General Mills, Inc. — Form 10-Q Summary
Business context and period. This filing covers the first quarter of fiscal 2010, ended August 30, 2009, with comparisons to the quarter ended August 24, 2008. General Mills operates U.S. Retail, International, and Bakeries and Foodservice segments. Amounts below are in millions of dollars unless stated otherwise.
Financial results and key metrics
| Metric | Q1 FY2010 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $3,518.8 | $3,497.3 | Up 1% |
| Operating profit | $692.9 | $471.0 | Up 47% |
| Total segment operating profit (non-GAAP) | $767.6 | $632.9 | Up 21% |
| Net earnings attributable to General Mills | $420.6 | $278.5 | Up 51% |
| Diluted EPS | $1.25 | $0.79 | Up 58% |
| Operating cash flow | $275.1 | $225.9 | Up $49.2 |
| Capital expenditures | $126.3 | $128.6 | Down $2.3 |
- Gross profit was $1,458.7 million, implying a gross margin of approximately 41.5%, compared with approximately 34.1% a year earlier. Operating margin was approximately 19.7%, versus 13.5%.
- Cost of sales fell $245.5 million, attributed mainly to mix and lower input costs. SG&A rose $48.6 million; advertising and media expense increased 16%.
- Diluted EPS included a net $0.03 reduction from commodity mark-to-market valuation, compared with a $0.17 reduction in the prior-year quarter.
- Cash used in investing activities was $117.1 million; cash used in financing activities was $200.7 million. Cash declined $38.2 million to $711.6 million. Operating cash flow less capital expenditures was approximately $148.8 million.
- At August 30, current assets were $3,873.5 million and current liabilities were $3,712.3 million, for a current ratio of approximately 1.04. Inventories increased to $1,645.7 million from $1,346.8 million at May 31, primarily reflecting a $285.1 million increase in finished goods.
- Total debt was $7,177.2 million, up from $7,075.5 million at May 31; this includes $914.8 million of notes payable, $508.5 million of current long-term debt, and $5,753.9 million of long-term debt. Cash and cash equivalents were $711.6 million.
Material changes versus the prior-year quarter
- Sales growth was modest overall: 3 percentage points from price and mix were partly offset by 2 points of unfavorable foreign exchange; volume was flat, including a 2-point drag from divested product lines.
- U.S. Retail sales rose 6% to $2,423.8 million and segment operating profit rose to $636.7 million from $526.3 million.
- International sales fell 4% to $661.7 million, including a 9-point foreign-exchange headwind; operating profit fell to $69.7 million from $79.9 million.
- Bakeries and Foodservice sales fell 16% to $433.3 million, largely reflecting divested product lines and lower price/mix; operating profit rose to $61.2 million from $26.7 million on improved plant performance, productivity, lower input costs, and stronger grain merchandising earnings.
- Unallocated corporate expense declined to $75.5 million from $159.2 million. Commodity and grain mark-to-market expense was a net $14.8 million, versus $91.4 million a year earlier.
- Average diluted shares outstanding declined by 14 million, primarily reflecting share repurchases. The company repurchased 4.3 million shares for $233.9 million in the quarter, compared with 8.2 million shares for $519.2 million in the prior-year quarter.
Outlook, commentary, risks, and unusual items
- Management stated that operating cash flows and available short- and long-term financing should be adequate to meet liquidity and capital needs for at least the next 12 months. The filing provides no specific earnings or sales guidance and cautions that first-quarter results are not necessarily indicative of the full fiscal year.
- There were no acquisitions in the quarter. Restructuring and exit items were a net $0.8 million gain, including a $1.0 million gain related to the closure and sale of the Contagem, Brazil plant. Management reported no material subsequent events or material ordinary-course changes to contractual obligations or off-balance-sheet arrangements.
- The company had $3.0 billion in committed credit facilities supporting commercial paper, with no borrowings under those facilities at quarter-end. It was in compliance with debt covenants. $508.5 million of long-term debt was classified as current because it matures within 12 months.
- Commodity, interest-rate, and foreign-exchange exposure is managed in part with derivatives. The filing reports a $205.6 million net notional value of commodity derivatives. A downgrade below investment grade could trigger collateral requirements; the company estimated an additional $14.3 million of collateral would have been required at quarter-end if those provisions were triggered.
- Management identifies risks including competition, consumer demand and pricing reactions, raw-material and energy costs and availability, supply-chain disruption, commodity and currency volatility, product safety, benefit-plan assumptions, tax matters, and impairment of goodwill or intangible assets.
Important facts for investors to verify
- Whether strong earnings growth persists after considering lower input costs and the much smaller commodity mark-to-market expense compared with the prior-year quarter.
- Whether inventory growth and the use of cash in working capital reverse or continue in subsequent quarters.
- How International foreign-exchange exposure and Bakeries and Foodservice divestitures affect ongoing sales and profits.
- The refinancing plan for $508.5 million of debt due within 12 months and continued access to commercial-paper and credit markets.
- Whether share repurchases and dividends remain supportable alongside capital investment, debt obligations, and other liquidity needs.