General Mills reported record results for the third quarter of fiscal 2003, reflecting the smooth and profitable integration of the Pillsbury business and prompting the company to raise its annual outlook.
Third quarter comparisons include 13 full weeks of Pillsbury results in both fiscal 2003 and 2002. Net sales for the quarter ended Feb. 23, 2003, grew 11% to $2.65 billion.
Worldwide unit volume increased 5%. Favorable sales mix, pricing and lower promotional spending also contributed to the increase in net revenues.
Earnings results for both 2003 and 2002 include unusual items expense, reflecting transaction and integration costs associated with the Pillsbury acquisition completed Oct. 31, 2001. Including unusual items expense, net earnings after tax grew 193% to $240 million. Earnings per diluted share totaled $0.63, up from $0.22 earned in last year's third quarter. Excluding unusual items, third-quarter earnings after tax totaled $255 million in 2003 compared with $107 million in 2002. Diluted earnings per share excluding unusual items totaled $0.67, more than double the $0.28 earned in last year's third quarter.
General Mills chairman and chief executive officer Steve Sanger said the quarter was further evidence of the strength of combining Pillsbury and General Mills. "After a strong first half, our growth accelerated in the third quarter with unit volume up 5% worldwide and up 7% for our U.S. retail businesses. Net sales grew even faster than volumes, and the result was stronger than expected earnings for the period," he said.
General Mills' nine-month results include a full 39 weeks of Pillsbury operations in fiscal 2003 compared with 16 weeks in fiscal 2002. Through nine months, net sales increased 42% to $7.96 billion. Net earnings grew 73% to $692 million, and diluted earnings per share totaled $1.84 per share, up 51% from $1.22 per share in the same period last year. Excluding unusual items expense in both years, nine-month earnings totaled $756 million in 2003 and $488 million in 2002. Diluted earnings per share before unusual items totaled $2.00 for the current year-to-date, up 35% from $1.48 earned last year.
Third quarter net sales for the Bakeries and Foodservice segment grew 5% to $419 million, as pricing offset a 2% decline in unit volume. Shipments to foodservice distributors, restaurants and retail and wholesale bakeries were down in the quarter, reflecting weak foodservice industry trends, and these declines more than offset double-digit growth in convenience store volume. Operating profit of $28 million was lower in the quarter, due to the volume decline and higher supply chain costs caused by the foodservice plant restructuring that is currently underway.
Through the first nine months, Bakeries and Foodservice net sales increased 69% to $1.34 billion, and operating profits including unusual items declined slightly to $98 million.
In the U.S. Retail segment, third quarter net sales grew 14% to $1.91 billion. "Big G" cereals led the third-quarter growth with unit volume up 16% versus a 6% decline last year. Volume for "Yoplait" yogurt also grew 16%, matching 16% growth in the same period last year.
Snacks volume grew 7% led by "Nature Valley" granola bars and "PopSecret" microwave popcorn. Meals volume grew 2% led by dinner mixes and "Progresso" soup.
Pillsbury USA volume was down 1% for the quarter, as good gains by frozen baked goods and "Totino's" frozen snacks were offset by lower refrigerated dough volume. Through nine months, net sales for the U.S. Retail segment grew 30% to $5.67 billion.
Net sales for the company's consolidated international businesses grew 5% in the third quarter to $316 million. Through nine months, net sales more than doubled to $955 million.
"We're encouraged by the accelerating sales growth and margin improvement we've achieved through the first nine months of this year," Sanger noted. "Our strong levels of product news and marketing innovation are driving growth in our retail sales and market shares. As a result, we now expect full-year earnings to be a bit stronger than our earlier guidance. We currently anticipate 2003 earnings will total between $2.62 and $2.64 per share before unusual items. That's up slightly from our previous estimate of $2.60 to $2.62 for this year, and it's up more than 50% from the $1.70 per share we earned before unusual items in fiscal 2002."
General Mils also said it continues to expect fiscal 2004 net sales to grow at least 6%, fueled by strong planned levels of product innovation and the benefit of a 53rd week in the fiscal period.