General Mills, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2016, the quarter ended August 30, 2015. Financial amounts are in millions of dollars except per-share data. Comparisons are with the quarter ended August 24, 2014.
Financial results and key metrics
| Metric | Q1 FY2016 | Q1 FY2015 | Change / context |
|---|---|---|---|
| Net sales | $4,207.9 | $4,268.4 | Down 1% reported; up 4% at constant currency |
| Operating profit | $683.3 | $557.5 | Up 23% |
| Net earnings attributable to General Mills | $426.6 | $345.2 | Up 24% |
| Diluted EPS | $0.69 | $0.55 | Up 25%; adjusted EPS was $0.79 versus $0.61 |
| Net interest expense | $75.3 | $78.5 | Down $3.2 |
| Operating cash flow | $430.9 | $329.4 | Up $101.5 |
| Capital expenditures | $147.2 | $148.6 | Approximately flat |
| Total debt at period end | $9,433.7 | — | Up from $9,191.5 at May 31, 2015 |
Gross margin was approximately 37.0% versus 33.7%, and operating margin approximately 16.2% versus 13.1%, calculated from reported results. The company reported adjusted diluted EPS growth of 30%, or 36% on a constant-currency basis; these are non-GAAP measures.
Cash and cash equivalents were $450.6 at quarter-end, against current liabilities of $5,299.9. Notes payable were $823.7 and current long-term debt was $1,000.3. The company had $3.4 billion of committed and uncommitted credit facilities, with $0.3 billion borrowed, and reported compliance with debt and credit-facility covenants. Management said operating cash flows and available financing should meet liquidity and capital needs for at least 12 months. Cash dividends paid were $266.5; share repurchases were $152.1.
Material changes and segment performance
- U.S. Retail sales increased 4% to $2,531.2 and segment operating profit rose 38% to $629.7. Profit benefited from lower SG&A and supply-chain costs and unusually high promotional spending in the prior-year quarter. Annie’s contributed to reported growth.
- International sales fell 11% to $1,199.0, primarily reflecting a 16-point foreign-exchange impact; sales grew 5% at constant currency. Segment operating profit declined 20% to $117.0, or 3% at constant currency.
- Convenience Stores and Foodservice sales increased 1% to $477.7, while operating profit declined 9% to $79.8, mainly due to higher input costs.
- Consolidated sales were pressured by currency translation, while lower cost of sales and SG&A supported higher earnings. SG&A declined $56 million, partly reflecting cost-management savings and lower media and advertising expense.
Outlook, management commentary, risks and unusual items
- The filing provides no specific full-year sales or EPS guidance. Management cautioned that quarterly results are not necessarily indicative of the full fiscal year.
- Restructuring and project-related costs were significant: $81.9 of restructuring charges and $13.1 of project-related costs were recorded in the quarter. The Compass plan is expected to eliminate approximately 675–725 positions and incur about $59 million of net expenses. Century actions include a tentative West Chicago plant closure affecting about 500 positions and a Joplin plant closure affecting about 120. Management estimated approximately $71 million of additional cash project-related costs across restructuring initiatives.
- After quarter-end, General Mills reached an agreement to sell its Green Giant business in U.S. Retail and part of its International business for $765 million in cash, subject to inventory adjustment and regulatory approval. The company expected closing in fiscal 2016 and a gain in the closing quarter. Green Giant had previously incurred a $260 million brand impairment in fiscal 2015.
- Commodity mark-to-market effects were a net $3 million decrease in cost of sales this quarter, compared with a $49 million net increase in the prior-year quarter. These effects, restructuring and project costs affect period-to-period comparability.
- Other stated risks include foreign-exchange volatility, competitive and consumer-demand changes, input-cost and supply-chain disruptions, effectiveness of restructuring and savings initiatives, product quality and safety, and possible impairment of goodwill or intangible assets. Foreign currency translation reduced reported comprehensive income; other comprehensive loss was $100.4.
Important facts for investors to verify
- Whether sales growth and segment profitability persist after separating currency effects, acquisitions, prior-year promotional comparisons and non-GAAP adjustments.
- Actual restructuring costs, cash outlays, position reductions and realized savings versus management’s estimates and timelines.
- Completion terms, regulatory approval, inventory adjustment and realized proceeds or gain from the Green Giant sale.
- Debt maturities, refinancing and liquidity, including the $1.0 billion of long-term debt classified as current and due within 12 months.
- Performance and carrying values of vulnerable brands and businesses, including Green Giant and the Mountain High and Uncle Toby’s brands identified for monitoring.