General Mills Reports Strong Results for Fiscal 2009 First Quarter

General Mills (NYSE: GIS) today reported results for the first quarter of fiscal 2009. Net sales for the 13-weeks ended August 24, 2008, grew 14 percent to $3.5 billion. Volume increases (measured in pounds) contributed 4 points of sales growth. Segment operating profits grew 9 percent to $632 million despite higher input costs and a 17 percent increase in consumer marketing investment. First-quarter net earnings totaled $279 million after a net reduction related to mark-to-market valuation of certain commodity positions (this non-cash item is discussed below in the section titled Corporate Items). Diluted earnings per share (EPS) totaled 79 cents, including a 17-cent net reduction related to mark-to-market valuation. Excluding the mark-to-market impact, earnings per share would have totaled 96 cents, up 19 percent from 81 cents per share earned in last year’s first quarter.

Chairman and Chief Executive Officer Ken Powell said, "We’re off to a great start in 2009, powered by strong consumer demand for our products in markets around the world. Our U.S. Retail sales grew 13 percent, International sales rose 15 percent, and Bakeries and Foodservice sales were up 17 percent for the quarter. Operating profits showed strong growth despite the input cost pressure and our increased consumer marketing investment. This broad momentum has us well on track to deliver solid sales and earnings growth for the full year.”

U.S. Retail Segment Results

First quarter net sales for General Mills’ U.S. Retail segment grew 13 percent to $2.3 billion, with gains recorded by every division. Pound volume contributed 6 points of the growth. Operating profits grew 11 percent to reach $526 million including a 16 percent increase in consumer marketing expense.

Net sales for the Baking Products division grew 25 percent, reflecting strong gains by Betty Crocker dessert mixes and Gold Medal flour. Yoplait division net sales grew 19 percent, led by contributions from Yoplait Light, Yo-Plus and Fiber One yogurts. Snacks division net sales grew 14 percent with continued strong growth by Nature Valley and Fiber One grain snack bars. Net sales for Big G cereals grew 10 percent including gains by Multi-Grain Cheerios, Honey Nut Cheerios, original Cheerios and the Fiber One cereal line. Meals division net sales also grew 10 percent, led by Progresso ready-to-serve soups and Green Giant vegetables. Pillsbury USA division net sales grew 6 percent including gains from Grands biscuits and Totino’s frozen pizza and snacks. Net sales for the company’s Small Planet Foods organic business showed a strong double-digit increase reflecting the June 2008 acquisition of the Larabar line of fruit and nut energy bars, along with contributions from new varieties of Cascadian Farm cereals and snack bars, and Muir Glen soups and pasta sauces.

International Segment Results

First-quarter net sales for General Mills’ international business segment grew 15 percent to $690 million, including 6 points of growth from foreign exchange. Pound volume matched prior-year levels. Operating profits grew 11 percent to $79 million.

Sales growth was broad-based across the regions where the company competes. Net sales in Europe grew 14 percent. Sales in Canada rose 9 percent. And sales in the Asia / Pacific region and Latin America grew 26 percent and 14 percent, respectively.

Bakeries & Foodservice Segment

First-quarter net sales for Bakeries & Foodservice grew 17 percent to $517 million, reflecting price increases taken to combat higher input costs. Pound volume declined 5 percent for the period. Net sales to bakery channel customers grew 29 percent, sales to convenience stores and vending accounts grew 10 percent, and sales to restaurants and foodservice distributors grew 8 percent. Segment operating profits totaled $27 million. This was below results for last year’s first quarter, when profits grew 17 percent to reach $34 million.

Joint Venture Summary

After-tax earnings from joint ventures grew 37 percent in the first quarter of 2009 to reach $31 million. Prior-year results included a $2 million after-tax charge associated with a Cereal Partners Worldwide (CPW) restructuring initiative in the United Kingdom. Net sales for CPW rose 21 percent in the quarter, and net sales for the Haagen-Dazs joint venture in Japan grew 7 percent.

Corporate Items

Corporate unallocated expense totaled $159 million in the first quarter of 2009, up from $54 million in the same period a year ago. This primarily reflects the mark-to-market impact of $91 million in the first quarter of 2009, compared to $1 million in last year’s first quarter.

Restructuring, impairment and other exit costs totaled $3 million expense in this year’s first quarter, compared to $14 million expense a year ago. Net interest expense of $89 million was below prior-year expense of $113 million due to lower debt levels and rates. The effective tax rate for the quarter was 34.9 percent compared to 32.8 percent in last year’s first quarter. General Mills’ estimated tax rate for the full 2009 fiscal year remains 35 percent.

Cash Flow Items

Operating activities generated $226 million of cash in the first quarter of 2009, compared to $21 million of cash generated in the same period last year. The increase was primarily due to reduced use of cash for working capital. Capital expenditures during the quarter were $129 million this year compared to $68 million a year ago. Dividends grew to $148 million.

During the first quarter of 2009, General Mills repurchased 8 million of the company’s common shares at an average price of approximately $63 per share. Average diluted shares outstanding for the quarter were 350 million. This was higher than last year’s first-quarter average of 345 million outstanding shares. However, for 2009 in total, General Mills expects average diluted shares outstanding to decline 1 percent from the 2008 level.

Fiscal 2009 Outlook

"Sales and profit results for the first quarter exceeded our expectations,” said Powell. "This strong start increases our confidence that 2009 will be another year of good growth for our company, even though we continue to estimate our input cost inflation at 9 percent.”

The company said that fiscal 2009 net sales are expected to grow at a mid single-digit rate, driven primarily by price and mix. Segment operating profits are also expected to grow at a mid single-digit rate. Diluted earnings per share as reported will continue to include mark-to-market valuation of commodity positions, but the company cannot predict its effect on earnings. In addition, the company will record a gain on the sale of its Pop Secret microwave popcorn business in the second quarter of 2009. Excluding that gain, and assuming no mark-to-market impact in fiscal 2009, the company updated its earnings guidance to a range of $3.81 to $3.85 per share. Previously, the company’s 2009 earnings guidance was a range of $3.78 to $3.83 per share.

General Mills will hold a briefing for investors today, September 17, 2008, beginning at 8:30 a.m. EDT. You may access the web cast from General Mills’ corporate home page: www.generalmills.com.

Total company segment operating profit is a non-GAAP measure. Reconciliation of this measure to the relevant GAAP measure (operating profit) appears in the attached operating segment results schedule. Earnings per share excluding mark-to-market valuation of certain commodity positions is also a non-GAAP measure. Reconciliation of this measure to the relevant GAAP measure (earnings per share) appears in Note 7 to the attached consolidated financial statements.

This press release contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 that are based on management’s current expectations and assumptions. These forward-looking statements, including the statements under the caption "Fiscal 2009 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 or tax rates; 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 hedge 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 statements to reflect any future events or circumstances.

Key operating performance measures, excluding impact of mark-to-market effects, as a percent of net sales are reconciled below to the measures as reported in accordance with GAAP.

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