DBRS Confirms General Mills Inc. at A (low) and R-1(low)

DBRS has today confirmed the ratings of General Mills, Inc. (GMI or the Company). GMI has maintained a relatively steady earnings profile despite intense pressure on margins from significantly higher commodity costs, as profitability continues to be driven by the Company’s strong and diversified portfolio of brands and large scale.

GMI’s financial profile has displayed signs of settling at a level reasonable for the current rating profile. The Company used the majority of its free cash flow for share repurchases in F2006, which follows a three to four-year period during which it focused on de-leveraging (after its debt-financed acquisition of Pillsbury).

Going forward, DBRS believes GMI is poised to deliver moderately stronger growth in operating and net income over the near to medium term, as DBRS expects improvement in top-line growth rate based on good momentum in the International segment, and the Yogurt and Grain Snack categories, as well as contribution from new product launches overall. Recent performance also suggests that the Bakeries & Foodservice segment and the Cereal category have stabilized and are showing signs of improvement. DBRS also expects margin pressure to abate somewhat through F2007 as the Company should experience further benefit from productivity and product mix improvement initiatives, as well as a lower rate of commodity cost inflation.

In terms of financial profile, DBRS expects that capital expenditures will increase moderately over the near to medium term as GMI incorporates a higher level of investment for growth than was undertaken in recent periods. DBRS also expects the Company to steadily increase the level of cash distributed via dividends, and apply almost all of its free cash flow for share repurchases. Having said that, GMI’s financial profile should remain stable based on moderate growth in cash flow from operations and the Company’s intent of maintaining absolute debt near recently achieved levels.

Note:
All figures are in U.S. dollars unless otherwise noted.
Issuer ratings apply to all general unsecured obligations of the issuer in question.