US cereals behemoth General Mills recorded sales up 82% to US3.1bn for its fiscal Q3, ended 24 February 2002, which the company explained reflected incremental revenues from the worldwide Pillsbury businesses, acquired on 31 October 2001.
Go deeper with GlobalData
Discover B2B Marketing That Performs
Combine business intelligence and editorial excellence to reach engaged professionals across 36 leading media platforms.
Earnings before interest and taxes, excluding unusual items, meanwhile totalled US$298.3m, essentially flat year on year. Interest expense of US$146.8m was up significantly from US$55.4m in the prior period, due to increased debt levels associated with the Pillsbury acquisition. As a result, earnings after tax, excluding unusual items, declined by 33% to US$106.9m. Average diluted shares outstanding increased 29%, to 378 million, reflecting the 79 million shares issued as part of the Pillsbury purchase. Diluted earnings per share before unusual items totalled 28 cents, down 48%.
Chairman and CEO Steve Sanger said Q3 results were in line with the company’s revised forecast: “Our transition to a new, combined sales organization handling the entire range of Pillsbury and General Mills products resulted in an unusually weak start to the Q3, as we experienced lower shipments and reduced in-store merchandising levels across our US retail businesses in December. As a result, our domestic retail unit volume for the quarter was down 3% on a comparable basis.
“This one-time disruption is now behind us, as volumes began improving in January and grew 3% on a comparable basis in February.
“This clearly was not a strong quarter,” Sanger concluded. “However, through nine months, our worldwide unit volume on a comparable basis is up 1% and we expect to achieve low single-digit volume growth in the Q4 of this year. As a result, we see ourselves on track to meet our fiscal 2002 annual objective of US$1.90 to US$1.93 in diluted earnings per share before unusual items.”
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataThrough nine months, General Mills’ diluted earnings per share before unusual items was US$1.48, compared with US$1.79 year on year. Earnings after tax before unusual items totalled US$488m, down 6%. Nine-month reported sales totalled US$7.22bn, up 37%.
Unusual items
Q3 net results included unusual expenses of US$38.8m pre-tax, or US$24.4m after tax (US$0.06/diluted share). A special contribution to the General Mills Foundation to increase its post-acquisition net assets accounted for US$30m pre-tax (US$0.05/diluted share). The remainder represents miscellaneous acquisition-related expenses. Through nine months, unusual expense totalled US$0.25/share.
Including those unusual items, Q3 net earnings were US$0.22/share. Nine-month net earnings totalled US$1.22/share, down 31% from US$1.78 last year.
Segment results – US retail
Sales for the company’s domestic retail operations in the Q3 were US$2.36bn. Operating profits totalled US$238.7m, down 11% due to weak unit volumes and unfavourable sales mix.
Q3 domestic retail volume was 3% below the prior year, as the December sales disruption impacted most of the company’s product lines. Big G cereal shipments were down 6%, but consumer volume and dollar market share grew slightly in all ACNielsen measured outlets. The consumer sales trends reflected good contributions from new products, plus gains by established brands including Honey Nut Cheerios, Cinnamon Toast Crunch, Wheat Chex and Trix. Meals unit volume declined 5% in the Q3 as weakness in December was not fully offset by volume gains in January and February. Baking Products Q3 unit volume declined 6% as competitive marketing activity increased in the dessert mix category.
Pillsbury US unit volume was down 1% in the Q3. However, January and February unit volumes exceeded the prior year’s, with growth led by Pillsbury sweet rolls, cookies, frozen baked goods and Totino’s pizza and hot snacks. Snacks Q3 unit volume declined 2%, with lower volumes for microwave popcorn and salty snacks partially offset by gains from fruit snacks and Nature Valley granola bars. Shipments for Yoplait yoghurt rose 16% for the quarter, fuelled by strong performances from established 6-oz. cups, Go-Gurt, and new Yoplait Whips.
Bakeries and Foodservice
Q3 sales for Bakeries and Foodservice were US$391m and operating profit US$33.6m, up 60%.
Combined unit volume for this business increased slightly. This included growth in sales to fast food restaurants and wholesale bakeries, which offset lower shipments to in-store retail bakery customers. Through nine months, unit volume also was up slightly. During the Q3, Bakeries and Foodservice secured new business commitments totalling roughly US$100m annually that will flow in during the next eighteen months.
Consolidated international operations
Q3 sales for the company’s wholly-owned International business were US$356m. Operating profit totalled US$12.4m, compared to US$4.1m last year.
Q3 international unit volume increased 3%. Growth in Asia was driven by increases in China from Haagen-Dazs, dough brands and snacks. In Europe, volume growth was driven by gains for Green Giant, Old El Paso and Haagen-Dazs, and by the national launch of Bugles in the UK. Latin America also realized volume growth. In Canada, volume grew 2%.
Joint venture results
After-tax profits from joint ventures totalled US$7.8m in the Q3, up sharply from US$2m a year earlier. Profits for CPW and SVE together grew to US$5.1m. In addition, Haagen- Dazs joint ventures in Asia provided incremental contributions. These increases were offset slightly by development spending for 8th Continent, the company’s soy foods jv with DuPont.
Q3 joint venture volume increased 7%. CPW continued its strong performance, with a 14% volume increase through gains in Europe and Latin America. SVE’s volume declined 5% against a difficult comparison, as prior-year volume grew 26%. Haagen-Dazs jv volume was up 25%.
Financial highlights
On 13 February 2002, the company issued US$3.5bn in 5- and 10-year bonds, replacing a portion of short-term debt taken on to acquire Pillsbury. Including the impact of interest rate swaps entered into in the fall of 2000, the interest rate on the company’s debt is approximately 6.5%. Total interest expense for the year is estimated to be US$420-US$430m.
General Mills’ effective tax rate in the Q3, excluding unusual items, was 34.6%. The company estimates the full-year effective tax rate at 36%. Through the first six months, taxes were booked at an effective rate of 36.4%.
Outlook
Looking ahead, Sanger noted that the detailed plan for integrating the Pillsbury businesses is on schedule, and the company is rapidly moving up the learning curve in its new product categories. We expect to resume volume growth in the Q4,” he said, “and we continue to target earnings per share in the 43 to 45 cent range before unusual items.”
For fiscal 2003, which begins in June, Sanger also reaffirmed the company’s earnings targets in the range of US$2.85 to US$2.95 per share. “The one-time merger-related disruptions that affected this year’s Q3 are now behind us,” he said. “In 2003 we will benefit from a full twelve months of the acquired Pillsbury businesses and over US$250m of merger synergies. These factors, together with product and marketing innovation across our core businesses and continued momentum in our international joint ventures, are expected to drive strong earnings growth next fiscal year.”
