General Mills, Inc. — Form 10-Q Summary
Reporting period: Second quarter and six months ended November 24, 2013 (fiscal 2014). Unless stated otherwise, amounts are U.S. dollars in millions. The filing notes interim results are not necessarily indicative of full-year results.
Financial results
| Metric | Quarter ended Nov. 24, 2013 | Prior-year quarter | Six months ended Nov. 24, 2013 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $4,875.7 | $4,881.8 | $9,248.4 | $8,932.8 |
| Operating profit | $870.1 | $829.0 | $1,604.9 | $1,609.1 |
| Net earnings attributable to General Mills | $549.9 | $541.6 | $1,009.2 | $1,090.5 |
| Diluted EPS | $0.84 | $0.82 | $1.54 | $1.64 |
| Operating cash flow | Not separately reported quarterly | $1,008.9 | $1,317.1 |
- Quarterly sales were essentially flat; operating profit rose about 5% and reported diluted EPS rose 2%. EPS excluding specified comparability items was $0.83, down 3% from $0.86.
- Six-month sales increased about 4%, including 2 percentage points from new businesses. Operating profit was essentially unchanged; reported diluted EPS fell 6%. Adjusted diluted EPS was $1.53, up 1% from $1.52.
- Quarterly operating margin was approximately 17.8%, versus 17.0% a year earlier. Six-month operating margin was approximately 17.4%, versus 18.0%. Quarterly gross margin was approximately 36.1%, compared with 35.7%.
- Quarterly dividends per share were $0.38 versus $0.33; six-month dividends were $0.76 versus $0.66.
Liquidity, cash flow, and debt
- At November 24, 2013, cash and equivalents were $774.2; total current assets were $4,775.8 and current liabilities $4,990.1, giving negative working capital of approximately $214 million.
- Six-month operating cash flow was $1,008.9, down $308.2 year over year. Management attributed the decline primarily to a $402 million change in current assets and liabilities, including trade-promotion accruals and payment timing.
- Investing activities used $317.4, including $268.8 of capital expenditures and $46.9 of affiliate investments. Financing activities used $654.2, including $863.9 of share repurchases and $489.8 of dividends.
- Total debt was $8,644.7, up from $7,969.1 at May 26, 2013. This comprised $1,051.3 of notes payable, $852.8 of current long-term debt, and $6,740.6 of long-term debt. Debt fair value was $8,002.4 versus carrying value of $7,593.4 for long-term debt including current portion.
- The company had $2.7 billion of committed credit lines with no borrowings outstanding, plus $405.8 million of uncommitted and asset-backed lines, of which $98.8 million was drawn. It reported compliance with debt and other restrictive covenants and believes funding is adequate for at least the next 12 months.
Segment performance and material changes
- U.S. Retail: Quarterly sales fell 1% and operating profit fell 6%, with lower volume and higher input costs. Six-month sales rose 1%; operating profit was approximately flat.
- International: Quarterly sales rose 2% as reported, or 5% on a constant-currency basis; operating profit rose 10%. Six-month sales rose 10% as reported, or 13% constant currency, with new businesses contributing substantially; operating profit rose 5%. A $12 million fraud-related asset loss and unfavorable currency partly offset results.
- Convenience Stores and Foodservice: Quarterly sales fell 2% and operating profit fell 12%, mainly from higher input costs. Six-month sales fell 1% and operating profit fell 3%.
- Quarterly cost of sales declined $26 million year over year, partly reflecting a $21 million favorable net mark-to-market effect on commodity positions and grain inventories versus a $48 million unfavorable effect in the prior-year quarter. Six-month cost of sales increased $312 million, mainly due to higher volume, mix, and input costs.
- Six-month tax rate increased to 32.8% from 27.8%; the comparison period benefited from a $67 million discrete tax reduction related to the General Mills Cereals subsidiary restructuring. Joint-venture earnings declined to $50.2 million from $56.0 million for the six months.
Outlook, risks, and unusual items
- The filing provides no clear full-year sales or EPS guidance. It estimates approximately $6 million of restructuring charges in fiscal 2014 related to previously announced productivity actions; those actions were expected to conclude by fiscal year-end.
- Management cited competitive and consumer-demand conditions, pricing and promotion, input-cost and supply-chain volatility, foreign exchange, product quality and safety, customer inventory, pension assumptions, and derivative values among risks that could affect results.
- In November 2013, the company issued €500 million of 2.1% notes due 2020 and entered a net-investment hedge for part of its euro-denominated foreign operations. It also issued an additional $250 million of floating-rate notes in October and repaid $700 million of 5.25% notes in August.
- Cash held in foreign jurisdictions was $742 million and was intended to fund foreign operations and potential acquisitions; management said repatriation was not currently needed for domestic obligations and would occur only on a tax-neutral basis.
- Derivative-related exposures include commodity, interest-rate, and foreign-exchange risks. The company disclosed a $16.2 million fair value of derivatives in liability positions subject to credit-rating collateral provisions, and estimated one-day value-at-risk of $28 million for interest-rate instruments and $4 million for commodity instruments.
Important facts for investors to verify
- Whether weak U.S. Retail volume and higher input costs persist, and whether international growth continues after separating acquisition effects and currency movements.
- Cash conversion and working-capital trends, particularly receivables, inventory, trade-promotion accruals, and payment timing.
- Debt maturities and refinancing needs, including $852.8 million classified as current, and the effect of floating-rate borrowings and recent debt issuance.
- The adjusted-EPS reconciliation and the continuing impact of commodity mark-to-market movements, restructuring charges, prior-year tax benefits, and the disclosed fraud-related loss.
- Execution of the fiscal 2014 restructuring plan, future input costs, and any developments affecting the redeemable Yoplait interest or other contractual and contingent obligations.