2nd UPDATE: General Mills 1Q Profit Jumps 51%, Boosts EPS View
September 23 2009 - 10:42AM
Dow Jones News
General Mills Inc.'s (GIS) fiscal first-quarter earnings soared
51% as the company's profit margins widened in tandem with
moderating commodity prices and as sales rose of household staples
like Hamburger Helper, Multigrain Cheerios and Pillsbury cookie
dough.
The results handily topped expectations and the processed-food
giant again raised its fiscal-year earnings view, this time by 20
cents to $4.40 to $4.45 a share.
Lower commodity prices are aiding the large food makers who were
hurt last year as their raw material costs surged. Despite the
declines in raw material costs, these companies have largely
avoided the large scale price rollbacks some investors had feared.
That is helping their profit margins.
General Mills' first quarter input costs came in lower than it
expected. ConAgra, maker of Hunt's sauces and Healthy Choice meals,
this week also raised its fiscal year earnings forecast. Their
upbeat outlook bodes well for the packaged foods sector and other
food companies like Kraft Foods Inc. (KFT) and Kellogg Co. (K) that
will report in coming weeks.
Companies like General Mills have been helped by aggressive
efforts to cut costs internally. For instance, the company cut the
gallons of fuel it used by 10% in the first quarter, partly by
coordinating and managing its trucks more efficiently. In an
interview Chief Executive Ken Powell said the company is also
making greater use of rail transportation, which can be cheaper
than trucking.
"We were able to recover margins in the first quarter despite
the fact we haven't taken a price increase in the vast majority of
our categories in over a year," said Powell. The company's internal
program to cut costs and improve margins "is the gift that keeps on
giving," he said.
General Mills says that for the most part it isn't promoting
much more than it did last year and has avoided price cuts in its
retail business. Despite the moderation in commodity pressures, the
company still expects its input costs for the fiscal year to be
higher than a year earlier. Cereal companies General Mills and
Kellogg have strong brands, and private label penetration in the
cereal category is much lower than far more commoditized categories
like bread and cheese. That is helping the branded cereal makers
hold on to price increases they have taken. In the latest quarter,
General Mill's gross margin jumped to 41.5% from 34.1%.
For the quarter ended Aug. 30, General Mills reported a profit
of $420.6 million, or $1.25 a share, up from $278.5 million, or 79
cents, a year earlier.
Excluding items, such as hedging gains and losses, earnings were
up at $1.28 from 96 cents. Revenue edged up 0.6% to $3.52 billion,
with currency fluctuations hurting sales results by 2 percentage
points. Analysts polled by Thomson Reuters most recently were
looking for earnings of $1.03 on revenue of $3.49 billion.
Powell and Chief Financial Officer Don Mulligan said in the same
interview that they are open to making small acquisitions that
complement their business, but don't see the need for a large
"transformational" deal as the company's current business model has
performed well.
Merger and acquisition activity has heated up in the consumer
products space, with Kraft recently making a bid for Cadbury
(CBY).
At its U.S. retail business, General Mills sales rose 5.8% and
profit rose 21%. The bakery and food-service unit remains under
pressure amid restaurant industry weakness, with sales down 16% on
divestitures and falling flour prices. However, segment profit more
than doubled. The stock was recently up 4.2% to 63.53.
-By Anjali Cordeiro, Dow Jones Newswires; (212) 416-2200;
anjali.cordeiro@dowjones.com
(Tess Stynes contributed to this report)