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General Mills Inc GIS
Q3 2013 Earnings Call Transcript

Transcript Call Date 03/20/2013

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the General Mills' Third Quarter 2013 Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded Wednesday, March 20, 2013.

I would now like to turn the conference over to Kris Wenker, Vice President, Investor Relations. Please go ahead, ma'am.

Kristen S. Wenker - VP, IR: Thanks, operator. Good morning, everybody. I'm here with Ken Powell, our CEO, Don Mulligan, our CFO and Dave Dudick, Senior Vice President and Head of Bakeries and Foodservice Business and I'll turn the call over to them in just a minute.

First, I'm going to cover my usual housekeeping items. Our press release on third quarter results was issued over the wired services earlier this morning. It is also posted on our website, if you need a copy.

We put slides on the website too, they supplement today's prepared remarks. Our remarks will include forward-looking statements that are based on management's current views and assumptions and the second slide on today's presentation lists factors that could cause future results to be different than our current estimates.

With that, I'll turn you over to my colleague, starting with Don.

Donal L. Mulligan - EVP and CFO: Thanks, Kristy, and good morning everybody, thank you for joining us today. Our third quarter results are summarized on Slide 4. Net sales grew 8% to more than $4.4 billion.

Sales for our base business grew 2%, new businesses primarily Yoki in Brazil and Yoplait Canada contributed six points of net sales growth in the quarter. Segment operating profit grew 11% led by double-digit gains for our U.S. Retail in Bakeries and Foodservice segments.

Net earnings totaled $398 million and diluted earnings per share were $0.60 as reported. Excluding certain items affecting comparability, our adjusted diluted EPS would be $0.64, up 16% from last year's third quarter.

Slide 5 shows the components of our net sales growth. Pound volume contributed nine points of growth in the quarter, that's primarily addition of Yoki and Yoplait Canada, which together contributed eight points of volume growth.

Volume growth excluding new businesses contributed one percentage point of growth. Sales mix and net price realization subtracted one point of sales growth and foreign exchange had no impact on total company sales growth in the quarter.

Slide 6 shows net sales growth by segment. U.S. Retail, net sales grew 2% as our snacks, Small Planet Foods, Baking and Meals divisions all posted gains. U.S. Retail pound volume matched year ago levels

International net sales rose 24% as reported and 25% on a constant currency basis, with good growth across all geographic regions. These results do include 20 points of growth, primarily from Yoki and Yoplait Canada. Excluding new business and foreign exchange, international sales grew 5% in the quarter. Net sales for our Bakeries and Foodservice business matched year ago levels.

Gross margin declined in the third quarter. As reported results include the impact of mark-to-market valuation for certain grain inventories and commodity hedges we'll use in future periods. Slide 7 also shows that excluding mark-to-market effects, underlying gross margin declined 60 basis points, primarily due to change in our business mix. We expect our underlying gross margin will be down again in the fourth quarter and down 60 to 80 basis points for the full year.

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