) third-quarter fiscal 2013 adjusted earnings rose 16.4% year on
year to 64 cents per share. The quarterly earnings beat the Zacks
Consensus Estimate of 57 cents by 12.3%. The upside was driven by
the recent acquisitions, strong sales and profits in the U.S.
retail business and lower advertising costs.
Earnings excluded the impact of mark-to-market effects,
restructuring and acquisition integration costs.
Though the company delivered decent revenue growth, margins
were quite weak in the quarter. Moreover, though General Mills
upped its fiscal-2013 earnings expectations by a penny, the
fourth quarter earnings outlook was weak as costs are apprehended
Revenues and Margins
Total revenue of the global consumer food company increased 8%
year over year to $4.43 billion. Revenues mostly benefited from
recent acquisitions, mainly the purchases of Brazilian food
maker, Yoki Alimentos (in August this year) and Yoplait Canada.
Sales were up 2%, excluding the impact of the acquisitions.
Price/mix pulled down revenues by 1 percentage points, while
volume contributed 9 percentage points. Most of the volume growth
was driven by acquisitions, excluding which organic volume growth
would have been up 1%, better than last quarter's flat growth.
Foreign exchange had a neutral impact on revenues same as that of
the second quarter. Revenues slivered past the Zacks
Consensus Estimate of $4.36 billion.
Adjusted gross margin for the maker of Cheerios cereals and
Betty Crocker dinner mixes declined 60 basis points (bps) to
34.9% due to higher input costs. Adjusted operating margin was
flat at 15.2% in the quarter despite low advertising costs. Lower
gross margins, increased marketing spending to support in-store
merchandising and Venezuelan currency devaluation proved to be
the headwinds for operating margins in the quarter.
This is the first sequential decline in GIS' margins so far in
fiscal 2013. General Mills' margins had improved sequentially in
the first two quarters of fiscal 2013.
Revenues from the U.S. Retail segment improved 2.1% year over
year to $2.66 billion in the quarter driven largely by price/mix
gains. Both new products as well as established brands
contributed to revenue growth.
Sales growth in the Snacks, Meals, Baking Products and Small
Planet Foods divisions was offset by declines in the Big G
cereals and Yoplait yogurt businesses. The Frozen Foods business
saw flat year-over-year growth in the quarter. Segment operating
profit rose 12.6% to $577.3 million due to lower advertising
General Mills' Yoplait yogurt business is presently struggling
as increased sales prices in response to dairy cost inflation is
reducing the competitiveness of its products. In the quarter, the
Yoplait business declined 4%. The company plans to take steps to
re-invigorate its yogurt business in the U.S. in fiscal 2013
through innovation and increased promotional support for new
: Revenues in the International segment grew 24% year over year
to $1.30 billion benefitting largely from acquisitions. Volume
added 33 percentage points, mostly from the acquisitions of Yoki
and Yoplait Canada, while price/mix took away 8 percentage points
from net sales growth.
Foreign exchange had an unfavorable 1 percentage point impact
on net sales. In constant currency, International revenues
Constant currency revenue grew 186% in Latin America due to
the addition of Yoki. Constant currency revenue grew 21% in
Canada, gaining from the addition of Yoplait Canada. Constant
currency revenue elevated 1% in Europe and 16% in Asia Pacific.
Segment operating profit was almost flat at $96.1 million,
primarily due to headwinds from foreign exchange including the
Venezuelan currency devaluation.
Bakeries and Foodservice
: On a year-over-year basis, the Bakeries and Foodservice
segment's quarterly revenue was flat to $469.9 million. Volume
decline of 1 percentage points was offset by a similar tailwind
from price mix. However, segment operating profit improved 13.4%
year over year to $75.4 million, driven by lower manufacturing
costs and a better mix.
Outlook for 2013 and Fourth Quarter of 2013
General Mills expects fourth-quarter earnings to decline from
the year-ago levels due to higher supply chain costs and
increased spending to support in-store merchandising. However,
management upped its fiscal-2013 adjusted earnings guidance
slightly to a range of $2.66-$2.68 from prior expectations in the
range of $2.65-$2.67. Commodity inflation is maintained at 3% in
For fiscal 2014, GIS expects high single-digit earnings
growth, in line with the long-term targets.
Other Stocks to Consider
General Mills currently carries a Zacks Rank #3 (Hold). Other
stocks in the food industry that are currently performing well
and have a bright outlook include
J&J Snack Foods Corp.
) - Zacks Rank #1 (Strong Buy) and
ConAgra Foods, Inc.
) - Zacks Rank #2 (Buy).
CONAGRA FOODS (CAG): Free Stock Analysis
GENL MILLS (GIS): Free Stock Analysis Report
J&J SNACK FOODS (JJSF): Free Stock Analysis
KELLOGG CO (K): Free Stock Analysis Report
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