General Mills (GIS) reported fourth quarter 2012 results with adjusted earnings (excluding mark-to-market effects and restructuring costs) of 60 cents per share climbing 15% from the prior-year quarter. The upside was driven by positive top-line growth and cost savings despite significant input cost pressures. The quarterly earnings also beat the Zacks Consensus Estimate by 2 cents.
Revenues and Margins
Total revenue of the global consumer food company increased 12% year over year to $4.07 billion benefiting mainly from the addition of Yoplait entities, which were acquired in July last year. The Yoplait yogurt acquisition added 9 percentage points to revenue growth; price/mix added 1 percentage point while volume contributed 12 percentage points.
Foreign exchange pulled down the top line by 1 percentage point. Revenues marginally missed the Zacks Consensus Estimate of $4.12 billion.
However, higher input cost inflation and lower U.S. retail volumes dragged the quarter’s adjusted gross margin down by 140 basis points (bps) to 37.2%. Adjusted operating margin still expanded 40 bps to 16.2% in the quarter due to the company’s cost-saving efforts.
Segment Performance
Revenues from the U.S. Retail segment rose 3% year over year to $2.4 billion in the quarter as benefits from price/mix was partly offset by weak volume trends. Price/mix added 10 percentage points to sales growth which was offset by a 7 percentage point headwind from pound volume. Segment operating profit increased 4% to $536 million despite higher input costs, lower volumes, as well as rising advertising costs.
The best-performing segment at General Mills was once again its International operations, which grew 46% year over year to $1.1 billion. Volume added 75 percentage points, all from the Yoplait acquisition, while price/mix took away 23 percentage points from net sales growth. Foreign exchange had an unfavorable 6 percentage point impact on net sales. Segment operating profit was up 66% to $1119 million.
On a year-over-year basis, the Bakeries and Foodservice segment’s quarterly revenue improved 2% to $511.0 million. It was driven by volume gains, with price mix reducing revenue growth by 1%. Segment operating profit declined 10% year over year to $81 million.
Annual Results
In fiscal 2012, the company witnessed a 12% increase in revenue to $16.7 billion, exactly in line with the Zacks Consensus Estimate. The annualized growth was driven mainly by the Yoplait deal. Adjusted earnings (excluding mark-to-market effects and restructuring charges) were $2.56 per share, which beat the Zacks Consensus Estimate by 2 cents and the year-ago results by 12 cents despite record commodity cost inflation. In fiscal 2012, commodity inflation was 10%, the highest in the last 30 years.
This fiscal year, the company launched many new products, with the most successful being Fiber One 90-calorie brownie snack bars, Peanut Butter Multi-Grain Cheerios and Yoplait yogurt and granola parfaits. The company also increased its brand marketing investments and took strategic actions which resulted in better-than-expected top- and bottom-line growth.
Dividend Increase
General Mills’ board of directors very recently announced an 8% increase in the quarterly dividend, resulting in an annualized dividend rate of $1.32 per share. The new quarterly dividend of 33 cents will be paid on August 1, 2012, to shareholders of record July 10, 2012.
Guidance
The company expects to post mid single-digit growth in sales to be driven by increased marketing investments for North American Yoplait yogurt businesses and expanded growth in emerging markets, especially China. Consumer food companies are expanding focus on the fast growing emerging markets, which have a better growth outlook than the North American and European markets which are suffering from saturation, constrained consumer spending and increased competitive activity.
Operating margins are expected to outstrip top-line growth due to the company’s cost-saving efforts under its holistic margin management (“HMM”) initiative.
Management expects fiscal 2013 adjusted earnings to be approximately $2.65 a share, below the Zacks Consensus expectation of $2.75. The guidance includes headwinds of 2-3 cents from the acquisition of Yoki Alimentos, S.A., a Brazilian food company, which is expected to close in the first half of the fiscal year.
While increased pension expenses and a higher tax rate are likely to temper earnings growth by 8 cents, share buyback is expected to provide downside support. Media investment is expected to be at least similar to the 2011 level of $914 million.
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