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These excerpts taken from the GIS 10-K filed Jul 11, 2008. EXECUTIVE
OVERVIEW
We are a global consumer foods company. We develop distinctive
food products and market these value-added products under unique
brand names. We work continuously to improve our established
brands and to create new products that meet consumers’
evolving needs and preferences. In addition, we build the equity
of our brands over time with strong consumer-directed marketing
and innovative merchandising. We believe our brand-building
strategy is the key to winning and sustaining leading share
positions in markets around the globe.
Our fundamental business goal is to generate superior returns
for our stockholders over the long term. We believe that
increases in net sales, segment operating profits, earnings per
share (EPS), and return on average total capital are the key
measures of financial performance for our businesses. See the
“Non-GAAP Measures” section below for our
discussion of segment operating profit and return on average
total capital, which are not defined by generally accepted
accounting principles (GAAP). Our objectives are to consistently
deliver:
• low single-digit annual growth in net sales;
• mid single-digit annual growth in total segment
operating profit;
• high single-digit annual growth in EPS; and
• on average, at least a 50 basis point annual
increase in return on average total capital.
We believe that this financial performance, coupled with an
attractive dividend yield, should result in long-term value
creation for stockholders. We also return a substantial amount
of cash annually to stockholders through share repurchases.
For the fiscal year ended May 25, 2008, our net sales grew
9.7 percent, total segment operating profit grew
6.4 percent, diluted EPS grew 16.7 percent, and our
return on average total capital improved by 100 basis
points. These results met or exceeded our long-term targets.
Diluted EPS for fiscal 2008 includes a $0.10 net gain from
mark-to-market valuation of certain commodity positions and a
$0.09 benefit associated with a favorable court decision on a
discrete tax matter. Net cash provided by operations totaled
$1.7 billion in fiscal 2008, enabling us to increase our
annual dividend payments per share by 9.0 percent from
fiscal 2007 and continue returning cash to stockholders through
share repurchases, which totaled $1,384.6 million in fiscal
2008. We also made significant capital investments totaling
$522.0 million in fiscal 2008, an increase of
13.4 percent from fiscal 2007, to support future growth and
productivity.
We achieved each of our four key operating objectives for fiscal
2008:
• We generated broad-based growth in net sales across
our businesses. All of our U.S. Retail divisions,
International geographic regions, and Bakeries and Foodservice
customer segments posted net sales gains in fiscal 2008. We
generated 2.9 points of growth from volume, generated 5.3 points
of growth from net price realization and product mix, and
realized 1.5 points of foreign currency exchange benefit.
• Our cost savings initiatives helped to partially
offset input cost inflation in fiscal 2008. We took steps to
manage raw material costs, especially with significant commodity
price increases in fiscal 2008, and we initiated several
restructuring actions to rationalize and simplify our product
portfolio, allowing us to focus on higher margin products.
• We invested a significant amount in media and other
brand-building marketing programs, which contributed to sales
growth across our businesses.
• We also recorded increases in EPS well above our
target, even excluding the effects of non-cash, mark-to-market
gains and a discrete tax item.
Details of our financial results are provided in the
“Fiscal 2008 Consolidated Results of Operations”
section below.
In fiscal 2009, input cost inflation will remain a challenge for
us. We plan to offset a significant portion of this cost
inflation with our holistic margin management (HMM) efforts,
which include cost-savings initiatives, marketing spending
efficiencies, and profitable sales mix strategies. We have also
raised prices on a number of our product lines. We believe our
HMM efforts help us keep our price increases moderate and expand
our margins over the long term. In addition, our HMM savings
generate resources for increased advertising and other
brand-building consumer marketing initiatives. Our plans call
for a high single digit increase in consumer marketing support
in fiscal 2009. We believe this support is a key factor in
generating net sales growth, as we believe it builds consumer
loyalty, increases our market share, and defends against
private-label offerings.
In addition to protecting and expanding our margins over time,
and investing in brand-building marketing initiatives, our key
operating objectives for fiscal 2009 include plans for
introducing new products and extending existing brands to new
markets. We
Table of Contents
are exploring innovative ways to partner with customers
including traditional food retailers, new retail formats, and
various away-from-home channels. We will continue to grow our
business in international markets, focusing on our core
platforms of super-premium ice cream, world cuisine, and healthy
snacking.
Our plans also call for $550 million of expenditures for
capital projects and a significant amount of cash returned to
stockholders through share repurchases and dividends. Our
long-term objective is to reduce outstanding shares by a
net 2 percent per year. We intend to continue
repurchasing shares in fiscal 2009, with a goal of reducing
average diluted shares outstanding a net 1 percent. On
June 23, 2008, our Board of Directors approved a dividend
increase to an annual rate of $1.72 per share. This represents a
9 percent compound annual growth rate in dividends from
fiscal 2005 to fiscal 2009.
