General Mills, Inc. : General Mills Issues Muted Fiscal Year 2013 View; 4th-Quarter Net Up Slightly
06/27/2012| 10:02am US/Eastern
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--General Mills issues muted fiscal profit guidance
--Food maker plans to spend more to fix struggling businesses, like Yoplait, and to grow in China
--Initial view comes after slight increase in fiscal fourth-quarter earnings, though U.S. retail division still struggling
(Adds guidance on fiscal first-quarter earnings in 7th paragraph and updates shares.)
By Paul Ziobro
General Mills Inc. (GIS) issued muted profit guidance for fiscal 2013 amid plans to spend more to fix struggling businesses, like its U.S. yogurt division, and to continue to chase growth in emerging markets like China.
The initial fiscal 2013 view came as General Mills on Wednesday reported a 1.6% increase in fiscal fourth-quarter earnings, which were helped by its recent acquisition of a majority of the international Yoplait business. But margins fell once again, as the company's U.S. retail segment, which makes up about three-quarters of its operating profit, saw its sales volume, as measured by weight, fall 7%.
A main drag on the U.S. business is Yoplait, which makes up about 15% of the segment's revenue and was the only business whose sales fell in fiscal 2012, by 5%. The struggles have come due to the massive growth of the Greek yogurt in recent years, which General Mills has sorely missed out on. So while Greek yogurt sales, led by Agro Farma Inc.'s Chobani brand, are nearly doubling from a year ago, General Mills' traditional yogurt sales are declining.
General Mills plans to launch 40 new yogurt products this upcoming year, including a 100-calorie cup of Yoplait Greek that comes with the Weight Watchers International Inc. (WTW) endorsement, that it hopes will turn around declining sales. The new products will come with an onslaught of spending on advertising and merchandising, an initiative that will eat into profits for the upcoming year.
In fiscal 2013, General Mills sees per-share earnings of $2.65 and sales to grow at a midsingle-digit rate. Analysts most recently surveyed by Thomson Reuters were looking for per-share earnings of $2.75 and 5% sales growth.
General Mills said next year's results also will be hurt by eight cents due to higher pension expense and a higher tax rate. A recent acquisition of Brazilian food company Yoki Alimentos SA also will be a drag on results by up to three cents.
On Wednesday's earnings call, Chief Financial Officer Don Mulligan said that per-share earnings for the fiscal first-quarter will be below last year's level. Analysts were looking for growth of 7%.
In recent trading, General Mills shares were down 2.5% to $37.21.
The maker of Cheerios cereal and Betty Crocker baking products will try to rebound from a tough year marked by the highest input-cost inflation in more than 30 years. That forced General Mills and other packaged-food companies to significantly raise prices this year, even though consumers in many key markets, like the U.S., remained frugal on their shopping trips. The results were weak sales volumes and pressure on margins.
General Mills last month launched a restructuring plan that includes cutting about 2% of its global work force, a move aimed at freeing up money to back new products and invest in other areas to spark growth.
With the U.S. packaged-food industry struggling, General Mills is turning overseas for growth. Next year, it also plans to step up investments to grow in emerging markets, like China.
For the quarter ended May 27, General Mills reported a profit of $325.4 million, or 49 cents a share, up from $320.2 million, or 48 cents, a year earlier. Excluding items such as restructuring charges, earnings rose to 60 cents a share from 52 cents. Sales jumped 12% to $4.07 billion.
Analysts polled by Thomson Reuters had most recently forecast earnings of 59 cents a share on revenue of $4.11 billion.
Gross margin fell to 36.8% from 37.5%.
At its U.S. retail segment, net sales rose 2.9%, while operating profit increased 4.5%. The international segment's sales grew 46% to $1.13 billion, driven largely by the Yoplait acquisition, contributing to a 66% jump in the segment's operating profit. Bakeries and foodservice segment sales were up 1.7%, and operating profit declined 10%.
-Melodie Warner contributed to this article.
Write to Paul Ziobro at paul.ziobro@dowjones.com
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