Wednesday, branded and packaged consumer foods maker General Mills Inc. (GIS) posted a 51% upsurge in first-quarter profit, benefited by strong U.S. retail sales and low commodity and fuel costs. In addition, the U.S. food giant raised its earnings forecast for fiscal 2010, above the Consensus.
First-Quarter Scorecard
The Minneapolis, Minnesota-based company's first-quarter net income was $420.6 million, up 51.0% from $278.5 million reported a year ago. On a per share basis, earnings advanced 58.2% to $1.25 from $0.79 in the same quarter of last year.
Excluding mark-to-market impact in both years, earnings per share amounted to $1.28, an increase of 33%, compared to $0.96 earned in the year-earlier quarter.
On average, 16 analysts polled by Thomson Reuters expected the company to post earnings of $1.03 per share. Analysts' estimates typically exclude special items.
Quarterly net sales improved 0.6% to $3.52 billion from the previous year's $3.49 billion, and breezed past eleven Wall Street analysts' consensus revenue estimate of $3.49 billion for the quarter.
The company noted that the foreign currency translation reduced 2010 first-quarter sales growth by 2 percentage points. Further, pound volume matched year-ago levels, reflecting the loss of 2 points of growth from divested product lines.
Chairman and Chief Executive Officer Ken Powell commented, "These good sales levels, combined with the effects of our companywide focus on holistic margin management (HMM), are driving terrific operating performance in our manufacturing plants. In addition, our commodity and fuel costs for the quarter were below year-ago levels, helping us to recover margin that was lost in the same quarter last year."
Segmental Analysis
General Mills' U.S. retail net sales rose 5.8% to $2.42 billion from $2.29 billion a year earlier. Pound volume contributed 2 points of the growth, including a 1 point reduction from the Pop Secret popcorn line divested last year. Operating profit increased 21% to $637 million, including a 19% growth in advertising and media expense for the period.
Net sales for Big G cereals grew 9%, and Meals division generated a 4% rise in first-quarter sales. Pillsbury net sales rose 12% with good performance by Totino's Pizza Rolls, Pillsbury refrigerated cookie dough and Pillsbury Toaster Strudel. Net sales for Yoplait grew 4%, and net sales for Baking Products advanced 3%, with gains from Betty Crocker dessert mixes, including new gluten-free items. Small Planet Foods organic and natural business witnessed net sales decline of 5%, while Snacks net sales, led by Nature Valley grain snacks and Fiber One bars, edged up 1%, despite the loss of 7 points of growth from the Pop Secret divestiture.
International sales dropped 4.1% to $661.7 million from the prior year's $690.1 million, as foreign currency exchange reduced net sales growth by 9 percentage points. Pound volume reduced net sales growth by 1 percentage point, including a 2 point decline from divested product lines. International segment operating profit declined 13% to $70 million, due to negative foreign currency translation and transaction effects.
Bakeries and Foodservice net sales totaled $433.3 million, a decline of 16.2%, compared with $516.9 million posted in the prior-year quarter, reflecting the absence of divested product lines and the impact of indexed bakery flour prices that were below year-ago levels. Pound volume reduced net sales growth by 10 percentage points, reflecting a 10 point reduction from divested product lines. Segment operating profit more than doubled to $61 million, reflecting favorable sales mix, manufacturing and logistics efficiencies, and commodity and fuel costs that were below year-ago levels.
FY10 - What's In Store?
Looking forward to fiscal 2010, the company hiked its earnings forecast to a range of $4.40 - $4.45 per share, excluding any impact from mark-to-market effects. Earlier, the company expected earnings between $4.20 and $4.25 per share, excluding any mark-to-market impact. Analysts are looking for earnings of $4.26 per share for full year.
In addition, the company stated that it plans to invest some of its first-quarter earnings growth in additional 2010 consumer marketing programs.
Powell said, "Over the past several years, we've focused intently on a business model that uses supply chain productivity, sales mix management, and other cost savings efforts to protect our margins from the pressure of rising input costs. This helps us limit price increases and also allows us to direct significant resources back into our business, in the form of ongoing product innovation and increased consumer marketing support."
In addition, Powell noted that the reinvestment fuels continuing strong sales trends for the company's brands, which offer consumers high quality, nutritious and convenient foods at very good values. "That's helping us drive growth for our food categories in markets around the world," Powell added.
Peer Review
Among other players in the field, ConAgra Foods Inc. (CAG) posted a 63% downswing in first-quarter profit that totaled $165.9 million or $0.37 per share, compared with $442.4 million or $0.94 per share last year, as the year-ago quarter profit included a gain from the sale of the company's trading & merchandising operations. Net sales for the quarter decreased 3.1% to $2.96 billion from $3.06 billion in the previous year.
HJ Heinz Co. (HNZ) reported first-quarter net income of $212.56 million or $0.67 per share, down from the prior-year's $228.96 million or $0.72 per share, as unfavorable currency effects drove down sales to $2.47 billion from $2.58 billion in the comparable quarter of the previous year. Further, Heinz continues to expect fiscal 2010 earnings per share growth in a range of 5%-8% and sales growth of 4%-6% on a constant currency basis.
Stock Performance
General Mills shares, which have been trading between $71.00 and $46.37 in the past 52 weeks, closed Tuesday's trading session at $60.97, on a volume of 3.52 million shares.
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