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General Mills reports fiscal 2011 third quarter results

Company reaffirms full fiscal year outlook

General Mills (NYSE: GIS) today reported results for the third quarter and first nine months of fiscal 2011.

Fiscal 2011 Third Quarter Financial Summary

• Net sales grew 2 percent to $3.65 billion
• Segment operating profit totaled $668 million, up 10 percent
• Diluted earnings per share grew at a double-digit rate to reach 59 cents, including a benefit from mark-to-market valuation of certain commodity positions.
• Adjusted diluted earnings per share, excluding mark-to-market effects in both years, totaled 56 cents, up 14 percent from 49 cents in last year's third quarter.

Net sales for the 13 weeks ended Feb. 27, 2011, grew 2 percent to $3.65 billion. Pound volume contributed 2 points of net sales growth. Price realization and mix and foreign currency translation had no material effect on sales growth in the quarter. Gross margin expanded in the quarter. Advertising and media expense was 10 percent below year-ago levels that grew 33 percent. Total segment operating profit grew 10 percent, led by the company's international business segment. Third-quarter net earnings grew 18 percent to $392 million, including a net increase in the mark-to-market valuation of certain commodity positions. Diluted earnings per share (EPS) totaled 59 cents, up 23 percent from 48 cents in the third quarter a year ago. Excluding mark-to-market effects in both years, adjusted diluted earnings per share would total 56 cents for this year's third quarter, up 14 percent from 49 cents last year.

Chairman and Chief Executive Officer Ken Powell said, "Results for the third quarter showed an acceleration in sales and profit growth following first-half performance that tracked generally in-line with strong prior-year levels. Our plans call for the fourth quarter to show the highest earnings growth of the year, with increasing contributions from pricing actions we have taken to partially offset significant commodity cost increases. We remain on track to achieve our financial targets for the full 2011 fiscal year."

Nine-month Financial Results Summary
Through the first nine months of fiscal 2011, General Mills net sales grew 1 percent to $11.24 billion. Pound volume contributed 2 points of net sales growth, and price realization and mix subtracted one point of growth. Foreign currency translation had no material effect on year-to-date sales growth. Segment operating profit totaled $2.27 billion, up 1 percent from prior-year levels that increased 14 percent. Net earnings totaled $1.48 billion, up 12 percent including a net increase in mark-to-market valuation of certain commodity positions and a net tax benefit recorded in the second quarter of this year. Diluted earnings per share grew 14 percent to $2.22. Excluding the net tax benefit in 2011 and mark-to-market effects in both years, adjusted diluted earnings per share would total $1.96 through the first nine months of fiscal 2011, up 4 percent from $1.89 in the year-ago period.

U.S. Retail Segment Results
Third-quarter net sales for General Mills' U.S. Retail segment declined 1 percent to $2.51 billion. Pound volume essentially matched year-ago levels, while price realization and mix subtracted one point of net sales growth. Segment operating profit was slightly below last year's level, which rose 10 percent.

Third-quarter net sales for the Snacks Division grew 14 percent, led by Nature Valley and Fiber One snack bar products. Yoplait division net sales grew 1 percent. Net sales for Big G cereals were 6 percent below year-ago results that included particularly strong new-product activity. Meals division net sales declined 5 percent reflecting unfavorable price realization and mix, as lower volume for shelf-stable dinner mixes offset good growth by Progresso soup, Green Giant frozen vegetables, and Wanchai Ferry and Macaroni Grill frozen entrees. Pillsbury division net sales were 2 percent below year-ago levels reflecting lower sales for Totino's frozen pizza. Baking Products net sales declined 7 percent. Net sales for the Small Planet Foods natural and organic business grew 14 percent, led by Cascadian Farm cereals and Larabar fruit and nut bars.

Through nine months, U.S. Retail segment net sales were $7.81 billion, essentially matching year-ago results. Pound volume contributed 1 point of net sales growth, which was offset by price realization and mix that subtracted 1 point of growth. Segment operating profit of $1.84 billion was 3 percent below year-ago profit that grew 14 percent.

International Segment Results
Third-quarter net sales for General Mills' consolidated international businesses grew 8 percent to $688 million. Pound volume contributed 6 points of net sales growth, with pricing and mix and foreign currency translation each contributing 1 point of net sales growth. The Asia / Pacific and European regions led the net sales increase. International segment operating profit was up sharply, reflecting the strong sales performance as well as favorable year-over-year foreign currency effects.

Through nine months, International segment net sales increased 4 percent to $2.10 billion. Pound volume contributed 6 points of net sales growth, and foreign currency translation subtracted 2 points of growth. Pricing and mix did not have a material effect on year-to-date net sales performance. Year-to-date segment operating profit totaled $220 million, compared to $152 million in last year's first nine months.

Bakeries and Foodservice Segment Results
Third-quarter net sales for the Bakeries and Foodservice segment grew 9 percent to $444 million. Pound volume contributed 2 points of net sales growth, and net price realization and mix contributed 7 points of growth. Net sales grew in all three major customer channels, led by a 13 percent increase in sales to bakeries and national restaurant accounts. Segment operating profit grew 34 percent to $67 million reflecting the net sales increase as well as higher earnings from grain merchandising activity.

Through nine months, Bakeries and Foodservice segment net sales grew 4 percent to $1.34 billion with 2 points of growth from increased pound volume, and 2 points of growth from price realization and mix. Segment operating profits increased 6 percent year-to-date, reaching $216 million.

