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On September 14, 2000, General Mills, Inc. issued the following press release
and delivered, during the conference call/webcast referenced in the press
release, the prepared remarks set forth following the text of the press release:
FOR IMMEDIATE RELEASE
September 14, 2000
Contacts:
(Analysts) Kris Wenker (763) 764-2607
(Media) Tom Forsythe (763) 764-6364
GENERAL MILLS EARNINGS PER SHARE UP 10 PERCENT
IN FISCAL 2001 FIRST QUARTER
SALES GREW 6 PERCENT TO $1.67 BILLION
MINNEAPOLIS, MINN.---General Mills today reported record results for its
fiscal 2001 first quarter. Diluted earnings per share were 55 cents, up 10
percent from the 50 cents per share earned in the same period last year. Diluted
earnings per share excluding goodwill amortization also grew 10 percent to 57
cents. For the 13-week period ended Aug. 27, 2000, earnings before interest and
taxes increased 8 percent to $296 million. Interest expense in the quarter was
higher, due to increased debt levels associated with prior year acquisitions and
share repurchase activity. As a result, earnings after tax were essentially even
with last year's at $159 million. First-quarter sales grew 6 percent to $1.67
billion.
Chairman and Chief Executive Officer Steve Sanger said the first-quarter
results represented a good start to the year. "General Mills' current businesses
are continuing to deliver excellent topline and bottomline growth. These
first-quarter results put us on track to meet our full-year financial
objectives," Sanger said.
U.S. Operations
---------------
First-quarter domestic unit volume grew more than 7 percent. That gain included
5 percent volume growth from the company's established businesses, and 2
percentage points of incremental volume growth from the Gardetto's and Small
Planet Foods businesses acquired in fiscal 2000.
Domestic noncereal volume grew 12 percent in the quarter, 8 percent
excluding acquisitions. The company's convenience foods business (snacks and
yogurt) led this growth with a 20 percent unit volume increase. In yogurt,
strong growth for core Yoplait and Yoplait Go-
<PAGE>
Gurt brands drove double-digit gains in both shipments and retail volume.
Yoplait and Colombo increased their leadership dollar share 2 points to 35
percent for the quarter. Snacks volume also grew at a double-digit pace, on the
strength of good growth for Chex Mix, Nature Valley granola bars and fruit
snacks. Combined unit volume for Betty Crocker baking products, side dish and
dinner mixes was down 1 percent. Volumes for family flour and baking mixes were
lower, and Betty Crocker dessert mix shipments were down slightly, but
first-quarter consumer movement for desserts was up 3 percent. Unit volume for
Helper dinner mixes increased 8 percent, led by 7 percent growth from the core
Hamburger Helper line. Foodservice unit volume was up 14 percent, with continued
good growth for cereals, refrigerated yogurt and snacks, including the
incremental contribution from Gardettos. Strong growth for General Mills brands
in convenience stores also contributed to that foodservice volume gain.
Big G's first quarter comparison was particularly difficult. Last year's
first quarter included introductory marketing activity for three new products,
which fueled a 3 percent increase in shipments and a 7 percent consumer volume
gain. In the current year's first quarter, Big G shipments were up slightly and
retail pound volume was down 5 percent. As a result, Big G's pound market share
for the quarter decreased 1 point to 25 percent. These declines reflect a lower
contribution from new products. However, market share for Big G's top 10
established brands grew slightly, led by Cheerios, Cinnamon Toast Crunch and
Lucky Charms. At the end of the quarter, two new Big G products began shipping
regionally: Milk n' Cereal Bars and Harmony, a cereal designed to meet the
unique nutritional needs of women. These new products will contribute to Big G's
volume and market share for the remainder of fiscal 2001.
International Operations
------------------------
Combined unit volume for the company's international operations grew 11 percent
in the first quarter. Snack Ventures Europe (SVE), the company's joint venture
with PepsiCo, posted a first-quarter volume gain of 13 percent. That gain was
driven by good performance in SVE's core markets and the venture's continued
recovery in Russia. Cereal Partners Worldwide (CPW), the company's joint venture
with Nestle, posted a 3 percent volume increase. CPW recorded good volume gains
in a number of its key markets across Europe, Latin America and Asia. In the
U.K., CPW's volume was down slightly due to lower private label shipments, but
volume for its U.K. branded business was up 8 percent. Earnings after tax from
the company's joint ventures were $3.0 million, compared to $3.5 million last
year. For the company's wholly-owned food business in Canada, first-quarter
volume increased 15 percent. That growth was led by a 7 percent increase in
cereal shipments and strong growth for snacks.
