General Mills, Inc. — Form 10-Q Summary
Reporting period: Second quarter and six months ended November 29, 2009 (fiscal 2010), compared with the corresponding periods of fiscal 2009. Amounts are in U.S. dollars; financial statement amounts are in millions except per-share data.
Financial performance
| Metric | Second quarter 2009 | Second quarter 2008 | Six months 2009 | Six months 2008 |
|---|---|---|---|---|
| Net sales | $4,078.2 | $4,010.8 | $7,597.0 | $7,508.2 |
| Operating profit | $878.7 | $616.3 | $1,571.6 | $1,087.5 |
| Net earnings | $565.5 | $378.2 | $986.1 | $656.7 |
| Diluted EPS | $1.66 | $1.09 | $2.91 | $1.88 |
| Operating cash flow | Not provided for quarter | $987.1 | $363.8 |
- Sales increased 2% in the quarter and 1% for the six-month period. Management attributed quarterly growth to price/mix and foreign exchange; volume was flat. First-half price/mix growth was partly offset by unfavorable currency.
- Operating profit rose 43% in the quarter and 45% for the first half; net earnings increased 50% in both periods. GAAP operating margin was approximately 21.5% for the quarter versus 15.4%, and 20.7% for the first half versus 14.5%.
- Diluted EPS increased 52% in the quarter and 55% for the first half. The filing attributes the comparisons in part to sharply improved commodity mark-to-market effects and, in the prior-year periods, the Pop•Secret divestiture gain.
- Quarterly segment operating profit, a non-GAAP measure, was $880.1 million, up 13%; first-half segment operating profit was $1,647.7 million, up 16%.
- Six-month operating cash flow was $987.1 million, compared with $363.8 million. Capital expenditures were $257.5 million; operating cash flow less capital expenditures was approximately $729.6 million. Cash and equivalents were $858.4 million at November 29, up from $749.8 million at May 31.
- Total debt was $6,699.7 million, down from $7,075.5 million at May 31. Current liabilities were $3,459.5 million and current assets were $4,127.8 million. The company had $607.3 million of long-term debt classified as current, and no borrowings under its committed credit lines.
- Dividends were $0.47 per share for the quarter and $0.94 for the first half. The company paid $312.9 million in dividends and repurchased $235.4 million of stock during the first half.
Business and segment developments
- U.S. Retail: Sales rose 4% in the quarter and 5% in the first half; segment operating profit increased 13% and 16%, respectively. Management cited supply-chain savings, price/mix, volume and favorable mix, partly offset by higher advertising.
- International: Sales increased 7% in the quarter, aided by currency and price/mix, but rose only 1% for the first half. Segment operating profit fell 3% in the quarter and 8% in the first half, reflecting unfavorable currency and higher advertising.
- Bakeries and Foodservice: Sales declined 16% in both periods, including the impact of divested products and lower price/mix, partly tied to wheat-indexed pricing. Segment operating profit increased to $84.6 million in the quarter and $145.8 million in the first half, primarily on lower supply-chain costs and favorable mix.
Material changes, outlook and risks
- Cost of sales fell substantially year over year. A major driver was commodity and grain mark-to-market: a $67 million net benefit in the quarter and $53 million net benefit in the first half, compared with respective prior-year net costs of $269 million and $361 million. Management also cited lower supply-chain costs and favorable mix.
- SG&A increased $113 million for the quarter and $162 million for the first half, primarily because advertising and media expense rose 37% and 27%, respectively. SG&A as a share of sales increased about 2 percentage points in both comparisons.
- The prior-year periods included a $128.8 million pre-tax gain from selling the Pop•Secret product line; there were no divestitures in the current first half. The company also acquired Humm Foods in fiscal 2009; no acquisition occurred in the current first half.
- The company recorded a $24.1 million non-cash charge for exiting underperforming U.S. Retail products to free capacity for more profitable items. It expects another $2.5 million of exit costs, with actions expected to be completed by the end of fiscal 2011’s second quarter. No employees were affected.
- Management said operating cash flow and available short- and long-term financing should meet liquidity and capital needs for at least the next 12 months. The filing provides no specific earnings or sales guidance.
- Risks highlighted include competition and consumer demand, pricing and promotional response, commodity and energy costs and availability, supply-chain disruption, foreign exchange, interest rates, product safety and quality, pension assumptions, impairment risks, and uncertainty in tax matters. The company reported compliance with debt covenants and no material changes in off-balance-sheet arrangements or contractual obligations outside the ordinary course.
- Market-risk disclosures estimated one-day value-at-risk of $38 million for interest-rate-sensitive instruments and $5 million for commodity instruments. Derivative agreements could require additional collateral if the company’s debt fell below investment grade; the stated additional collateral requirement in that event was $14.8 million.
- Disclosure controls were judged effective as of November 29, 2009; the company reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of the profit and EPS increase reflects sustainable operating improvements versus year-over-year commodity mark-to-market swings and the prior-year divestiture gain.
- Whether U.S. Retail growth and cost savings can offset weak International profitability and continued Bakeries and Foodservice sales declines.
- How advertising investment, commodity prices, and supply-chain costs affect margins in subsequent quarters.
- The company’s ability to meet the $607.3 million of debt classified as current and maintain liquidity while paying dividends and repurchasing shares.
- Progress and final costs of the U.S. Retail product exits, and any subsequent material events; the filing states that none were identified through December 18, 2009.