Highlights From General Mills' (GIS) Q4 Conference Call: Sees Opportunity to Gain Market Share, Guides Above for FY10

July 1, 2009 2:10 PM EDT

This morning, General Mills (NYSE: GIS) reports Q4 earnings of $0.86 per share, ex-items, above the consensus of $0.81. Revenues came in at $3.65 billion, versus the consensus of $3.69 billion. Shares are up 3.46% today.

Highlights From GIS's Q4 Conference Call:

• General Mills sees FY10 EPS of $4.20-4.25, versus the consensus of $4.18 consensus.
  
• (Chairman/CEO) Our business portfolio is clearly showing its resilience in this challenging economic environment.
  
• Net sales increased 8% to reach $14.7 billion; segment operating profits grew faster than sales, up double digits to exceed $2.6 billion.
  
• Earnings per share grew 2%; this includes several items that affect the comparability of our results year-over-year.
  
• Excluding those items earnings per share totaled $3.98 in 2009 up 13% from comparable earnings of $3.52 per share in 2008. Sales and earnings growth in 2009 includes some benefit from an extra week this fiscal year.
  
• Each of our U.S. retail divisions recorded net sales increases including double-digit gains for Small Planet Foods, for Baking Products, Yoplait, Pillsbury and Big G Cereals.
  
• Net sales for our international segment also grew double-digit on a constant currencies basis.
  
• On an as reported basis, gross margin was within 10 basis points of last year. And if you exclude several items that affect comparability of results, year-over-year, gross margin rose modestly.
  
• In 2009, our consumer marketing investment grew at a strong double-digit rate building on spending increases made in each of the past three years.
  
• We finished the year with strong performance in the final quarter. Net sales grew 5%, segment operating profits were up double-digit due primarily to lower input costs year-over-year.
  
• U.S. retail sales grew 12% in Q4. International net sales were also up 12% on a constant currency basis and the Bakeries & Foodservice sales decline is moderated when you exclude results from divested businesses in both years.
  
• We also continued to reinvest at strong levels in Q4 with consumer marketing spending up 19% for the period. We expect that investment to help sustain our top line momentum as we move into 2010.
  
• Over the past three years we have added $3 billion in sales, more than 500 million in operating profit, and we have grown our underlying earnings per share at a double-digit compound rate.
  
• (COO) General Mills U.S. Retail businesses just wrapped up a terrific year. Sales were up 11%, crossing the $10 billion mark for the first time.
  
• More than 5% of our 2009 sales came from product introduced in the past year. Our new introductions were highly incremental and margin accretive, consistent with our goal.
  
• Since 2005 we've made health improvements on 45% of our U.S. Retail products.
  
• Our total points of distribution were up 2% for the year and that includes growth in the last quarter.
  
• We believe we can continue to lead growth for our brands and our category in 2010. We compete in growing on-trend the categories with a terrific portfolio of brands.
  
• Sales of our food categories grew about 4.5% in 2009 in measured channels alone, 50% faster than sales growth across food and beverage categories in total.
  
• General Mills share of total food and beverage dollar sales is about 3.5% but our share of total growth across our food and beverage categories last year was 5%.
  
• Cheerios cereal franchise in the U.S. posted a 10% sales increase in measured outlets. We achieved strong double-digit gains on Honey Nut and Multi-Grain Cheerios. And new Banana Nut Cheerios launched in January was the largest cereal introduction in the last 12 months.
  
• Ready-to-serve soup is now a $1.6 billion category in measured channel alone. And we estimate sales to exceed $2 billion across all channels. Progresso has grown faster than the category for the last six years and our share of ready-to-serve soup has increased to nearly 35% of category sales.
  
• Yoplait has delivered great growth in this category. Total sales in measured channels were up 8% last year led by 18% growth on our Light business.
  
• Retail sales of Bisquick and Gold Medal Flour both grew more than 20% in 2009. Core brands like Pillsbury Toaster Strudel and Totino's Pizza Rolls all delivered strong double-digit growth.
  
• We're introducing 9 new items this summer, including new cereals and grain bars, two, reduce sodium soup and new flavors of Larabar.
  
