General Mills, Inc. — Form 10-K Summary
Business context and reporting period: General Mills manufactures and markets branded consumer foods, with U.S. Retail, International, and Bakeries and Foodservice segments, plus interests in two joint ventures. The filing covers the fiscal year ended May 27, 2012 (52 weeks); fiscal 2011 is the principal comparable period. The filing also reports fourth-quarter results.
Unless otherwise stated, financial amounts are in millions of U.S. dollars.
Financial performance
| Metric | Fiscal 2012 | Fiscal 2011 |
|---|---|---|
| Net sales | $16,657.9 | $14,880.2 |
| Gross margin | $6,044.7; 36.3% of sales | $5,953.5; 40.0% of sales |
| Operating profit | $2,562.4 | $2,774.5 |
| Total segment operating profit | $3,011.6; 18.1% of sales | $2,945.6; 19.8% of sales |
| Net earnings attributable to General Mills | $1,567.3 | $1,798.3 |
| Diluted EPS | $2.35 | $2.70 |
| Diluted EPS excluding specified comparability items | $2.56 | $2.48 |
| Net cash from operating activities | $2,402.0 | $1,526.8 |
| Capital expenditures | $675.9 | $648.8 |
| Total debt | $7,429.6 | $6,885.1 |
| Cash and cash equivalents at year-end | $471.2 | $619.6 |
Fiscal 2012 sales rose 12%, supported by 9 percentage points from volume and 3 points from price realization and mix; Yoplait’s acquisition was a major contributor. Reported diluted EPS fell 13%, while the company’s non-GAAP diluted EPS measure increased 3%. The non-GAAP figure excludes selected items and should be considered alongside GAAP results.
Fourth-quarter sales were $4,066.4 versus $3,634.3 in the prior-year quarter. Net earnings attributable to General Mills were $325.4 versus $320.2, and diluted EPS was $0.49 versus $0.48.
Material changes and drivers
- Input-cost inflation was 10% for the year. Higher input costs and unfavorable commodity and grain mark-to-market results contributed to a 370-basis-point decline in gross margin as a percentage of sales.
- Fiscal 2012 included a $104.2 net mark-to-market expense for certain commodity positions and grain inventories, compared with a $95.2 net gain in fiscal 2011. Fiscal 2012 also included $101.6 of restructuring and exit costs and $11 of Yoplait integration costs. Fiscal 2011 benefited from a $100 million tax-expense reduction related to an IRS settlement.
- International segment sales increased 46% and segment operating profit increased 47%, principally reflecting the Yoplait acquisition. U.S. Retail sales rose 3%, but segment profit fell 2%; U.S. Retail volume declined 6%. Bakeries and Foodservice sales rose 8%, while segment profit declined, primarily due to lower grain-merchandising earnings.
- Yoplait S.A.S. and Yoplait Marques S.A.S. were acquired in fiscal 2012 for an aggregate purchase price of about $1.2 billion. The balance sheet includes an $847.8 redeemable interest related to Sodiaal’s 49% interest in Yoplait S.A.S.; limited put rights extend for up to nine years.
- Goodwill and other intangible assets increased to $12,887.4, largely due to the Yoplait transactions. The company reported no goodwill or indefinite-lived intangible impairment in its fiscal 2012 assessment.
Cash, debt, and liquidity
Operating cash flow improved by $875.2 year over year, primarily due to working-capital movements, including inventory reductions. Investing cash outflow was $1,870.8, including acquisitions and capital spending; financing cash outflow was $661.4. The company paid $800.1 in dividends and repurchased $313.0 of shares during fiscal 2012.
Year-end total debt was $7,429.6, with $741.2 of long-term debt classified as current. The company had $2.7 billion of committed credit facilities, none drawn at year-end, and was in compliance with debt and credit-facility covenants. Management stated that operating cash flow and available financing should meet liquidity and capital needs for at least the next 12 months. Total debt, redeemable interests, and noncontrolling interests together were $8.7 billion.
Outlook, risks, and contingencies
- For fiscal 2013, excluding the pending Yoki acquisition, management targeted mid-single-digit net sales growth and mid-single-digit total segment operating profit growth. It expected lower input-cost inflation and continued use of cost savings, mix management, and pricing to support results.
- Management expected approximately $650 million of fiscal 2013 capital expenditures, excluding potential Yoki-related spending, and anticipated share repurchases at least sufficient to offset normal stock-option exercises. A dividend increase to an annual rate of $1.32 per share was approved after year-end.
- The company entered into an agreement to acquire Brazil-based Yoki for approximately $990 million, including assumed debt, subject to purchase-price adjustment; closing was expected in the first half of fiscal 2013. Management expected to use foreign-subsidiary cash and commercial paper to fund it.
- A productivity and cost-savings plan is expected to eliminate about 850 positions globally. The company recorded $101 million of related restructuring charges and expected approximately $19 million more in fiscal 2013, with actions expected to finish by fiscal 2014.
- Key disclosed risks include commodity and energy price volatility, intense competition and private-label pressure, customer concentration (Wal-Mart represented 22% of consolidated sales), food safety and product recalls, supply-chain disruption, foreign exchange and political risks, debt and refinancing needs, pension assumptions, and potential impairment of goodwill or brands.
- Environmental matters involved three active cleanup sites; management assessed probable aggregate exposure as not material to consolidated financial position or operating cash flows. The filing stated no pending legal matter was reasonably likely to have a material adverse effect, while a YoPlus yogurt class action was scheduled for trial in fiscal 2013 and no loss contingency was recorded.
- KPMG issued an unqualified opinion on the financial statements and internal controls; management concluded disclosure controls and internal control over financial reporting were effective at year-end.
Investor verification priorities
- Separate acquisition-driven sales growth from underlying volume, pricing, and mix, particularly for Yoplait and the pending Yoki transaction.
- Assess whether gross-margin pressure from inflation and commodity mark-to-market volatility moderates as management expected, and compare GAAP results with the company’s adjusted EPS measure.
- Track debt and financing needs, including the Yoki purchase, near-term maturities, Yoplait’s redeemable interest and put rights, and the stated liquidity position.
- Monitor execution and cash costs of the 850-position restructuring, along with whether anticipated savings and fiscal 2013 guidance are achieved.
- Review pension funding and expense sensitivity to discount rates and asset returns, and monitor customer concentration, food-safety exposure, and the YoPlus litigation.