Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

EXECUTIVE OVERVIEW

We

are

a

global packaged

foods company.

We

develop

distinctive

value-added

food

products

and

market

them under

unique

brand

names.

We

work

continuously

to

improve

our

core

products

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,

innovative

new

products,

and

effective

merchandising.

We

believe

our

brand-building

approach

is

the

key

to

winning

and

sustaining

leading

share

positions in markets around the globe.

Our fundamental

financial goal is

to generate competitively

differentiated returns

for our shareholders

over the long

term. We

believe

achieving

that

goal

requires

us

to

generate

a

consistent

balance

of

net

sales

growth,

margin

expansion,

cash

conversion,

and

cash

return to shareholders over time.

Our long-term growth objectives are to deliver the following performance

on average over time:

●

2 to 3 percent annual growth in organic net sales;

●

mid-single-digit annual growth in adjusted operating profit;

●

mid- to high-single-digit annual growth in adjusted diluted earnings per share

(EPS);

●

free cash flow conversion of at least 95 percent of adjusted net earnings after

tax; and

●

cash return to shareholders of 80 to 90 percent of free cash flow,

including an attractive dividend yield.

We

are executing

our Accelerate

strategy to

drive sustainable,

profitable gro

wth and

top-tier shareholder

returns over

the long

term.

The

strategy

focuses

on

four

pillars

to

create

competitive

advantages

and

win:

boldly

building

brands,

relentlessly

innovating,

unleashing

our scale,

and

being a

force for

good. We

are prioritizing

our core

markets, global

platforms,

and

local gem

brands

that

have

the

best

prospects

for

profitable

growth

and

we

are

committed

to

reshaping

our

portfolio

with

strategic

acquisitions

and

divestitures to further enhance our growth profile.

We

expect that

changes in

consumer behaviors

driven by

the COVID-19

pandemic will

result in

ongoing elevated

consumer demand

for food at home, relative to pre-pandemic levels. These

changes include more time spent working

from home and increased consumer

appreciation

for cooking

and baking.

We

plan to

capitalize on

these opportunities,

addressing evolving

consumer

needs through

our

leading brands, innovation, and advantaged capabilities to generate profitable

growth.

In fiscal 2022,

we successfully adapted

to the volatile operating

environment, responding quickly

to significant increases in

input cost

inflation and supply chain disruptions and keeping

our brands available for our customers and consumers.

As a result, we were able to

grow organic

net sales, adjusted

operating profit,

and adjusted diluted

EPS ahead of

our initial targets.

We

achieved each

of the

three

priorities we established at the beginning of the year:

We

continued

to

compete

effectively,

including

holding

or

growing

market

share

in

percent

of

our

global

priority

businesses.

We

generated organic

net sales

growth across

each of

our four

operating segments,

fueled by

compelling brand

building

and

innovation

across our

leading

brands,

and

supported

with

strong

levels

of

net price

realization

in

response

to

significant input cost inflation.

We

successfully navigated

the dynamic supply

chain environment, which

was characterized by

steadily increasing input

cost

inflation,

reaching

percent

for

the

full

year,

and

record

levels

of

supply

chain

disruptions

affecting

our

sourcing,

manufacturing,

and logistics

operations.

We

leveraged

our Strategic

Revenue

Management

(SRM) capability

to accelerate

pricing actions in

the face of increasing

inflation, generating 7

points of positive

organic net price

realization and mix

for the

year.

And

we

moved

quickly

to

address

supply

chain

disruptions

and

outpace

our

competition

in

terms

of

on-shelf

availability for our brands.

We

executed

our

portfolio

and

organizational

reshaping

actions

without

disrupting

our

base

business.

We

announced

or

closed

seven

different

acquisitions

and

divestitures

during

the

year,

helping

further

upgrade

the

growth

profile

of

our

portfolio.

And we

successfully implemented

significant changes

to our

organizational

structure, including

streamlining our

North

America

Retail

operating

unit

structure,

realigning

our

North

America

Foodservice

segment

and

shifting

our

U.S.

convenience stores

business into North

America Retail, creating

a new International

segment and adjusting

our go-to-market

model

across

many

global

markets,

and

establishing

a

new

Strategy

&

Growth

organization

tasked

with

advancing

many

aspects of our Accelerate strategy.

Our consolidated net

sales for fiscal

2022 rose 5

percent to $19.0 billion.

