Powell sees General Mills portfolio positioned for quality growth

by L. Joshua Sosland
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MINNEAPOLIS — Buoyed by broad-based sales growth and expanded gross margin that helped drive a 17% gain in earnings during fiscal 2010, executives at General Mills Inc. remain optimistic that more of the same is in store for fiscal 2011.

In the company’s 2010 annual report issued Aug. 16, Ken Powell, chairman and chief executive officer, said General Mills expects fiscal 2011 to be another good year, contributing to long-term performance goals.

“Our plans call for low single-digit net sales growth, led by volume increases,” Mr. Powell said. “We expect segment operating profit to grow faster than sales, increasing at a mid single-digit pace. And we’re targeting high single-digit earnings-per-share growth before any mark-to-market effects.”

To achieve its performance goals, Mr. Powell said General Mills remains focused on five key business drivers: innovation, brand building, leading customer growth, international expansion and margin expansion.

After challenging itself in 2005 to improve the health credentials of its brands, General Mills has taken steps to innovate to improve its established brands and to create successful new products, Mr. Powell said.

“As of fiscal 2010, U.S. Retail brands accounting for 60% of segment sales have been improved,” he said. “We also had a strong lineup of successful new product introductions in 2010, including Chocolate Cheerios, Yoplait Delights yogurt parfaits, Wanchai Ferry frozen entrees and Betty Crocker gluten-free dessert mixes. Product innovation also drove growth for our international businesses with new flavors of Häagen-Dazs ice cream in

Europe, new formats of Wanchai Ferry frozen meals in China, and chewy versions of Nature Valley granola bars in a number of markets.”

Mr. Powell added that Chocolate Cheerios is on track to become General Mills’ biggest new product launch in the past decade, while Betty Crocker gluten-free dessert mixes have received tremendous consumer response in their first year. General Mills plans to continue its innovation in gluten-free products with the launch next year of a gluten-free version of Bisquick baking mix.

Another area of innovation focus for General Mills resides in millennial consumers, who Mr. Powell said value “convenient and wholesome foods.”

“We’ve launched a variety of products under the Simply… brand that feature short ingredient lists and no artificial flavors or colors,” he said. “We recently added Fruit Roll-Ups snacks and Pillsbury refrigerated breads and biscuits to this line. Larabar energy bars also have a short ingredient list and natural ingredients. Retail sales for these bars are growing at a double-digit pace as we’re expanding distribution to new outlets.”

Minneapolis-based General Mills also has been successful in building its brands around the world, particularly in ready-to-eat cereal, where the company’s Cereal Partners Worldwide partnership with Nestle S.A. now accounts for approximately a quarter of total cereal sales outside of the United States and Canada.

“Per capita consumption of cereal is low in many international markets, so we expect continued good growth for C.P.W. in the years ahead,” Mr. Powell said.

General Mills has supported its brands with a nearly unmatched level of media spending within the grain-based foods industry. Since 2007, the company’s annual media investment has increased by more than $400 million, and in fiscal 2010 reached $908 million, up 24% from fiscal 2009.

“Our largest per cent increases have been on digital and multicultural media,” Mr. Powell said. “We’re reaching more multicultural consumers, particularly the fast-growing Hispanic population, through increased television, print and on-line advertising.”

Meanwhile, General Mills has been able to offset input cost inflation in recent years and protect margins through its Holistic Margin Management (H.M.M.) efforts. Thus far, the majority of the company’s productivity savings have come from the U.S. Retail business, but Mr. Powell said the company sees great opportunities across the portfolio, including General Mills’ international businesses, which are benefitting from state-of-the-art manufacturing processes and global sourcing of packaging and ingredients.

“As we look ahead, we expect costs for commodities and energy to increase, fueled by global demand,” Mr. Powell said. “That means H.M.M. will remain key to protecting our margins. Our goal is to capture a cumulative $1 billion in supply chain H.M.M. savings from fiscal 2010 through fiscal 2012, and we are targeting $4 billion in cumulative savings worldwide over the decade to 2020.”

Overall, General Mills posted net income in the year ended May 30 of $1,530.5 million, equal to $2.32 per share on the common stock, up from $1,304.4 million, or $1.96 per share, in fiscal 2009. Operating profit for the year climbed 12% to $2,606.1 million.

The company said it incurred pre-tax restructuring charges of $31.4 million during fiscal 2010 (including $24.1 million related to the discontinuation of children’s refrigerated yogurt beverage and microwave soup product lines), which compared with $41.6 million in charges and a net pre-tax gain of $84.9 million from divestitures in fiscal 2009.

Net sales for the full year were $14,796.5 million, up 0.7% from $14,691.3 million.

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