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General Mills: Rising Above Tough Times

Friday, 20 May 2011 12:45 PM

General Mills (GIS), maker of iconic brands such as Cheerios, Pillsbury, and Betty Crocker, is battling a tough economy but coming out on top. High food and fuel costs have been rough on the sector. The costs of food inputs are rising, while the cost of gasoline needed to transport its goods is rising as well.

U.S. sales — a big chunk of its business — were down 1 percent, to $2.51 billion. Yet overall net sales for the third quarter of the company's fiscal year grew 2 percent to $3.65 billion, while segment operating profit was up 10 percent to $668 million, thanks to strong demand overseas.

Third-quarter net earnings grew 18 percent to $392 million, and diluted earnings per share were 59 cents, up 23 percent from 48 cents in the same period a year earlier.

"Results for the third quarter showed an acceleration in sales and profit growth following first-half performance that tracked generally in-line with strong prior-year levels," says Chairman and Chief Executive Officer Ken Powell in an earnings statement.

"Our plans call for the fourth quarter to show the highest earnings growth of the year, with increasing contributions from pricing actions we have taken to partially offset significant commodity cost increases. We remain on track to achieve our financial targets for the full 2011 fiscal year."

General Mills is sticking with its 2011 guidance of low single-digit growth in net sales, mid single-digit growth in segment operating profit, and earnings per share between $2.46 and $2.48, which represents growth of 7 to 8 percent from 2010 earnings per share of $2.30.

"The global operating environment and heightened commodity-market volatility are certainly challenging, yet our businesses are performing in line with our long-term model," Powell says.

"We expect to generate good sales and earnings growth in the final quarter of this year, and meet the targets we set for fiscal 2011 in total. As we look forward to fiscal 2012, we currently anticipate that supply chain inflation will be higher than this year's estimated 4 to 5 percent rate. Nevertheless, we expect to target another year of good business growth in 2012."

Pricing power

Analysts praise the company, due to its power to adjust prices amid tough times.

"The pricing environment will remain challenging in the coming year due to continued spending caution among consumers and intensifying competition in retail channels," Moody's Investors Service says in a ratings note on the food maker.

"Nevertheless, we believe that General Mills will be able to achieve enough targeted price increases to offset input cost inflation."

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General Mills (GIS), maker of iconic brands such as Cheerios, Pillsbury, and Betty Crocker, is battling a tough economy but coming out on top. High food and fuel costs have been rough on the sector. The costs of food inputs are rising, while the cost of gasoline needed to...
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2011-45-20
Friday, 20 May 2011 12:45 PM
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