Fiscal year 2013 was challenging due to high input costs and slow economic recovery. However, all three business segments of General Mills had a gain in net sales.
Going forward, General Mills expects slow economic growth to continue and for the packaged foods market to be competitive. It plans to focus on growth in 5 global categories: ready-to-eat cereal, super-premium ice cream, convenient meals, wholesome snack bars and yogurt. These categories are expected to grow at single to mid-digit rates and constitute 60 percent of General Mills' worldwide sales.
Yogurt business.
In the yogurt business, volumes dropped in Q4 and yogurt was a drag on volumes overall.
General Mills is introducing 35 new products in the first half of fiscal year 2013, which is 3 times the number of new products a year ago. In the United States, it will be offering a new Yoplait Greek 100-calorie yogurt. The regular Yoplait yogurt will now be only 90 calories. It is expanding Mountain High from a regional to national offering. It will be launching Yoplait Simplait, a line of all-natural yogurts with 6 simple ingredients, and Yoplait Fruitait, a line of yogurt with twice the fruit. General Mills will also be launching the Liberte brand of yogurt in the United States this summer.
The Yoplait International acquisition last July is producing good results, on both the top and bottom line. Yoplait International had sales growth and increased market share in its top 3 markets---France, the U.K. and Canada. In France, Yoplait International is launching new varieties of Calin, a yogurt high in calcium, and it will be expanding Calin to the U.K. It has also reacquired the Ireland Yoplait license.
General Mills is also accelerating development of its international business, including the purchase of the Canadian Yoplait business, which will close in September. In Canada, it will be introducing new Greek and Mediterranean varieties of Liberte Yogurt and will be expanding the line into drinkable and kids flavors. Liberte and Yoplait currently account for 35 percent of Canadian yogurt sales.
Ice Cream Business.
Constant currency sales of Haagen-Dazs increased 16 percent in fiscal year 2012. General Mills will be opening 80 more shops in fiscal year 2013, 50 of which will be in China.
The launch of Secret Sensations last year was a success. In fiscal year 2013, General Mills will be adding a meringue and raspberry flavor. It will also be launching the Secret Sensations line in Europe, Asia and Latin America.
Convenience meals.
General Mills is expanding its Hamburger Helper business to include packaging appropriate for club stores and dollar stores. In Europe, it will be expanding new El Paso products to new markets. And, in China, it will be adding new products and new cities to its Wanchai Ferry business.
Wholesome snack bars.
General Mills had 5 points of share growth in the wholesome snack bars markets and is the leader in that market. It is launching Fiber One Chewy Bars and is adding a new flavor and package size to Fiber One Brownies. It is also expanding the wholesome snack bar business internationally, and Nature Valley will be an official sponsor of the London Olympics. General Mills expects good volume growth in its snack business.
Cereal.
Cereal is General Mills' largest global business. It has gained market share each year in the last five years and now has a 31 percent dollar market share. General Mills has launched 25 new cereal varieties since January. Peanut Butter MultiGrain Cheerios is performing very well.
General Mills has also increased its market share of cereal in Canada over the last 5 years and has almost a 30 percent market share.
International Business.
International net sales now account for 30 percent of General Mills' net sales. Half of its employees work overseas. General Mills sees long-term growth potential in its international business and it is accelerating investment in emerging markets, especially China.
At the end of May, General Mills signed an agreement to acquire Yoki Alimentos, a Brazilian food business. Yoki's largest businesses include popcorn, basic foods, seasonings, and side dishes. Those businesses are growing at a double digit rate and the acquisition will double General Mills' sales in Latin America. The investment will negatively impact fiscal year 2013 earnings per share by $.02 to $.03. The acquisition will initially be funded with commercial paper, which will be paid down during the year through cash flow.
Restructuring plans.
As part of a restructuring announcing in May, General Mills will be creating 3 new divisions in U.S. Retail: (1) the Meals division, which will include Progresso Soup, Hamburger Helper, El Paso Mexican Foods, and Betty Crocker side dishes; (2) the Frozen Foods division, which will include Totino's Pizza, Totino's Hot Snacks, Pillsbury Breakfast Pastries, and Green Giant items; and (3) the Baking Products division, which includes Pillsbury refrigerated dough and Betty Crocker cake mixes.
