General Mills Beats and Brings Comfort

General Mills Inc posted a slightly better-than-expected quarterly profit and affirmed its full-year target, helped by increased sales of its cereals, yogurt and snacks.

From the release:

• Net sales for the 13 weeks ended Aug. 29, 2010, grew 1 percent to $3.53 billion. 
• Segment operating profit totaled $749 million, down 2 percent from last year's results, which were up 22 percent.
• U.S. Retail segment net sales increased 2 percent to $2.45. Segment operating profit of $615 million was 3 percent below last year's strong result, reflecting increased input costs and a 6 percent increase in advertising expense.
• Net sales for General Mills' consolidated international businesses grew slightly to $660 million. Including brand-building investment, International segment operating profit totaled $62 million, 1 percent below prior-year results.
• First quarter net sales for the Bakeries and Foodservice segment grew slightly to $427 million.  Segment operating profit grew 11 percent to $72 million.
• Cash provided by operating activities totaled $178 million in the quarter, below year-ago levels due to increased use of working capital in the period. Capital investments totaled $133 million in the first quarter of 2011. Dividends paid increased to $184 million, reflecting the increase in the company's dividend rate year over year. During the first quarter, General Mills repurchased 21 million shares of common stock for a total of $788 million. No free cash flow being generated.
• As the second fiscal quarter begins, General Mills said it anticipates near-term financial results will continue tracking in line with year-ago levels, with accelerating sales and earnings growth expected as the year progresses. Ken Powell said, "The global operating environment is still quite challenging, but our food businesses are resilient and continue to demonstrate high-quality growth." The company reaffirmed its full-year fiscal 2011 EPS guidance of $2.46 to $2.48 per share, excluding any mark-to-market effects. This would represent growth of 7 to 8 percent from adjusted earnings per share of $2.30 in fiscal 2010.

Now lets contrast that with ConAgra's release:

• Consumer Foods segment (65% of sales) posted sales of $1,824 million and operating profit of $214 million for the first quarter.  Sales decreased 2% as reported, reflecting a 3% organic volume decline, a 1% decline in overall price/mix, and a 2% benefit from
  acquisitions (net of divestitures).  So much for organic growth. Operating profit of $214 million was 14% below last year’s $250 million, as reported.  Excluding $8
  million of restructuring costs in the current year, comparable current-quarter operating profit of $222 million was 11% below the comparable year-ago amount of $250 million.
• Sales for the Commercial Foods segment were $993 million, 3% below last year’s $1,026 million.  Segment operating profit was $112 million, 17% below last year’s $134 million.
• For the quarter, capital expenditures from continuing operations for property, plant, and equipment were $129 million, the company repurchased approximately 4.2 million shares for a total of $100 million and dividends totaled $88 million.  Cash from operations was $108MM.  Only short about $200MM, so much for free cash flow.
• Revised Outlook:  Fiscal 2011 diluted EPS adjusted for items impacting
  comparability now expected to grow 5-7% over the fiscal 2010 comparable base
  of $1.74.  

Now, I realize that the two companies are in the same sector but sell into different segments, but reviewing the two releases shows increased input costs and a focus on cost take-out to drive operating earnings (more so in ConAgra than GIS). 

My key takeaway is that the "basics" continue to sell well while the "value added/prepared" segments are feeling the heat.  Consumers want their cereals and are prepared to make meals the old fashioned (and less expensive) way.  Both companies still have decent balance sheets, which should allow for more deficit spending, to pay dividends and repurchase shares - but only for so long.  The upshot, capex for the quarter was up YOY for both companies which should continue to support growth.  The GIS release and its moderate growth brought me some comfort as the ConAgra release foreshadowed a more difficult environment.

Disclosure:  No positions in either name.