• In total we are projecting a high single-digit increase in consumer spending for our U.S. retail businesses in 2010.
  
• (COO - International) Wanchai Ferry and Nature Valley were both up more than 25%. Haagen-Dazs and Old El Paso delivered strong growth. Diablitos meat spread in Venezuela was up more than 20%. And net sales for Latina Pasta in Australia grew 12%.
  
• Sales were up 13% in the UK, 11% in Australia. And in our emerging markets sales in India increased 37% and China delivered more than 20% sales growth.
  
• For 2010, we're targeting mid single-digit growth and double-digit operating profit growth on a constant currency basis.
  
• (CFO) We see good opportunities to gain share in the current operating environment. And looking longer term we still like the growth opportunities in the $0.5 trillion U.S. market for food away from home.
  
• We expect our 2010 growth rates on a reported basis to be constrained by less weaken the fiscal year and by the excess of sales from our divested businesses.
  
• (For 2010) We expect net sales to be comparable to 2009 levels as reported. Segment operating profits that should grow at a low single-digit level.
  
• And our guidance is earnings of $4.20 to $4.25 per share before any impact of mark-to-market valuation of commodities. These targets represent growth at the low-end of our long-term model and on as reported basis.
  
• Total debt at year-end was $7.1 billion, up just 1% from prior-year levels despite a strong growth in our business. As a result our operating cash flow to debt ratio improved to 26%, and our ratio of fixed charge coverage improved to 5.3 times.
  
• (Chairman) Worldwide, we plan to launch more than 150 new products in the first half of 2010 alone.
  
• (Q&A) Can you talk about the increased competition that you're seeing in some of your key categories like cereal and yogurt. And how you're thinking about the merchandising dollars. Is there a need to really take that up as you're seeing increased competition in those categories? (A) We're certainly seeing in some of our key categories increased levels of merchandising. We've seen that a little bit from one competitor in cereal, we've seen it in yogurt and I guess we expected in soup. That being said, our competitors are normally a very rational set of competitors who are trying to grow the categories. And so far we don't think it has changed, really the nature of our gain. We're competitive enough in that area and our levels of innovation and our consumer brand support is really what we think will fuel baseline growth which ultimately will be the tail of the tape. But we'll make sure that we're appropriately competitive in the merchandising arena. And while I've seen a little bit early in the year that I think harder than I would normally like to see, I wouldn't find any of it alarming.
  
• Looking at your fiscal 2010 plan, you're clearly relying much more on volume and very little on price in terms of driving the top line, which is not surprising given the current environment. Looking at
  the fourth quarter reported volume numbers though, they -- adjusting for the extra week, they looked like they were down slightly on a year-on-year basis than perhaps bulks of a total company and then in U.S. retail. So I'm wondering whether you could address some of the factors that led to the volume declines in the fourth quarter for both the company in U.S. retail. Did the divestitures in Bakeries have a significant impact there. And I know you had a tough comp with U.S. retail volumes of 6% last year, if you could give us some color to --? (A) I'll take the U.S. retail component and then Ken or Don will -- can comment on the rest. Our sales dollar growth, let's say in the fourth quarter, which was reported at 12 but might be if you took out the effect of the extra week would be about mid single-digit 5%, which is very much in line with our growth model. And if you looked at our consumer intake -- or off take I should say over the same period it would be sort of low to mid-single-digit off take you can buy Neilsen and Wal-Mart retail link and so forth. So that's about in line, in fact it was quite stronger than what we
  were expecting. You may recall we said it at the CAGNY and even at the beginning of the year that our -- because in the year prior we had right sized, right priced, push all our cereal's particularly merchandising in the Q4 that this year we would rebalance we'd have stronger merchandizing spread out throughout the year and then in Q4 we would be significantly below our levels of last year. That's
  exactly what played out. Mostly in cereals, true in some of our other categories as well. And so, our Q4 was very much designed to be that way. And in actual fact, relative to our expectations that outperformed and the reason it outperformed the baseline, particularly in cereal were that much
  stronger than we have forecast. So we're not concerned about Q4 per se, it was very much in line, if not a little bit better, with what we were expecting in U.S. retail.

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