The Big G Snacks, Yoplait and Small Planet foods division will remain unchanged under the restructuring.
In the International division, General Mills is creating a new regional operating structure with the following regions: (1) Europe/Australasia, (2) Canada, (3) Latin America, (4) Greater China, and (5) a region combining Asia, the Middle East and Africa. General Mills will also have two business units to coordinate growth for its two largest international brands: Yoplait and Haagen-Dazs.
In the Baking and Foodservice division, restructuring began several years ago and General Mills has focused on the fasting growing business segments and highest margin products. As a result, it has expanded margins by several basis points. It will not change the structure going forward.
Financials
Company-wide financials affecting income
Sales in Q4 increased by 12 percent and sales grew by 12 percent in fiscal year 2012. General Mills expects mid single digit sales growth in fiscal year 2013.
Operating profit increased by 9 percent. Gross margins declined by 140 basis points, half of which was due to General Mills' acquisition of Yoplait International. General Mills expects volume and sales growth in its base business, with input cost inflation of 2 to 3 percent. It expects to offset the inflation with supply chain productivity savings. It expects growth in segment operating profits in fiscal year 2013 to be higher than sales growth, and net operating profit to be in the mid-single digits. It also expects modest improvements in gross margin in fiscal year 2013.
General Mills increased its investment in targeted media, such as digital media and multicultural. It was ranked the highest U.S. advertiser in the food and beverage segment in the last year. Global media expenses grew 8 percent with higher levels of investments in the developed markets and the company's international business, including Yoplait International. In fiscal year 2013, General Mills expects its media investment to be at least the same as fiscal year 2012.
Diluted earnings per share for Q4 was $.49 and adjusted EPS was $.60, an increase of 15 percent. Diluted earnings per share for fiscal year 2012 declined 13 percent and adjusted EPS increased 3 percent. General Mills expects earnings per share for fiscal year 2013 to be $2.65, which is below last year, and expects the growth to occur in the last 9 months of the fiscal year.
Business segment financials
Sales for U.S. Retail increased by 3 percent in fiscal year 2012, but operating profit declined by 2 percent due to higher inflation, a decline in volumes and a media investment of 5 percent.
Sales in the Baking and Foodservice business increased by 8 percent in fiscal year 2012. There was modest volume growth and strong net price realization. Growth was good across key channels and brands. Operating profit declined as a result of inflation and because of the comparison to record earnings last year.
Sales and net profits in International Sales increased by 50 percent as a result of the contribution from the Yoplait International acquisition and growth in General Mills' base business. Growth was good in both developed and emerging markets. Net sales in Western Europe (in constant currency) grew 6 percent. Net sales in constant currency in China grew 22 percent, with Haagen-Dazs and Wanchai Ferry dim sum items leading the growth. General Mills' interest in further global expansion should not impact its projected earnings per share growth.
Net sales for the joint venture business with Cereal Partners Worldwide (CPW) increased by 5 percent in constant currency. It maintained its 23 percent market share for the year. Earnings declined for CPW as a result of a one-time adjustment to tax reserves, higher input costs and expenses for new manufacturing capacity in emerging markets. It expects sales growth in its joint venture in fiscal year 2013 to grow at a double digit rate.
Balance sheet and cash flow factors.
Cash flow from operations in fiscal year 2012 was $2.4 billion after a $200 million cash contribution to General Mills' pension plan. The pension plan is currently 94 percent funded. In fiscal year 2013, General Mills will be using a 4.85 percent discount rate for its pension plan assumptions, which is 60 basis points lower than last year. It is also lowering its rate of return assumption from 9.6 percent to 8.6 percent based lower equity performance in the last decade and its predictions of future performance. These changes impact pension expense by $.06/share.
General Mills spent $676 million in capital spending. It returned $1.1 billion in cash to shareholders, which included a dividend increase of 9 percent. In June, it announced an 8 percent dividend increase. It is also expecting a large share repurchase in fiscal year 2013 as it believes its stock is currently undervalued.
General Mills recorded a $101 million pretax charge for its restructuring program in Q4. It expects to record an additional $19 million charge in fiscal year 2013. It estimates $75 million in annualized savings from the restructuring program.
The full transcript of the earnings conference call can be found on Seeking Alpha at the following link:
No comments:
Post a Comment