General Mills (GIS) reported strong results for the third quarter of fiscal 2010 with adjusted (excluding non-recurring items such as divestiture gains) earnings of 97 cents per share exceeding the Zacks Consensus Estimate of 93 cents and the year-ago earnings of 79 cents per share.
Earnings were driven by strong demand for the company’s products amid recessionary conditions, healthy sales growth for “Big G” label cereals and lower commodity costs.
Net sales for the quarter grew 2.6% year-over-year to $3.63 billion as growth in US Retail and International segments were offset by a decline in Bakeries and Foodservice revenue. Foreign currency translation modestly contributed to the sales growth.
Revenues by Segment
Revenue for the U.S. Retail segment grew 3.0% year-over-year to $2.6 billion, reflecting strong growth in the Big G cereals (up 6%), Snacks (up 15%), Baking Products (down 8%) and Yoplait division (up 2%). Sales for the Pillsbury division grew 2% while Meal division sales were essentially in line with the year-ago level. Pound volume contributed 1% to top-line growth.
The International segment reported a 11.1% increase in revenues reaching $644 million in the quarter, primarily driven by foreign currency translation gains. In addition, net price realization and mix contributed 1% to the top-line. However, pound volumes grew 2% year-over-year.
Bakeries & Foodservice reported a 10.3% decline in sales (to $414 million), reflecting the absence of divested product lines and the impact of indexed bakery flour prices that were below year-ago levels. Additionally, pound volume reduced net sales by 5 percentage points.
Reported gross margins for the quarter expanded by a robust 185 basis points (bps) to 38.0% versus 36.1% registered in the comparable prior-year quarter. The increase was primarily attributable to the implementation of the holistic margin management approach by the company. Due to higher advertising expenses (up 33% year-over-year), operating margin for the quarter contracted 165 bps to 15.5% from 17.1% reported in the prior-year quarter.
Cash flow from operating activities year-to-date increased by 38% to $1.56 billion, driven by efficient working capital management and healthy earnings growth. Capital expenditures for the first nine months of fiscal 2010 were $419 million. The company has a debt-to-capitalization ratio of 48%.
Guidance
Management raised its guidance for fiscal 2010 based on the healthy results for the third quarter. Adjusted earnings for the year are now expected in the range of $4.57 to $4.59 a share, an increase from $4.50 to $4.57 per share as per the earlier expectation.
For the rest of the year, the company intends to primarily focus on a business model that maximizes supply chain productivity, optimizes sales mix management and generates cost savings in order to protect its margins from the pressure of rising commodity costs.
Read the full analyst report on “GIS”
Zacks Investment Research
