Food manufacturer and marketer General Mills (GIS) reported solid results for its first quarter of 2013 recently. Revenue increased 5% year-over-year to $4.05 billion, in-line with consensus estimates. Adjusted earnings per share increased 3% year-over-year to $0.66, slightly better than consensus expectations. The firm reiterated its full-year non-GAAP earnings guidance of $2.65 per share.
The mature U.S. segment was weak, with revenue falling 1%, on 2% lower volumes but 1% higher prices. Though we think the cereal business, which includes Cheerios, Raisin Bran, Lucky Charms, and Kix, is losing share to generics as well as lower carb offerings, other portions of the segment have been able to pick up the slack. Greek yogurt retail sales (sold under Yoplait) increased 85% year-over-year and the firm gained a full point of market share. We also think snacks, though facing backlash from obesity critics for items such as Gardetto's, is fairly well positioned with healthier brands like Fiber One and Nature Valley. Still, Gardetto's is better positioned than Frito-Lay (PEP), and the segment managed to post an operating profit of $575 million (2% lower than a year ago).
After acquiring the Yoplait International license, revenue in the International segment grew 27% (36% ex-currency) year-over-year to $1.09 billion, culminating in a 56% gain in operating profit ($126 million). Europe grew 51%, Canada 28%, and Asia-Pacific and Latin America both increased over 20% (currency neutral). We're not surprised that the firm's strong brand portfolio continues to be a hit overseas, as emerging-market consumers become more time-strapped and desire greater convenience. Though virtually every company has addressed the country negatively, General Mills mentioned solid growth in China on its conference call, with Haagen-Dazs leading the sales gains. We're optimistic about the ability for these gains to continue, especially since ice cream, for example, is a relatively cheaper expenditure than Nike (NKE) shoes or Ralph Lauren (RL) shirts.
The Bakery and Foodservice segment saw revenue fall 2% year-over-year as a result of lower pricing. Still, operating profit grew 10% to $68 million thanks to lower input costs. Although we expect input prices, namely corn, will be higher through the course of the firm's 2013 fiscal year, the company believes it won't materially harm profitability, as it only accounts for 5%-10% of input costs. Yet, management admitted it could negatively impact profits in fiscal year 2014, if trends continue.
In spite of solid results and good costs controls, we believe shares of General Mills are fairly valued at this time. With a Valuentum Buying Index score of 4, we do not think the firm is a very compelling candidate for our actively-managed portfolios. For an in-depth analysis of General Mills' intrinsic value based on a robust discounted cash-flow process, please click here.