Joint Venture Summary
After-tax earnings from joint ventures totaled $5 million in the third quarter, down from $24 million a year ago. Results for Cereal Partners Worldwide (CPW) were lower for the period, reflecting increased media investment, a tax restructuring charge, and the increased service cost allocation announced previously. Net sales for CPW excluding foreign currency effects rose 4 percent in the quarter. Net sales for Haagen-Dazs Japan excluding currency effects declined 4 percent in the period. Through nine months, after-tax earnings from joint ventures totaled $67 million this year compared to $86 million a year ago.

Corporate Items
Corporate unallocated items represented $28 million net expense in the third quarter of fiscal 2011 compared to $41 million net expense a year ago. The change primarily reflects differences in the mark-to-market valuation of certain commodity positions. In the third quarter of fiscal 2011 the company recorded a $33 million net decrease in expense related to mark-to-market valuation, compared to a $5 million net increase in expense in the third quarter of fiscal 2010. Excluding mark-to-market effects, unallocated corporate items totaled $61 million net expense in the third quarter of fiscal 2011 compared to $36 million net expense in the period a year ago. This change was driven primarily by a $16 million increase in noncash pension expense and an $11 million charge to increase an environmental liability (please see Note 5 to the Consolidated Financial Statements below for discussion of these items).

In this year's third quarter, the company recorded a $14 million pre-tax gain on the sale of a frozen baked goods product line. Last year's third quarter results included a $6 million pre-tax restructuring charge associated with the decision to exit certain underperforming products in the Bakeries and Foodservice segment.

Net interest expense of $85 million was 10 percent below year ago levels, reflecting lower average interest rates due to a shift in debt mix to include more short-term debt versus the same period last year. The effective tax rate was 31.9 percent, or 31.6 percent excluding mark-to-market effects, compared to 33.8 percent in last year's third quarter. The decrease was primarily due to federal legislation passed during the quarter that extended the tax credit for research and development expenditures.

Cash Flow Items
Cash provided by operating activities totaled $1.25 billion in the first nine months of 2011, below year-ago levels primarily due to increased use of working capital in the period. During the third quarter of fiscal 2011, General Mills acquired the Mountain High yoghurt business for $85 million. Capital investments totaled $423 million in the first nine months of the year, essentially unchanged from last year. Dividends paid increased to $548 million, reflecting growth in the dividend rate year over year. During the first nine months, General Mills repurchased 32 million shares of common stock, including 6 million shares repurchased in the third quarter. Average diluted shares outstanding were down 4 percent in the third quarter and down 2 percent through the first nine months.

Fiscal 2011 Outlook
"The global operating environment and heightened commodity-market volatility are certainly challenging, yet our businesses are performing in line with our long-term model," Powell said. "We expect to generate good sales and earnings growth in the final quarter of this year, and meet the targets we set for fiscal 2011 in total. As we look forward to fiscal 2012, we currently anticipate that supply chain inflation will be higher than this year's estimated 4 to 5 percent rate. Nevertheless, we expect to target another year of good business growth in 2012."

General Mills reaffirmed fiscal 2011 guidance of low single-digit growth in net sales, mid single-digit growth in segment operating profit and earnings per share of $2.46 to $2.48 excluding a net tax benefit recorded in the second quarter and any mark-to-market effects. This EPS guidance represents growth of 7 to 8 percent from 2010 adjusted diluted earnings per share of $2.30.

General Mills will hold a briefing for investors today, March 23, 2011, beginning at 8:30 a.m. Eastern time. You may access the web cast on generalmills.com.

Earnings per share excluding certain items, total company segment operating profit and effective tax rate excluding certain items are each non-GAAP measures. Reconciliations of these measures to their relevant GAAP measures appear in the financial schedules and Note 8 to the attached Consolidated Financial Statements.

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This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations and assumptions. These forward-looking statements, including the statements under the caption "Fiscal 2011 Outlook" and statements made by Mr. Powell, are subject to certain risks and uncertainties that could cause actual results to differ materially from the potential results discussed in the forward-looking statements. In particular, our predictions about future net sales and earnings could be affected by a variety of factors, including: competitive dynamics in the consumer foods industry and the markets for our products, including new product introductions, advertising activities, pricing actions, and promotional activities of our competitors; economic conditions, including changes in inflation rates, interest rates, tax rates, or the availability of capital; product development and innovation; consumer acceptance of new products and product improvements; consumer reaction to pricing actions and changes in promotion levels; acquisitions or dispositions of businesses or assets; changes in capital structure; changes in laws and regulations, including labeling and advertising regulations; impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets, or changes in the useful lives of other intangible assets; changes in accounting standards and the impact of significant accounting estimates; product quality and safety issues, including recalls and product liability; changes in consumer demand for our products; effectiveness of advertising, marketing, and promotional programs; changes in consumer behavior, trends, and preferences, including weight loss trends; consumer perception of health-related issues, including obesity; consolidation in the retail environment; changes in purchasing and inventory levels of significant customers; fluctuations in the cost and availability of supply chain resources, including raw materials, packaging, and energy; disruptions or inefficiencies in the supply chain; volatility in the market value of derivatives used to manage price risk for certain commodities; benefit plan expenses due to changes in plan asset values and discount rates used to determine plan liabilities; failure of our information technology systems; resolution of uncertain income tax matters; foreign economic conditions, including currency rate fluctuations; and political unrest in foreign markets and economic uncertainty due to terrorism or war. The company undertakes no obligation to publicly revise any forward-looking statement to reflect any future events or circumstances.

For more information, contact:

Analysts:
Kris Wenker
General Mills
763-764-2607
or
Media:
Kirstie Foster
General Mills
763-764-6364