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GIS News General Mills Reports Results for Fiscal 2007 Second Quarter

MINNEAPOLIS--(BUSINESS WIRE)--General Mills, Inc. (NYSE:GIS) today reported results for the second quarter of fiscal 2007. Net sales for the 13 weeks ended Nov. 26, 2006, were $3.47 billion, up 5 percent from the same period a year ago. Unit volume grew 3 percent worldwide. Overall gross margin improved by nearly 40 basis points and segment operating profits increased 11 percent to $714 million. Net earnings after tax rose 4 percent to $385 million despite higher interest expense and the adoption this year of a new accounting standard for stock-based compensation (SFAS 123R). Diluted earnings per share (EPS) totaled $1.08, up 11 percent from 97 cents in last year’s second quarter.

Through the first six months of fiscal 2007, General Mills’ net sales increased 6 percent to $6.33 billion. Segment operating profits grew 9 percent to $1.25 billion. Earnings after tax totaled $652 million, up 5 percent from last year’s first half results. Diluted earnings per share rose 13 percent to $1.81, including 9 cents of incremental expense related to the adoption of SFAS 123R for stock-based compensation.

Chairman and Chief Executive Officer Steve Sanger said, “Our results continue to reflect a combination of broad-based sales growth and margin expansion. In the second quarter, all three of our business segments posted good unit volume gains and even stronger growth in net sales. Gross margin improved and segment operating profits were up 11 percent for the period. This solid performance followed a good first quarter and puts us ahead of our plan targets for the first half of the year.”

U.S. Retail Segment

Net sales for General Mills’ domestic retail operations grew 3 percent in the second quarter to $2.44 billion, driven by 2 percent unit volume growth and net price realization. Operating profits outpaced sales growth, increasing 8 percent to $596 million. The margin expansion reflected favorable pricing and mix, along with productivity savings.

Net sales for the Snacks division grew 7 percent, driven by Caribou Coffee Bars and new varieties of Nature Valley Sweet & Salty Nut bars and Chex Mix. Yoplait net sales grew 6 percent, reflecting continued strong performance from core product lines. Both the Meals division and Pillsbury USA reported net sales increases of 4 percent. Meals division growth included good contributions from Progresso soup, Old El Paso Mexican foods and new Hamburger Helper Microwave Singles products. The 4 percent sales increase for Pillsbury USA reflected gains on core refrigerated dough products, such as Pillsbury Crescent Rolls, Pillsbury Toaster Strudel and Totino’s Pizza Rolls. Big G cereal net sales rose 2 percent, with contributions from new products such as Fruity Cheerios and established brands including Cocoa Puffs and Fiber One. Baking Products net sales were 4 percent below strong prior-year levels. Net sales for the company’s Small Planet Foods organic business grew 19 percent.

Through the first six months of 2007, net sales for the U.S. Retail segment were up 4 percent to $4.35 billion, reflecting 3 percent volume growth and net price realization. Segment operating profit grew 8 percent to $1.04 billion.

International Segment

Net sales for the company’s consolidated international businesses grew 15 percent in the second quarter to reach $545 million. Unit volume increased 7 percent, price and mix added 5 points, and foreign exchange contributed 3 points of sales growth. Operating profits grew to $62 million, up from $54 million last year. This 15 percent profit increase for the quarter was on top of a 15 percent profit gain last year.

Through the first six months of 2007, net sales for General Mills’ consolidated international businesses grew 14 percent to $1.05 billion. Operating profit increased 4 percent to $118 million despite increased levels of new-product marketing support this year.

Bakeries and Foodservice Segment

Second-quarter net sales for General Mills’ Bakeries and Foodservice segment grew 6 percent to $480 million, reflecting 1 percent unit volume growth and strong net price realization. Segment operating profit increased to $56 million, compared to $40 million in last year’s second quarter, due to favorable mix and pricing that offset input cost increases for this period.

Through the first six months, net sales for the Bakeries and Foodservice segment were up 8 percent to $925 million. Operating profit rose 27 percent to $85 million.

Joint Venture Summary

Earnings after tax from joint ventures totaled $23 million in the second quarter, up 5 percent from $22 million last year. This year’s results include a $1 million after-tax charge that is part of a previously announced restructuring of the Cereal Partners Worldwide (CPW) manufacturing plants in the United Kingdom. Net sales for CPW grew 20 percent. This included contributions from the Uncle Tobys business in Australia that CPW acquired in July 2006. Net sales for the Häagen-Dazs joint ventures in Asia increased 3 percent. Net sales for the 8^th Continent soy beverage joint venture in the U.S. also grew 3 percent.

Through the first six months of 2007, earnings from joint ventures totaled $42 million after tax, compared to $41 million last year.

Corporate Items

Corporate unallocated expense totaled $40 million pretax in the second quarter of 2007 compared to $2 million pretax in 2006. This year’s results include the incremental effects of adopting SFAS 123R for stock-based compensation, which represented $12 million pretax expense ($8 million after tax, or 2 cents per share) in the second quarter. Restructuring and other exit items contributed $1 million of pretax income in the second quarter of 2007 (adjustments to previously announced restructuring actions) compared to $2 million pretax expense in last year’s second quarter. Net interest expense for the quarter totaled $110 million, up 6 percent due to higher rates. The effective tax rate was 35.9 percent, up from 35.4 percent last year.

Cash Flow Summary

Cash flow from operations totaled $565 million through November 2006, down from $787 million through the second quarter of last year primarily due to higher working capital. Capital expenditures through the first six months totaled $149 million in 2007 compared to $113 million in 2006. Dividends through six months grew to $247 million. On Dec. 11, 2006, the company announced an additional 6 percent increase in the quarterly dividend rate, to 37 cents per share, effective with the Feb. 1, 2007, payment. The company repurchased 2.9 million shares of common stock during the second quarter at an average price of $53 per share.

Outlook

“Our plans for the second half of this year anticipate continuing input cost inflation, along with year-over-year increases in consumer marketing spending and new product activity,” said Sanger. “Nevertheless, as a result of our good first-half performance, we are raising our fiscal 2007 financial targets.” General Mills’ diluted earnings per share guidance for 2007 is increased to $3.09 to $3.13 per share, including an estimated 12 cent expense impact from the adoption of SFAS 123R for stock-based compensation. Previously, the company had targeted diluted EPS of between $3.03 to $3.08, including 11 to 12 cents of SFAS 123R impact.

Total company segment operating profit is a non-GAAP measure. A reconciliation of this measure to the relevant GAAP measure, operating profit, appears in the attached consolidated operating segment results schedule.

General Mills will hold a briefing for investors today, December 21, 2006, beginning at 8:30 a.m. EST. You may access the web cast from General Mills’ corporate home page at www.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 management's current expectations and assumptions. These forward-looking statements, including the statements under the caption "Outlook" and statements made by Mr. Sanger, 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; changes in accounting standards and the impact of significant accounting estimates; product quality and safety issues, including recalls and product liability; changes in customer 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; benefit plan expenses due to changes in plan asset values and discount rates used to determine plan liabilities; 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 future events or circumstances.

See accompanying notes.

See accompanying notes.