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Shares Outstanding
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As a result of the company's ongoing share repurchase program, average basic
shares outstanding for the quarter totaled 283.7 million this year, 7 percent
lower than the 304.2 million average a year earlier. Average diluted shares
outstanding declined 8 percent to 290.5 million. During the quarter, General
Mills repurchased approximately 3.6 million shares of common stock. Interest
expense for the quarter totaled $54.8 million, up $22.1 million versus the prior
year, reflecting the impact of higher debt levels associated with prior year
acquisitions and the repurchase of 23.2 million shares of General Mills common
stock last year.
Outlook
-------
Looking ahead to the remainder of fiscal 2001, Sanger said, "We're encouraged by
this strong start, as our current businesses remain on track to deliver double-
digit EPS growth for the year. We continue to expect that the previously
announced Pillsbury acquisition will be completed before the end of the calendar
year. We are making good progress on our plans for a rapid and smooth
integration, and we continue to expect the addition of Pillsbury's businesses to
provide new platforms for innovation, to unlock supply chain and administrative
synergies, and to accelerate our topline and bottomline growth."
General Mills will hold a conference call and webcast to discuss first quarter
results today at 9 AM EDT. To access the webcast, log on to General Mills
corporate home page at www.generalmills.com.
This press release contains forward-looking statements based on management's
current expectations and assumptions. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ. In
particular, our predictions about the Pillsbury acquisition could be affected by
regulatory and stockholder approvals; integration problems; failure to achieve
synergies; unanticipated liabilities; inexperience in new business lines; and
changes in the competitive environment. In addition, our future results also
could be affected by a variety of factors such as: competitive dynamics in the
U.S. ready-to-eat cereal market, including pricing and promotional spending
levels by competitors; the impact of competitive products and pricing; product
development; actions of competitors other than as described above; acquisitions
or disposals of business assets; changes in capital structure; changes in laws
and regulations, including changes in accounting standards; customer demand;
effectiveness of advertising and marketing spending or programs; consumer
perception of health-related issues; economic conditions, including currency
rate fluctuations. The company undertakes no obligation to publicly revise any
forward-looking statements to reflect future events or circumstances.
General Mills filed a preliminary proxy statement on Schedule 14A with the
United States Securities and Exchange Commission (the "SEC") on August 22, 2000
in connection with two proposals relating to General Mills' proposed acquisition
of Pillsbury to be submitted to General Mills stockholders for approval.
Stockholders of General Mills are urged to read the definitive proxy statement
when it becomes available because it will contain important information.
Investors and stockholders may obtain a free copy of the definitive proxy
statement when it becomes available at the SEC's website at www.sec.gov. General
Mills and its directors and executive officers may be deemed to be participants
in the solicitation of proxies to approve the
<PAGE>
proposals relating to the proposed transaction. The preliminary proxy statement
on Schedule 14A filed with the SEC contains information on General Mills
directors' and executive officers' ownership of General Mills common stock.
GENERAL MILLS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited) (In Millions, Except per Share Data)
13 Weeks Ended
Aug 27, Aug 29,
2000 1999
Sales $ 1,674.9 $ 1,573.6
Costs & Expenses:
Cost of sales 653.3 621.4
Selling, general and administrative 725.5 677.2
Interest, net 54.8 32.7
Total Costs and Expenses 1,433.6 1,331.3
Earnings before Taxes and
Earnings from Joint Ventures 241.3 242.3
Income Taxes 85.4 87.3
Earnings from Joint Ventures 3.0 3.5
Net Earnings $ 158.9 $ 158.5
Earnings per Share - Basic $ .56 $ .52
Average Number of Shares 283.7 304.2
Earnings per Share - Diluted $ .55 $ .50
Average Number of Shares -
Assuming Dilution 290.5 314.2
Note: All share and per share data have been adjusted for the two-for-one
stock split effective November 8, 1999.
