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General Mills’ (GIS - Analyst Report) fourth-quarter fiscal 2013 adjusted earnings declined 11.7% year on year to 53 cents per share. The quarterly earnings lagged the Zacks Consensus Estimate of 54 cents per share by 1.9%. The year-over-year decline in earnings was due to higher input cost, increased advertising cost, increased spending to support in-store merchandising and a higher tax rate.

Revenues and Margins

Total revenue of the global consumer food company increased 8.5% year over year to $4.41 billion. Revenues mostly benefited from recent acquisitions including the purchase of Brazilian food maker Yoki Alimentos and Yoplait International. Acquisitions added 7 percentage points (pp) to top-line growth.

Price/mix pulled down revenues by 1 pp. Volume contributed 11% to revenues. Most of the volume growth was driven by acquisitions. Foreign exchange dragged revenues by 2 pp. Revenues beat the Zacks Consensus Estimate of $4.33 billion. Sales were up 1%, excluding the impact of acquisitions.

Adjusted gross margin for the maker of Cheerios cereals and Betty Crocker dinner mixes declined 240 basis points (bps) to 34.8% mainly due to changes in business mix and higher input costs. Adjusted operating margin declined 240 bps to 13.8% in the quarter due to increase in advertising costs. The decline in gross margins and increased marketing spending to support in-store merchandising affected operating margins in the quarter.

Segment Performance

U.S. Retail: Revenues from the U.S. Retail segment improved 2.0% year over year to $2.47 billion in the quarter driven by volume. Segment operating profit declined 3.5% to $517.3 million due to higher advertising costs.

International: Revenues in the International segment grew 26.8% year over year to $1.44 billion benefiting largely from acquisitions. Volume added 35 pp, mostly from the acquisitions of Yoki and Yoplait International, while price/mix took away 3 pp from net sales growth. Foreign exchange had an unfavorable 5 pp impact on net sales.  Segment operating profit increased 8.1% to $129.1 million.

Bakeries and Foodservice: On a year-over-year basis, the Bakeries and Foodservice segment’s quarterly revenues declined 1.7% to $501.9 million due to weak volumes. Volume declined 1% in the quarter. Segment operating profit declined 7.0% year over year to $75.3 million due to higher manufacturing costs.

Fiscal 2013

The company reported adjusted earnings per share (EPS) of $2.69 in fiscal 2013, up 5.1% year over year and in line with Zacks Consensus Estimate. Earnings were at the higher end of the company guided range of $2.68–$2.69.

The company reported 7% increase in net sales to $17.8 billion in fiscal 2013, driven by volume growth resulting from recent acquisitions.

Outlook for Fiscal 2014

In fiscal 2014, General Mills expects solid earnings growth. It also expects to boost shareholder value. Growth is expected to be in line with its long-term targets; high single-digit growth in earnings and low single-digit growth in net sales.

The company expects net sales to grow at a low single digit rate and to exceed $18 billion in fiscal 2014. Operating profit is expected to grow at a mid-single digit rate. The adjusted EPS is expected to grow at a high single digit rate to $2.87 to $2.90.  

General Mills carries a Zacks Rank #3 (Hold).

Other food companies that have been doing well consistently are Flower Foods Inc. (FLO - Snapshot Report) and Omega Protein Corp both carrying a Zacks Rank #1 (Strong Buy) and Campbell Soup Company (CPB - Analyst Report) carrying a Zacks Rank #2 (Buy).

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