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General Mills, Inc.

(GIS) Q4 2009 Earnings Call Transcript July 1, 2009 8:00 a.m.

ETExecutives Kris Wenker � Vice President Investor Relations Ken Powel � Chief Executive Officer Don Mulligan � Executive VP & Chief Financial Officer Chris O�Leary � Executive VP & Chief Operating Officer, International Ian Friendly � Executive VP & Chief Operating Officer, US RetailAnalysts Judy Hong � Goldman Sachs Terry Bivens � JP Morgan Eric Katzman � Deutsche Bank Unspecified Analyst David Driscoll - Citigroup Unspecified Analyst Andrew Lazar - Barclays CapitalPresentationKris Wenker � Vice President Investor Relations Okay so an official good morning everybody.

For those of you I haven�t had a chance to meet, I�m Kris Wenker and I want to welcome all of you that have joined us here in Boston.

We�re also welcoming everyone who is listening on the webcast.

Here with me are General Mill�s Chairman and CEO, Ken Powel, our CFO Don Mulligan, Chris O�Leary, who is Chief Operating Officer for our international businesses, and Ian Friendly, who is our Chief Operating Officer for US Retail.

Before they begin I need to remind you that our presentation will include forward-looking statements that are based on management�s current views and assumptions and as the slide behind me illustrates, there are many factors that could cause our future results to be different than our estimates.

We issued a press release earlier this morning that contains our fourth quarter and 2009 fiscal year results.

You can find a copy of that press release on our website along with slides we�ll be using in today�s presentation and the last few slides will reconcile non-GAAP measures that we�ll be referencing today.

So with that I will turn the meeting over to Ken Powel.Ken Powel � Chief Executive Officer Okay well good morning to one and all.

Thank you Kris.

We are very glad that you have been able to join us this morning to hear us talk about General Mills� strong performance in 2009 and our plans for continuing growth in 2010.

Four years ago we established the model that you�re looking at right now for our earnings growth.

It calls for low single-digit growth in net sales, mid single-digit growth in segment operating profit and high single-digit growth in earnings per share.

And we believe that this earnings growth coupled with an attractive dividend yield should result in double-digit returns to General Mills shareholders over time.

Now as we�ve said many times before this model is not the absolute best we can do, but it is the level of growth we believe we should deliver to shareholders consistently and over time.

In good years we can exceed this model and I�m very pleased to report that the fiscal 2009 was a very good year.

Today�s press release summarizes our results which exceeded our long-term model and the specific targets we set for 2009, back when the year began.

Net sales increased 8% to reach $14.7 billion.

Segment operating profits grew faster than sales, up double-digits to exceed $2.6 billion.

Earnings per share grew 2%.

This includes several items that effect the comparability of our results year-over-year.

Excluding those items earnings per share totaled $3.98 in 2009, up 13% from comparable earnings of $3.52 per share in 2008.

Sales and earnings growth in 2009 include some benefit from an extra week this fiscal year.

But our results exceeded our growth targets even without the extra week and we believe this represents strong financial performance in a very challenging operating environment.

Our net sales growth in 2009 included contributions from a pricing and mix which we needed to partially offset higher input costs.

Pound volume contributed two points of net sales growth and foreign currency translation reduced net sales growth by two percentage points.

Our sales growth was broad-based as you can see in this table.

Each of our US retail divisions recorded net sales increases including double-digit gains for Small Planet Foods, for baking products, Yoplait, Pillsbury, and Big G Cereals.

I should note that snacks growth would be higher if you exclude the divested Pop Secret business from both years.

And Small Planet�s reported growth benefited from the Larabar acquisition.

Net sales for our international segment also grew double-digit on a constant currency basis.

So our business portfolio is clearly showing its resilience in this challenging economic environment.

We faced significant input cost pressure in our business last year.

Our plan estimated 9% inflation, the highest rate that we�ve seen in many years and our actual costs essentially matched that estimate.

