CHICAGO (B)--General Mills Inc.'s acquisition of Diageo plc's Pillsbury Co. will bring $120 million in synergies by the end of 2003 and add one to two percentage points to earnings over the next decade, General Mills executives said at a Consumer Analyst Group of New York (CAGNY) conference Feb. 20.

Chief Executive Steve Sanger said the Pillsbury purchase should bring top-line growth one point higher to 7% over the same period and earnings growth to the 11% to 15% range. With the expanded presence Pillsbury will give the company in grocery stores, General Mills will compete in 29 categories: "Every shopping cart at checkout will have at least one General Mills product in it," Senior Vice President Jeff Rotsch said.

General Mills, which announced its intention to buy Pillsbury last July, had expected the purchase to close by Dec. 1, 2000, and for 2001 earnings per share to be reduced by about 47 cents including non-cash goodwill expense, and cash earnings per share to be reduced by about 15 cents.

Sanger said assuming the purchase closes in the fiscal fourth quarter, the company's reported earnings per share will show less dilution than expected, but cash earnings per share will be reduced by more than 15 cents due to less-than-expected earnings from Pillsbury this year. The company will provide updated estimates after the acquisition closes, he said. The Pillsbury purchase has only to clear Federal Trade Commission review before becoming final.

Pillsbury gives the company a stronger sales mix concentrated in faster-growing channels and international markets, Sanger said. Supply-chain synergies will bring General Mills' total productivity to $785 million for the 10-year period ending 2010, Rotsch said.

With domestic unit volume up 5% in the first half, the company expects continued volume gains through the second half. Yogurt continues to be its fastest-growing business, while volume in snacks, up 11% year to date, should continue rising in the second half with the launch of new varieties. Innovations in convenience, such as microwave-ready products, are driving the Betty Crocker brand, Sanger said. All shipments should grow in the fourth quarter as merchandising activities around new products kick in, he added.

Besides product innovation, Sanger said, growth drivers are expansion into new, "alternative" outlets such as vending machines, convenience stores, health care facilities and schools; international growth; and expanding margins through productivity. International joint ventures, which broke into the black in fiscal 2000, will be an increasing source of earnings growth, Sanger said. In the first half, such ventures rose 35% to around $9 million, and are on track to deliver two points of EPS growth in 2001, With Pillsbury adding 40 sites, Rotsch noted the opportunity for consolidation across General Mills' North American plant network, but added it will "probably take several months" after the deal closes to sort out.

In response to an analyst question about declining cereal sales in January, Sanger said the company expects improvement from new shipments that hit stores in February, but does not expect to meet its goal of 2% to 3% growth in the category this year. "It is important that big established brands perform well," he acknowledged. "New products affect market share, but profitability comes from selling half a million more cases of Cheerios."

General Mills posted $6.7 billion in sales in 2000, nearly 90% of which was generated in U.S. retail food channels.

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