filings.toolsItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
INTRODUCTION
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the MD&A included in our Annual Report on Form 10-K for the fiscal year ended May 30, 2021 for important background regarding, among other things, our key business drivers. Significant trademarks and service marks used in our business are set forth in italics herein. Certain terms used throughout this report are defined in the “Glossary” section below.
As the COVID-19 pandemic continues, we expect the largest factors impacting our fiscal 2022 performance will be the relative balance of at-home versus away-from-home consumer food demand and the elevated cost environment, including input cost inflation and costs related to supply chain disruption, all of which remain uncertain. We expect at-home food volume will decline year over year across most of our core markets, though will remain above pre-pandemic levels. Conversely, we expect away-from-home food volume to continue to recover, though not fully to pre-pandemic levels. Additionally, we expect increased net price realization across all food channels throughout our core markets, in response to significant input cost inflation. We will continue to evaluate the nature and extent of the impact to our business and consolidated results of operations.
CONSOLIDATED RESULTS OF OPERATIONS
Third Quarter Results
In the third quarter of fiscal 2022, net sales essentially matched the same period last year, and organic net sales increased 4 percent compared to the same period last year. Operating profit decreased 1 percent to $815 million, primarily driven by higher input costs, an unfavorable change to the mark-to-market valuation of certain commodity positions and grain inventories, volume declines, and lower net corporate investment activity, partially offset by favorable net price realization and mix and gains on divestitures. Operating profit margin of 18.0 percent decreased 30 basis points. Adjusted operating profit of $676 million decreased 6 percent on a constant-currency basis, primarily driven by higher input costs and volume declines, partially offset by favorable net price realization and mix, and a decrease in certain selling, general, and administrative (SG&A) expenses. Adjusted operating profit margin decreased 90 basis points to 14.9 percent. Diluted earnings per share of $1.08 increased 13 percent in the third quarter of fiscal 2022. Adjusted diluted earnings per share of $0.84 increased 2 percent on a constant-currency basis compared to the third quarter of fiscal 2021. 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 the third quarter of fiscal 2022 follows:
| Quarter Ended Feb. 27, 2022 | In millions, except per share | Quarter Ended Feb. 27, 2022 vs. Feb. 28, 2021 | Percent of Net Sales | Constant-Currency Growth (a) | |||||
|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 4,537.7 | Flat | ||||||
| Operating profit | 815.3 | (1) | % | 18.0 | % | ||||
| Net earnings attributable to General Mills | 660.3 | 11 | % | ||||||
| Diluted earnings per share | $ | 1.08 | 13 | % | |||||
| Organic net sales growth rate (a) | 4 | % | |||||||
| Adjusted operating profit (a) | 676.5 | (5) | % | 14.9 | % | (6) | % | ||
| Adjusted diluted earnings per share (a) | $ | 0.84 | 2 | % | 2 | % | |||
| (a) See the "Non-GAAP Measures" section below for our use of measures not defined by GAAP. |
Consolidated net sales were as follows:
| Quarter Ended | |||||||
|---|---|---|---|---|---|---|---|
| Feb. 27, 2022 | Feb. 27, 2022 vs. Feb. 28, 2021 | Feb. 28, 2021 | |||||
| Net sales (in millions) | $ | 4,537.7 | Flat | $ | 4,520.0 | ||
| Contributions from volume growth (a) | (10) | pts | |||||
| Net price realization and mix | 11 | 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. |
Net sales in the third quarter of fiscal 2022 matched the same period in fiscal 2021, driven by favorable net price realization and mix, offset by a decrease in contributions from volume growth.
Components of organic net sales growth are shown in the following table:
| Quarter Ended Feb. 27, 2022 vs. | |||
|---|---|---|---|
| Quarter Ended Feb. 28, 2021 | |||
| Contributions from organic volume growth (a) | (4) | pts | |
| Organic net price realization and mix | 7 | pts | |
| Organic net sales growth | 4 | pts | |
| Foreign currency exchange | Flat | ||
| Acquisition and divestitures | (3) | pts | |
| Net sales growth | Flat | ||
| Note: Table may not foot due to rounding. | |||
| (a) Measured in tons based on the stated weight of our product shipments. |
Organic net sales increased 4 percent in the third quarter of fiscal 2022 as favorable organic net price realization and mix was partially offset by a decrease in contributions from organic volume growth.
Cost of sales increased $168 million to $3,134 million in the third quarter of fiscal 2022 compared to the same period in fiscal 2021. The increase was primarily driven by a $406 million increase attributable to product rate and mix partially offset by a $315 million decrease attributable to lower volume. We recorded a $20 million net increase in cost of sales related to the mark-to-market valuation of certain commodity positions and grain inventories in the third quarter of fiscal 2022 compared to a $56 million net decrease in the third quarter of fiscal 2021. In addition, we recorded $2 million of restructuring charges in cost of sales in the third quarter of fiscal 2022 compared to $1 million in the third quarter of fiscal 2021 (please refer to Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report).
SG&A expenses increased $35 million to $751 million in the third quarter of fiscal 2022, compared to the same period in fiscal 2021, primarily driven by lower net corporate investment activity. SG&A expenses as a percent of net sales in the third quarter of fiscal 2022 increased 70 basis points compared to the third quarter of fiscal 2021.
During the third quarter of fiscal 2022, we recorded a $170 million divestitures gain related to the sale of our interests in Yoplait SAS, Yoplait Marques SNC and Liberté Marques Sàrl, and a European dough business (please refer to Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report).
Restructuring, impairment, and other exit costs totaled $7 million in the third quarter of fiscal 2022, compared to $11 million in the same period last year (please refer to Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report).
Benefit plan non-service income totaled $27 million in the third quarter of fiscal 2022, compared to $33 million in the same period last year, primarily reflecting higher amortization of losses.
Interest, net for the third quarter of fiscal 2022 totaled $86 million, down $20 million from the third quarter of fiscal 2021, primarily driven by lower average long-term debt levels.
The effective tax rate for the third quarter of fiscal 2022 was 16.3 percent compared to 21.5 percent in the same period last year. The 5.2 percentage point decrease was primarily due to certain non-taxable components of the divestitures gains and favorable changes in earnings mix by jurisdiction, partially offset by certain discrete tax benefits recorded in the third quarter of fiscal 2021. Our effective tax rate excluding certain items affecting comparability was 21.0 percent in the third quarter of fiscal 2022, compared to 21.6 percent in the same period last year (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). The 0.6 percentage point decrease was primarily due to favorable changes in earnings mix by jurisdiction, partially offset by certain discrete tax benefits recorded in the third quarter of fiscal 2021.
After-tax earnings from joint ventures for the third quarter of fiscal 2022 increased to $30 million compared to $12 million in the same period in fiscal 2021, primarily driven by lower SG&A expenses at Cereal Partners Worldwide (CPW). On a constant-currency basis, after-tax earnings from joint ventures increased 167 percent (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). The components of our joint ventures’ net sales growth are shown in the following table:
| Quarter Ended Feb. 27, 2022 vs. | |||||||
|---|---|---|---|---|---|---|---|
| Quarter Ended Feb. 28, 2021 | CPW | HDJ (a) | Total | ||||
| Contributions from volume growth (b) | Flat | 9 | pts | ||||
| Net price realization and mix | 2 | pts | Flat | ||||
| Net sales growth in constant currency | 1 | pt | 9 | pts | 3 | pts | |
| Foreign currency exchange | (5) | pts | (10) | pts | (6) | pts | |
| Net sales growth | (4) | pts | (1) | pt | (3) | pts | |
| Note: Table may not foot due to rounding. | |||||||
| (a) Häagen-Dazs Japan, Inc. (HDJ) | |||||||
| (b) Measured in tons based on the stated weight of our product shipments. |
Average diluted shares outstanding decreased by 7 million in the third quarter of fiscal 2022 from the same period a year ago primarily due to share repurchases, partially offset by option exercises.
