduced 2010 first-half sales growth by 1 percentage point. The contribution from pound volume was flat despite the loss of 2 points of growth from divested products. Segment operating profits increased 16 percent to $1.65 billion, including a 27 percent increase in advertising and media investment. Six-month net earnings totaled $986 million. Diluted earnings per share totaled $2.91 compared to $1.88 in last year's first half. Excluding last year's divestiture gain and mark-to-market valuation effects in both years, earnings per share would total $2.82 for the first half of fiscal 2010, up 22 percent from comparable earnings of $2.32 a year ago.

U.S. Retail Segment Results

Second-quarter net sales for General Mills' U.S. Retail segment rose 4 percent to $2.89 billion. Pound volume contributed 2 points of the growth. This was solid performance, given that last year's second-quarter net sales grew 10 percent and pound volume contributed 5 points of that increase. Operating profits for the second quarter grew 13 percent to reach $718 million, including a 29 percent increase in advertising and media expense for the period.

Net sales for Big G cereals grew 10 percent in the quarter, led by Chex cereal varieties, the Cheerios franchise and Fiber One cereals. Snacks division net sales grew 6 percent with strong contributions by Fiber One and Nature Valley grain snack bars and several fruit snack varieties. Net sales for the Baking Products division increased 5 percent led by Betty Crocker dessert mixes. Yoplait division net sales also grew 5 percent, reflecting continued gains by Yoplait Light and strong introductory sales of Yoplait Delights yogurt parfaits. Net sales for the Pillsbury division rose 1 percent with good performance by Pillsbury refrigerated dough products, Totino's pizza and Pizza Rolls snacks, and Pillsbury Savorings appetizers. Meals division net sales essentially matched strong year-ago levels, with Green Giant frozen vegetables, Progresso ready-to-serve soups and Old El Paso Mexican foods recording good gains. Net sales for the Small Planet Foods natural and organic business were 2 percent below prior-year levels reflecting soft organic food industry trends, however Cascadian Farm cereals and the Larabar line recorded market share gains.

Through six months, U.S. Retail segment net sales rose 5 percent to $5.31 billion. Pound volume growth accounted for 2 points of the sales increase. Segment operating profits grew 16 percent to $1.36 billion.

International Segment Results

Second-quarter net sales for General Mills' consolidated international businesses grew 7 percent to $724 million. Foreign currency translation contributed 4 points of sales growth, and net price realization and mix contributed 3 points of growth. Pound volume matched year ago levels, including the loss of 2 points of growth from divested products. International segment operating profits declined 3 percent, reflecting transactional foreign currency effects on cost of sales and a strong double-digit increase in advertising and media expense.

Through six months, International segment net sales increased 1 percent to $1.39 billion. Net price realization and mix contributed 5 points of net sales growth. Foreign currency translation reduced the growth rate by 3 points. Pound volume subtracted 1 point of net sales growth, including the loss of 2 points of growth from divestitures.

First-half segment operating profits of $147 million were 8 percent below last year's first half due to negative foreign currency effects and increased advertising investment.

Bakeries & Foodservice Segment Results

Second-quarter net sales for the Bakeries & Foodservice segment declined 16 percent to $464 million, reflecting the absence of divested products and the impact of indexed prices on certain product lines. Pound volume reduced net sales growth by 10 percentage points, including the loss of 8 points of growth from divested products. Segment operating profits grew 32 percent to $85 million, reflecting strong plant operating performance and lower input costs.

Through the first half, Bakeries & Foodservice segment net sales declined 16 percent to $897 million, reflecting the impact of divestitures and indexed prices on certain product lines. However, segment operating profits through the first six months grew at a strong double-digit rate to $146 million.

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