General Mills, Inc. — Q1 FY2013 Form 10-Q
Reporting period: Quarter ended August 26, 2012; comparison is the quarter ended August 28, 2011. Amounts are in U.S. dollars; financial statement amounts are in millions except per-share data.
Financial performance
| Metric | Q1 FY2013 | Q1 FY2012 | Change |
|---|---|---|---|
| Net sales | $4,051.0 | $3,847.6 | +5% |
| Operating profit | $780.1 | $638.9 | +22% |
| Net earnings attributable to General Mills | $548.9 | $405.6 | +35% |
| Diluted EPS, reported | $0.82 | $0.61 | +34% |
| Diluted EPS, excluding items affecting comparability | $0.66 | $0.64 | +3% |
| Net cash from operating activities | $488.8 | $440.8 | +$48.0 |
| Capital expenditures | $140.6 | $132.8 | +$7.8 |
Reported operating margin was approximately 19.3%, versus 16.6% a year earlier; reported net margin attributable to General Mills was approximately 13.6%, versus 10.5%. Cost of sales was $2,422.7 million and SG&A was $839.0 million. The filing attributes much of the reported earnings improvement to favorable commodity and grain mark-to-market effects and a discrete tax benefit, so adjusted EPS growth was more modest.
Segments and material comparisons
- U.S. Retail: Sales declined 1% to $2,493.9 million; segment operating profit fell 2% to $575.1 million. Higher input costs and lower volume weighed on profit, partly offset by pricing/mix and lower advertising.
- International: Sales rose 27% to $1,085.5 million and segment operating profit increased 56% to $125.8 million. Growth included two additional months of Yoplait activity; unfavorable currency and net price/mix were offsets. Sales growth was 36% on a constant-currency basis.
- Bakeries and Foodservice: Sales declined 2% to $471.6 million, while operating profit rose 10% to $67.7 million, reflecting higher grain merchandising earnings and lower input costs.
- Total segment operating profit increased 6% to $768.6 million. Unallocated corporate items shifted from $88.3 million of expense to $20.7 million of income, primarily reflecting an $82 million net favorable commodity and grain mark-to-market impact in the current quarter versus a $38 million net unfavorable impact a year earlier.
Cash, debt, and liquidity
- Cash and equivalents were $1,508.4 million at quarter-end, up from $471.2 million at fiscal year-end. The cash flow statement reports a $1,037.2 million increase during the quarter.
- Total debt was $8,585.2 million, up from $7,429.6 million at May 27, 2012. Notes payable, primarily commercial paper, rose to $1,682.1 million from $526.5 million. Cash less total debt was approximately $7.1 billion, versus $7.0 billion at fiscal year-end.
- Operating cash flow was $488.8 million; investing activities used $153.6 million and financing activities provided $692.8 million. The company repurchased $272.5 million of shares and paid $217.8 million in dividends.
- Current assets were $5,217.4 million and current liabilities $5,975.5 million. The company had $2.7 billion in committed credit lines with no amounts drawn, plus $371.3 million in uncommitted lines, of which $94.1 million was drawn. Management said operating cash flow and available financing should meet liquidity and capital needs for at least 12 months.
- $1.4 billion of cash was held in foreign jurisdictions for foreign operations and acquisitions; management said there was no current intent or need to repatriate it for domestic funding needs. The company was in compliance with debt and other stated covenants.
Acquisitions, outlook, and risks
- General Mills acquired Brazilian food company Yoki on August 1, 2012, for approximately $939.8 million, including $88.8 million of non-cash net debt assumed. The company funded the purchase with foreign-subsidiary cash and commercial paper. Yoki’s results were to be consolidated beginning in Q2 FY2013, so its operating results are not reflected in this quarter’s sales.
- The company recorded a $66.7 million discrete, non-cash reduction in income tax expense related to restructuring General Mills Cereals, LLC. The effective tax rate was 22.7%, compared with 32.1% a year earlier. Reported diluted EPS of $0.82 reconciles to $0.66 excluding the tax item, restructuring costs, and commodity/grain mark-to-market effects.
- A $9.2 million restructuring charge related to a productivity and cost-savings plan; actions are expected to be completed by the end of fiscal 2014. No numerical full-year sales or EPS guidance is provided in the filing text.
- Management identified risks including competitive and consumer shifts, pricing and promotion, commodity and energy costs, supply-chain disruption, foreign exchange, acquisitions, product quality and safety, pension costs, and impairment of goodwill or intangible assets.
- The company said no pending or threatened legal matter was reasonably likely to materially harm consolidated results or financial position. A YoPlus yogurt health-claims class action was scheduled for trial in fiscal 2013; no loss contingency had been recorded. Disclosure controls were reported effective, with no material change in internal control over financial reporting.
Key facts for investors to verify
- Reconcile reported EPS growth of 34% with adjusted EPS growth of 3%, especially the $66.7 million tax benefit and commodity/grain mark-to-market effects.
- Review Yoki’s purchase price, funding mix, purchase-price adjustment, and expected contribution after consolidation begins in Q2.
- Assess the increase in short-term borrowings and the $1.4 billion of long-term debt classified as current; the filing says the $521 million notes due September 10, 2012, were repaid after quarter-end.
- Monitor segment trends, particularly U.S. Retail volume and International growth excluding acquisition effects and currency movements.
- Track the YoPlus litigation, restructuring costs, and exposure to commodity, currency, interest-rate, and pension risks.