Fourth-quarter results on a GAAP basis showed net earnings up 65% on a revenue decline of 2.5%. To make sense of these numbers, we must take into consideration the extra week in last year's fourth quarter, restructuring costs from the Pillsbury acquisition, gain on sale of businesses, the costs of early debt repurchase, and an accounting change for the share base relating to outstanding convertible debentures. With me so far? In fact, is anyone still reading this article?
OK, let me put all this on an apples-to-apples basis, excluding the one-time items. Revenue growth for the quarter was up 5%, while after-tax earnings were down about 9%. Precision here is not possible because the company didn't quantify the effect of the extra week last year on earnings (which is admittedly a subjective exercise).
General Mills has been at the leading edge of the transition to whole grains in all its cereals, promoting breakfast as the most important meal of the day. I'm not big on breakfast myself, but the company is making some headway with this tack, as reported here and here. The company is also gaining share in several of its brands, notably Progresso soups, Yoplait yogurt, and Pillsbury refrigerated dough.
General Mills has also been working for a few years now to complete the integration of its $10 billion acquisition of Pillsbury in 2002. It announced today that this integration is essentially complete. Following the acquisition the company suspended increases in its dividend and share repurchases to focus on debt reduction. General Mills has reduced long-term debt by about $2 billion since the end of 2003.
A year ago it resumed dividend increases, announcing a 13% hike. It announced an additional 6% on Monday, bringing its dividend up to a tasty 2.6% yield. Share repurchases are slated to begin again as well. The company offered guidance for the next three years, with expectations for low-single-digit sales growth, mid-single-digit operating profit growth, and high-single-digit EPS growth. Add the dividend yield to that, and General Mills is looking to deliver approximately 10% total shareholder return in the years ahead. All this sounds promising, although one must be careful of company guidance.
I like the fact that General Mills has the Pillsbury acquisition behind it, but a target of low-single-digit sales growth doesn't sound like much of a stretch. Unilever
These major packaged-foods companies offer investors predictable growth, low volatility, and hearty dividend yields; not bad for a core portfolio holding. But with all these companies trading in a 12-month trailing P/E range of 17-20, I'd opt for higher revenue growth in the absence of more exciting news.
For more information, see General Mills' latest results by the numbers.
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Fool contributor Timothy M. Otte welcomes comments on his articles but doesn't own the stock of any company mentioned in this article.