General Mills Reports Fiscal 2016 Third-Quarter Results In Line With Expectations, Reaffirms Full-Year Outlook

MINNEAPOLIS, March 23, 2016 /PRNewswire/ -- General Mills GIS today reported results for the third quarter of fiscal 2016.

Third Quarter Results Summary

• Net sales declined 8 percent to $4.0 billion, including a 3 point decline from the Green Giant divestiture. On a constant-currency basis, net sales declined 4 percent.
• Total segment operating profit totaled $679 million, down 3 percent. In constant currency, total segment operating profit declined 1 percent.
• Diluted earnings per share (EPS) totaled 59 cents compared to 56 cents a year ago.
• Adjusted diluted EPS, which excludes certain items affecting comparability of results, totaled 65 cents in the third quarter of 2016 compared to 70 cents a year ago. On a constant-currency basis, adjusted diluted EPS declined 6 percent.

Please see Note 8 to the Consolidated Financial Statements below for reconciliation of non-GAAP measures used in this release.

General Mills Chairman and Chief Executive Officer Ken Powell said, "Our third-quarter financial results were in line with our expectations.  We reported a decline in net sales as anticipated, primarily reflecting the Green Giant divestiture and continued foreign exchange headwinds.  Constant-currency segment operating profit was down modestly, as our cost savings efforts more than offset the impact of the Green Giant sale.  Our disciplined financial management has enabled us to expand our adjusted operating profit margin for the fifth consecutive quarter while still investing in Consumer First renovation and innovation news."

Net sales for the 13 weeks ended Feb. 28, 2016, declined 8 percent to $4.0 billion.  Foreign currency exchange reduced net sales growth by 4 percentage points.  Pound volume reduced net sales growth by 5 percent, and net price realization and mix contributed 1 point of net sales growth.  The divestiture of the Green Giant business in November 2015 reduced net sales growth by 3 points and pound volume by 4 points.  Adjusted gross margin, which excludes mark-to-market effects and certain other items affecting comparability, increased 160 basis points due to benefit from cost savings initiatives more than offsetting modest input cost inflation.  Selling, general and administrative expenses (SG&A) declined 4 percent, driven by a 6 percent decrease in advertising and media expense and savings from our cost management initiatives (please see Note 4 below for more information on our restructuring actions).  Total segment operating profit declined 3 percent to $679 million.  On a constant-currency basis, total segment operating profit declined 1 percent.  The company posted restructuring and project-related charges totaling $44 million pretax in the third quarter, including $27 million recorded in cost of sales (please see Note 4 below for more information on these charges).  Net earnings attributable to General Mills totaled $362 million and diluted EPS totaled 59 cents.  Adjusted diluted EPS, which excludes certain items affecting comparability, declined 7 percent to 65 cents.  On a constant-currency basis, third-quarter adjusted diluted EPS declined 6 percent. 

Nine Month Financial Summary

• Net sales through the first nine months of fiscal 2016 declined 5 percent to $12.64 billion, including a 1 point decline from acquisitions and divestitures. On a constant-currency basis, net sales declined 1 percent.
• Nine-month total segment operating profit totaled $2.34 billion, up 5 percent from the prior year. Constant-currency total segment operating profit grew 8 percent.
• Diluted EPS totaled $2.15 compared to $1.67 a year ago.
• Adjusted diluted EPS totaled $2.26 this year to date, up 7 percent versus year-ago levels. On a constant-currency basis, adjusted diluted EPS increased 10 percent.

Through the first nine months, General Mills constant-currency net sales declined 1 percent, reflecting the net impact of the Green Giant divestiture and the acquisition of the Annie's business in October 2014.  Total segment operating profit increased 8 percent and adjusted diluted EPS were up 10 percent in constant currency.  Nine-month adjusted gross margin expanded by 170 basis points.  U.S. Retail products making particularly strong contributions to nine-month net sales results include gluten-free Cheerios and Cinnamon Toast Crunch cereals, Yoplait Greek Whips! yogurt, Nature Valley grain snacks, Lärabar nutrition bars, Annie's natural and organic products, and Totino's hot snacks.  In the Convenience Stores and Foodservice segment, Pillsbury frozen mini-bagels, Bugles and Chex Mix salty snacks, and Yoplait Parfait Pro and Simply Go-GURT yogurt varieties were strong net sales contributors.  International products posting strong nine-month net sales contributions include Häagen-Dazs ice cream and Old El Paso Mexican products in Europe, Nature Valley snacks in Canada, Fiber One snacks in Mexico, and Betty Crocker sweet snacks in the Asia/Pacific region.

U.S. Retail Segment Results

Third-quarter net sales for General Mills' U.S. Retail segment totaled $2.48 billion, down 7 percent from the prior year.  Net price realization and mix contributed 1 point of net sales growth, while lower pound volume reduced sales growth by 8 points.  The Green Giant divestiture reduced U.S. Retail net sales growth by 5 points and pound volume by 6 points.  U.S. Retail segment operating profit of $518 million essentially matched year-ago levels, with benefits from cost savings initiatives more than offsetting the divestiture impact. 

