General Mills Inc (GIS) has reported adjusted earnings, excluding the effects of mark-to-market valuation of certain commodity positions, of 64 cents in the first quarter of fiscal 2012, flat compared to the prior-year quarter. The quarterly earnings however, surpassed the Zacks Consensus Estimate by 2 cents.
Management affirms its fiscal 2012 earnings to be in the range of $2.59 – $2.61 a share, excluding mark-to-market effects and integration costs for the Yoplait acquisition.
Revenues and Margins
Total revenue for the reported quarter grew by 9% year over year to $3.85 billion, and the Yoplait acquisition contributed 3 percentage points to the net sales growth. In addition, foreign exchange contributed 2 percentage points of net sales growth, while price realization and mix contributed 5 percentage points of growth.
Volumes (measured in pounds) also contributed 2 percentage points to net sales volume. Revenues marginally exceeded the Zacks Consensus Estimate of $3.81 billion.
However, higher input costs and the change in business mix including the Yoplait acquisition led to the decline in gross margin by 550 basis points (bps) in the quarter to 37.6%. Operating margin also plummeted 490 bps to 16.6% in the quarter. Advertising and media expense increased 7% in the quarter.
Segments
Revenues from the U.S. Retail segment inched up 3% year over year to $2.51 billion in the quarter, reflecting higher input costs and a 6% increase in advertising and media expense. Price and mix contributed 7 percentage points of net sales growth, and volume reduced sales growth volume by 4 percentage points in the quarter.
Revenue at the International segment grew 30% year over year in the quarter to $856 million, reflecting a-10 percentage point contribution from currency translation. However, net price realization and mix dented sales growth by 8 percentage points. Pound volumes contributed a-28 percentage point to the net sales volume.
On a constant-currency basis, net sales at the International segment jumped 20% year over year, with gains of 36% in Europe, 15% in the Asia / Pacific region, 12% in Latin America and 8% in Canada.
Compared with the year-ago period, the Bakeries and Foodservice segment’s revenue improved by 13% to $481 million in first quarter 2012, demonstrating a strong contribution of 15 percentage points from net price realization and mix. However, volume declined the net sales growth volume by 2 percentage points.
In the quarter, only the International segment reported an operating profit growth of 30% to $81 million. Operating profit at U.S. Retail segment fell 5% to $585 million, while operating profit at the Bakeries and Foodservice was below the year-ago levels at $61 million due to higher input costs and lower grain merchandising earnings year-over-year.
Other Financial Update
During the quarter, General Mills completed the acquisition of a 51% controlling interest in the international Yoplait yogurt business and a 50% interest in a related entity that holds the Yoplait brands worldwide. The agreement was formed in May, 2011 with PAI Partners and Sodiaal.
Further, the acquisition was completed for approximately €810 million . Sodiaal will now hold the remaining ownership stakes in both entities, as per the agreement. Yoplait is headquartered in France and happens to be the second largest brand in the global yogurt market.
Balance Sheet and Share Repurchase
During the quarter, the company had operating cash flow of $441.0 million, an increase from last year’s first-quarter results primarily due to reduced working capital needs in the period.
Capital expenditure totaled $133 million in the first quarter of 2012, while dividends totaled $200 million in the quarter.
During the first quarter, General Mills repurchased approximately 3 million shares of common stock for $110 million. Average diluted shares outstanding totaled 667 million for the first quarter of 2012 compared to 672 million in last year’s first quarter.
General Mills, which faces stiff competition from Kellogg Company (K) currently, holds a Zacks #3 Rank. On a long-term basis, the company retains a Neutral rating on the stock, with a short-term Hold rating.
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