General Mills, Inc. (GIS)

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General Mills (GIS)

Q4 2011 Earnings Call

June 29, 2011 8:30 am ET

Executives

Kristen Wenker - Vice President of Investor Relations

Donal Mulligan - Chief Financial Officer and Executive Vice President

Kendall Powell - Chairman and Chief Executive Officer

Analysts

Alexia Howard - Sanford C. Bernstein & Co., Inc.

Andrew Lazar - Barclays Capital

Vincent Andrews - Morgan Stanley

Christopher Growe - Stifel, Nicolaus & Co., Inc.

Terry Bivens - JP Morgan Chase & Co

Eric Katzman - Deutsche Bank AG

Robert Moskow - Crédit Suisse AG

Edward Aaron - RBC Capital Markets, LLC

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the General Mills 2011 Fourth Quarter Year End Results. [Operator Instructions] As a reminder this conference is being recorded, Wednesday, June 29, 2011. I would now like to turn the conference over to Ms. Kris Wenker, Vice President, Investor Relations with General Mills. Please go ahead.

Kristen Wenker

Thanks, operator. Good morning, everybody. I'm here with Ken Powell, our CEO; and Don Mulligan, our CFO. They'll discuss our fiscal 2011 results and our outlook for the new fiscal year. Let me remind you first, our press release 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 our website, too, that supplement today's prepared remarks, and 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 future results to be different than our estimates.

And with that, I'll turn you over to Don.

Donal Mulligan

Thanks, Kris, and hello, everyone. Thanks for joining us this morning. The last 12 months was a challenging period for the food industry and for General Mills. Input costs swung from deflationary to inflationary, and consumers in developed markets remain cautious in an economic environment where improvement seems slow at best.

Given these challenges, we're generally pleased with our 2011 results. We met the key growth targets we set for the year. We returned a substantial amount of cash to shareholders through dividends and share repurchases, and the combination of dividends plus stock price appreciation resulted in a double-digit return to shareholders for the year. As expected, our performance in the fourth quarter was quite strong. These results reflected faster net sales growth and good margin recoveries result of recent pricing action.

Slide 5 summarizes our results for the quarter. Sales totaled $3.6 billion, up 3%. Segment operating profit was $675 million, a 14% increase versus last year. Net earnings totaled $320 million, and diluted earnings per share were $0.48 as reported. Excluding the impact of mark-to-market effects in both years and a tax charge in 2010, earnings per share was $0.52, up 27% year-over-year.

Our net sales growth accelerated 3% in the fourth quarter. U.S. retail sales were down 2% reflecting significant year-over-year differences in trade promotion activity and pricing. International sales grew 16% as reported and 9% on a constant currency basis. And our Bakeries and Foodservice segment reported an 11% increase in net sales, driven by pricing and mix.

Our pound volume declined in the fourth quarter as expected since we were lapping very strong performance in the year ago period. Remember that in the fourth quarter of 2010, total company pound volume increased 6% on a comparable-weeks basis. Last year's performance was particularly robust in U.S. Retail where pound volume grew 8%. This year's fourth quarter results show improved net price realization as the driver of our top line. On a reported basis, fourth quarter gross margin increased to 37.5%. Excluding mark-to-market effects, gross margin expanded 100 basis points to 38.6%.

Slide 9 shows our fourth quarter operating profit by segment. Profits increased in all 3 segments as we benefited from price realization and strong margin performance. We delivered double-digit growth in both Bakeries and Foodservice and International.

After-tax earnings from joint ventures doubled to $30 million for the quarter, including favorable foreign currency effects and income tax comparisons. Fourth quarter sales for CPW increased 10% as reported and 2% on a constant currency basis. Häagen-Dazs Japan constant currency sales declined 10% reflecting the challenging economic conditions in that market. As a reminder, our JV results are for the 3 months ended in March 2011, the month the devastating earthquake and tsunami hit Japan.

Slide 11 summarizes our results for 2011 in total. Sales grew 2%. That's on top of the 1% growth as reported and 4% growth in comparable sales in 2010, which included 3 points of drag from divested businesses in the 53rd week. Segment operating profits grew 4%, diluted earnings per share grew 20% as reported and diluted EPS, excluding certain items affecting comparability, reached $2.48, up 8% from last year.

Results for our U.S. retail segment fell short of our target, primarily due to higher levels of promotional spending across our categories for much of the year. Our net sales essentially matched year ago performance overall. This included strong sales gains for our Small Planet Foods and Snacks divisions. Segment operating profit was 2% below strong year ago levels.

In 2011, our U.S. Retail media expense was below last year's level, which grew 22%. However, we continue to increase the efficiency of our media spending. In fact, our total media pressure in market increased at a double-digit rate. And based on measured media spending tracked by Kantar, our U.S. media investment ranks #1 among all food companies in 2010.

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