General Mills, Inc. - 10-Q Filing Summary
Business Context and Reporting Period
Company: General Mills, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: February 22, 2009 (Third Quarter of Fiscal 2009)
Business Overview: General Mills operates in the consumer foods industry with three primary segments: U.S. Retail, International, and Bakeries and Foodservice. The company manufactures and markets a wide variety of branded food products including cereals, refrigerated yogurt, frozen dough, and snacks.
Key Financial Metrics
| Metric (in millions, except per share) | Q3 2009 | Q3 2008 | 9-Month 2009 | 9-Month 2008 |
|---|---|---|---|---|
| Net Sales | $3,537.4 | $3,405.6 | $11,045.6 | $10,181.0 |
| Operating Profit | $605.3 | $695.4 | $1,691.5 | $1,892.6 |
| Net Earnings | $288.9 | $430.1 | $945.6 | $1,109.5 |
| Diluted EPS | $0.85 | $1.23 | $2.73 | $3.19 |
| Cash from Operations (9-Month) | $1,129.9 | $913.9 | ||
| Total Debt | $7,687.5 | $6,999.5 | ||
| Cash & Equivalents | $937.3 | $661.0 | ||
Note: Fiscal 2009 is a 53-week year; the additional week is included in the fourth quarter.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 4% in Q3 and 8% for the nine-month period. Growth was driven primarily by net price realization and mix (8 points in Q3, 8 points in 9-month), partially offset by unfavorable foreign currency exchange (-3 points in Q3, -1 point in 9-month) and volume declines in the Bakeries and Foodservice segment.
- Profitability Decline: Net earnings decreased 33% in Q3 and 15% for the nine-month period. Operating profit declined 13% in Q3 and 11% for the nine-month period.
- Cost Pressures: Cost of sales increased due to higher input costs and mix changes. However, the company recorded a $71 million net decrease in cost of sales in Q3 related to mark-to-market valuation of commodity positions, compared to a $151 million decrease in the prior year.
- Divestitures and Acquisitions:
- Sold the Pop-Tarts microwave popcorn product line (Pop Secret) for $192.5 million, recording a pre-tax gain of $128.8 million in the nine-month period.
- Acquired Humm Foods, Inc. (Lärbars) for $55.0 million in stock.
- Entered an agreement to sell the frozen unbaked bread dough product line, expecting a $32 million after-tax loss in Q4.
- Restructuring: Restructuring costs were $1.2 million in Q3 and $6.4 million for the nine-month period, significantly lower than the $22.3 million recorded in the prior year's nine-month period. No new restructuring actions were undertaken in the current period.
Outlook, Risks, and Unusual Items
- Tax Matter: A significant $52.6 million income tax expense was recorded due to a U.S. Court of Appeals reversal of a favorable District Court decision regarding an uncertain tax matter from 1992-2008. The company expects to pay approximately $31.7 million in cash to settle this and is evaluating appeal options.
- Insurance Settlement: Recorded a $41.3 million gain from the settlement of an insurance claim for the La Salteña pasta manufacturing facility in Argentina, destroyed by fire in fiscal 2008.
- Commodity Hedging: The company discontinued hedge accounting for commodity derivatives in fiscal 2008. Mark-to-market valuations of commodity positions and grain inventories resulted in a $289 million net increase in expense for the nine-month period, compared to a $168 million net benefit in the prior year.
- Guidance: Management anticipates input cost inflation at an annual rate of 9% for fiscal 2009. Inflation is expected to be below the annual rate in the fourth quarter as the company draws on lower-cost commodity coverage.
- Liquidity: Cash and cash equivalents increased to $937.3 million. The company maintains $2.9 billion in committed credit facilities and believes cash flows from operations will be adequate for the next 12 months.
Investor Verification Checklist
- Tax Liability: Verify the status of the appeal regarding the $52.6 million tax reversal and the expected cash outflow of $31.7 million.
- Commodity Exposure: Review the impact of mark-to-market accounting on earnings volatility, specifically the $289 million expense in the nine-month period versus prior year benefits.
- Divestiture Timing: Confirm the closing date and final financial impact of the frozen unbaked bread dough product line sale expected in Q4.
- Volume Trends: Monitor volume declines in the Bakeries and Foodservice segment (-12% in Q3) and the impact of the Pop Secret divestiture on the Snacks division.
- Debt Structure: Note the increase in total debt to $7.69 billion, driven by the issuance of $1.9 billion in long-term debt to repay commercial paper.