On an organic

basis, net sales

increased 6 percent

compared

to year-ago

levels. Operating

profit of

$3.5 billion increased

11 percent.

Adjusted operating

profit of

$3.2 billion increased

2 percent

on a constant-currency

basis.

Diluted EPS of $4.42

was up 17 percent

compared to fiscal 2021

results. Adjusted diluted EPS

of $3.94

increased

percent

on

a

constant-currency

basis

(See

the

“Non-GAAP

Measures”

section

below

for

a

description

of

our

use

of

measures not defined by generally accepted accounting principles (GAAP)).

Net

cash

provided

by

operations

totaled

$3.3 billion

in

fiscal

2022

representing

a

conversion

rate

of

percent

of

net

earnings,

including earnings attributable

to redeemable and noncontrolling

interests. This cash generation

supported capital investments

totaling

$569 million, and

our resulting

free cash flow

was $2.7 billion

at a conversion

rate of 113

percent of

adjusted net

earnings, including

earnings

attributable

to

redeemable

and

noncontrolling

interests.

We

returned

cash

to

shareholders

through

dividends

totaling

$1.2

billion and net share repurchases

totaling $715 million. Our ratio

of net debt-to-operating cash flow

was 3.3 in fiscal 2022, and our

net

debt-to-adjusted earnings before net interest, income taxes, depreciation

and amortization (net debt-to-adjusted EBITDA) ratio was 2.8

(See the “Non-GAAP Measures” section below for a description of our use of

measures not defined by GAAP).

A

detailed

review

of

our

fiscal

2022

performance

compared

to

fiscal

2021

appears

below

in

the

section

titled

“Fiscal

2022

Consolidated Results of Operations.” A detailed review

of our fiscal 2021 performance compared to our fiscal 2020

performance is set

forth

in Part

II, Item

7 of

our Form

10-K for

the fiscal

year

ended

May 30, 2021

under the

caption

“Management’s

Discussion and

Analysis of

Financial Condition

and Results

of Operations

– Fiscal

2021 Results

of Consolidated

Operations,” which

is incorporated

herein by reference.

In fiscal 2023,

we expect to

build on our

positive momentum

and continue

to advance our

Accelerate strategy.

Our key priorities

are

to

continue

to

compete

effectively,

invest

in

our

brands

and

capabilities,

and

reshape

our

portfolio.

We

expect

the

largest

factors

impacting

our

performance

in

fiscal

2023

will

be

the

economic

health

of

consumers,

the

inflationary

cost

environment,

and

the

frequency and severity of disruptions

in the supply chain.

Total input

cost inflation is expected to

be approximately 14 percent

of cost

of goods

sold in

fiscal 2023.

We

are addressing

the inflationary

environment with

holistic margin

management (HMM)

cost savings

expected to

total approximately

3 to

4 percent

of cost

of goods

sold and

low-double-digit net

price realization

generated through

our

SRM capability.

We are planning

for volume elasticities to increase but remain below

historical levels and supply chain disruptions to

slowly moderate in fiscal 2023 compared to fiscal 2022 levels.

Based on these assumptions, our key full-year fiscal 2023 targets are

summarized below:

●

Organic net sales are expected to increase 4 to 5 percent.

●

Adjusted operating

profit is

expected to

range between

down 2

percent and

up 1

percent in

constant-currency from

the base

of

$3.2

billion

reported

in

fiscal

2022,

including

a

3-point

net

headwind

from

divestitures

and

acquisitions

announced

or

closed in fiscal 2022.

●

Adjusted diluted EPS are

expected to range between

flat and up 3 percent

in constant-currency from

the base of $3.94 earned

in fiscal 2022, including a 3-point net headwind from divestitures and

acquisitions announced or closed in fiscal 2022.

●

Free cash flow conversion is expected to be at least 90 percent of adjusted after-tax

earnings.

See the “Non-GAAP Measures” section below for a description of our use

of measures not defined by GAAP.

Certain terms used throughout this report are defined in a glossary in Item

8 of this report.

FISCAL 2022 CONSOLIDATED

RESULTS

OF OPERATIONS

In fiscal

2022, net

sales increased

5 percent

compared to

fiscal 2021

and organic

net sales increased

6 percent

compared to

last year.