Nine-Month Results
In the nine-month period ended February 27, 2022, net sales and organic net sales increased 4 percent compared to the same period last year. Operating profit decreased 5 percent to $2,460 million, primarily driven by higher input costs, an unfavorable change to the mark-to-market valuation of certain commodity positions and grain inventories, lower net corporate investment activity, and higher transaction and integration costs, partially offset by favorable net price realization and mix and gains on divestitures. Operating profit margin of 17.4 percent decreased 170 basis points. Adjusted operating profit of $2,317 million decreased 5 percent on a constant-currency basis, primarily driven by higher input costs and volume declines, partially offset by favorable net price realization and mix and a decrease in certain SG&A expenses. Adjusted operating profit margin decreased 130 basis points to 16.4 percent. Diluted earnings per share of $3.07 decreased 1 percent in the nine-month period ended February 27, 2022, and adjusted diluted earnings per share of $2.82 decreased 2 percent on a constant-currency basis compared to the same period last year (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 the nine-month period ended February 27, 2022, follows:
| Nine-Month Period Ended Feb. 27, 2022 | In millions, except per share | Nine-Month Period Ended Feb. 27, 2022 vs. Feb. 28, 2021 | Percent of Net Sales | Constant-Currency Growth (a) | |||||
|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 14,101.6 | 4 | % | |||||
| Operating profit | 2,459.7 | (5) | % | 17.4 | % | ||||
| Net earnings attributable to General Mills | 1,884.5 | (2) | % | ||||||
| Diluted earnings per share | $ | 3.07 | (1) | % | |||||
| Organic net sales growth rate (a) | 4 | % | |||||||
| Adjusted operating profit (a) | 2,317.0 | (4) | % | 16.4 | % | (5) | % | ||
| Adjusted diluted earnings per share (a) | $ | 2.82 | (2) | % | (2) | % | |||
| (a) See the "Non-GAAP Measures" section below for our use of measures not defined by GAAP. |
Consolidated net sales were as follows:
| Nine-Month Period Ended | |||||||
|---|---|---|---|---|---|---|---|
| Feb. 27, 2022 | Feb. 27, 2022 vs. Feb. 28, 2021 | Feb. 28, 2021 | |||||
| Net sales (in millions) | $ | 14,101.6 | 4 | % | $ | 13,603.4 | |
| Contributions from volume growth (a) | (4) | pts | |||||
| Net price realization and mix | 7 | pts | |||||
| Foreign currency exchange | 1 | pt | |||||
| Note: Table may not foot due to rounding. | |||||||
| (a) Measured in tons based on the stated weight of our product shipments. |
The 4 percent increase in net sales for the nine-month period ended February 27, 2022, was driven by favorable net price realization and mix and favorable foreign currency exchange, partially offset by a decrease in contributions from volume growth.
Components of organic net sales growth are shown in the following table:
| Nine-Month Period Ended Feb. 27, 2022 vs. | |||
|---|---|---|---|
| Nine-Month Period Ended Feb. 28, 2021 | |||
| Contributions from organic volume growth (a) | (1) | pt | |
| Organic net price realization and mix | 5 | pts | |
| Organic net sales growth | 4 | pts | |
| Foreign currency exchange | 1 | pt | |
| Acquisition and divestitures | (1) | pt | |
| Net sales growth | 4 | 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 increased 4 percent in the nine-month period ended February 27, 2022, driven by favorable organic net price realization and mix, partially offset by a decrease in contributions from organic volume growth.
Cost of sales increased $731 million to $9,469 million in the nine-month period ended February 27, 2022, compared to the same period in fiscal 2021. The increase was driven by a $964 million increase attributable to product rate and mix, partially offset by a $336 million decrease due to lower volume. We recorded a $16 million net decrease in cost of sales related to the mark-to-market valuation of certain commodity positions and grain inventories in the nine-month period ended February 27, 2022, compared to a $118 million net decrease in the nine-month period ended February 28, 2021. In addition, we recorded $3 million of restructuring charges in cost of sales in the nine-month period ended February 27, 2022, compared to $2 million of restructuring charges in the same period last year (please refer to Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report).
SG&A expenses increased $81 million to $2,338 million in the nine-month period ended February 27, 2022, compared to the same period in fiscal 2021, primarily driven by lower net corporate investment activity, higher transaction costs and acquisition integration costs, partially offset by a non-income tax recovery recorded in the nine-month period ended February 27, 2022. SG&A expenses as a percent of net sales were unchanged in the nine-month period ended February 27, 2022, compared to the same period of fiscal 2021.
During the nine-month period ended February 27, 2022, we recorded a $170 million divestitures gain related to the sale of our interests in Yoplait SAS, Yoplait Marques SNC and Liberté Marques Sàrl, and a European dough business (please refer to Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report).
Restructuring, impairment, and other exit costs totaled $5 million in the nine-month period ended February 27, 2022, compared to $12 million in the same period last year (please refer to Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report).
Benefit plan non-service income totaled $84 million in the nine-month period ended February 27, 2022, compared to $100 million in the same period last year, primarily reflecting higher amortization of losses.
Interest, net for the nine-month period ended February 27, 2022, decreased $43 million to $275 million compared to the same period of fiscal 2021, primarily driven by lower average long-term debt balances.
The effective tax rate for the nine-month period ended February 27, 2022, was 19.9 percent compared to 22.0 percent in the same period last year. The 2.1 percentage point decrease was primarily due to certain non-taxable components of the divestitures gains and favorable changes in earnings mix by jurisdiction in fiscal 2022, partially offset by certain discrete benefits in the nine-month period ended February 28, 2021. Our effective tax rate excluding certain items affecting comparability was 21.7 percent in the nine-month period ended February 27, 2022, compared to 21.9 percent in the same period last year (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). The 0.2 percentage point decrease is primarily due to favorable changes in earnings mix by jurisdiction in fiscal 2022, partially offset by certain discrete benefits in the nine-month period ended February 28, 2021.
After-tax earnings from joint ventures increased to $92 million for the nine-month period ended February 27, 2022 compared to $90 million in the same period in fiscal 2021, primarily driven by lower SG&A expenses at CPW and higher net sales at HDJ, partially offset by higher input costs and lower net sales at CPW. On a constant-currency basis, after-tax earnings from joint ventures increased 5 percent (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). The components of our joint ventures’ net sales growth are shown in the following table:
| Nine-Month Period Ended Feb. 27, 2022 vs. | |||||||
|---|---|---|---|---|---|---|---|
| Nine-Month Period Ended Feb. 28, 2021 | CPW | HDJ | Total | ||||
| Contributions from volume growth (a) | (2) | pts | 9 | pts | |||
| Net price realization and mix | 1 | pt | 1 | pt | |||
| Net sales growth in constant currency | (2) | pts | 10 | pts | 1 | pt | |
| Foreign currency exchange | (1) | pt | (7) | pts | (2) | pts | |
| Net sales growth | (2) | pts | 3 | pts | (1) | pt | |
| Note: Table may not foot due to rounding | |||||||
| (a) Measured in tons based on the stated weight of our product shipments. |
Average diluted shares outstanding decreased by 6 million in the nine-month period ended February 27, 2022, from the same period a year ago primarily due to share repurchases, partially offset by option exercises.