GENERAL MILLS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Millions)
(Unaudited) (Unaudited)
Aug 27, Aug 29, May 28,
2000 1999 2000
ASSETS
Current Assets:
Cash and cash equivalents $ 53.2 $ 46.0 $ 25.6
Receivables 555.5 522.0 500.6
Inventories 557.9 510.1 510.5
Prepaid expenses and other 78.4 77.4 87.7
Deferred income taxes 65.9 98.3 65.9
Total Current Assets 1,310.9 1,253.8 1,190.3
Land, Buildings and Equipment 2,992.6 2,810.1 2,949.2
Less accumulated depreciation (1,571.4) (1,459.2) (1,544.3)
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Net Land, Building and Equipment 1,421.2 1,350.9 1,404.9
Intangibles 870.4 838.6 870.3
Other Assets 1,166.7 1,061.0 1,108.2
Total Assets $ 4,769.2 $ 4,504.3 $ 4,573.7
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable $ 616.7 $ 678.1 $ 641.5
Current portion of debt 367.7 129.6 413.5
Notes payable 1,153.3 751.1 1,085.8
Accrued taxes 177.7 184.7 104.9
Other current liabilities 264.9 274.8 283.4
Total Current Liabilities 2,580.3 2,018.3 2,529.1
Long-term Debt 1,917.9 1,687.3 1,760.3
Deferred Income Taxes 302.2 293.6 297.2
Deferred Income Taxes-Tax Leases 90.0 111.5 89.8
Other Liabilities 180.8 177.3 186.1
Total Liabilities 5,071.2 4,288.0 4,862.5
Stockholders' Equity:
Common stock 696.2 666.2 680.6
Retained earnings 2,194.8 1,902.7 2,113.9
Less common stock in treasury (3,051.0) (2,222.1) (2,934.9)
Unearned compensation (63.5) (69.1) (62.7)
Accumulated other
comprehensive income (78.5) (61.4) (85.7)
Total Stockholders' Equity (302.0) 216.3 (288.8)
Total Liabilities and Equity $ 4,769.2 $ 4,504.3 $ 4,573.7
* * * * * * *
<PAGE>
SEPTEMBER 14. 2000
CONFERENCE CALL PREPARED REMARKS (K. Wenker)
I. Introductory Remarks
Good morning, everybody. I'm here with Jim Lawrence, Executive Vice
President and Chief Financial Officer for General Mills. We're pleased you
could join us for this conference call on our first-quarter results.
You already have the key information on our first quarter, which was
disclosed in the press release issued over the wire services earlier
today. I'd like to begin this call with some comments on the quarter. Then
I'll turn the speakerphone over to Jim, who will give you an update on
current business trends, and the Pillsbury transaction. Following those
remarks, we'll take questions.
Before we get going, let me give you the standard reminder that our
discussion will include forward-looking statements, which are based on
management's current views and assumptions. Please refer to today's press
release for cautionary statements regarding forward-looking information.
II. First Quarter Summary
Let's start with earnings results for the quarter:
o General Mills earned 55 cents per diluted share, a gain of 10 percent
from 50 cents last year.
o This was a penny better than the First Call consensus estimate.
o More important, the quarter represents a continuation of the consistent
double-digit EPS growth we've been delivering in recent years----and
it's a good start to our 2001 fiscal year.
o Let me add for those pioneers already tracking diluted EPS before
goodwill amortization, that number was 57 cents for the quarter, up
from 52 cents a year ago.
III. Income Statement Components
A. Our EPS growth was generated by good performance on the top line.
Reported sales grew 6%, on top of 7% growth in last year's first
quarter.
o Unit volume gains by established businesses accounted for more
than 5 points of this year's sales growth.
<PAGE>
o About 2 points of sales growth came from new businesses.
Principally, I'm referring to the two businesses we acquired last
year---Gardetto's snacks and Small Planet organic foods. But our
new 100% owned businesses in Mexico and China also contributed
incremental sales.
o Sales mix was a slight negative in the quarter, as our strongest
volume gains came from businesses other than cereal and baking
products.
B. Volume growth from our established businesses was widespread. In the
U.S., our non-cereal businesses posted a collective 8 percent
unit volume gain excluding acquisitions, and Big G cereal
shipments were up slightly.
This was pretty solid performance year-over-year, since our cereal
and non-cereal volumes both grew 3 percent in last year's first
quarter.
C. Moving down the income statement, you saw cost of goods at 39% of
sales. That was 50 basis points better than last year's level, due
to good operating leverage from unit volume growth and favorable raw
material costs.
D. Our SG&A for the quarter totaled 43.3% of sales, up 30 basis points
versus last year.
o That's not due to marketing spending: Our overall trade and
consumer marketing spending was basically flat as a percent of
sales, and Big G spending was lower in the quarter, because their
level of new-product activity in the period was significantly
lower.
o So the slight up-tick in SG&A reflects miscellaneous small
factors, such as the high administrative-expense-to-sales ratios
realized by our start-up businesses in Mexico and China, and
slightly higher customer freight charges.
