General Mills, Inc. (GIS)

F4Q10 (Qtr End 05/30/2010) Earnings Call

June 29, 2010 16:30 p.m. ET


Kris Wenker - VP, IR

Don Mulligan - CFO


David Palmer - UBS

Terry Bivens - JPMorgan

Edward Aaron - RBC Capital Markets

Jonathan Feeney - Janney Montgomery Scott

Alexia Howard - Sanford Bernstein

Eric Katzman - Deutsche Bank

Robert Moskow - Credit Suisse

Kenneth Zaslow - BMO

David Driscoll - Citi

Chris Growe - Stifel Nicolaus

Bryan Spillane - Bank of America



Welcome to the General Mills F10Q4 and full year results conference call. (Operator Instructions)

It is now my pleasure to turn the conference over to Ms. Kris Wenker, Vice President of Investor Relations.

Kris Wenker

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Good afternoon everybody. I’m here with Don Mulligan, our CFO, and he’s going to discuss our fourth quarter and full year fiscal '10 results and then cover the key financial targets and assumptions for fiscal '11.

We hope you'll join us on Thursday as well; that's when Don, Ken Powell and our other senior leaders will provide a detailed review of our 2011 plan. That webcast will start Thursday morning at 7.45 Central, so 8.45 Eastern.

Our press release on fiscal 2010 results was issued over the wire services about a half hour ago. It's also posted on our website if you still need a copy. We've put flags out on the web; they supplement Don's prepared remarks for today.

And I'll remind you, those remarks include forward-looking statements based on management’s current views and assumptions.

The second slide lists factors that could cause our future results to be different than our current estimates.

And with that I’ll turn you over to Don.

Don Mulligan

Thanks, Kris, and hello everyone. Thanks for your interest in General Mills and for joining us this afternoon.

Fiscal 2010 was a terrific year for us. We delivered high quality sales and earnings growth well above the original targets that we set for the year. We generated more than $2 billion of cash flow and we returned a significant portion of that to shareholders through share repurchases and dividends while also strengthening our balance sheet.

We invested strongly in merchandizing and consumer marketing efforts throughout the year, resulting in good fourth quarter sales growth and strong momentum as we begin our new year.

Now it's hard to see our fourth quarter operating performance in the reported numbers. The comparison includes one extra week of business in the final quarter of 2009. We also divested some product lines last year.

So we'll provide some additional sales data on a comparable basis. Please note that our comments on slides as on an as reported basis unless otherwise noted, and our materials also reflect the recent 2-for-1 stock split.

Slide 6 summarizes our results. Sales for the quarter totaled $3.6 billion, down 2%. Segment operating profit was $606 million, which was margin in line with last year, excluding mark-to-market effects and a 10% increase in media spending. Net earnings totaled $212 million and diluted earnings per share was $0.31 as reported.

These reported results include (inaudible) affecting comparability. Fourth quarter 2010 earnings include a net reduction of $0.05 per share related to mark-to-market valuation of certain commodity positions. We also recorded a $0.05 non-cash tax charge related to the recently enacted healthcare legislation.

Excluding these items, earnings per share for the quarter would be $0.41. In last year's fourth quarter, we recorded a $0.16 gain from mark-to-market valuation, which was partially offset by a loss in the divestiture of several bakeries and foodservice product lines.

Excluding these items affecting comparability from both years, diluted earnings per share declined only slightly in the fourth quarter. That primarily reflects one less week in fiscal 2010. That extra week contributed about $0.04 per share last year.

In this year, we recorded charges of about $0.04 per share in the fourth quarter related to debt refinancing activities. That action reduced our debt maturing in 2012 by $400 million.

We ended the year with very strong top-line results. Slide 8 shows fourth quarter sales growth as reported, and then on a comparable weeks basis. U.S. retail sales grew 5% on a comparable basis driven by a strong increase in Pound volume. International sales grew 5% excluding the impact of the extra week. This includes 3 points of favorable foreign exchange. Volume growth drove the increase in sales on a constant currency basis.

Our Bakeries and Foodservice segment reported a 5% decline in net sales on a comparable basis. But this includes the impact of divestitures and index pricing tied to wheat markets that have been below year-ago levels.

Underlying performance in this business ranged quite good as you'll see with our volume results. Volume trends accelerated in the fourth quarter across all of our segments.

Slide 9 shows the pound volume contributions and net sales growth with the impact of divested product lines noted below the chart. On a reported basis, pound volume contributions and net sales was unchanged versus last year, with divested products reducing growth by 1 point.

The next slide shows point volume growth on a comparable basis, excluding the impact of the extra week. On this basis, U.S. retail pound volume increased 8% for the quarter. Pound volume for international was up 3% despite a 2 point reduction from divestitures. And in our bakeries and foodservice segment, pound volume excluding divested products would have increased in the quarter, well ahead of overall industry trends.

On a reported basis, fourth quarter gross margin was 36.2%, down from last year, when we recorded a $170 million mark-to-market gain. Excluding mark-to-market effects, gross margin matched year-ago levels.

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