SEGMENT OPERATING RESULTS
In the third quarter of fiscal 2022, we announced a new organization structure to streamline our global operations. As a result of this global reorganization, beginning in the third quarter of fiscal 2022, we are reporting results for our four operating segments as follows: North America Retail, International, Pet, and North America Foodservice. We have restated our net sales by segment and segment operating profit amounts to reflect our new operating segments. These segment changes had no effect on previously reported consolidated net sales, operating profit, net earnings attributable to General Mills, or earnings per share. Please refer to Note 17 of the Consolidated Financial Statements in Part I, Item 1 of this report for a description of our operating segments.
Our North America Retail operating segment includes convenience store businesses from our former Convenience Stores & Foodservice segment. Within our North America Retail operating segment, our former U.S. Cereal operating unit and U.S. Yogurt operating unit have been combined into the U.S. Morning Foods operating unit. Additionally, the U.S. Meals & Baking Solutions operating unit combines the former U.S. Meals & Baking operating unit with certain businesses from the U.S. Snacks operating unit. The Canada operating unit excludes Canada foodservice businesses which are now included in our North America Foodservice operating segment. The resulting North America Foodservice operating segment exclusively includes our foodservice businesses. Our International operating segment combines our former Europe & Australia and Asia & Latin America operating segments. Our Pet operating segment is unchanged.
North America Retail Segment Results
North America Retail net sales were as follows:
| Quarter Ended | Nine-Month Period Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Feb. 27, 2022 | Feb. 27, 2022 vs Feb. 28, 2021 | Feb. 28, 2021 | Feb. 27, 2022 | Feb. 27, 2022 vs Feb. 28, 2021 | Feb. 28, 2021 | ||||||||||
| Net sales (in millions) | $ | 2,811.9 | 1 | % | $ | 2,786.0 | $ | 8,567.1 | Flat | $ | 8,539.3 | ||||
| Contributions from volume growth (a) | (8) | pts | (7) | pts | |||||||||||
| Net price realization and mix | 9 | pts | 7 | pts | |||||||||||
| Foreign currency exchange | Flat | Flat |
Note: Table may not foot due to rounding.
(a)Measured in tons based on the stated weight of our product shipments.
North America Retail net sales increased 1 percent in the third quarter of fiscal 2022 compared to the same period in fiscal 2021, driven by favorable net price realization and mix, partially offset by a decrease in contributions from volume growth.
North America Retail net sales for the nine-month period ended February 27, 2022, essentially matched the same period in fiscal 2021, as favorable net price realization and mix was offset by a decrease in contributions from volume growth.
The components of North America Retail organic net sales growth are shown in the following table:
| Quarter Ended | Nine-Month Period Ended | ||||
|---|---|---|---|---|---|
| Feb. 27, 2022 | Feb. 27, 2022 | ||||
| Contributions from organic volume growth (a) | (8) | pts | (7) | pts | |
| Organic net price realization and mix | 9 | pts | 7 | pts | |
| Organic net sales growth | 1 | pt | Flat | ||
| Foreign currency exchange | Flat | Flat | |||
| Net sales growth | 1 | pt | Flat |
Note: Table may not foot due to rounding.
(a)Measured in tons based on the stated weight of our product shipments.
North America Retail organic net sales increased 1 percent in the third quarter of fiscal 2022 compared to the same period in fiscal 2021, driven by favorable organic net price realization and mix, partially offset by a decrease in contributions from organic volume growth.
North America Retail organic net sales for the nine-month period ended February 27, 2022, essentially matched the same period in fiscal 2021, as favorable organic net price realization and mix was offset by a decrease in contributions from organic volume growth.
North America Retail net sales percentage change by operating unit are shown in the following table:
| Quarter Ended | Nine-Month Period Ended | ||||
|---|---|---|---|---|---|
| Feb. 27, 2022 | Feb. 27, 2022 | ||||
| U.S. Meals & Baking Solutions | (2) | % | (4) | % | |
| U.S. Morning Foods | 4 | % | 1 | % | |
| U.S. Snacks | 3 | % | 5 | % | |
| Canada (a) | (2) | % | 5 | % | |
| Total | 1 | % | Flat |
(a)On a constant-currency basis, Canada net sales decreased 2 percent in the third quarter of fiscal 2022, compared to the same period in fiscal 2021. On a constant-currency basis, Canada net sales increased 1 percent for the nine-month period ended February 27, 2022, compared to the same period in fiscal 2021. See the "Non-GAAP Measures" section below for our use of this measure not defined by GAAP.
Segment operating profit decreased 3 percent to $612 million in the third quarter of fiscal 2022 compared to $629 million in the same period in fiscal 2021, primarily driven by higher input costs and a decrease in contributions from volume growth, partially offset by favorable net price realization and mix and a decrease in SG&A expenses. Segment operating profit decreased 3 percent on a constant-currency basis in the third quarter of fiscal 2022 compared to the same period in fiscal 2021 (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP).
Segment operating profit decreased 7 percent to $1,936 million in the nine-month period ended February 27, 2022, compared to $2,077 million in the same period in fiscal 2021, primarily driven by higher input costs and a decrease in contributions from volume growth, partially offset by favorable net price realization and mix and a decrease in SG&A expenses. Segment operating profit decreased 7 percent on a constant-currency basis in the nine-month period ended February 27, 2022, compared to the same period in fiscal 2021 (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP).
International Segment Results
International net sales were as follows:
| Quarter Ended | Nine-Month Period Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Feb. 27, 2022 | Feb. 27, 2022 vs Feb. 28, 2021 | Feb. 28, 2021 | Feb. 27, 2022 | Feb. 27, 2022 vs Feb. 28, 2021 | Feb. 28, 2021 | ||||||||||
| Net sales (in millions) | $ | 721.0 | (23) | % | $ | 939.8 | $ | 2,566.0 | (5) | % | $ | 2,710.9 | |||
| Contributions from volume growth (a) | (34) | pts | (14) | pts | |||||||||||
| Net price realization and mix | 12 | pts | 7 | pts | |||||||||||
| Foreign currency exchange | (2) | pts | 1 | pt | |||||||||||
| Note: Table may not foot due to rounding. | |||||||||||||||
| (a) Measured in tons based on the stated weight of our product shipments. |
International net sales decreased 23 percent in the third quarter of fiscal 2022 compared to the same period in fiscal 2021, driven by a decrease in contributions from volume growth, including the impact of volume declines from divestitures, and unfavorable foreign currency exchange, partially offset by favorable net price realization and mix.
International net sales decreased 5 percent in the nine-month period ended February 27, 2022, compared to the same period in fiscal 2021, driven by a decrease in contributions from volume growth, including the impact of volume declines from divestitures, partially offset by favorable net price realization and mix and favorable foreign currency exchange.
The components of International organic net sales growth are shown in the following table:
| Quarter Ended | Nine-Month Period Ended | |||||
|---|---|---|---|---|---|---|
| Feb. 27, 2022 | Feb. 27, 2022 | |||||
| Contributions from organic volume growth (a) | (3) | pts | Flat | |||
| Organic net price realization and mix | 2 | pts | 1 | pt | ||
| Organic net sales growth | (1) | pt | 1 | pt | ||
| Foreign currency exchange | (2) | pts | 1 | pt | ||
| Divestitures (b) | (20) | pts | (8) | pts | ||
| Net sales growth | (23) | pts | (5) | pts | ||
| Note: Table may not foot due to rounding. | ||||||
| (a) | Measured in tons based on the stated weight of our product shipments. | |||||
| (b) | Please see Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report. Divestitures also includes the impact of our sale of the Laticínios Carolina business in Brazil in fiscal 2021. |
International organic net sales decreased 1 percent in the third quarter of fiscal 2022 compared to the same period in fiscal 2021, driven by a decrease in contributions from organic volume growth, partially offset by favorable organic net price realization and mix.