Operating

profit

increased

percent

to

$3,476

million

primarily

driven

by

favorable

net

price

realization

and

mix,

gains

on

divestitures,

net

restructuring

recoveries,

and

a

decrease

in

certain

selling,

general,

and

administrative

(SG&A)

expenses,

partially

offset

by

higher

input

costs,

lower

net

corporate

investment

activity,

higher

transaction

and

integration

costs,

and

volume

declines.

Operating profit margin

of 18.3 percent increased

100 basis points.

Adjusted operating profit

of $3,213 million

increased 2 percent on

a constant-currency

basis, primarily

driven by

a decrease

in certain

SG&A expenses.

Adjusted operating

profit margin

decreased 50

basis

points

to

16.9

percent.

Diluted

earnings

per

share

of

$4.42

increased

percent

compared

to

fiscal

Adjusted

diluted

earnings

per

share

of

$3.94

increased

percent

on

a

constant-currency

basis

(see

the

“Non-GAAP

Measures”

section

below

for

a

description of our use of measures not defined by GAAP).

A summary of our consolidated financial results for fiscal 2022 follows:

Fiscal 2022

In millions,

except per

share

Fiscal 2022 vs.

Fiscal 2021

Percent of Net

Sales

Constant-

Currency

Growth (a)

Net sales

$

18,992.8

%

Operating profit

3,475.8

%

18.3

%

Net earnings attributable to General Mills

2,707.3

%

Diluted earnings per share

$

4.42

%

Organic net sales growth rate (a)

%

Adjusted operating profit (a)

3,213.3

%

16.9

%

%

Adjusted diluted earnings per share (a)

$

3.94

%

%

(a)

See the "Non-GAAP Measures" section below for our use of measures not defined by

GAAP.

Consolidated

net sales

were as follows:

Fiscal 2022

Fiscal 2022 vs.

Fiscal 2021

Fiscal 2021

Net sales (in millions)

$

18,992.8

%

$

18,127.0

Contributions from volume growth (a)

(5)

pts

Net price realization and mix

pts

Foreign currency exchange

Flat

Note: Table may

not foot due to rounding

(a) Measured in tons based on the stated weight of our product shipments.

The

percent

increase

in

net

sales

in

fiscal

2022

reflects

favorable

net

price

realization

and

mix,

partially

offset

by

a

decrease

in

contributions from volume growth.

Components of organic net sales growth are shown in the following

table:

Fiscal 2022 vs. Fiscal 2021

Contributions from organic volume growth (a)

(1)

pt

Organic net price realization and mix

pts

Organic net sales growth

pts

Foreign currency exchange

Flat

Acquisition and divestitures

(1)

pt

Net sales growth

pts

Note: Table may

not foot due to rounding

(a) Measured in tons based on the stated weight of our product shipments.

Organic net sales in fiscal 2022 increased 6 percent

compared to fiscal 2021,

driven by favorable organic net price realization and

mix,

partially offset by a decrease in contributions from

organic volume growth.

Cost of sales

increased $912 million in fiscal 2022

to $12,591 million. The increase was

primarily driven by a $1,514 million

increase

attributable to

product rate and

mix, partially offset

by a $608

million decrease due

to lower volume.

We

recorded a

$133 million net

decrease

in

cost

of

sales

related

to

mark-to-market

valuation

of

certain

commodity

positions

and

grain

inventories

in

fiscal

2022,

compared to a net decrease of $139

million in fiscal 2021

(please see Note 8 to the Consolidated

Financial Statements in Item 8 of this

report for additional information).

Gross margin

decreased 1 percent in

fiscal 2022 versus fiscal 2021.

Gross margin as a percent

of net sales decreased

190 basis points

to 33.7 percent compared to fiscal 2021.

SG&A

expenses

increased

$67 million

to

$3,147 million

in

fiscal

2022

compared

to

fiscal

The

increase

in

SG&A

expenses

primarily reflects

lower net corporate

investment activity

and higher transaction

costs, partially offset

by lower media

and advertising

expenses and other administrative costs. SG&A expenses as a percent

of net sales in fiscal 2022 decreased 40 basis points compared to

fiscal 2021.

Divestitures

gain

totaled

$194

million

in

fiscal

2022

due

to

the

sale

of

our

interests

in

Yoplait

SAS,

Yoplait

Marques

SNC,

and

Liberté Marques

Sàrl and

our European

dough businesses

(please refer

to Note

3 to

the Consolidated

Financial Statements

in Part

I,