I�m pleased to report that our company wide focus on holistic margin management or as we call it HMM, that focus enabled us to offset this cost pressure and protect our gross margin in 2009.On an as reported basis, gross margin was within 10 basis points of last year and if you exclude several items that effect comparability of results year-over-year, gross margin rose modestly.

By protecting our margins we generated the funds to increase consumer marketing support for our brands.

In 2009 our consumer marketing investment grew at a strong double-digit rate building on spending increases made in each of the past three years.

This reinvestment is fueling net sales growth and it supports value added brands in an environment where lower priced retailer brands are getting increased attention.

We took actions during 2009 that strengthened our business portfolio.

We acquired LaraBar, a leading fruit and nut based energy snack.

We sold our Pop Secret microwave popcorn business.

We exited two foodservice businesses and we exited pasta and cheese bread businesses in Brazil in order to focus our operations in that country on our Nature Valley and our Haagen-Dazs brands.

We finished the year with strong performance in the final quarter.

Net sales grew 5%, segment operating profits were up double-digit due primarily to lower input costs year-over-year.

Diluted earnings per share for the quarter were double last year�s level, primarily due to a large swing in the mark-to-market valuation of commodity positions.

Excluding mark-to-market effects and the other items affecting comparability of results our fourth quarter EPS would be up 18%.

And remember these results once again reflect some benefit from the extra week.

Reported sales growth for the last quarter doesn�t quite do justice to our real business momentum because foreign currency exchange and divestitures are dampening the number, but as you see in the press release, US retail sales grew 12% in the fourth quarter.

International net sales were also up 12% on a constant currency basis and the bakery and foodservice sales decline is moderated when you exclude results from divested businesses in both years.

We also continue to reinvest at strong levels in the fourth quarter with consumer marketing spending up 19% for the period.

We expect that investment to help sustain our top line momentum as we move into 2010.

Our businesses generated strong cash flow in 2009 and we returned much of that cash to shareholders through share repurchase and increased dividends.

Annual dividends per share grew 10% in 2009, and on Monday of this week, we announced a 9% increase in the quarterly dividend rate to $0.47 per share effective with the August 3rd payment.

We�ve stayed tightly focused on our business model and our long-term growth goals and that�s resulted in consistent superior performance.

Over the past three years we�ve added $3 billion sales, more than $500 million in operating profit, and we�ve grown our underlying earnings per share at a double-digit compound rate.

This sustained financial performance stacks up very well relative to the results from our peer companies.

And our goal is to build on this strong growth in 2010 and we think our chances of doing that are excellent.

The major food categories where we compete, are growing and at attractive rates.

Our leading brands are driving growth in our categories because they offer the nutrition, convenience, and value that today�s consumers are looking for.

Our company-wide focus on holistic margin management is protecting our margins.

And our increased consumer marketing support is fueling net sales growth for our businesses.

So we�re looking forward to telling you more about our progress and the plans we have for 2010 and here�s the agenda for the rest of our time together this morning.

Ian Friendly will start us off with an update on the US retail business and then Chris O�Leary is going to talk about the growth plans for our international operation.

Don Mulligan will give you an update on bakeries and foodservice and then summarize General Mills� financial targets for fiscal 2010.

And I�ll wrap up with a few comments on our over arching business strategies as we go into the New Year, and then we�ll be happy to take some questions, so with that, over to Ian.Ian Friendly � Chief Operating Officer, U.S Retail Thanks Ken and good morning everyone.

I�m happy to be here to update you on our 2009 performance and our plans to drive continuing growth for our categories and our brands in 2010.

General Mills U.S retail businesses just wrapped up a terrific year.

Sales were up 11% crossing the $10 billion mark for the first time.

Profit growth was even stronger, up 12% and even with significantly higher input costs and strong marketing spending behind our brands we grew our operating margin by 30 basis points to 22%.

Our brands are one of our biggest assets and we continue to invest to keep them healthy and relevant.

Consumer marketing spending for US retail was up 19% in 2009.

Our total trade spending increased as well, but our programs were more efficient so trade costs per case declined for the fourth quarter consecutive year.
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