Business News

General Mills Reports Strong Growth In Fiscal 2008 Third Quarter

Tuesday 25. March 2008 - Net Sales Increased 12 Percent to $3.41 Billion Net Earnings Totaled $1.23 per Share Including Certain Non-cash Items Company Updates 2008 Full-year Guidance

General Mills (NYSE: GIS) today reported results for the third quarter of fiscal 2008. Net sales for the 13 weeks ended Feb. 24, 2008, rose 12 percent to $3.41 billion, fueled by 6 percent pound volume growth. Gross margin expanded to 39.8 percent of sales, as mark-to-market valuation of commodity positions, productivity and pricing offset significantly higher input costs. Segment operating profits grew 14 percent to $594 million including a 13 percent increase in consumer marketing investment. Net earnings grew 61 percent to $430 million including non-cash gains from mark-to-market valuation of commodity positions and a favorable ruling related to a tax contingency. (These non-cash items are discussed in the section titled Corporate Items below). Diluted earnings per share (EPS) totaled $1.23 including $0.36 from the commodity and tax items. Excluding these items, earnings per share would have totaled $0.87 in the quarter, up 18 percent from $0.74 per share a year ago.

Chief Executive Officer Ken Powell said, “This was a terrific quarter for General Mills, fueled by continued strong demand for our products in markets all around the world.” Each of the company’s business segments reported net sales and operating profit growth for the quarter. These gains came on top of good growth in last year’s third quarter, when General Mills’ net sales grew 6 percent and earnings per share rose 9 percent.

Through the first nine months of fiscal 2008, General Mills’ net sales increased 8 percent to $10.18 billion, and pound volume grew 3 percent. Segment operating profits grew 7 percent to $1.89 billion. Net earnings through nine months grew 21 percent to $1.11 billion. Diluted EPS for the year-to-date totaled $3.19, including $0.39 from the non-cash commodity and tax items. Excluding these items, nine-month earnings per share would have totaled $2.80, up 10 percent from $2.55 last year.

“Our product innovation and consumer marketing investments are driving strong growth on the top line,” Powell said, “and cost-savings efforts, together with pricing actions, are offsetting significantly higher input costs and protecting our margins. This performance has us on pace to deliver strong sales and earnings growth for fiscal 2008 in total.”

U.S. Retail Segment Results
Third quarter net sales for General Mills’ U.S. Retail operations grew 9 percent to $2.30 billion, with gains recorded by every division. Pound volume grew 8 percent. Operating profits grew 9 percent to $486 million.

Snacks division net sales grew 16 percent, reflecting continued strong consumer demand for Nature Valley grain snacks, Fiber One bars and fruit snacks. Baking Products division net sales also rose 16 percent fueled by double-digit volume growth. Yoplait division net sales grew 14 percent led by Yoplait Light yogurt, Yo-Plus yogurt with probiotic cultures and fiber, and introductory shipments of new Fiber One yogurt. Meals division net sales rose 8 percent, reflecting growth by Progresso ready-to-serve soups and Green Giant frozen vegetables. Pillsbury USA division net sales also grew 8 percent, including gains by Pillsbury refrigerated dough products and Totino’s pizza rolls. Net sales for Big G cereals grew 3 percent, led by Cheerios varieties and the Fiber One cereal franchise. Net sales for the company’s Small Planet Foods organic business rose 14 percent.

Through nine months, U.S. Retail segment net sales increased 6 percent to $6.85 billion. Pound volume grew 3 percent. Operating profits increased 4 percent including product recall expenses and a 9 percent increase in consumer marketing investment year-to-date.

International Segment Results
Third-quarter net sales for General Mills’ consolidated international businesses grew 20 percent to $613 million. Pound volume contributed 4 points of growth, pricing and mix added 5 points of growth, and foreign currency exchange accounted for 10 points of the increase. Sales in Latin America / South Africa and in the Asia / Pacific region rose at strong double-digit rates. Net sales in Europe rose 17 percent. In Canada, sales grew 13 percent for the quarter primarily reflecting favorable currency exchange.

