General Mills' EPS Touches Mark

General Mills Inc. ( GIS - Analyst Report ) has reported results for the fourth quarter of fiscal 2011. For the quarter, adjusted earnings shot up by 26.8% to 52 cents a share compared with 41 cents in the year-ago period. The quarterly EPS was in line with the Zacks Consensus estimate.

The fiscal 2011 earnings went up by 7.82% to $2.48 a share compared to $2.30 a year ago. The fiscal earnings were also in line with the Zacks Estimate.

Management expects its fiscal 2012 earnings to be in the range of $2.60 - $2.62 a share.Excluding mark-to-market effects and the tax charge related to health care legislation, the fiscal 2011 earnings guidance reflects an annual growth of 5% - 6%.

Revenues and Margins

Total revenue for the reported quarter grew only marginally by 3% year over year to $3,634.3 million. During the quarter volume slipped by 4%. Revenues were marginally short of the Zacks Consensus Estimate of $3.7 billion.

For the fiscal year 2011, reported revenue inched up by 1.7% to $14,880.2 million from $14,635.6 million in the previous year. The revenue for the fiscal 2011 missed Zacks Estimate of $14,927.0 million.

Mark-to-market effect, holistic margin management (HMM) cost savings and price realization boosted gross margin for the quarter to 37.5 %, which was higher than the year-ago level.

For the fiscal year 2011, gross margin expanded to 40%, reflecting increased mark-to-market valuation for certain commodity positions as well as effective HMM cost-saving initiatives.

Segments

Revenues form the U.S. Retail segment declined 2% year-over-year to $2,353.5 million in the quarter, reflecting significant year-over-year differences in in-store merchandising activity and pricing.

For the fiscal year 2011, net sales and pound volume for General Mills' U.S. Retail operations remained same. Total U.S. Retail segment net sales were $10,163.9 million.

Revenue at the International segment grew 16% year over year in the quarter to $778 million, reflecting a 6 points volume (measured in pounds) growth 7 points contribution from currency translation and 3 points from net price realization and mix.

For fiscal 2011 consolidated International businesses grew by 7% in 2011 to $2,875.5 million. Pound volume contributed 6 points of net sales growth, and price and mix contributed 1 point of net sales growth.

Compared with the year-ago period, the Bakeries and Foodservice segment’s revenue improved by 11% to $502 million in fourth quarter 2011, demonstrating a strong contribution from net price realization and mix, and 4% from volume increase (measured in pounds).

For the fiscal year 2011, net sales grew 6% to $1,840.8 million with 6% contribution from pricing and mix.

In the quarter, operating profit at International segment rose sharply to $72 million. The U.S. Retail segment reported a growth of 4% in operating profit for the quarter. The Bakeries and Foodservice grew at a double digit rate.

Balance Sheet and Share Repurchase

The company exited the quarter with operating cash flow of $1,526.8 million, which was down 30% year over year from $2,181.2 million, primarily due to higher working capital requirements. Year-to-date General Mills repurchased 32 million shares of its common stock.

Shareholder dividends totaled $729 million in 2011, reflecting a 17 percent increase in the annual dividend paid on per share. On June 28, 2011, the company announced a 9% increase in the quarterly dividend rate, effective with the August 1, 2011 payment.

Recommendation

General Mills, which faces stiff competition from Kellogg Company ( K - Analyst Report ) and Seneca Foods Corp. ( SENEA ) currently, holds a Zacks #3 Rank. On a long-term basis, the company retains a Neutral rating on the stock, with a short-term Hold rating.