) first quarter fiscal 2013 adjusted earnings rose 3.1% year on
year to 66 cents per share. The quarterly earnings also beat the
Zacks Consensus Estimate of 62 cents and were better than
management's expectations that earnings would drop from year-ago
levels. The upside was driven by recent acquisitions.
The earnings excluded the impact of mark-to-market effects,
discrete tax items and restructuring costs. The company maintained
its full year earnings outlook.
Revenues and Margins
Total revenue of the global consumer food company increased 5%
year over year to $4.05 billion. Revenues mostly benefitted from
the addition of Yoplait International in July 2011, Parampara Foods
in India, Food Should Taste Good in the United States and Yoplait
Ireland in the final quarter of fiscal 2012.
Price/mix pulled down revenues by 2 percentage points, while
volume contributed 9 percentage points. Most of the volume growth
was driven by acquisitions. Foreign exchange pulled down the top
line by 2 percentage point. Revenues marginally missed the
Zacks Consensus Estimate of $4.07 billion.
Adjusted gross margin for the maker of Cheerios cereals and
Betty Crocker dinner mixes declined 40 basis points (bps) to 38.2%.
Adjusted operating margin also declined 10 bps to 17.5% in the
quarter despite lower advertising expenses. Advertising and media
expenses declined 7% year over year. However, we note that General
Mills' margins this quarter were better than the sequentially
: Revenues from the U.S. Retail segment declined 1% year over year
to $2.49 billion in the quarter as benefits from price/mix was
partly offset by lower volumes. Price/mix added 1 percentage point
to sales growth, which was offset by a 2 percentage point headwind
from volumes. Volumes however improved slightly from the prior
quarter as the company saw better volume and price trends in the
core U.S. retail food categories.
Sales growth in the Snacks, Baking Products, Meals and Small
Planet Foods divisions was offset by declines in the Big G cereals,
Frozen Foods and Yoplait yogurt businesses. 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.
The company plans to take steps to re-invigorate its yogurt
business in the U.S. in fiscal 2013. Segment operating profit
declined 2% to $575 million despite lower advertising costs.
: Revenues in the International segment grew 27% year over year to
$1.09 billion. Volume added 47 percentage points, mostly from
acquisitions, while price/mix took away 11 percentage points from
net sales growth.
Foreign exchange had an unfavorable 9 percentage point impact on
net sales. Europe recorded the highest constant currency growth of
51%, followed by 28% in Canada, and 20% each in Latin America and
Asia Pacific. Segment operating profit was up 56% to $126
Bakeries and Foodservice
: On a year-over-year basis, the Bakeries and Foodservice segment's
quarterly revenue declined 2% to $472.0 million. Volume gains of 2
percentage points were offset by price mix headwinds of 4
percentage points. Segment operating profit, however, improved 10%
year over year to $68 million driven by lower wheat costs.
Management maintained its fiscal 2013 adjusted earnings guidance
of approximately $2.65 a share. From the second quarter onwards,
the company's results are expected to benefit further from
purchases of Brazilian food maker Yoki Alimentos (completed in
August this year) and Yoplait Canada.
We currently have a Neutral recommendation on General Mills. The
stock carries a Zacks #4 Rank (a short-term Sell rating).
We are encouraged by the company's strong market share position
in some fast growing food categories, its growing international
presence, strategic acquisitions and focus on innovation and brand
support. These growth initiatives combined with the cost saving
efforts bode well for the company's long-term growth.
However, we prefer to remain on the sidelines until the U.S.
retail volumes improve, margin pressures (due to input cost
headwinds) subside, and the macroeconomic environment recovers
GENL MILLS (GIS): Free Stock Analysis Report
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