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General Mills profit soars
First-quarter profit jumped 51 percent as an internal cost-control effort bore fruit even though sales were nearly flat.
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General Mills Inc. on Wednesday credited its first-quarter results to the same old factors that have helped it in recent quarters: lower costs and strong demand from consumers who continue to eat at home more often. The surprise was how much lower those costs were.
Quarterly earnings jumped 51 percent from a year ago, well beyond Wall Street's expectations, leading the Golden Valley company to raise its full-year forecast yet again.
"We're off to a good start, and the results were pretty broad-based across all our businesses," CEO Ken Powell said in an interview. "In part, it was a recovery of profit margin we gave up a year ago when inflation peaked. What was a surprise was the magnitude of the margin recovery. We also had very strong operating performance in our plants."
Powell said the good results have enabled the company to invest in new products and increased marketing "that let us gain market share. We have not taken a price increase in most categories in over a year."
The results for the quarter ended Aug. 30 benefited from lower commodity and fuel prices, cost-cutting measures and strong demand. General Mills earned $420.6 million, or $1.25 per share, up from $278.5 million, or 79 cents per share, a year ago. Excluding extraordinary expenses and other costs, the company earned $1.28 per share, beating the consensus Wall Street estimate of $1.03 per share. Revenue edged up 1 percent to $3.52 billion.
Investors as well as analysts liked what they saw. General Mills shares rose $2.83, or 4.6 percent, to close Wednesday at $63.80.
Jack Russo, an analyst at Edward Jones in St. Louis, was pleasantly surprised. He had been predicting that earnings excluding certain costs would come in 23 cents a share below what General Mills reported.
"Usually when companies beat earnings expectations by this much there are some one-time items that help them," Russo said. "But that was not the case with General Mills. This is the real deal."
Erin Swanson, an analyst at Morningstar in Chicago, agreed.
"General Mills is obviously benefiting, as other consumer product companies are, from fuel costs going down," Swanson said. "But although their profits were helped by reductions in some commodity costs, they've managed through their challenges fairly well. They have an intense focus on cost management. Their outlook for the next year is good."
Based on the first-quarter results, General Mills raised its outlook for the year to earnings per share of $4.40 to $4.45 per share, excluding extraordinary and other expenses, up from the previous guidance of $4.20 to $4.25 per share. The revised outlook envisions earnings-per-share growth of 11 to 12 percent.
General Mills had also raised its profit forecasts in March and in June, although those fell within the previous fiscal year.
While first-quarter sales grew only 1 percent compared with a 14 percent gain a year ago, Powell said that "if you back out divestitures made a year ago and foreign exchange rates, the underlying growth was 5 percent in the quarter."
Powell said the results were also due, in part, to the company's internal cost-cutting program, dubbed "holistic margin management," which he said will help the company's margins even if commodities and fuel prices rise again.
"It's something we've been at for four years now, and we're in the very early innings of that whole process," Powell said.
Added Russo, "It's tough to grow sales now, so they're doing what they can on the expense side."
While General Mills has been helped by the consumer trend of eating at home more and eating out less, Powell said the company won't be hurt when the economy recovers and consumers presumably will eat at home less often.
"There's still half a trillion dollars being spent on food away from home, which is half of all food spending in the U.S.," Powell said. "Our results are just getting a little tailwind now from somewhat fewer consumers eating out."
That's not likely to change anytime soon, Russo said.
"The jury is still out on how fast the economy will come back," Russo said. "But we're a long way from folks eating out in droves again."
Steve Alexander • 612-673-4553
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