General Mills Q4 Profit Rises On Gain, Strong Sales; Sees FY10 EPS Above Street View - Update 2

(RTTNews) - Wednesday, General Mills, Inc. (GIS | Quote | Chart | News | PowerRating), a manufacturer of branded and packaged consumer foods, reported a 93.7% rise in profit for the fourth quarter, reflecting primarily higher U.S. Retail net sales and a mark-to-market valuation gain on certain commodity positions. Excluding one-time items, quarterly earnings per share grew 18% and topped market projections. Further, the company issued a fiscal 2010 earnings forecast, which is above Wall Street's current view.

The maker of Cheerios cereal, Yoplait yogurt and Progresso soup said its fourth-quarter net income was $358.8 million, higher than last year's $185.2 million. On a per-share basis, earnings surged 101.9% to $1.07 from $0.53 a year ago.

The latest quarter results included a net gain of $107.1 million or $0.32 per share from mark-to-market valuation of certain commodity positions, partly offset by loss on divestitures of $36.7 million or $0.11 per share, while prior year's results included mark-to-market loss of $69.5 million or $0.20 per share.

Excluding one-time items, the company's fourth-quarter net earnings grew to $288.4 million from last year's $254.7 million and earnings per share rose 18% to $0.86 from $0.73 in the previous year.

On average, 16 analysts polled by Thomson Reuters expected earnings of $0.80 per share for the quarter. Analysts' estimates typically exclude one-time items.

Net sales were up 5% to $3.65 billion from $3.47 billion in the previous year, but missed Wall Street analysts' consensus estimate of $3.69 billion. The U.S. food giant noted that pound volume growth contributed 3 points of the sales increase, while foreign currency translation reduced sales growth by 3 points. General Mills estimated that the extra week contributed roughly 6 points of net sales growth in the fourth quarter.

Segment-wise, U.S. Retail net sales grew 11.8% to $2.48 billion from prior year's $2.22 billion, with pound volume contributing 3 points to the growth. The company noted that all seven operating divisions posted net sales growth in the quarter, with double-digit growth in Big G cereals, Pillsbury USA, Baking Products, Yoplait and Small Planet Foods. The brand-building investment in the segment is expected to help drive continued good net sales growth into fiscal 2010.

Meanwhile, International net sales fell 5.3% year-over-year to $645.0 million, with foreign currency exchange reducing net sales growth by 17 percentage points. On a constant-currency basis, net sales increased 12% with pound volume up 5% in the quarter.

Bakeries and Foodservice net sales declined 9.1% to $519.8 million, including the divestiture of two product lines. The company noted that pound volume essentially matched year-ago levels.

In the quarter, gross margin rose to $1.55 billion or 42.4% of total net sales from $1.03 billion or 29.7% of net sales a year ago. Adjusted gross margin increased to 37.7% from prior year's 32.9%.

Operating profit for the quarter grew 88.4% to $631.4 million from $335.2 million last year, and operating margin went up to 17.3% from 9.7% last year. Adjusted operating profit was $504.8 million or 13.8% of total net sales, up from $446.3 million or 12.9% of total net sales a year ago. Total segment operating profit in the quarter grew 29.2% year-over-year to $667.2 million.

In the quarter, the company's total cost of sales fell 13.9% from last year to $2.10 billion, while selling, general, and administrative expenses grew 19.4% to $834.1 million.

In the preceding third quarter, General Mills had reported a 32.8% decline in net profit to $288.9 million, and 30.9% fall in earnings per share to $0.85, hurt by a tax expense, lower one-time gains, as well as higher costs. Adjusted earnings fell 9.2% to $0.79 per share, while quarterly net sales grew 3.9% to $3.54 billion.

Among others in the food sector, Kellogg Co. (K | Quote | Chart | News | PowerRating), a manufacturer of ready-to-eat cereal and convenience foods, is slated to release its second-quarter results on July 30. Analysts expect the company to report earnings of $0.82 per share on revenues of $3.24 billion, in comparison to prior year's reported earnings and revenues of $0.82 per share and $3.34 billion, respectively.

Last week, packaged foods company ConAgra Foods, Inc., (CAG | Quote | Chart | News | PowerRating) reported a 13% decline in profit for the fourth quarter to $174.7 million, or $0.39 per share, hurt by absence of prior year gain from the sale of the company's commodity trading unit. The Omaha, Nebraska-based company's adjusted earnings from continuing operations more than doubled to $0.41 per share from $0.18 per share in the year-ago quarter. Net sales increased 8% year-over-year to $3.30 billion.

In late May, H.J. Heinz Co. (HNZ | Quote | Chart | News | PowerRating) reported a 10% fall in fourth-quarter profit to $175.14 million or $0.55 per share, hurt by a stronger U.S. dollar that cut into revenue from overseas markets, and declining restaurant sales. The Pittsburgh, Pennsylvania-based company's sales for the quarter were $2.54 billion, down 5.6% from a year ago.

Also in May, Kraft Foods Inc. (KFT | Quote | Chart | News | PowerRating) posted a 10% growth in first-quarter profit to $660 million or $0.45 per share, helped by operating gains across nearly all business segments. However, the Northfield, Illinois-based company's net revenues declined 6.5% to $9.39 billion from $10.0 billion in the previous year.

For the fiscal year 2009, General Mills' net earnings edged up 0.7% to $1.304 billion from $1.295 billion last year. Earnings per share went up 2.4% to $3.80 from $3.71 last year. Adjusted net earnings grew to $1.367 billion from $1.228 billion a year ago, and earnings for the year climbed 13% to $3.98 per share from $3.52 per share in fiscal 2008. The company was projecting adjusted earnings between $3.87 and $3.89 per share.

Annual net sales rose 7.6% to $14.69 billion from $13.65 billion a year earlier. Analysts were expecting earnings of $3.92 per share on net sales of $14.74 billion for the year.

Chairman and Chief Executive Officer Ken Powell said, "In 2009, we held our margins in the face of sharply higher input costs, and we significantly increased the level of consumer marketing support for our brands. These actions have positioned General Mills to achieve another year of good growth in fiscal 2010."

Looking ahead, General Mills said it expects fiscal 2010 earnings to be between $4.20 and $4.25 per share, assuming no mark-to-market impact in the year. The guidance includes estimated negative foreign exchange effects of approximately $0.15 per share, and represents growth of 6% to 7% from the company's fiscal 2009 adjusted earnings per share of $3.98. For fiscal 2010, Wall Street analysts forecast earnings of $4.18 per share.

Powell added, "Our product categories are on-trend with consumer needs, and we've got a good line-up of product news and innovation planned for the new year, so we expect our business to generate good growth again in fiscal 2010. Our plans assume that world economic conditions remain challenging, and that foreign currency translation and transaction effects will reduce our reported sales and earnings growth rates. However, we expect the rate of input cost inflation to moderate, and we believe savings from our holistic margin management initiatives will exceed cost increases."

GIS closed Tuesday's regular trading session at $56.02, up $0.18, on a volume of 3.4 million shares. The shares have been trading between $46.37 and $72.01 in the past 52 weeks.

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