Through nine months, U.S. Retail net sales declined 2 percent to $7.77 billion.  Lower pound volume subtracted 4 points of net sales growth, while net price realization and mix added 2 points of growth.  Acquisitions and divestitures reduced net sales by 1 point.  Segment operating profit totaled $1.75 billion, 10 percent above last year.  

International Segment Results

Third-quarter net sales for General Mills' consolidated international businesses declined 13 percent to $1.07 billion due to foreign currency exchange effects.  On a constant-currency basis, net sales essentially matched year-ago levels.  The Green Giant divestiture reduced International segment net sales growth by 2 points.  Constant-currency net sales gains of 16 percent in Latin America and 4 percent in the Asia/Pacific region were offset by declines of 2 percent in Europe and 14 percent in Canada.  International segment operating profit declined 35 percent to $70 million.  On a constant-currency basis, segment operating profit was down 24 percent, due to currency-driven inflation on imported products in certain markets, as well as the Green Giant divestiture.

Through the first nine months of fiscal 2016, International segment net sales totaled $3.43 billion, down 12 percent from the prior year.  Foreign currency exchange reduced net sales growth by 14 points.  On a constant-currency basis, net sales grew 2 percent, reflecting positive net price realization and mix.  The Green Giant divestiture reduced International segment net sales growth by 1 point.  Nine-month segment operating profit declined 17 percent to $324 million.  Constant-currency segment operating profit was 1 percent below year-ago results that were up 8 percent.  

Convenience Stores and Foodservice Segment Results

Third-quarter net sales for the Convenience Stores and Foodservice segment totaled $454 million, 2 percent below year-ago levels due to unfavorable net price realization.  Cereal, yogurt, snacks, and frozen meals led sales performance in the quarter, while market index pricing on bakery flour was the primary contributor to the net sales decline.  Segment operating profit increased 31 percent to $91 million, driven primarily by increased grain merchandising earnings, favorable product mix, and benefits from cost savings initiatives.

Through the first nine months of fiscal 2016, Convenience Stores and Foodservice net sales declined 2 percent to $1.44 billion.  Pound volume and unfavorable net price realization each reduced net sales growth by 1 point.  Nine-month segment operating profit totaled $273 million, 8 percent above year-ago results that grew 14 percent.

Joint Venture Summary

Combined after-tax earnings from the Cereal Partners Worldwide (CPW) and Häagen-Dazs Japan (HDJ) joint ventures totaled $16 million in the third quarter, up 24 percent.  Constant-currency after-tax earnings from joint ventures increased 19 percent, due primarily to volume growth for HDJ.  Constant-currency net sales grew 22 percent for HDJ and declined 1 percent for CPW.  Through the first nine months of 2016, after-tax joint-venture earnings totaled $65 million, down 2 percent as reported but up 8 percent in constant currency.

Corporate Items

Unallocated corporate items totaled $78 million net expense in the third quarter of fiscal 2016, compared to $112 million net expense a year earlier.  Excluding mark-to-market valuation effects, restructuring and project-related charges, Annie's integration expenses, and a $7 million foreign exchange loss in last year's third quarter related to balance sheet re-measurement for our Venezuelan subsidiary, unallocated corporate items totaled $44 million net expense this year compared to $32 million net expense a year ago.  

General Mills recorded restructuring, impairment and other exit costs totaling $17 million pretax during the third quarter compared to $49 million in the year-ago period.  An additional $17 million of restructuring charges and $10 million of project-related charges were recorded in cost of sales, compared to $22 million and $3 million, respectively, in last year's third quarter.

Net interest expense totaled $77 million in this year's third quarter, compared to $80 million a year ago.  The third-quarter effective tax rate was 31.0 percent, 5.5 percentage points higher than the prior year primarily due to less favorable impacts of U.S. federal tax legislation passed in the fiscal third quarter, and changes in earnings mix by country.  Excluding items affecting comparability, the adjusted effective tax rate was 30.8 percent for the third quarter and 31.9 percent for the first nine months of 2016.

Cash Flow Items

Cash provided by operating activities totaled $1.86 billion through the first nine months of 2016, up 19 percent from the prior year due primarily to changes in working capital.  Capital investments through the first nine months totaled $478 million.  Dividends paid year-to-date increased 6 percent to $795 million.  During the nine months of 2016, General Mills repurchased 10.6 million shares of common stock at an aggregate price of $602 million.  Average diluted shares outstanding through the first nine months totaled 612 million, down 1 percent from the average of 620 million in the year-ago period.

Venezuela Divestiture

On March 16, 2016, subsequent to the close of the third quarter, General Mills sold its General Mills de Venezuela CA subsidiary to a third party and exited its business in Venezuela.  The company expects to incur a non-cash charge of approximately $35 million pretax in the fourth quarter related to this sale.  The transaction is not expected to have a material impact on the company's ongoing financial results.