Certain terms used throughout this report are defined in a
glossary in Item 8 of this report.
EXECUTIVE OVERVIEW We are a global consumer foods company. We develop distinctive food products and market these value-added products under unique brand names. We work continuously to improve our established brands and to create new products that meet consumers’ evolving needs and preferences. In addition, we build the equity of our brands over time with strong consumer-directed marketing and innovative merchandising. We believe our brand-building strategy is the key to winning and sustaining leading share positions in markets around the globe. Our fundamental business goal is to generate superior returns for our stockholders over the long term. We believe that increases in net sales, segment operating profits, earnings per share (EPS), and return on average total capital are the key measures of financial performance for our businesses. See the “Non-GAAP Measures” section below for our discussion of segment operating profit and return on average total capital, which are not defined by generally accepted accounting principles (GAAP). Our objectives are to consistently deliver: • low single-digit annual growth in net sales; • mid single-digit annual growth in total segment operating profit; • high single-digit annual growth in EPS; and • on average, at least a 50 basis point annual increase in return on average total capital. We believe that this financial performance, coupled with an attractive dividend yield, should result in long-term value creation for stockholders. We also return a substantial amount of cash annually to stockholders through share repurchases. For the fiscal year ended May 25, 2008, our net sales grew 9.7 percent, total segment operating profit grew 6.4 percent, diluted EPS grew 16.7 percent, and our return on average total capital improved by 100 basis points. These results met or exceeded our long-term targets. Diluted EPS for fiscal 2008 includes a $0.10 net gain from mark-to-market valuation of certain commodity positions and a $0.09 benefit associated with a favorable court decision on a discrete tax matter. Net cash provided by operations totaled $1.7 billion in fiscal 2008, enabling us to increase our annual dividend payments per share by 9.0 percent from fiscal 2007 and continue returning cash to stockholders through share repurchases, which totaled $1,384.6 million in fiscal 2008. We also made significant capital investments totaling $522.0 million in fiscal 2008, an increase of 13.4 percent from fiscal 2007, to support future growth and productivity. We achieved each of our four key operating objectives for fiscal 2008: • We generated broad-based growth in net sales across our businesses. All of our U.S. Retail divisions, International geographic regions, and Bakeries and Foodservice customer segments posted net sales gains in fiscal 2008. We generated 2.9 points of growth from volume, generated 5.3 points of growth from net price realization and product mix, and realized 1.5 points of foreign currency exchange benefit. • Our cost savings initiatives helped to partially offset input cost inflation in fiscal 2008. We took steps to manage raw material costs, especially with significant commodity price increases in fiscal 2008, and we initiated several restructuring actions to rationalize and simplify our product portfolio, allowing us to focus on higher margin products. • We invested a significant amount in media and other brand-building marketing programs, which contributed to sales growth across our businesses. • We also recorded increases in EPS well above our target, even excluding the effects of non-cash, mark-to-market gains and a discrete tax item. Details of our financial results are provided in the “Fiscal 2008 Consolidated Results of Operations” section below. In fiscal 2009, input cost inflation will remain a challenge for us. We plan to offset a significant portion of this cost inflation with our holistic margin management (HMM) efforts, which include cost-savings initiatives, marketing spending efficiencies, and profitable sales mix strategies. We have also raised prices on a number of our product lines. We believe our HMM efforts help us keep our price increases moderate and expand our margins over the long term. In addition, our HMM savings generate resources for increased advertising and other brand-building consumer marketing initiatives. Our plans call for a high single digit increase in consumer marketing support in fiscal 2009. We believe this support is a key factor in generating net sales growth, as we believe it builds consumer loyalty, increases our market share, and defends against private-label offerings. In addition to protecting and expanding our margins over time, and investing in brand-building marketing initiatives, our key operating objectives for fiscal 2009 include plans for introducing new products and extending existing brands to new markets. We
Table of Contentsare exploring innovative ways to partner with customers including traditional food retailers, new retail formats, and various away-from-home channels. We will continue to grow our business in international markets, focusing on our core platforms of super-premium ice cream, world cuisine, and healthy snacking. Our plans also call for $550 million of expenditures for capital projects and a significant amount of cash returned to stockholders through share repurchases and dividends. Our long-term objective is to reduce outstanding shares by a net 2 percent per year. We intend to continue repurchasing shares in fiscal 2009, with a goal of reducing average diluted shares outstanding a net 1 percent. On June 23, 2008, our Board of Directors approved a dividend increase to an annual rate of $1.72 per share. This represents a 9 percent compound annual growth rate in dividends from fiscal 2005 to fiscal 2009. Certain terms used throughout this report are defined in a glossary in Item 8 of this report. | EXCERPTS ON THIS PAGE:
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