General Mills, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended February 23, 2014; comparisons are to the periods ended February 24, 2013. Dollar amounts are in millions unless stated otherwise. This is fiscal 2014 Q3, despite the request metadata identifying 2013 Q3.
Financial performance
| Metric | Quarter | Prior-year quarter | Nine months | Prior-year nine months |
|---|---|---|---|---|
| Net sales | $4,377.4 | $4,430.6 | $13,625.8 | $13,363.4 |
| Operating profit | $670.6 | $642.1 | $2,275.5 | $2,251.2 |
| Net earnings attributable to General Mills | $410.6 | $398.4 | $1,419.8 | $1,488.9 |
| Diluted EPS | $0.64 | $0.60 | $2.18 | $2.24 |
| Dividends per share | $0.38 | $0.33 | $1.14 | $0.99 |
- Quarterly sales declined 1%; reported operating profit rose 4%, net earnings rose 3%, and diluted EPS rose 7%. Management’s adjusted diluted EPS, excluding specified comparability items, was $0.62, down 6%.
- Nine-month sales increased 2%, including 2 percentage points from acquired or newly consolidated businesses; excluding those businesses, sales were flat. Net earnings fell 5% and diluted EPS fell 3%; adjusted diluted EPS was $2.15, down 1%.
- Calculated operating margin was approximately 15.3% for the quarter versus 14.5% a year earlier, and 16.7% for the nine months versus 16.9%. Quarterly gross margin was approximately 34.6% versus 34.4%.
- Nine-month operating cash flow was $1,724.2, down from $2,145.7. Capital expenditures were $416.4; investing cash use was $430.3. Financing cash use was $1,170.2, including $1,403.2 of share repurchases and $729.4 of dividends paid. Cash at period-end was $847.1, up from $741.4 at fiscal year-end.
- Total debt was $8,928.7 versus $7,969.1 at May 26, 2013. Long-term debt, including current maturities, had a reported fair value of $8,824.7 and carrying value of $8,383.4. Current assets were $4,557.6 and current liabilities $4,683.6; the company reported $2.7 billion in committed credit lines, with none drawn.
Business trends and changes versus prior year
- U.S. Retail quarterly sales decreased 2% and segment operating profit fell 11%, pressured by lower sales, unfavorable mix, higher input costs, and yogurt marketing and merchandising. Yoplait quarterly sales declined 8%; Meals fell 4%.
- International quarterly sales rose 2% as reported, or 7% on a constant-currency basis; segment operating profit increased 15% as reported. Excluding the prior-year Venezuela devaluation impact, quarterly segment profit increased 1%. Nine-month sales grew 8% as reported, including new businesses, and profit rose 8% as reported.
- Convenience Stores and Foodservice quarterly sales fell 7% and profit fell 17%, with management citing adverse weather-related volume, unfavorable pricing and higher SG&A. Nine-month sales declined 3% and profit declined 7%.
- Quarterly consolidated sales reflected a 1-point adverse foreign-exchange effect and a 1-point volume decline, partly offset by 1 point of favorable price and mix. Nine-month sales growth included 2 points from volume, 1 point from price and mix, and a 1-point foreign-exchange headwind.
- Quarterly reported profit benefited from a $23 million net decrease in expense from commodity and grain mark-to-market effects, compared with a $25 million net increase a year earlier. Lower SG&A and the absence of quarterly restructuring charges also supported operating profit.
Outlook, risks and unusual items
- The filing provides no clear consolidated full-year sales or earnings guidance. Management stated that operating results to date are not necessarily indicative of full-year results and believed cash from operations plus available financing would meet liquidity and capital needs for at least 12 months.
- Venezuelan currency rules were changing and the appropriate rate for potential dividend remittances remained uncertain. General Mills continued to remeasure at 6.3 bolivars per U.S. dollar at quarter-end. If a new market rate fell within the company’s illustrative range of 20 to 90 bolivars per dollar, management estimated a possible $50–$65 million pre-tax foreign-exchange loss in fiscal Q4. Venezuela represented less than 1% of consolidated assets, liabilities, sales, and segment operating profit.
- Other material exposures discussed include commodity, foreign-exchange and interest-rate volatility; competitive and consumer-demand pressures; input availability and costs; product quality and safety; pension assumptions; and foreign political and economic uncertainty. The company reported compliance with debt and other restrictive covenants.
- Fiscal 2014 included no acquisitions in the nine-month period; comparisons included additional operating activity from Yoki, the Canadian Yoplait franchise, and Immaculate Baking acquired or added in fiscal 2013. The company recorded a $12 million fraud-related asset loss in International in Q2. The Uncle Toby’s brand had fair value 8% above its $63 million carrying value at the annual impairment test; no impairment was recorded.
- Effective tax rates rose to 33.8% for the quarter and 33.1% for the nine months. Management attributed the increases mainly to domestic audit settlements and the prior-year discrete tax benefit from the GMC restructuring, respectively.
- The company repurchased 29.0 million shares for $1.4 billion in the nine months. Its debt issuance included $500 million of 3.65% notes due 2024, $250 million of floating-rate notes due 2016, and €500 million of 2.1% notes due 2020.
Important facts for investors to verify
- Whether underlying sales and segment profitability improve, particularly in U.S. Retail and Convenience Stores and Foodservice, and how much reported growth depends on acquired businesses.
- The actual Venezuelan exchange mechanism and any resulting Q4 charge, versus management’s illustrative loss estimate.
- Cash-flow conversion and working-capital movements: operating cash flow declined $422 million year over year, largely due to changes in current assets and liabilities.
- Debt maturities and refinancing needs: $1,203.8 million of long-term debt was classified as current, with management identifying $400 million of floating-rate notes and $300 million of 1.55% notes due in May 2014 among the principal maturities.
- The effect of continued large share repurchases and dividend payments on leverage, liquidity, and per-share results.