Outlook

Powell said, "We anticipate the impact of the Green Giant sale, continued foreign exchange headwinds, and the comparison to the year-ago period that included an extra week will result in a reported decline in fourth-quarter net sales, total segment operating profit, and adjusted diluted EPS.  However, on a comparable basis, we expect our net sales growth to turn positive as our Consumer First efforts continue to take hold.  For the full year, we are confident that we will deliver the growth goals we updated in December." 

General Mills reaffirmed its 2016 full-year growth outlook, which includes the impact of the Green Giant divestiture.  Net sales in constant currency are expected to decline at a low single-digit rate from the 2015 levels that included a 53rd week.  Total segment operating profit is expected to essentially match last year's levels in constant currency.  Constant-currency adjusted diluted EPS is expected to grow at a low single-digit rate from the base of $2.86 earned in fiscal 2015.  The company estimates an 8-cent headwind from currency translation in 2016.

General Mills will hold a briefing for investors today, March 23, 2016, beginning at 8:30 a.m. Eastern time.  You may access the web cast from General Mills' internet home page:  generalmills.com.

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 "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 the legal and regulatory environment, including labeling and advertising regulations and litigation; 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; effectiveness of restructuring and cost savings initiatives; 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 or breach of our information technology systems; 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.  

 

 

 

 

 

 

 

In the first quarter of fiscal 2016, we approved Project Compass, a restructuring plan designed to enable our International segment to accelerate long-term growth through increased organizational effectiveness and reduced administrative expense. In connection with this project, we expect to eliminate approximately 725 to 775 positions. We expect to incur approximately $62 to $65 million of net expenses relating to this action of which approximately $61 million will be cash. We recorded $52.8 million of restructuring charges in the nine-month period ended February 28, 2016, relating to this action. We expect this action to be completed by the end of fiscal 2017.

Project Century (Century) began in fiscal 2015 as a review of our North American manufacturing and distribution network to streamline operations and identify potential capacity reductions. In the second quarter of fiscal 2016, we broadened the scope of Project Century to identify opportunities to streamline our supply chain outside of North America. As part of the expanded project, we notified employees and their representatives of our decision to close manufacturing facilities in our International segment supply chain located in Berwick, United Kingdom and East Tamaki, New Zealand. These actions will affect approximately 285 positions. We expect to incur total restructuring charges of approximately $47 to $52 million relating to these actions, of which approximately $22 million will be cash. We recorded $17.9 million of restructuring charges in the third quarter of fiscal 2016 and $18.3 million in the nine-month period ended February 28, 2016, relating to these actions. We expect these actions to be completed by the end of fiscal 2017.

As part of Century, in the first quarter of fiscal 2016, we notified the union member employees and union representatives at our West Chicago, Illinois facility of our decision to close this cereal and dry dinner manufacturing plant in our U.S. Retail segment supply chain. This action will affect approximately 500 positions, and we expect to incur approximately $114 million of net expenses relating to this action, of which approximately $57 million will be cash. We recorded $8.2 million of restructuring charges in the third quarter of fiscal 2016 and $72.2 million in the nine-month period ended February 28, 2016, relating to this action. We expect this action to be completed by the end of fiscal 2019.

As part of Century, in the first quarter of fiscal 2016, we notified the employees at our snacks manufacturing facility in Joplin, Missouri of our decision to close this plant in our U.S. Retail segment supply chain. This action will affect approximately 120 positions, and we expect to incur approximately $8 million of net expenses relating to this action, of which less than $1 million will be cash. We recorded $0.6 million of restructuring charges in the third quarter of fiscal 2016 and $8.4 million in the nine-month period ended February 28, 2016, relating to this action. We expect this action to be completed by the end of fiscal 2016.

Also, we recorded $17.2  million of restructuring charges related to Century actions previously announced in the third quarter of fiscal 2016 and $56.2 million in the nine-month period ended February 28, 2016.

During the nine-month period ended February 28, 2016, we paid $116.2 million in cash related to restructuring initiatives.

In addition to restructuring charges, we expect to incur approximately $111 million of additional project-related costs, which will be recorded in cost of sales, all of which will be cash. We recorded project-related costs of $10.1 million in the third quarter of fiscal 2016 and $39.4 million in the nine-month period ended February 28, 2016 and $10.5 million in the third quarter of fiscal 2015 and $3.5 million in the nine-month period ended February 22, 2015.

Details of our restructuring initiatives were as follows:

 

 

 

 

 

 

 

 

A reconciliation of total segment operating profit to the relevant GAAP measure, operating profit, is included in the Statements of Operating Segment Results.

Constant-currency total segment operating profit growth rates follows:

 

 

Constant-currency International segment operating profit growth rates follows:

 

 

Constant-currency International segment region net sales growth rates follow:

 

 

Constant-currency after-tax earnings from joint ventures growth rates follows:

 

 

Earnings comparisons as a percent of net sales excluding certain items affecting comparability follow:

 

 

 

A reconciliation of the effective income tax rate as reported to the effective income tax rate excluding certain items affecting comparability follows:

 

 

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SOURCE General Mills