Chairman and Chief Executive Officer Ken Powell said this start has the company on pace to achieve its fiscal 2013 targets. “Results for the first quarter were broadly consistent with our plans, and included sequential improvement in our volume and gross margin trends from the fourth quarter of 2012,” he said.
During the first quarter of 2013, General Mills launched more than 100 new products worldwide. Products making the strongest contributions to net sales growth in the quarter included new items such as Apple Cinnamon Chex and Fiber One Nutty Clusters & Almonds cereals, Nature Valley Protein Bars, Green Giant Seasoned Steamers vegetables, Progresso Recipe Starters cooking sauces and in Europe, Meringue and Raspberry Fondant Secret Sensations from Häagen Dazs. Established brands including Honey Nut Cheerios cereal, Totino’s frozen snacks, Yoplait Greek yogurt, various Pillsbury refrigerated baked goods and in China, Wanchai Ferry frozen dim sum varieties also contributed strong sales gains.
U.S. Retail Segment Results
First-quarter net sales for General Mills’ U.S. Retail segment totaled $2.49 billion, down 1 percent from a year earlier. Pound volume reduced net sales growth by 2 points, and price realization and mix contributed 1 point of net sales growth. The Snacks, Baking Products, Meals and Small Planet Foods divisions each recorded net sales gains, while sales for Big G, Frozen Foods and Yoplait declined. Higher promotional spending in the quarter supported introductory merchandising of new items and lower merchandised price points for certain established product lines; advertising and media expense was below strong year-ago levels. Segment operating profit declined 2 percent to $575 million.
International Segment Results
First-quarter net sales for General Mills’ consolidated international businesses grew 27 percent to reach $1.09 billion. Pound volume contributed 47 points of net sales growth, including 45 points of growth from acquisitions. Price realization and mix subtracted 11 points of net sales growth, and foreign currency subtracted 9 points of growth. On a constant-currency basis, International segment net sales grew 36 percent overall, with gains of 51 percent in Europe and 28 percent in Canada including incremental contributions from the Yoplait International acquisition. Both Latin America and the Asia / Pacific region posted 20 percent gains in constant-currency net sales. (Please see Note 8 below for reconciliation of this non-GAAP measure.) International segment operating profit grew 56 percent to $126 million, including increased advertising and media expense.
Bakeries and Foodservice Segment Results
First-quarter net sales for the Bakeries and Foodservice segment totaled $472 million, 2 percent below year-ago results. Pound volume contributed 2 points of net sales growth, while price realization and mix reduced net sales growth by 4 points. Segment operating profit grew 10 percent in the quarter to $68 million, reflecting lower wheat costs year-over-year and higher earnings from grain merchandising.
Joint Venture Summary
Combined after-tax earnings from the Cereal Partners Worldwide (CPW) and Häagen Dazs Japan (HDJ) joint ventures totaled $23 million. This was below strong sales-driven performance a year ago, primarily due to higher input costs and unfavorable foreign currency exchange effects for CPW. Constant-currency net sales for CPW grew 1 percent in the quarter, and constant-currency net sales for HDJ were 4 percent above year ago levels.
Unallocated corporate items totaled $21 million of income in this year’s first quarter compared to $88 million of expense a year ago. Mark-to-market valuation of certain commodity positions represented an $82 million net decrease in expense in the first quarter of 2013 compared to a $38 million net increase in expense in last year’s first quarter. Excluding these mark-to-market effects, unallocated corporate items totaled a net $61 million of expense this year compared to a net $50 million of expense a year ago, primarily reflecting higher pension expense. Restructuring expenses totaled $9 million in this year’s first quarter. Net interest expense of $83 million was 3 percent below year ago levels, primarily due to changes in debt mix. The effective tax rate was 22.7 percent in this year’s first quarter, reflecting a decrease in deferred income tax liabilities. Excluding this discrete tax item, mark-to-market effects, and restructuring and integration costs, the adjusted effective tax rate was 31.4 percent in this year’s first quarter compared to 32.4 percent a year ago. (Please see Note 8 below for a reconciliation of this non-GAAP measure.)
Cash Flow Items
Cash provided by operating activities totaled $489 million in the quarter, up 11 percent from year-ago levels. Capital investments totaled $141 million in the first quarter of 2013. Dividends paid rose to $218 million, reflecting the 8 percent increase in the dividend rate year-over-year. During the first quarter, General Mills repurchased approximately 7 million shares of common stock for a total of $272 million. Average diluted shares outstanding totaled 667 million for the first quarter of 2013, generally in-line with year ago levels.
Powell said, “In our core U.S. market, we are seeing slow improvement in price and volume trends across our retail food categories. As we move into the second quarter, we’ll be putting full advertising support behind our new items, and we have planned strong levels of in-store merchandising across our product categories. Outside the U.S., our established international businesses are showing good momentum and, beginning in the second quarter, results will include incremental contributions from Yoplait Canada and Yoki Alimentos in Brazil.”
The company reaffirmed its full-year fiscal 2013 EPS guidance of approximately $2.65, excluding mark-to-market effects, the net tax benefit, and restructuring and integration costs.