General Mills, Inc. — Form 10-Q Summary
Reporting period: Second quarter and six months ended November 25, 2012; fiscal year ends May 26, 2013. All financial amounts are in U.S. dollars unless stated otherwise.
Business context and results
General Mills operates in consumer foods through U.S. Retail, International, and Bakeries and Foodservice segments. Fiscal 2013 results include recently acquired and newly consolidated businesses, notably Brazil’s Yoki, as well as additional Yoplait activity and other new businesses.
| Metric | Second quarter | Six months |
|---|---|---|
| Net sales | $4.882 billion, up 6% | $8.933 billion, up 5% |
| Operating profit | $829 million, up 16% | $1.609 billion, up 19% |
| Net earnings attributable to General Mills | $542 million, up 22% | $1.091 billion, up 28% |
| Diluted EPS | $0.82, up 22% | $1.64, up 28% |
| Diluted EPS excluding specified comparability items (non-GAAP) | $0.86, up 13% | $1.52, up 8% |
| Net cash from operating activities | $1.317 billion for six months, versus $1.157 billion |
Operating margin was approximately 17.0% in the quarter versus 15.5% a year earlier, and 18.0% for six months versus 16.0%. Six-month SG&A as a share of sales declined 30 basis points. The quarter’s effective tax rate was 32.6%, versus 33.3%; the six-month rate was 27.8%, versus 32.7%.
Segments and changes versus prior periods
- U.S. Retail: Quarterly sales rose 2% and segment operating profit rose 9% to $723 million. Six-month sales rose 1% and profit rose 4% to $1.298 billion. Snacks and Small Planet Foods were strong; cereal and Yoplait sales declined.
- International: Quarterly sales rose 19% and profit rose 4% to $139 million; six-month sales rose 22% and profit rose 24% to $265 million. Growth included substantial contributions from acquired businesses, especially Yoki. Currency and unfavorable price/mix weighed on reported performance.
- Bakeries and Foodservice: Quarterly sales declined 1% while profit increased 24% to $96 million. Six-month sales declined 2% while profit increased 18% to $164 million, supported by lower input and manufacturing costs.
- New businesses contributed four percentage points of quarterly sales growth and five percentage points of six-month growth. Excluding new businesses, volume was flat; price/mix was unfavorable. Quarterly total segment operating profit rose 10% to $959 million.
Cash, debt, and liquidity
Cash and cash equivalents were $735 million at November 25, 2012, compared with $471 million at fiscal year-end. Total debt was $8.333 billion, up from $7.430 billion at May 27, 2012; notes payable increased to $1.940 billion, largely reflecting commercial paper used to help fund Yoki. Long-term debt, including its current portion, was $6.393 billion. The company repaid $521 million of 5.65% notes during the period and had $821 million of long-term debt classified as current, primarily notes maturing in August 2013.
Operating cash flow was $1.317 billion; investing activities used $1.103 billion, including the Yoki acquisition and $264 million of capital expenditures. Financing activities provided $34 million. The company had $2.7 billion of committed credit lines, with none drawn, and reported compliance with debt and other covenants. Management said operating cash flow and available financing should meet liquidity and capital needs for at least 12 months. Current assets were $4.566 billion against current liabilities of $5.736 billion.
Outlook, commentary, risks, and unusual items
- The filing provides no specific full-year sales, earnings, or EPS guidance. Management cautioned that interim results are not necessarily indicative of full-year results.
- A $66.7 million non-cash tax benefit from restructuring General Mills Cereals, LLC reduced the six-month tax rate and reported EPS; adjusted six-month EPS removes a $0.10-per-share tax item.
- Commodity and grain mark-to-market effects were volatile: a $48 million net expense in the quarter, versus $94 million a year earlier; for six months, a $34 million net reduction in expense, versus a $132 million net increase a year earlier. The company’s adjusted EPS measure excludes these effects.
- A $17 million non-recurring expense related to assuming the Canadian Yoplait franchise license affected the quarter and six-month period. Six-month restructuring charges were $12 million; the related cost-savings plan is expected to be completed by the end of fiscal 2014.
- Yoki was acquired for approximately $940 million. The acquisition’s purchase-price disclosures differ on the amount of non-cash debt assumed; see investor verification items.
- Key disclosed exposures include competition and consumer demand, commodity and supply-chain costs, foreign exchange, interest rates, pensions, product quality and safety, and goodwill or intangible-asset impairment. The company reported no pending litigation considered reasonably likely to materially harm its financial position or results. A YoPlus yogurt class action was scheduled for trial in fiscal 2013.
- Sodiaal holds redeemable and noncontrolling interests related to Yoplait. Certain circumstances could allow a third-party holder of General Mills Cereals, LLC interests to initiate liquidation; the filing describes potential purchase and liquidation terms.
Most important facts for investors to verify
- How much of reported growth and profit improvement is sustainable apart from acquired businesses, commodity mark-to-market movements, and the discrete tax benefit.
- The Yoki acquisition’s purchase-price composition: the filing gives differing figures for non-cash debt assumed ($88.8 million in one note versus approximately $119.9 million elsewhere).
- Near-term refinancing and liquidity needs, including the $821 million of current long-term debt and increased commercial paper borrowings.
- Performance trends in U.S. cereal and yogurt businesses, and the durability of International growth after acquisition contributions and currency effects.
- Potential financial implications of Yoplait redeemable interests, GMC preferred distributions and liquidation provisions, and the scheduled YoPlus litigation.