General Mills Achieves Record-Level Results in Fiscal 2009

General Mills (NYSE: GIS) today reported strong financial results for the fourth quarter and full 2009 fiscal year.

Fiscal 2009 Financial Highlights

• Net Sales Grew 8 Percent
• Segment Operating Profit Grew 10 Percent
• Earnings per Share Grew 2 Percent to $3.80
• Excluding Certain Items Affecting Comparability, Earnings per Share Grew 13 Percent to $3.98, Exceeding the Consensus of Analyst Estimates
• 2009 was a 53-week fiscal year, with the extra week falling in the fourth quarter.

For the fiscal year ended May 31, 2009, General Mills net sales grew 8 percent to $14.7 billion. Volume (measured in pounds) contributed 2 points of sales growth. Foreign currency translation reduced sales growth by 2 percentage points. Gross margin essentially matched prior-year levels despite 9 percent inflation in the company’s input costs. Consumer marketing investment rose 16 percent in 2009, including strong growth in worldwide media spending. Segment operating profit increased 10 percent to exceed $2.6 billion. During 2009, the company incurred restructuring expenses totaling $42 million pre-tax, and recorded a net pre-tax gain of $85 million from divestitures. Net earnings grew 1 percent to $1.3 billion including a net decline in mark-to-market valuation of certain commodity positions, the net gain from divestitures, proceeds from an insurance recovery, and expense associated with a discrete tax item. (These items are discussed in the section titled Corporate Items below.) Diluted earnings per share (EPS) grew 2 percent to reach $3.80. Earnings per share excluding the mark-to-market, divestiture, tax and insurance items would total $3.98, a 13 percent increase from comparable earnings of $3.52 per share in fiscal 2008.

Chairman and Chief Executive Officer Ken Powell said, "In today’s very challenging economic environment, our leading food brands offer the quality, convenience and value that consumers are looking for and, as a result, our businesses are showing strong growth. In 2009, we held our margins in the face of sharply higher input costs, and we significantly increased the level of consumer marketing support for our brands. These actions have positioned General Mills to achieve another year of good growth in fiscal 2010.”

Fourth Quarter Highlights

• Fourth-quarter Net Sales Rose 5 Percent
• Segment Operating Profits Grew 29 Percent
• Earnings per Share Totaled $1.07
• Excluding Items Affecting Comparability of Results, Fourth-quarter EPS Totaled $0.86, Up 18 Percent from $0.73 Last Year
• The 2009 Fourth Quarter included 14 weeks

Net sales for the fourth quarter grew 5 percent to $3.6 billion. Pound volume growth contributed 3 points of the sales increase. Foreign currency translation reduced sales growth by 3 points. Gross margin recovered from depressed prior-year levels. Consumer marketing spending in the final quarter grew 19 percent and, even with that strong reinvestment, segment operating profits rose 29 percent. Earnings after tax totaled $359 million, reflecting a net gain from mark-to-market valuation of certain commodity positions and a lower fourth-quarter tax rate. Diluted earnings per share reached $1.07 compared to $0.53 in last year’s fourth quarter. Excluding a loss on product lines divested in the fourth quarter of 2009, and the mark-to-market effects in both 2008 and 2009, EPS would have totaled $0.86, up 18 percent from $0.73 last year.

Contributions from the 53^rd Week

General Mills estimates that the extra week contributed roughly 1.5 points of net sales growth in fiscal 2009, and 6 points of net sales growth in the fourth quarter. Earnings contributed by the extra week totaled approximately $0.07 per share, prior to incremental investment in consumer marketing initiatives.

U.S. Retail Segment Results

Fiscal 2009 net sales for General Mills’ U.S. Retail operations grew 11 percent to exceed $10 billion for the first time. Pound volume gains contributed 4 points of the net sales growth. Segment operating profits rose 12 percent to $2.2 billion, including a 19 percent increase in consumer marketing spending to support the company’s brands.

Net sales for Big G cereals rose 11 percent with strong performance from core brands including Fiber One and the market-leading Cheerios franchise. Baking Products net sales grew 18 percent including gains for Bisquick variety baking mix, Gold Medal flour and Betty Crocker dessert mixes. Yoplait posted a 14 percent net sales increase fueled by double-digit growth for Yoplait Light reduced-calorie yogurt. Pillsbury USA division net sales rose 12 percent, including strong growth from Totino’s pizza and pizza rolls, Pillsbury refrigerated dough products, and new Pillsbury Savorings frozen appetizers. Meals division net sales increased 8 percent, led by dinner mixes and Green Giant frozen vegetables. Net sales for the Snacks division grew 4 percent with particularly strong contributions from Nature Valley and Fiber One snack bars. For the company’s Small Planet Foods organic product lines, net sales grew 30 percent including the Lärabar business acquired during 2009.

