General Mills Inc (GIS) reported fiscal third quarter 2012 adjusted earnings (excluding the effects of mark-to-market valuation of certain commodity positions, Yoplait S.A.S. and Yoplait Marques S.A.S, and a net benefit from certain tax matters in 2011), of 55 cents, 1.8% lower than the prior-year quarter. However, the quarterly earnings lagged the Zacks Consensus Estimate by a penny.
Management expects its fiscal 2012 earnings to be in the range of $2.53 – $2.55 a share, excluding mark-to-market effects and integration costs for the Yoplait acquisition.
Total revenue for the reported quarter increased 13% year over year to $4.12 billion, in which price realization and mix contributed 3 points of net sales growth, and pound volume contributed 10 points of net sales growth. Revenues marginally exceeded the Zacks Consensus Estimate of $4.10 billion.
However, higher input costs and the change in business mix due to the Yoplait acquisition dragged the quarter’s gross margin down by 260 basis points (bps) to 36.6%. Operating margin plummeted 180 bps to 15.2% in the quarter. Advertising and media expense increased 8% in the quarter.
Management expects strong performance in the leading food brands to generate decent sales in the fourth quarter of 2012.
Segments
Revenues from the U.S.Retail segment rose 4% year over year to $2.61 billion in the quarter, which was contributed by 9 percentage points of price and mix. Pound volume reduced net sales growth by 5 percentage points.
Revenue at the International segment grew 51% year over year to $1.04 billion, including a 43 percentage-point contribution from the Yoplait acquisition. Pound volume added 74 percentage points of net sales growth and price realization and mix subtracted 21 percentage points of net sales growth, and foreign exchange had an unfavorable 2 percentage points of impact on net sales.
On a constant-currency basis, net sales at the International segment jumped 53% year over year, with gains of 15% in the Asia / Pacific region, 12% in Latin America and 37% in Canada. Sales more than doubled in Europe.
Compared with the year-ago period, the Bakeries and Foodservice segment‘s quarterly revenue improved 6% to $469 million, demonstrating a strong contribution of 6 percentage points from net price realization and mix, and no effect points from pound volumes.
In the quarter, only the International segment reported an operating profit growth of 39.5% to $96 million. Operating profit at U.S. Retail segment fell 3.8% to $512.5 million, while operating profit at the Bakeries and Foodservice fell 0.3% to $66.5 million.
Balance Sheet and Share Repurchase
During the quarter, the company had operating cash flow of $110.0 million, an increase from last year’s results. However, cash provided by operating activities totaled $1.66 billion in the first nine months of 2012.
Capital expenditure totaled $424 million in the first nine months of 2012, while dividends totaled $600 million in the first half due to a hike in the dividend rate year-over-year.
During the first half of 2012, General Mills repurchased approximately 8 million shares of common stock, while it repurchased 3 million in the third quarter of 2012.
General Mills, which faces stiff competition from Kellogg Company (K) currently, holds a Zacks #3 Rank. On a long-term basis, the company retains a Neutral rating on the stock, with a short-term Hold rating.
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