International organic net sales increased 1 percent in the nine-month period ended February 27, 2022, compared to the same period in fiscal 2021, driven by favorable organic net price realization and mix.
Segment operating profit decreased 13 percent to $36 million in the third quarter of fiscal 2022 from $41 million in the same period in fiscal 2021, primarily driven by higher input costs and a decrease in contributions from volume growth, including the impact of volume declines from divestitures, partially offset by favorable net price realization and mix and a decrease in SG&A expenses. Segment operating profit decreased 16 percent on a constant-currency basis in the third quarter of fiscal 2022 compared to the same period in fiscal 2021 (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP).
Segment operating profit decreased 14 percent to $156 million in the nine-month period ended February 27, 2022, compared to $181 million in the same period in fiscal 2021, primarily driven by higher input costs and a decrease in contributions from volume growth, including the impact of volume declines from divestitures, partially offset by favorable net price realization and mix, a decrease in SG&A expenses, and favorable foreign currency exchange. Segment operating profit decreased 18 percent on a constant-currency basis in the nine-month period ended February 27, 2022, compared to the same period in fiscal 2021 (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP).
Pet Segment Results
Pet net sales were as follows:
| Quarter Ended | Nine-Month Period Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Feb. 27, 2022 | Feb. 27, 2022 vs Feb. 28, 2021 | Feb. 28, 2021 | Feb. 27, 2022 | Feb. 27, 2022 vs Feb. 28, 2021 | Feb. 28, 2021 | ||||||||||
| Net sales (in millions) | $ | 567.7 | 30 | % | $ | 436.3 | $ | 1,649.1 | 28 | % | $ | 1,288.0 | |||
| Contributions from volume growth (a) | 7 | pts | 11 | pts | |||||||||||
| Net price realization and mix | 23 | pts | 17 | pts | |||||||||||
| Foreign currency exchange | Flat | Flat | |||||||||||||
| Note: Table may not foot due to rounding. | |||||||||||||||
| (a) Measured in tons based on the stated weight of our product shipments. |
Pet net sales increased 30 percent during the third quarter of fiscal 2022 compared to the same period in fiscal 2021, driven by favorable net price realization and mix and an increase in contributions from volume growth, including incremental volume from the acquisition of the Tyson Foods’ pet treats business.
Pet net sales increased 28 percent in the nine-month period ended February 27, 2022, compared to the same period in fiscal 2021, driven by favorable net price realization and mix and an increase in contributions from volume growth, including incremental volume from the acquisition of the Tyson Foods’ pet treats business.
The components of Pet organic net sales growth are shown in the following table:
| Quarter Ended | Nine-Month Period Ended | ||||
|---|---|---|---|---|---|
| Feb. 27, 2022 | Feb. 27, 2022 | ||||
| Contributions from organic volume growth (a) | 3 | pts | 8 | pts | |
| Organic net price realization and mix | 13 | pts | 9 | pts | |
| Organic net sales growth | 16 | pts | 16 | pts | |
| Acquisition (b) | 14 | pts | 12 | pts | |
| Foreign currency exchange | Flat | Flat | |||
| Net sales growth | 30 | pts | 28 | pts |
Note: Table may not foot due to rounding.
(a) Measured in tons based on the stated weight of our product shipments.
(b) Please see Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report.
Pet organic net sales increased 16 percent in the third quarter of fiscal 2022 compared to the same period in fiscal 2021, driven by favorable organic net price realization and mix and an increase in contributions from organic volume growth.
Pet organic net sales increased 16 percent in the nine-month period ended February 27, 2022, compared to the same period in fiscal 2021, driven by favorable organic net price realization and mix and an increase in contributions from organic volume growth.
Segment operating profit increased 8 percent to $111 million in the third quarter of fiscal 2022 compared to $102 million in the same period in fiscal 2021, primarily driven by favorable net price realization and mix and an increase in contributions from volume growth, including incremental volume from the acquisition of the Tyson Foods’ pet treats business, partially offset by higher input costs and an increase in SG&A expenses. Segment operating profit increased 8 percent on a constant-currency basis in the third quarter of fiscal 2022 compared to the same period in fiscal 2021 (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP).
Segment operating profit increased 15 percent to $357 million in the nine-month period ended February 27, 2022, compared to $312 million in the same period in fiscal 2021, primarily driven by favorable net price realization and mix and an increase in contributions from volume growth, including incremental volume from the acquisition of the Tyson Foods’ pet treats business, partially offset by higher input costs, an increase in SG&A expenses, and a one-time inventory adjustment and other acquisition-related expenses of $12 million related to the acquired pet treat business. Segment operating profit increased 15 percent on a constant-currency basis in the nine-month period ended February 27, 2022, compared to the same period in fiscal 2021 (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP).
North America Foodservice Segment Results
North America Foodservice net sales were as follows:
| Quarter Ended | Nine-Month Period Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Feb. 27, 2022 | Feb. 27, 2022 vs Feb. 28, 2021 | Feb. 28, 2021 | Feb. 27, 2022 | Feb. 27, 2022 vs Feb. 28, 2021 | Feb. 28, 2021 | ||||||||||
| Net sales (in millions) | $ | 437.1 | 22 | % | $ | 357.9 | $ | 1,319.4 | 24 | % | $ | 1,065.2 | |||
| Contributions from volume growth (a) | 4 | pts | 8 | pts | |||||||||||
| Net price realization and mix | 18 | pts | 16 | pts | |||||||||||
| Note: Table may not foot due to rounding. | |||||||||||||||
| (a) Measured in tons based on the stated weight of our product shipments. |
North America Foodservice net sales increased 22 percent in the third quarter of fiscal 2022 compared to the same period in fiscal 2021, driven by favorable net price realization and mix and an increase in contributions from volume growth.
North America Foodservice net sales increased 24 percent in the nine-month period ended February 27, 2022, compared to the same period in fiscal 2021, driven by favorable net price realization and mix and an increase in contributions from volume growth.
The components of North America Foodservice organic net sales growth are shown in the following table:
| Quarter Ended | Nine-Month Period Ended | ||||
|---|---|---|---|---|---|
| Feb. 27, 2022 | Feb. 27, 2022 | ||||
| Contributions from organic volume growth (a) | 4 | pts | 8 | pts | |
| Organic net price realization and mix | 18 | pts | 16 | pts | |
| Organic net sales growth | 22 | pts | 24 | pts | |
| Net sales growth | 22 | pts | 24 | pts |
Note: Table may not foot due to rounding.
(a)Measured in tons based on the stated weight of our product shipments.
North America Foodservice organic net sales increased 22 percent in the third quarter of fiscal 2022 compared to the same period in fiscal 2021, driven by favorable organic net price realization and mix and an increase in contributions from organic volume growth.
North America Foodservice organic net sales increased 24 percent in the nine-month period ended February 27, 2022, compared to the same period in fiscal 2021, driven by favorable organic net price realization and mix and an increase in contributions from organic volume growth.
Segment operating profit decreased 13 percent to $35 million in the third quarter of fiscal 2022 compared to $41 million in the same period in fiscal 2021, primarily driven by higher input costs, partially offset by favorable net price realization and mix.
Segment operating profit increased 27 percent to $175 million in the nine-month period ended February 27, 2022, compared to $138 million in the same period in fiscal 2021, primarily driven by favorable net price realization and mix and an increase in contributions from volume growth, partially offset by higher input costs.