Fourth-quarter U.S. Retail net sales rose 12 percent, with pound volume contributing 3 points of the growth. All seven operating divisions posted net sales increases, and for Big G cereals, Pillsbury USA, Baking Products, Yoplait and Small Planet Foods fourth-quarter sales grew double-digit. Operating profits rose 30 percent even with a 25 percent increase in consumer marketing spending in the period. This brand-building investment is expected to help drive continued good net sales growth into fiscal 2010.

International Segment Results

Net sales for General Mills’ consolidated International businesses grew 1 percent in fiscal 2009 to $2.6 billion. Pound volume grew 1 percent, and foreign currency exchange reduced net sales growth by 9 percentage points. On a constant-currency basis, sales grew 10 percent overall and the company recorded sales growth in every region where it operates. In the Asia / Pacific region, constant-currency net sales grew 16 percent. In the Latin America region, net sales increased 22 percent. Net sales in Canada grew 7 percent. And in Europe, constant-currency net sales grew 4 percent. International segment operating profits declined 3 percent as foreign currency exchange reduced profit growth by 14 percentage points.

In the fourth quarter, International segment net sales declined 5 percent as reported, but foreign currency exchange reduced net sales growth by 17 percentage points. On a constant-currency basis, net sales increased 12 percent with pound volume up 5 percent in the quarter. Segment operating profits declined 12 percent to $54 million, reflecting negative foreign currency exchange effects.

Bakeries & Foodservice Segment Results

Net sales for the Bakeries and Foodservice segment grew 1 percent to exceed $2.0 billion. Pound volume declined 6 percent, reflecting weak foodservice industry trends. However, segment operating profits grew 3 percent to reach $171 million. Prior-year results for Bakeries and Foodservice included unusually strong grain merchandising earnings that resulted from significant commodity price increases that year. Excluding grain merchandising earnings from both 2009 and 2008 results, Bakeries and Foodservice operating profits grew 15 percent in 2009, reflecting successful efforts to emphasize higher-margin product lines and customer channels.

In the fourth quarter, Bakeries and Foodservice net sales declined 9 percent, including the divestiture of two product lines. Pound volume essentially matched year-ago levels, and operating profits rose sharply primarily due to lower input costs year-over-year.

Joint Venture Summary

After-tax earnings from joint ventures totaled $92 million in 2009. Prior-year joint-venture earnings of $111 million included an $8 million net gain from restructuring actions at Cereal Partners Worldwide (CPW) and a $2 million gain from the sale of General Mills’ 50-percent share of the 8^th Continent soymilk business. A tax adjustment in the fourth quarter and foreign exchange effects account for the remainder of the earnings decline.

General Mills’ proportionate share of joint-venture net sales totaled $1.2 billion in 2009. The company’s 50-percent share of CPW net sales exceeded $1 billion, and pound volume for the venture grew 4 percent. Net sales for the Haagen-Dazs ice cream venture in Japan totaled $197 million. Pound volume declined for the year, reflecting the difficult economic environment. Foreign exchange effects reduced joint venture net sales by 6 percentage points.

Fourth-quarter earnings from joint ventures totaled $12 million. That was below last year’s fourth-quarter earnings of $31 million, which more than doubled from 2007 results.

Corporate Items

Restructuring, impairment and other exit costs totaled $42 million in fiscal 2009, with $35 million of that total falling in the fourth quarter. These restructuring actions are described in Note 4 to the financial statements attached below. General Mills also recorded a net gain of $85 million from the divestitures of three product lines, as described in Note 3 to the financial statements below.

Unallocated corporate items represented expense of $361 million in 2009 compared to expense of $157 million in 2008. The increase in expense includes a $119 million net reduction in mark-to-market valuation of certain commodity positions, compared to a $57 million net gain in mark-to-market valuation last year. This year’s corporate unallocated items include a $35 million net reduction in carrying values of various corporate investments, compared to a prior-year net gain of $16 million on corporate investments. Fiscal 2009 corporate items also include a $41 million insurance recovery related to a plant fire in Argentina, and a $16 million incremental contribution to the General Mills Foundation corpus.

Net interest expense in 2009 totaled $390 million, down 8 percent due primarily to lower rates. Fourth-quarter interest expense of $102 million was 14 percent above prior-year levels reflecting a higher percentage of long-term bonds in the company’s current debt mix.