E. Netting out cost of goods and SG&A, our earnings before interest and
taxes was $296 million. That's up 8 percent from a year ago, and
represents a 20 basis-point improvement in our operating margin, to
17.7%.
F. Interest expense was up significantly for the quarter, in line with
our previous guidance to you. The increase relates to higher debt
levels associated with acquisitions and our repurchase of 23.2
million shares last year.
G. The effective tax rate for the quarter was 35.4%. That's lower than
last year's first quarter, but consistent with our tax rate for
the full 2000 fiscal year.
o Looking ahead, when our acquisition of Pillsbury is completed,
the goodwill created by that purchase will be non-tax deductible.
That means our book tax rate for full 2001 fiscal year will be
higher---we'd estimate about 40 percent.
o Absent the impact of the goodwill, we'd currently estimate an
effective tax rate of about 36% for fiscal '01, and we'll work to
lower that effective rate going forward.
H. Let me move on to the joint venture line of the income statement.
Our international JVs are off to a good start in fiscal 2001.
<PAGE>
o SVE unit volume was up 13 percent for the first quarter, with
modest growth in core western European markets and strong
year-over-year growth in Russia.
o CPW unit volume grew 3 percent in the quarter--that was on top of
9 percent growth a year ago. Gains in France, Spain, Portugal,
Mexico and Brazil led this performance.
o In the United Kingdom, CPW's overall unit volume was down
slightly on lower private-label shipments, but CPW branded
cereals posted 8% volume growth and continued share progress.
o After-tax joint venture earnings totaled $3 million. Those
profits are slightly below the prior year, when JV profits grew
35%. This is primarily due to timing differences in marketing
spending, and foreign exchange impact.
I. In total, General Mills' earnings after tax were essentially
unchanged year-over-year, as our 8% operating profit growth was
offset by higher interest expense.
J. The 10% earnings per share gain reflects the impact of our stock
repurchases. Average diluted shares were down 8% to 290.5
million. Basic shares outstanding as of the end of the quarter
were 282.8 million.
IV. Balance Sheet Comments
Let me shift from the income statement to the balance sheet, where I'll
make just a couple of comments.
o On the asset side, you saw our receivables up about $33 million
versus a year ago. That's attributable to the overall growth of the
business, and to strong Big G sales growth in August driven by a
popular computer-game software offer that we ran on our packages.
o Inventories were up about $ 48 million. More than 80% of that
increase relates to acquired businesses---Gardettos and Small
Planet. (In addition to the incremental finished goods inventory,
late summer is obviously a time of seasonally peak raw material
inventories for Small Planet's organic product lines.)
o On the liabilities side, accounts payable were down about $60
million. That's due to lower grain payables, and lower trade
payables, consistent with the lower levels of new-product marketing
activity we've talked about.
With that, I'll turn this call over to Jim for some comments on current
business trends.
V. Business Trends
Thanks, Kris and good morning everyone. Let me quickly update you on our
major operating units.
A. Yogurt continues to be our fastest-growing business. As you saw in
the release, unit volume for Yoplait and Colombo was up double-digit
again in the first quarter.
<PAGE>
o One key driver of that growth is Go-Gurt. Baseline---or
nonpromoted---volume for this product continues to grow. In
addition, some of Go-gurt's volume in the quarter was
incremental, since we didn't expand into the last 40% of the
country until the fall of 1999.
o We've been continually adding tube packaging capacity--and have
now begun shipping new Yoplait Expresse to its first markets.
We're excited about the prospects for this "adult-targeted"
companion to Go-Gurt.
o These new products aren't the only growth engines in our yogurt
business. Yoplait's core product lines posted 14% volume growth
in the quarter.
o Reflecting these strong shipment trends, Nielsen-measured
consumer takeaway for our yogurt products was up 23% in the
period. And category volume is growing 15% percent in our fiscal
year-to-date.
B. Snack shipments were up 18 percent overall, with good gains from
established businesses and incremental volume from Gardetto's.
o Fruit snacks posted strong growth, driven by the success of 3
new SKUs featuring popular Disney characters.
o Nature Valley granola bars posted another quarter of double-
digit growth, including good performance for a new Maple Brown
Sugar variety.
o Chex Mix volume was up double-digit, too, Bugles shipments grew
4% over the prior year's, as renewed advertising is stimulating
good baseline growth for this business.