UNALLOCATED CORPORATE ITEMS
Unallocated corporate expense totaled $141 million in the third quarter of fiscal 2022 compared to $24 million of income in the same period in fiscal 2021. We recorded a $20 million net increase in expense related to the mark-to-market valuation of certain commodity positions and grain inventories in the third quarter of fiscal 2022 compared to a $56 million net decrease in expense in the same period last year. We recorded $11 million of net gains related to the sale of certain corporate investments and valuation adjustments in the third quarter of fiscal 2022 compared to $59 million in the third quarter of fiscal 2021. In the third quarter of fiscal 2022, we recorded $4 million of integration costs related to our acquisition of Tyson Foods’ pet treats business and $9 million of transaction costs related to the sale of our interests in Yoplait SAS, Yoplait Marques SNC, and Liberté Marques Sàrl and a European dough business. We recorded $2 million of restructuring charges in cost of sales in the third quarter of fiscal 2022 compared to $1 million in the same period last year. We also recorded an $8 million favorable adjustment related to a product recall in our international Green Giant business in the third quarter of fiscal 2021.
Unallocated corporate expense totaled $329 million in the nine-month period ended February 27, 2022, compared to $98 million in the same period last year. We recorded a $16 million net decrease in expense related to the mark-to-market valuation of certain commodity positions and grain inventories in the nine-month period ended February 27, 2022, compared to a $118 million net decrease in expense in the same period last year. We recorded $21 million of net gains related to the sale of corporate investments and valuation adjustments in the nine-month period ended February 27, 2022, compared to $78 million in the same period last year. In the nine-month period ended February 27, 2022, we recorded $20 million of integration costs related to our acquisition of Tyson Foods’ pet treats business and $57 million of transaction costs related to the sale of our interests in Yoplait SAS, Yoplait Marques SNC, and Liberté Marques Sàrl and a European dough business. In addition, we recorded a $20 million recovery related to a Brazil indirect tax item and a $13 million insurance recovery in the nine-month period ended February 27, 2022. We also recorded $3 million of restructuring charges in costs of sales, compared to $2 million in the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
During the nine-month period ended February 27, 2022, cash provided by operations was $2,228 million compared to $2,208 million in the same period last year. The $20 million increase was primarily driven by a $237 million change in current assets and liabilities, partially offset by $170 million in divestitures gain, and a $37 million decrease in net earnings. The $237 million change in current assets and liabilities is primarily driven by a $405 million change in inventories, partially offset by a $169 million change in accounts payable.
Cash used by investing activities during the nine-month period ended February 27, 2022, was $1,462 million compared to $332 million for the same period in fiscal 2021. In the first quarter of fiscal 2022, we acquired the Tyson Foods’ pet treats business for an aggregate purchase price of $1.2 billion. During the third quarter of fiscal 2022, we sold our interests in Yoplait SAS, Yoplait Marques SNC and Liberté Marques Sàrl for cash proceeds of $17 million, net of cash divested as part of the sale. We also completed the sale of a European dough business in the third quarter of fiscal 2022 for cash proceeds of $29 million. In addition, we spent $351 million on purchases of land, buildings, and equipment in the first nine months of fiscal 2022 compared to $346 million in the same period last year.
Cash used by financing activities during the nine-month period ended February 27, 2022, was $1,398 million compared to $853 million used in the same period in fiscal 2021. We had $128 million of net debt issuances in the nine-month period ended February 27, 2022, compared to $321 million of net debt issuances in the same period a year ago. We paid $934 million of dividends in the nine-month period ended February 27, 2022, compared to $932 million in the same period last year. We also purchased $550 million of shares of common stock in the nine-month period ended February 27, 2022.
Our sources of liquidity were not materially impacted by the COVID-19 pandemic. As the COVID-19 pandemic evolves, we will continue to evaluate its impact to our sources of liquidity.
As of February 27, 2022, we had $802 million of cash and cash equivalents in foreign jurisdictions. In anticipation of repatriating funds from foreign jurisdictions, we record local country withholding taxes on our international earnings, as applicable. Furthermore, we may repatriate our cash and cash equivalents held by our foreign subsidiaries without such funds being subject to further U.S. income tax liability. Earnings prior to fiscal 2018 from our foreign subsidiaries remain permanently reinvested in those jurisdictions.
The following table details the fee-paid committed and uncommitted credit lines we had available as of February 27, 2022:
| In Billions | Facility Amount | Borrowed Amount | |||
|---|---|---|---|---|---|
| Credit facility expiring: | |||||
| April 2026 | $ | 2.7 | $ | - | |
| Total committed credit facilities | 2.7 | - | |||
| Uncommitted credit facilities | 0.6 | 0.1 | |||
| Total committed and uncommitted credit facilities | $ | 3.3 | $ | 0.1 |
The third-party holder of the General Mills Cereals, LLC (GMC) Class A Interests receives quarterly preferred distributions from available net income based on the application of a floating preferred return rate to the holder’s capital account balance established in the most recent mark-to-market valuation (currently $252 million). On June 1, 2021, the floating preferred return rate on GMC’s Class A Interests was reset to the sum of three-month LIBOR plus 160 basis points. The preferred return rate is adjusted every three years through a negotiated agreement with the Class A Interest holder or through a remarketing auction.
We have an option to purchase the Class A Interests for consideration equal to the then current capital account value, plus any unpaid preferred return and the prescribed make-whole amount. If we purchase these interests, any change in the third-party holder’s capital account from its original value will be charged directly to retained earnings and will increase or decrease the net earnings used to calculate EPS in that period.
To ensure availability of funds, we maintain bank credit lines and have commercial paper programs available to us in the United States and Europe. We also have uncommitted and asset-backed credit lines that support our foreign operations.
Certain of our long-term debt agreements, our credit facilities, and our noncontrolling interests contain restrictive covenants. As of February 27, 2022, we were in compliance with all of these covenants.
We have $601 million of long-term debt maturing in the next 12 months that is classified as current, including $500 million of 2.60 percent notes to be redeemed on October 12, 2022, and $100 million of 7.47 percent fixed-rate notes due October 15, 2022. We believe that cash flows from operations, together with available short- and long-term debt financing, will be adequate to meet our liquidity and capital needs for at least the next 12 months.
SIGNIFICANT ACCOUNTING ESTIMATES
Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended May 30, 2021. The accounting policies used in preparing our interim fiscal 2022 Consolidated Financial Statements are the same as those described in our Form 10-K.
Our significant accounting estimates are those that have meaningful impact on the reporting of our financial condition and results of operations. These estimates include our accounting for revenue recognition, valuation of long-lived assets, intangible assets, redeemable interest, stock-based compensation, income taxes, and defined benefit pension, other postretirement benefit, and postemployment benefit plans. The assumptions and methodologies used in the determination of those estimates as of February 27, 2022, are the same as those described in our Annual Report on Form 10-K for the fiscal year ended May 30, 2021.
During the third quarter of fiscal 2022, we changed our organizational and management structure to streamline our global operations. As a result of these changes, we reassessed our operating segments as well as our reporting units. Under our new organizational structure, our chief operating decision maker assesses performance and makes decisions about resources to be allocated to our segments at the North America Retail, International, Pet, and North America Foodservice operating segment level. See Note 17 for additional information on our operating segments.
With the organizational change, we also reassessed our reporting units one level below the segment level. We considered the new organization structure to be a triggering event that required a subsequent goodwill impairment test of certain reporting units during the third quarter of fiscal 2022. We determined there was no impairment of the goodwill of the impacted reporting units as their related fair values were substantially in excess of the carrying values.
Our annual goodwill and indefinite-lived intangible assets impairment test was performed on the first day of the second quarter of fiscal 2022, and we determined there was no impairment of our intangible assets as their related fair values were substantially in excess of the carrying values, except for the Uncle Toby’s brand intangible asset.