Through the first nine months, International net sales rose 20 percent to $1.88 billion, including 9 points of growth from foreign exchange. Operating profits rose 30 percent to $208 million.


Foodservice Segment Results
Third-quarter net sales for the Bakeries and Foodservice segment grew 13 percent to $492 million, due to price increases and favorable mix. Pound volume essentially matched prior-year levels. Operating profits grew 68 percent to $56 million, reflecting gains associated with grain merchandising activities.

Through nine months, Bakeries and Foodservice net sales grew 6 percent to $1.45 billion and operating profits rose 16 percent to $138 million.

Joint Venture Summary
After-tax earnings from joint ventures totaled $30 million in the third quarter of 2008 compared to $16 million in the same period last year. This year’s results include a net gain of $11 million after tax primarily from the sale of property associated with the previously announced restructuring of Cereal Partners Worldwide (CPW) manufacturing plants in the United Kingdom. Last year’s third-quarter earnings from joint ventures included a $4 million after-tax charge associated with the restructuring.

Net sales for the company’s joint ventures increased to $298 million from $249 million in last year’s third quarter. CPW net sales grew 21 percent, and net sales for the company’s Haagen-Dazs joint ventures in Asia grew 10 percent. During the third quarter, the 8th Continent soymilk business was sold. Our after-tax share of the gain recorded in the third quarter was $2 million.

Through nine months, joint venture earnings totaled $80 million in 2008 compared to $58 million in 2007. These totals include a net $8 million after-tax gain from the CPW restructuring activities in 2008 and after-tax expense of $7 million last year.

Corporate Items
Restructuring, impairment and other exit costs totaled $5 million in the quarter, compared to $1 million in the period a year ago. Total corporate unallocated items represented a net gain of $106 million in the quarter, compared to expense of $36 million last year. The gain
this year reflects $151 million net mark-to-market gains on hedges on open commodity positions and current grain inventories. Net interest expense for the quarter was $103 million this year compared to $107 million last year. The effective tax rate for the quarter was 32.5 percent including a $30 million discrete benefit associated with a favorable court decision on a tax matter. Last year’s third quarter tax rate was 33.6 percent. The company now estimates its effective tax rate for the full year, including the discrete item discussed above, will be approximately 34.0 to 34.5 percent.

Cash Flow Highlights
Cash flow from operations totaled $914 million through February 2008, compared to $1.15 billion through the first nine months of 2007. Increased working capital, primarily higher inventory levels and prices, was the key driver of change from last year. Year-to-date capital expenditures totaled $299 million compared to $249 million in the same period last year. Dividends through nine months grew to $395 million. On March 10, 2008, the company announced an increase in the quarterly dividend rate to $0.40 per share, payable May 1, 2008, to shareholders of record April 10, 2008. During the third quarter, General Mills repurchased approximately 3 million shares of common stock at an average price of approximately $55 per share. Average diluted shares outstanding for the third quarter totaled 350 million, down 3 percent from last year’s third-quarter average.

Outlook
In the fourth quarter of fiscal 2008, General Mills expects input costs to be above both current year-to-date and year-ago levels. The company also plans to make strong investments in consumer marketing activities, in order to help drive continued net sales momentum through the final quarter of this year and into fiscal 2009.

“Our businesses are healthy and growing, and financial results through the first nine months have exceeded our plans,” said Powell. “We have updated our earnings per share guidance for the full year, including an estimated $0.30 of non-cash commodity and tax items, to a range of $3.75 to $3.77 per share. Excluding the tax and commodity gains, our earnings guidance would be $3.45 to $3.47 per share.” In fiscal 2007, General Mills earned $3.18 per share.

Total company segment operating profit is a non-GAAP measure. Reconciliation of this measure to the relevant GAAP measure, operating profit, appears in the attached consolidated operating segment results schedule. Earnings per share excluding certain non-cash items is a non-GAAP measure. Reconciliation of this measure to the relevant GAAP measure (earnings per share) appears in Note 9 to the attached consolidated financial statements.