General Mills (GIS) recently reported diminutive fourth quarter fiscal 2010 results. For the quarter, adjusted earnings dropped 4.6% to 41 cents a share compared with 43 cents in the year-ago period. For fiscal 2010, adjusted earnings jumped 16% to $2.30 per share compared with the year-ago earnings of $1.99.

Both the quarterly and yearly results were in line with the Zacks Consensus Estimate. However, the fiscal 2010 earnings results significantly surpassed the company’s long-term growth target of high single-digits.

Management now expects fiscal 2011 earnings in the range of $2.46 – $2.48 a share. Excluding mark-to-market effects and the tax charge related to health care legislation, the fiscal 2011 earnings guidance reflects an annual growth of 7% – 8%.

Total revenue for the reported quarter dipped 2% year over year to $3.6 billion. The quarter experienced positive currency translation, flat volume compared with the year-ago period, but unfavorable price and product mix. However, total revenue for fiscal 2010 grew 1% annually to $14.8 billion, benefiting from a price and product mix. Food retailer projects fiscal 2011 net sales to climb at a low single-digit rate.

Revenue for the U.S. Retail segment dropped 2% year-over-year to $2,438 million in the quarter, portraying a 1% contribution from volume (measured in pounds) growth offset by a 3% unfavorable price and product mix. However, revenue at the International segment jumped 4% year-over-year in the quarter to $673 million, reflecting a 2% volume (measured in pounds) growth, 3% favorable currency translation partly offset by a 1% unfavorable price and product mix. Compared with the year-ago period, the Bakeries and Foodservice segment revenue slipped by 12% to $459 million in fourth quarter 2010, demonstrating a 8% decline in volume (measured in pounds), which includes the impact of divestitures and one less week.

General Mills reported gross margin plunged 620 basis points (bps) to 36.2% in the quarter compared with the year-ago period, due to mark-to-market effects. However, reported gross margin for the fiscal year expanded 410 bps to 39.7% compared with fiscal 2009, reflecting improving operating efficiencies, successful cost-containment program and effective supply-chain management. General Mills anticipates supply-chain costs to inflate by 4% – 5% in fiscal 2011.

In the quarter, operating profit at U.S. Retail, International and Bakeries and Foodservice dropped 9.3%, 14.1% and 3.6% year-over-year respectively. Total segment operating profit slipped 9.2% year-over-year to $606 million in the quarter, while soaring 8.2% to $2,861 million in the fiscal year. Management expects total segment operating profit to grow by mid-single-digits in fiscal 2011.

At the end of fiscal 2010, the company’s operating cash flow jumped 19% year over year to $2.2 billion, primarily due to robust earnings results. To capture the growing demand of its cereal, snack bar and yogurt businesses, the company spent $650 million to increase its production facility.

The company paid total dividend yields of $644 million in fiscal 2010, representing 12% growth compared with fiscal 2009. During the year, General Mills bought back 21 million shares for $692 million.

The company’s Board recently approved an increase in the quarterly dividend to 28 cents a share, bringing the annualized dividend rate to $1.12, reflecting an increase of 17% compared with 96 cents paid in fiscal 2010. General Mills also received an authorization from its Board to repurchase about 100 million shares with no expiration date. General Mills has a consistent track record of 111 years of dividend payment. The increase in dividend and new buyback program ascertains the company’s robust balance sheet, huge cash flow and optimistic long-term outlook.

Based in Minneapolis, General Mills manufactures and markets branded consumer foods worldwide. General Mills shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation. Our long-term recommendation for the stock remains Neutral.
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