The excess fair value as of the fiscal 2022 test date of the Uncle Toby’s brand intangible asset is as follows:
| In Millions | Carrying Value of Intangible Asset | Excess Fair Value as of Fiscal 2022 Test Date | |||
|---|---|---|---|---|---|
| Uncle Toby's | $ | 55.0 | 7% |
In addition, while having significant coverage as of our fiscal 2022 assessment date, the Progresso, Green Giant, and EPIC brand intangible assets had risk of decreasing coverage. We will continue to monitor these businesses for potential impairment.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 2020, the Financial Accounting Standards Board (FASB) issued optional accounting guidance for a limited period of time to ease the potential burden in accounting for reference rate reform. The new standard provides expedients and exceptions to existing accounting requirements for contract modifications and hedge accounting related to transitioning from discontinued reference rates, such as LIBOR, to alternative reference rates, if certain criteria are met. The new accounting requirements can be applied as of the beginning of the interim period including March 12, 2020, or any date thereafter, through December 31, 2022. We are in the process of reviewing our contracts and arrangements that will be affected by a discontinued reference rate and are analyzing the impact of this guidance on our results of operations and financial position.
NON-GAAP MEASURES
We have included in this report measures of financial performance that are not defined by GAAP. We believe that these measures provide useful information to investors, and include these measures in other communications to investors.
For each of these non-GAAP financial measures, we are providing below a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure, an explanation of why we believe the non-GAAP measure provides useful information to investors, and any additional material purposes for which our management or Board of Directors uses the non-GAAP measure. These non-GAAP measures should be viewed in addition to, and not in lieu of, the comparable GAAP measure.
Significant Items Impacting Comparability
Several measures below are presented on an adjusted basis. The adjustments are either items resulting from infrequently occurring events or items that, in management’s judgment, significantly affect the year-to-year assessment of operating results.
The following are descriptions of significant items impacting comparability of our results.
Divestitures gain
Divestitures gain related to the sale of our interests in Yoplait SAS, Yoplait Marques SNC, and Liberté Marques Sàrl and the sale of a European dough business in fiscal 2022. Please see Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report.
Transaction costs
Transaction costs related to the sale of our interests in Yoplait SAS, Yoplait Marques SNC, and Liberté Marques Sàrl and the definitive agreements and sale of our European dough businesses in fiscal 2022. Please see Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report.
Non-income tax recovery
Recovery related to a Brazil indirect tax item recorded in fiscal 2022.
Acquisition integration costs
Integration costs resulting from the acquisition of Tyson Foods’ pet treats business. Please see Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report.
Investment activity, net
Valuation adjustments and the gain on sale of certain corporate investments in fiscal 2022 and fiscal 2021.
Mark-to-market effects
Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items. Please see Note 6 to the Consolidated Financial Statements in Part I, Item 1 of this report.
Restructuring charges
Restructuring charges for International supply chain optimization actions and previously announced restructuring actions in fiscal 2022. Restructuring charges for previously announced restructuring actions in fiscal 2021. Please see Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report.
Product recall
Product recall adjustment recorded in fiscal 2021 related to our international Green Giant business.
Organic Net Sales Growth Rates
We provide organic net sales growth rates for our consolidated net sales and segment net sales. This measure is used in reporting to our Board of Directors and executive management and as a component of the measurement of our performance for incentive compensation purposes. We believe that organic net sales growth rates provide useful information to investors because they provide transparency to underlying performance in our net sales by excluding the effect that foreign currency exchange rate fluctuations, acquisitions, divestitures, and a 53rd week, when applicable, have on year-to-year comparability. A reconciliation of these measures to reported net sales growth rates, the relevant GAAP measures, are included in our Consolidated Results of Operations and Results of Segment Operations discussions in the MD&A above.
Adjusted Operating Profit as a Percent of Net Sales (Adjusted Operating Profit Margin)
We believe this measure provides useful information to investors because it is important for assessing our operating profit margin on a comparable basis.
Our adjusted operating profit margins are calculated as follows:
| Quarter Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Feb. 27, 2022 | Feb. 28, 2021 | ||||||||||
| In Millions | Value | Percent of Net Sales | Value | Percent of Net Sales | |||||||
| Operating profit as reported | $ | 815.3 | 18.0 | % | $ | 826.6 | 18.3 | % | |||
| Divestitures gain | (170.1) | (3.7) | % | - | - | % | |||||
| Transaction costs | 8.6 | 0.2 | % | - | - | % | |||||
| Non-income tax recovery | 0.2 | - | - | - | % | ||||||
| Acquisition integration costs | 4.3 | 0.1 | % | - | - | % | |||||
| Investment activity, net | (11.1) | (0.2) | % | (59.3) | (1.3) | % | |||||
| Mark-to-market effects | 20.0 | 0.4 | % | (55.7) | (1.2) | % | |||||
| Restructuring charges | 9.3 | 0.2 | % | 11.7 | 0.3 | % | |||||
| Product recall | - | - | % | (7.8) | (0.2) | % | |||||
| Adjusted operating profit | $ | 676.5 | 14.9 | % | $ | 715.6 | 15.8 | % | |||
| Nine-Month Period Ended | |||||||||||
| Feb. 27, 2022 | Feb. 28, 2021 | ||||||||||
| In Millions | Value | Percent of Net Sales | Value | Percent of Net Sales | |||||||
| Operating profit as reported | $ | 2,459.7 | 17.4 | % | $ | 2,596.9 | 19.1 | % | |||
| Divestitures gain | (170.1) | (1.2) | % | - | - | % | |||||
| Transaction costs | 56.8 | 0.4 | % | - | - | % | |||||
| Non-income tax recovery | (20.4) | (0.1) | % | - | - | % | |||||
| Acquisition integration costs | 20.2 | 0.1 | % | - | - | % | |||||
| Investment activity, net | (20.9) | (0.1) | % | (78.3) | (0.6) | % | |||||
| Mark-to-market effects | (16.2) | (0.1) | % | (118.0) | (0.9) | % | |||||
| Restructuring charges | 7.9 | 0.1 | % | 13.6 | 0.1 | % | |||||
| Product recall | - | - | % | (0.7) | - | % | |||||
| Adjusted operating profit | $ | 2,317.0 | 16.4 | % | $ | 2,413.6 | 17.7 | % |
Note: Tables may not foot due to rounding.
For more information on the reconciling items, please refer to the Significant Items Impacting Comparability section above.
Adjusted Operating Profit Growth on a Constant-currency Basis
This measure is used in reporting to our Board of Directors and executive management and as a component of the measurement of our performance for incentive compensation purposes. We believe that this measure provides useful information to investors because it is the operating profit measure we use to evaluate operating profit performance on a comparable year-to-year basis. The measure is evaluated on a constant-currency basis by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given the volatility in foreign currency exchange rates.
Our adjusted operating profit growth on a constant-currency basis is calculated as follows:
| Quarter Ended | Nine-Month Period Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Feb. 27, 2022 | Feb. 28, 2021 | Change | Feb. 27, 2022 | Feb. 28, 2021 | Change | ||||||||||
| Operating profit as reported | $ | 815.3 | $ | 826.6 | (1) | % | $ | 2,459.7 | $ | 2,596.9 | (5) | % | |||
| Divestitures gain | (170.1) | - | (170.1) | - | |||||||||||
| Transaction costs | 8.6 | - | 56.8 | - | |||||||||||
| Investment activity, net | (11.1) | (59.3) | (20.9) | (78.3) | |||||||||||
| Non-income tax recovery | 0.2 | - | (20.4) | - | |||||||||||
| Acquisition integration costs | 4.3 | - | 20.2 | - | |||||||||||
| Mark-to-market effects | 20.0 | (55.7) | (16.2) | (118.0) | |||||||||||
| Restructuring charges | 9.3 | 11.7 | 7.9 | 13.6 | |||||||||||
| Product recall | - | (7.8) | - | (0.7) | |||||||||||
| Adjusted operating profit | $ | 676.5 | $ | 715.6 | (5) | % | $ | 2,317.0 | $ | 2,413.6 | (4) | % | |||
| Foreign currency exchange impact | Flat | Flat | |||||||||||||
| Adjusted operating profit growth, on a constant-currency basis | (6) | % | (5) | % |
Note: Table may not foot due to rounding.
