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General Mills (GIS)
Q1 2012 Earnings Call
September 21, 2011 8:30 am ET
Donal Leo Mulligan - Chief Financial Officer and Executive Vice President
Ian R. Friendly - Executive Vice President and Chief Operating officer of Us Retail
Kristen Smith Wenker - Vice President of Investor Relations
Kendall J. Powell - Chairman and Chief Executive Officer
Kenneth B. Zaslow - BMO Capital Markets U.S.
Andrew Lazar - Barclays Capital, Research Division
Christopher Growe - Stifel, Nicolaus & Co., Inc., Research Division
David Driscoll - Citigroup Inc, Research Division
Edward Aaron - RBC Capital Markets, LLC, Research Division
Alexia Howard - Sanford C. Bernstein & Co., Inc., Research Division
Mineo Sakan - UBS Investment Bank, Research Division
Todd Duvick - BofA Merrill Lynch, Research Division
Eric R. Katzman - Deutsche Bank AG, Research Division
Previous Statements by GIS
» General Mills, Inc. - Shareholder/Analyst Call
» General Mills' CEO Discusses Q4 2011 Results - Earnings Call Transcript
» General Mills' CEO Discusses Q3 2011 Results - Earnings Call Transcript
Kristen Smith Wenker
Thanks, operator. Good morning, everybody. I'm here with Ken Powell, our CEO; Don Mulligan, our CFO; and Ian Friendly, Executive Vice President and Head of our U.S. Retail Operations, and I'll turn the call over to them in just a minute. First, I need to cover my usual housekeeping item. Our press release and first quarter results was issued over the wire services earlier this morning. It's also posted on our website if you still need a copy. We've posted slides on the website too. They supplement today's prepared remarks. These remarks will include forward-looking statements that are based on management's current views and assumptions. The second slide in today's presentation lists factors that could cause our future results to be different than our current estimates. And with that, I will turn you over to my colleagues, beginning with Don.
Donal Leo Mulligan
Thanks, Kris, and hello, everyone. Thank you for joining us this morning. As you've seen from our financial results released this morning, General Mills is off to a good start in fiscal 2012. We delivered sales growth in each of our 3 operating segments. The quarter included a strong level of product innovation and a 7% increase in advertising investment. And while the inflationary pressure on our gross margin was every bit as challenging as we expected, earnings were a bit better than we had forecast, with adjusted earnings per share matching year-ago levels. In total, we remain on track to deliver our full year sales and earnings targets for 2012.
Slide 5 summarizes our results for the quarter. As a reminder, our results now include the Yoplait international business acquired on July 1. We report this business on a 1-month lag, so there's only 1 month of Yoplait performance in our first quarter results. Sales totaled $3.8 billion, up 9%. Segment operating profit declined 3% in the quarter, reflecting higher input costs and increased advertising investment. Net earnings totaled $406 million, and diluted earnings per share were $0.61 as reported. These results include a net decrease in the mark-to-market valuation of certain commodity positions and grain inventories that reduced earnings per share by $0.03 this quarter. Excluding mark-to-market effects, diluted EPS would be $0.64, matching year-ago performance.
Slide 6 shows the components of our total sales growth on an as-reported basis, including the 1 month of results from the Yoplait international acquisition. Pound volume contributed 2 percentage points of growth in the quarter. Sales mix and net price realization added 5 points to sales growth, and foreign exchange added 2 percentage points to our sales growth rate.
Slide 7 provides a breakdown of our first quarter sales growth, excluding the impact of the Yoplait acquisition. As expected, pound volume was lower in the quarter, down 3 percentage points. Price and mix contributed 7 points of sales growth and foreign exchange added 2 points. So net sales, excluding the Yoplait acquisition, increased 6%.
Slide 8 details our net sales performance by segment. U.S. Retail net sales grew 3%, led by strong performance in our Snacks business. International sales were up 30%, including 1 month of Yoplait international results. Excluding Yoplait, our sales still increased at a double-digit rate, and net sales in our Bakeries and Foodservice segment increased 13%.
Slide 9 outlines our first quarter gross margin performance. As we told you this summer, our first quarter represented this year's toughest gross margin comparison. On a reported basis, gross margin declined to 37.6%, reflecting the impact of higher input costs for products sold in the current period and changes in the mark-to-market value of grain inventories and commodity hedges we'll use in future periods. Excluding mark-to-market effects, our gross margin declined 250 basis points. The addition of Yoplait international accounts for roughly 50 basis points of that decline. The remainder reflects higher input costs.
For the full year, we still anticipate that our underlying gross margin, excluding mark-to-market effects and the impact of Yoplait international, will decline by roughly 100 basis points. We continue to invest in consumer marketing to drive top line growth. Our investment in media and advertising increased 7% in this year's first quarter on top of an 8% increase last year.
Slide 11 shows our segment operating profit for the quarter. Total segment profits declined 3%, reflecting the higher input costs and increased advertising investment. U.S. Retail profit was 5% below last year levels. International profits increased 30%, reflecting strong top line growth and favorable foreign exchange. And Bakeries and Foodservice profit declined 15% for the quarter, as improved net price realization did not fully offset higher input costs in the period. Grain merchandising earnings also declined from strong year-ago levels.