General Mills (GIS) reported results for the third quarter of fiscal 2011. For the quarter, adjusted earnings increased 14% to 56 cents a share compared with 49 cents in the year-ago period. The quarterly EPS was in line with the Zacks Consensus Estimate.
The current Zacks Estimate remained stagnant over the past 30 days as none of the 20 analysts covering the stock revised their estimates upward or downward. On a reported basis, earnings were up 23% to 59 cents a share from 48 cents reported in the prior year period. Reported earnings benefitted from mark to market valuation of certain commodities.
Management reiterated its 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 grew only marginally by 2% year over year to $3.65 billion. During the quarter volume grew 2%. Revenues were marginally below the Zacks Consensus Estimate of $3.7 billion.
General Mills gross margin expanded 130 basis points (bps) to 39.2% in the quarter compared with the year-ago period.
Segments
Revenue for the U.S. Retail segment declined 1% year-over-year to $2.51 billion in the quarter, as reduced price realization and unfavorable mix fully offset the benefit of volume growth.
Revenue at the International segment grew 8.0% year-over-year in the quarter to $688 million, reflecting a 6% volume (measured in pounds) growth 1% contribution from currency translation and 1% from net price realization and mix.
Compared with the year-ago period, the Bakeries and Foodservice segment revenue improved marginally by 9.0% to $444 million in third quarter 2011, demonstrating a 7% increase in net price realization and mix and 1% contribution from volume (measured in pounds).
In the quarter, operating profit at International segment grew a record 266% while that of the Bakeries and Foodservice grew 34%. However, operating profit at the U.S. Retail dropped 1.4%. Total segment operating profit surged 9.8% year-over-year to $668.5 million in the quarter.
Balance Sheet and Share Repurchase
The company exited the quarter with operating cash flow of $1.25 billion which was down 19.8% year over year from $1.56 billion, primarily due to higher working capital requirements. Year to date General Mills repurchased 32 million shares of its common stock.
General Mills which primarily competes with Kellogg Company (K) has a Zacks Rank #4 which translates into short term Sell rating. On a long term basis we are Neutral on the stock.
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