C. For our Betty Crocker businesses, combined unit volume was down 1% in
the quarter.
o Our dinner mix volume grew 8 percent, with the Hamburger Helper
line up 7 percent and continued good performance from Chicken
Helper. New Helper SKUs introduced in the first quarter have
received excellent retailer acceptance. And the $550 million
add-meat dinner mix category is continuing to show good growth,
fueled by new product activity.
o During the quarter, we introduced our new line of Bowl Appetit
meals---a 5-minute heat-and-eat lunch for busy consumers. We've
gotten excellent retail acceptance for this new line, too. Media
support has just started, and should help sustain the good early
momentum we've seen on this business.
o Baking products volume was down slightly in the quarter,
primarily due to declines for family flour and Bisquick baking
mix. Dessert shipments were slightly lower, but Nielsen-measured
consumer takeaway was up 3% and our market share increased to
42%.
D. Foodservice volume grew 14% overall, and 9% percent excluding
Gardetto's. The strongest contributors to our established business
growth were snack products, cereal and refrigerated yogurt.
<PAGE>
VI. Big G Cereals
A. For Big G cereals, the quarter was a tough comparison. As Kris said
earlier, shipments grew 3% a year ago. Consumer takeaway was even
stronger---up 7% last year, driven by introductory marketing for 3
new cereals.
B. Against those comparisons, our shipments grew slightly above last
year's, but our Nielsen-measured consumer volume was down 5%.
o New product consumer volume was down significantly, for two
reasons. First, we were anniversarying peak introductory
merchandising last year. Second, this year's new Harmony cereal
and Big G Milk `n Cereal bars only began shipping at
quarter-end---and only into a portion of the country. They'll be
contributors going forward.
o While new product activity was lower, Big G's top 10 established
brands outperformed the market in the quarter, and their combined
share was up slightly.
C. For the category, volume declined nearly 2% in the quarter. Big G's
share of category volume was 90 basis points lower year-over-year, at
25.3%. Our share of category dollar sales was 31.4%.
D. I've seen First Call notes from some of you questioning whether Big
G selling prices were lower in the quarter. In fact, Nielsen shows
our average unit price up by better than a nickel for the period.
o That's consistent with our merchandising strategy. Many of you
have probably seen the CD-Rom game software offer we currently
have out in the stores. This consumer promotion is another
example of the "visible value" promotion strategy we've talked
about with you before.
o This offer has been a real hit with consumers---you can see that
in our August results---and visible value offers like this result
in higher quality merchandising levels---but at higher price
points.
E. In short, with quarterly shipments skewed more toward established
brands than new products, and with average unit prices up and trade
spending down, Big G posted a high single-digit operating profit
gain for the quarter.
These results are consistent with the fiscal 2001 expectations for Big G that we
shared with you back in June. We said our plans don't count on any growth in Big
G shipments in the first half, but we do expect to report volume, share and
profit growth for the full year. These are still our plans for fiscal 2001.
To summarize, General Mills' current businesses are off to a good start in
fiscal 01, and remain on track to achieve their goal of low double-digit EPS
growth for the full year.
Of course, we're expecting to add the Pillsbury businesses to our portfolio at
mid fiscal year. Let me give you a quick summary of our progress on that
transaction.
VII. Pillsbury Update
<PAGE>
o We're right on track with our previously announced plans to
complete this transaction by calendar year-end. As we announced
on August 31st, we did get a request from the FTC for additional
information, but that request was anticipated.
o I know many of you have reviewed the preliminary proxy statement
for this transaction, which was filed with the SEC on August
22nd. The SEC is currently reviewing that statement. When they
are finished, we will be able to set the date for our special
shareholder meeting and mail copies of the final proxy to all
General Mills shareholders.
o We're working closely with Pillsbury to plan for the integration
of our businesses when the deal is completed. This planning
process is moving rapidly---again, right on track with our
expectations.
o We're pleased with the recent business trends in Pillsbury's core
North American businesses. Several innovative new products, including
Pillsbury Ready-to-Bake refrigerated cookie dough, and Toaster
Bagels, are currently entering the market and additional new product
activity is planned later in the year.
o In summary, we feel increasingly excited about the accelerated growth
prospects we see for the new General Mills.
That completes my prepared remarks, and now Kris and I would be
happy to try to answer any questions you have.
Operator, could we have the first question?