For more information on the reconciling items, please refer to the Significant Items Impacting Comparability section above.
Adjusted Diluted EPS and Related Constant-currency Growth Rates
This measure is used in reporting to our Board of Directors and executive management. We believe that this measure provides useful information to investors because it is the profitability measure we use to evaluate earnings performance on a comparable year-to-year basis.
The reconciliation of our GAAP measure, diluted EPS, to adjusted diluted EPS and the related constant-currency growth rates follows:
| Quarter Ended | Nine-Month Period Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Per Share Data | Feb. 27, 2022 | Feb. 28, 2021 | Change | Feb. 27, 2022 | Feb. 28, 2021 | Change | |||||||||
| Diluted earnings per share, as reported | $ | 1.08 | $ | 0.96 | 13 | % | $ | 3.07 | $ | 3.10 | (1) | % | |||
| Divestitures gain | (0.28) | - | (0.28) | - | |||||||||||
| Transaction costs | 0.01 | - | 0.07 | - | |||||||||||
| Non-income tax recovery | - | - | (0.02) | - | |||||||||||
| Acquisition integration costs | 0.01 | - | 0.03 | - | |||||||||||
| Investment activity, net | (0.01) | (0.08) | (0.03) | (0.10) | |||||||||||
| Mark-to-market effects | 0.03 | (0.07) | (0.02) | (0.15) | |||||||||||
| Restructuring charges | 0.02 | 0.02 | 0.01 | 0.02 | |||||||||||
| Product recall | - | (0.01) | - | - | |||||||||||
| Adjusted diluted earnings per share | $ | 0.84 | $ | 0.82 | 2 | % | $ | 2.82 | $ | 2.88 | (2) | % | |||
| Foreign currency exchange impact | Flat | Flat | |||||||||||||
| Adjusted diluted earnings per share growth, on a constant-currency basis | 2 | % | (2) | % |
Note: Table may not foot due to rounding.
For more information on the reconciling items, please refer to the Significant Items Impacting Comparability section above.
See our reconciliation below of the effective income tax rate as reported to the adjusted effective income tax rate for the tax impact of each item affecting comparability.
Constant-currency After-tax Earnings from Joint Ventures Growth Rates
We believe that this measure provides useful information to investors because it provides transparency to underlying performance of our joint ventures by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given volatility in foreign currency exchange markets.
After-tax earnings from joint ventures growth rates on a constant-currency basis are calculated as follows:
| Percentage Change in After-Tax Earnings from Joint Ventures as Reported | Impact of Foreign Currency Exchange | Percentage Change in After-Tax Earnings from Joint Ventures on Constant-Currency Basis | |||||
|---|---|---|---|---|---|---|---|
| Quarter Ended Feb. 27, 2022 | 154 | % | (12) | pts | 167 | % | |
| Nine-Month Period Ended Feb. 27, 2022 | 3 | % | (2) | pts | 5 | % | |
| Note: Table may not foot due to rounding. |
Net Sales Growth Rates for Our Canada Operating Unit on Constant-currency Basis
We believe that this measure of our Canada operating unit net sales provides useful information to investors because it provides transparency to the underlying performance for the Canada operating unit within our North America Retail segment by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given volatility in foreign currency exchange markets.
Net sales growth rates for our Canada operating unit on a constant-currency basis are calculated as follows:
| Percentage Change in Net Sales as Reported | Impact of Foreign Currency Exchange | Percentage Change in Net Sales on Constant- Currency Basis | |||||
|---|---|---|---|---|---|---|---|
| Quarter Ended Feb. 27, 2022 | (2) | % | Flat | (2) | % | ||
| Nine-Month Period Ended Feb. 27, 2022 | 5 | % | 4 | pts | 1 | % | |
| Note: Table may not foot due to rounding. |
Constant-currency Segment Operating Profit Growth Rates
We believe that this measure provides useful information to investors because it provides transparency to underlying performance of our segments by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given volatility in foreign currency exchange markets.
Our segments’ operating profit growth rates on a constant-currency basis are calculated as follows:
| Quarter Ended Feb. 27, 2022 | |||||||
|---|---|---|---|---|---|---|---|
| Percentage Change in Operating Profit as Reported | Impact of Foreign Currency Exchange | Percentage Change in Operating Profit on Constant-Currency Basis | |||||
| North America Retail | (3) | % | Flat | (3) | % | ||
| International | (13) | % | 2 | pts | (16) | % | |
| Pet | 8 | % | Flat | 8 | % | ||
| North America Foodservice | (13) | % | Flat | (13) | % | ||
| Nine-Month Period Ended Feb. 27, 2022 | |||||||
| Percentage Change in Operating Profit as Reported | Impact of Foreign Currency Exchange | Percentage Change in Operating Profit on Constant-Currency Basis | |||||
| North America Retail | (7) | % | Flat | (7) | % | ||
| International | (14) | % | 4 | pts | (18) | % | |
| Pet | 15 | % | Flat | 15 | % | ||
| North America Foodservice | 27 | % | Flat | 27 | % | ||
| Note: Tables may not foot due to rounding. |
Adjusted Effective Income Tax Rates
We believe this measure provides useful information to investors because it presents the adjusted effective income tax rate on a comparable year-to-year basis.
Adjusted effective income tax rates are calculated as follows:
| Quarter Ended | Nine-Month Period Ended | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Feb. 27, 2022 | Feb. 28, 2021 | Feb. 27, 2022 | Feb. 28, 2021 | ||||||||||||||||
| In Millions (Except Per Share Data) | Pretax Earnings (a) | Income Taxes | Pretax Earnings (a) | Income Taxes | Pretax Earnings (a) | Income Taxes | Pretax Earnings (a) | Income Taxes | |||||||||||
| As reported | $ | 755.9 | $ | 123.2 | $ | 754.0 | $ | 162.0 | $ | 2,269.0 | $ | 451.8 | $ | 2,378.8 | $ | 522.2 | |||
| Divestitures gain | (170.1) | 0.4 | - | - | (170.1) | 0.4 | - | - | |||||||||||
| Transaction costs | 8.6 | (1.2) | - | - | 56.8 | 11.2 | - | - | |||||||||||
| Investment activity, net | (11.1) | (0.2) | (59.3) | (11.7) | (20.9) | 0.3 | (78.3) | (16.1) | |||||||||||
| Non-income tax recovery | 0.2 | 0.1 | - | - | (20.4) | (6.9) | - | - | |||||||||||
| Acquisition integration costs | 4.3 | 1.0 | - | - | 20.2 | 4.6 | - | - | |||||||||||
| Mark-to-market effects | 20.0 | 4.6 | (55.7) | (12.8) | (16.2) | (3.7) | (118.0) | (27.1) | |||||||||||
| Restructuring charges | 9.3 | 1.7 | 11.7 | 2.0 | 7.9 | 3.6 | 13.6 | 2.5 | |||||||||||
| Product recall | - | - | (7.8) | (0.9) | - | - | (0.7) | (0.1) | |||||||||||
| As adjusted | $ | 617.1 | $ | 129.5 | $ | 643.1 | $ | 138.6 | $ | 2,126.3 | $ | 461.3 | $ | 2,195.5 | $ | 481.4 | |||
| Effective tax rate: | |||||||||||||||||||
| As reported | 16.3% | 21.5% | 19.9% | 22.0% | |||||||||||||||
| As adjusted | 21.0% | 21.6% | 21.7% | 21.9% | |||||||||||||||
| Sum of adjustment to income taxes | $ | 6.4 | $ | (23.4) | $ | 9.5 | $ | (40.8) | |||||||||||
| Average number of common shares - diluted EPS | 612.4 | 619.4 | 613.5 | 619.6 | |||||||||||||||
| Impact of income tax adjustments on adjusted diluted EPS | $ | (0.01) | $ | 0.03 | $ | (0.02) | $ | 0.06 |
Note: Table may not foot due to rounding.