The effective tax rate for 2009 was 37.3 percent, including a discrete tax item of $53 million recorded in the third quarter. Excluding the discrete tax item, mark-to-market valuation of certain commodity positions, the net gain on divestitures, and the insurance recovery, the 2009 effective tax rate was 33.8 percent. The company’s fourth-quarter tax rate declined to 34.5 percent, due in part to a favorable state appeals court decision. Excluding mark-to-market and divestiture impacts in the fourth quarter, the effective fourth-quarter tax rate was 31.4 percent.

Cash Flow Items

Cash flow from operations grew 6 percent to exceed $1.8 billion in 2009. Capital expenditures totaled $563 million for the year. Dividends per share grew 10 percent to $1.72. On June 29, 2009, the company announced a 9 percent increase in the quarterly dividend rate to $0.47 per share, payable August 3, 2009, to shareholders of record July 10, 2009. During fiscal 2009, General Mills repurchased 20 million shares of common stock at an average price of $64. Average diluted shares outstanding declined 1 percent from 347 million in 2008 to 344 million in 2009. The company’s debt balance at year end was $7.1 billion, up 1 percent from a year ago.

Outlook

Powell said, "Our product categories are on-trend with consumer needs, and we’ve got a good line-up of product news and innovation planned for the new year, so we expect our business to generate good growth again in fiscal 2010. Our plans assume that world economic conditions remain challenging, and that foreign currency translation and transaction effects will reduce our reported sales and earnings growth rates. However, we expect the rate of input cost inflation to moderate, and we believe savings from our holistic margin management initiatives will exceed cost increases.”

Diluted earnings per share will continue to include mark-to-market valuation of commodity positions, but the company cannot predict its effect on earnings. Assuming no mark-to-market impact in fiscal 2010, earnings are expected to be between $4.20 and $4.25 per share for the year. General Mills’ 2010 EPS guidance includes estimated negative foreign exchange effects of approximately 15 cents per share, and represents growth of 6 to 7 percent from the $3.98 EPS excluding items in fiscal 2009.

Earnings per share excluding items, total company segment operating profit, earnings excluding items expressed as a percent of sales, international sales excluding foreign currency translation effects, and effective tax rate excluding items are each non-GAAP measures. Reconciliations of these measures to their relevant GAAP measures appear in Note 7 to the attached consolidated financial statements.

General Mills will hold a briefing for investors today, July 1, 2009, beginning at 8:00 a.m. EDT. You may access the web cast from General Mills’ corporate home page at www.generalmills.com.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations and assumptions. These forward-looking statements, including the statements under the caption "Outlook” and statements made by Mr. Powell, are subject to certain risks and uncertainties that could cause actual results to differ materially from the potential results discussed in the forward-looking statements. In particular, our predictions about future net sales and earnings could be affected by a variety of factors, including: competitive dynamics in the consumer foods industry and the markets for our products, including new product introductions, advertising activities, pricing actions, and promotional activities of our competitors; economic conditions, including changes in inflation rates, interest rates, tax rates, or the availability of capital; product development and innovation; consumer acceptance of new products and product improvements; consumer reaction to pricing actions and changes in promotion levels; acquisitions or dispositions of businesses or assets; changes in capital structure; changes in laws and regulations, including labeling and advertising regulations; impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets, or changes in the useful lives of other intangible assets; changes in accounting standards and the impact of significant accounting estimates; product quality and safety issues, including recalls and product liability; changes in consumer demand for our products; effectiveness of advertising, marketing, and promotional programs; changes in consumer behavior, trends, and preferences, including weight loss trends; consumer perception of health-related issues, including obesity; consolidation in the retail environment; changes in purchasing and inventory levels of significant customers; fluctuations in the cost and availability of supply chain resources, including raw materials, packaging, and energy; disruptions or inefficiencies in the supply chain; volatility in the market value of derivatives used to manage price risk for certain commodities; benefit plan expenses due to changes in plan asset values and discount rates used to determine plan liabilities; failure of our information technology systems; resolution of uncertain income tax matters; foreign economic conditions, including currency rate fluctuations; and political unrest in foreign markets and economic uncertainty due to terrorism or war. The company undertakes no obligation to publicly revise any forward-looking statement to reflect any future events or circumstances.

Earnings comparisons as a percent of net sales excluding items affecting comparability follows:

A reconciliation of total segment operating profit to the relevant GAAP measure, operating profit, is included in the Statements of Operating Segment Results.

A reconciliation of International segment and region sales growth rates as reported to International segment and region sales growth rates excluding the impact of foreign exchange follows:

A reconciliation of the effective income tax rate as reported to the effective income tax rate excluding items affecting comparability follows: