Following the previous quarter's results, investors fled General Mills
We'll dig into that point, but let's first review the company's fourth quarter of fiscal 2010 and its full-year performance. Along the way, keep in mind that an extra week in last year's Q4 makes for somewhat sloppy comparisons.
On a reported basis, fourth-quarter sales slipped 2% to $3.6 billion. But excluding that extra week, sales gained 4%, with company's largest segment, U.S. Retail, posting 5% growth. Meanwhile, reported quarterly earnings per share of $0.31 were a decline of 42%.
Whew! Did someone not eat their Wheaties?
Not quite. Excluding the effects of adjustments on commodity positions and a charge related to health-care reform, EPS fell a lesser 5%. Furthermore, if we account for the extra week, EPS rose slightly. And if we want to be really generous and ignore a debt-refinancing charge (while such an expense is a genuine cost of operating the core business), EPS advanced more than 15%. OK, that's not so bad overall.
For the fiscal year, net sales inched up by 1%, to $14.8 billion. Product divestitures and the pesky extra week detracted three percentage points from sales growth. Reported EPS of $2.24 represented 18% growth. Volume, however, was flat.
Again, nothing to be ashamed of here. Plus, management just recently increased the dividend by a whopping 17%, to an annualized rate of $1.12 per share. That beats out recent single-digit increases by Coca-Cola
Now, let's get to management's fiscal 2011 outlook. Two key headwinds are expected to impact the bottom line: input cost inflation of 4%-5% versus deflation in the recently completed year, and a rise in noncash pension expenses, owing to a decline in bond yields. All told, management is forecasting EPS of $2.46 to $2.48, excluding mark-to-market effects. On a comparable basis, that represents 7%-8% year-over-year growth, which is down from the double-digit growth in earnings-from-continuing-operations that General Mills has chalked up on a one- and three-year basis. Furthermore, based on today's share price and the midpoint of guidance, the stock is trading at a current fiscal-year P/E of 14.4, or nearly double the estimated growth rate.
Look, I'm a big fan of General Mills the company, but I can't belly up to the pantry at that valuation. Shares in the low $30s would be much more appetizing.