(a) Earnings before income taxes and after-tax earnings from joint ventures.
For more information on the reconciling items, please refer to the Significant Items Impacting Comparability section above.
Glossary
AOCI. Accumulated other comprehensive income (loss).
Adjusted diluted EPS. Diluted EPS adjusted for certain items affecting year-to-year comparability.
Adjusted operating profit. Operating profit adjusted for certain items affecting year-to-year comparability.
Adjusted operating profit margin. Operating profit adjusted for certain items affecting year-over-year comparability, divided by net sales.
Constant currency. Financial results translated to United States dollars using constant foreign currency exchange rates based on the rates in effect for the comparable prior-year period. To present this information, current period results for entities reporting in currencies other than United States dollars are translated into United States dollars at the average exchange rates in effect during the corresponding period of the prior fiscal year, rather than the actual average exchange rates in effect during the current fiscal year. Therefore, the foreign currency impact is equal to current year results in local currencies multiplied by the change in the average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.
Core working capital. Accounts receivable plus inventories less accounts payable.
COVID-19. Coronavirus disease (COVID-19) is an infectious disease caused by a novel coronavirus. In March 2020, the World Health Organization declared COVID-19 a global pandemic.
Derivatives. Financial instruments such as futures, swaps, options, and forward contracts that we use to manage our risk arising from changes in commodity prices, interest rates, foreign exchange rates, and stock prices.
Euribor. Euro Interbank Offered Rate.
Fair value hierarchy. For purposes of fair value measurement, we categorize assets and liabilities into one of three levels based on the assumptions (inputs) used in valuing the asset or liability. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment. The three levels are defined as follows:
Level 1:Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
Level 3:Unobservable inputs reflecting management’s assumptions about the inputs used in pricing the asset or liability.
Free cash flow. Net cash provided by operating activities less purchases of land, buildings, and equipment.
Generally Accepted Accounting Principles (GAAP). Guidelines, procedures, and practices that we are required to use in recording and reporting accounting information in our financial statements.
Goodwill. The difference between the purchase price of acquired companies plus the fair value of any noncontrolling and redeemable interests and the related fair values of net assets acquired.
Gross margin. Net sales less cost of sales.
Hedge accounting. Accounting for qualifying hedges that allows changes in a hedging instrument’s fair value to offset corresponding changes in the hedged item in the same reporting period. Hedge accounting is permitted for certain hedging instruments and hedged items only if the hedging relationship is highly effective, and only prospectively from the date a hedging relationship is formally documented.
Holistic Margin Management (HMM). Company-wide initiative to use productivity savings, mix management, and price realization to offset input cost inflation, protect margins, and generate funds to reinvest in sales-generating activities.
Interest bearing instruments. Notes payable, long-term debt, including current portion, cash and cash equivalents, and certain interest bearing investments classified within prepaid expenses and other current assets and other assets.
LIBOR. London Interbank Offered Rate.
Mark-to-market. The act of determining a value for financial instruments, commodity contracts, and related assets or liabilities based on the current market price for that item.
Net mark-to-market valuation of certain commodity positions. Realized and unrealized gains and losses on derivative contracts that will be allocated to segment operating profit when the exposure we are hedging affects earnings.
Net price realization. The impact of list and promoted price changes, net of trade and other price promotion costs.
Net realizable value. The estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
Noncontrolling interests. Interests of subsidiaries held by third parties.
Notional amount. The amount of a position or an agreed upon amount in a derivative contract on which the value of financial instruments are calculated.
OCI. Other Comprehensive Income.
Organic net sales growth. Net sales growth adjusted for foreign currency translation, acquisitions, divestitures and a 53rd fiscal week, when applicable.
Project-related costs. Costs incurred related to our restructuring initiatives not included in restructuring charges.
Redeemable interest. Interest of subsidiaries held by a third party that can be redeemed outside of our control and therefore cannot be classified as a noncontrolling interest in equity.
Reporting unit. An operating segment or a business one level below an operating segment.
Strategic Revenue Management (SRM). A company-wide capability focused on generating sustainable benefits from net price realization and mix by identifying and executing against specific opportunities to apply tools including pricing, sizing, mix management, and promotion optimization across each of our businesses.
Supply chain input costs. Costs incurred to produce and deliver product, including costs for ingredients and conversion, inventory management, logistics, and warehousing.
Translation adjustments. The impact of the conversion of our foreign affiliates’ financial statements to United States dollars for the purpose of consolidating our financial statements.
Variable interest entities (VIEs). A legal structure that is used for business purposes that either (1) does not have equity investors that have voting rights and share in all the entity’s profits and losses or (2) has equity investors that do not provide sufficient financial resources to support the entity’s activities.
Working capital. Current assets and current liabilities, all as of the last day of our fiscal year.
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains or incorporates by reference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations and assumptions. We also may make written or oral forward-looking statements, including statements contained in our filings with the Securities and Exchange Commission and in our reports to stockholders.
The words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “plan,” “project,” or similar expressions identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results and those currently anticipated or projected. We wish to caution you not to place undue reliance on any such forward-looking statements.
In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that could affect our financial performance and could cause our actual results in future periods to differ materially from any current opinions or statements.
Our future results could be affected by a variety of factors, such as: the impact of the COVID-19 pandemic on our business, suppliers, consumers, customers, and employees; disruptions or inefficiencies in the supply chain, including any impact of the COVID-19 pandemic; competitive dynamics in the consumer foods industry and the markets for our products, including new product introductions, advertising activities, pricing actions, and promotional activities of our competitors; economic conditions, including changes in inflation rates, interest rates, tax rates, or the availability of capital; product development and innovation; consumer acceptance of new products and product improvements; consumer reaction to pricing actions and changes in promotion levels; acquisitions or dispositions of businesses or assets; changes in capital structure; changes in the legal and regulatory environment, including tax legislation, labeling and advertising regulations, and litigation; impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets, or changes in the useful lives of other intangible assets; changes in accounting standards and the impact of significant accounting estimates; product quality and safety issues, including recalls and product liability; changes in consumer demand for our products; effectiveness of advertising, marketing, and promotional programs; changes in consumer behavior, trends, and preferences, including weight loss trends; consumer perception of health-related issues, including obesity; consolidation in the retail environment; changes in purchasing and inventory levels of significant customers; fluctuations in the cost and availability of supply chain resources, including raw materials, packaging, energy, and transportation; effectiveness of restructuring and cost saving initiatives; volatility in the market value of derivatives used to manage price risk for certain commodities; benefit plan expenses due to changes in plan asset values and discount rates used to determine plan liabilities; failure or breach of our information technology systems; foreign economic conditions, including currency rate fluctuations; and political unrest in foreign markets and economic uncertainty due to terrorism or war.
You should also consider the risk factors that we identify in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended May 30, 2021 which could also affect our future results.
We undertake no obligation to publicly revise any forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events.
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