General Mills, Inc. (GIS)

GIS 
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General Mills, Inc. (GIS)

September 26, 2011 12:00 pm ET

Executives

Unknown Speaker -

Ian R. Friendly - Executive Vice President and Chief Operating officer of Us Retail

Roderick A. Palmore - Chief Compliance & Risk Management officer, Executive Vice President, General Counsel and Secretary

Unknown Executive -

Peter C. Erickson - Senior Vice President of Innovation, Technology & Quality

Kendall J. Powell - Chairman and Chief Executive Officer

Presentation

Kendall J. Powell

Ladies and gentlemen, good morning to one and all, and welcome to the 83rd Annual Meeting of General Mills shareholders. I'm Ken Powell, the Chairman and Chief Executive Officer of the company. It is exactly 11:00. We have a quorum. All official papers are on file, and the inspectors of election have been appointed, so I will call this meeting to order.

I'll begin today with an overview of our company's recent performance and our plants for future growth. Then, Peter Erickson, who is our Senior Vice President for Innovation, Technology and Quality, will provide an update on our product innovation efforts and a key philanthropic initiative that leverages the talent of the people in his organization. And then I'll introduce this year's Champions Award winners. These are employees who've made particularly notable contributions to our performance during the past year, and after that, we'll cover today's business agenda and, of course, take your questions.

Let me quickly remind you that our comments on the future are based on our current views and assumption. This slide points out that there are many factors that could cause our future results to be different than our estimates.

General Mills posted good performance in fiscal 2011. Sales grew to $14.9 billion. Segment operating profit grew faster than sales, up 4% to exceed $2.9 billion, and our earnings per share grew 8% to $2.48, adjusted for certain items affecting comparability of our result year-over-year. We were pleased with our results in 2011 because it was a challenging environment for food manufacturers. Input costs increased throughout the year and consumers around the world remain cautious in a very uncertain economy.

Performance in our U.S. Retail segment reflected these challenges. Sales totaled $10.2 billion, essentially matching the previous year's results. However, we saw good sales increases on a number of key businesses, including Nature Valley and Fiber One snack bars, Progresso soup, Old El Paso dinner kits and LÄRABAR and Cascadian Farm natural and organic foods. Performance by our Bakeries and Foodservice segment outpaced the U.S. foodservice industry. Our net sales grew 6% and operating profit rose 16% to exceed $300 million for the first time in company history. Our International segment results also were strong with sales increasing 7% to nearly $2.9 billion. Segment operating profit grew at a double-digit rate. And finally, our Cereal Partners Worldwide and Häagen-Dazs Japan joint ventures contributed $96 million in after-tax earnings last year.

Our good financial performance was reflected in price appreciation for General Mills stock during 2011. Combined with dividends, our total return to shareholders was 14%. This did lag the very strong returns posted by our peer group and the broader market for this 12-month period. However, our results followed an exceptionally strong 43% return to GIS shareholders in fiscal 2010.

General Mills has a long track record of creating superior returns to shareholders. Whether you look at the past decade or the past 20, 30 or even 50 years, General Mills has consistently outperformed the broader market. Now over these years, our company has gone through many transformations. 30 years ago, we were a premier consumer products company with a portfolio ranging from restaurants to toys and fashion. In the '90s, we refocused on consumer foods, and this fall, we'll celebrate the 10th anniversary of our acquisition of Pillsbury, which transformed General Mills into a food company with international capabilities. International expansion will be a significant growth engine for us in the years ahead.

Today, we're leveraging our portfolio around the world to appeal to 4 key consumer groups that will drive our growth. The Baby Boom generation includes 1.2 billion people worldwide who are over the age of 50. These consumers have a particular interest in foods with health and wellness benefits. The Millennials are ages 17 to 34 and are the largest consumer segment. They like to experiment with food and they look for options that are natural, simple and local. And Multicultural consumers in the U.S., along with the rising Middle Class in Emerging Markets, represent the fastest growing consumer groups for us.

We see 5 key drivers of our future growth. The first of these is product innovation. Consumers everywhere are looking for foods that provide health benefits, convenience and great taste, and we work continuously to improve our established brands and create great new food products, and Peter's going to tell you more about these initiatives in a few moments.

Our second growth driver is protecting and expanding margins. Holistic margin management is our discipline of using productivity, mix and pricing to offset input cost inflation, and we've been able to protect the gross margin in recent years despite inflation that has averaged between 4% and 5% across this period. Strong gross margins give us the ability to fund continued high levels of investment in advertising and other brand-building programs. Our company-wide media spending totaled more than $840 million last year. And we're accelerating our investment in new media. For example, our spending on digital media, such as websites and other Internet outlets, has been growing by double digits over the past several years. Multicultural consumers are another focus of increased media spending. For example, General Mills is the top Hispanic advertiser among food companies and Qué Rica Vida is our successful Hispanic marketing platform.

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