filings.toolsItem 2. Management’s Discussion and Analysis
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Item 2. Management’s Discussion and Analysis
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
29,
2022
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.
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. We
anticipate double-digit input cost inflation
in fiscal
2023
and
are
addressing
inflation
headwinds
with
Holistic
Margin
Management
(HMM)
cost
savings
and
net
price
realization
generated
through
our
Strategic
Revenue
Management
(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.
CONSOLIDATED
RESULTS
OF OPERATIONS
Third Quarter Results
In
the
third
quarter
of
fiscal
2023,
net
sales
increased
13 percent
and
organic
net
sales
increased
percent
compared
to
the
same
period last
year.
Operating profit
decreased 10
percent to
$730 million,
primarily driven
by higher
input costs,
an increase
in selling,
general
and
administrative
(SG&A)
expenses,
a
lower
net
gain
on
divestitures,
and
an
unfavorable
change
to
the
mark-to-market
valuation of
certain commodity
positions and
grain inventories,
partially offset
by favorable
net price
realization and
mix. Operating
profit margin of 14.2 percent decreased
380 basis points. Adjusted operating profit of
$807 million increased 20 percent on
a constant-
currency
basis,
primarily
driven
by favorable
net price
realization
and
mix,
partially
offset
by higher
input
costs
and
an increase
in
SG&A
expenses.
Adjusted
operating
profit
margin
increased
basis
points
to
15.7
percent.
Diluted
earnings
per
share
of
$0.92
decreased
percent
in
the
third
quarter
of
fiscal
Adjusted
diluted
earnings
per
share
of
$0.97
increased
17 percent
on
a
constant-currency basis
compared to
the third
quarter of
fiscal 2022.
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 2023 follows:
Quarter Ended Feb. 26, 2023
In millions,
except per share
Quarter Ended
Feb. 26, 2023 vs.
Feb. 27, 2022
Percent
of Net
Sales
Constant-
Currency
Growth (a)
Net sales
$
5,125.9
%
Operating profit
730.2
(10)
%
14.2
%
Net earnings attributable to General Mills
553.1
(16)
%
Diluted earnings per share
$
0.92
(15)
%
Organic net sales growth rate (a)
%
Adjusted operating profit (a)
807.0
%
15.7
%
%
Adjusted diluted earnings per share (a)
$
0.97
%
%
(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. 26, 2023
Feb. 26, 2023 vs.
Feb. 27, 2022
Feb. 27, 2022
Net sales (in millions)
$
5,125.9
13%
$
4,537.7
Contributions from volume growth (a)
Flat
Net price realization and mix
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.
Net sales in
the third
quarter of
fiscal 2023
increased 13
percent compared
to the
same period
in fiscal
2022, driven
by favorable
net
price realization and mix, partially offset by unfavorable
foreign currency exchange.
Components of organic net sales growth are shown in the following
table:
Quarter Ended Feb. 26, 2023 vs.
Quarter Ended Feb. 27, 2022
Contributions from organic volume growth (a)
Flat
Organic net price realization and mix
pts
Organic net sales growth
pts
Foreign currency exchange
(1)
pt
Acquisitions and divestitures
(2)
pts
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
increased
percent
in
the
third
quarter
of
fiscal
2023
compared
to
the
same
period
in
fiscal
2022
driven
by
favorable organic net price realization and mix.
Cost of
sales
increased $327 million
to $3,461
million in the
third quarter
of fiscal 2023
compared to
the same
period in fiscal
The
increase
was primarily
driven
by
a
$290 million
increase
attributable
to
product
rate and
mix,
partially
offset
by
a
$10 million
decrease attributable
to lower volume.
We
recorded a $67
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 2023
compared to
a $20 million
net increase
in the
third quarter of fiscal 2022.
Divestitures gain, net
totaled $14 million in
the third quarter of fiscal 2023,
compared to $170 million recorded
in the third quarter of
fiscal 2022.
In fiscal
2022,
we sold
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).
SG&A
expenses
increased
$196
million
to
$947 million
in
the
third
quarter
of
fiscal
2023,
compared
to
the
same
period
in
fiscal
2022,
primarily
driven
by increased
media
and advertising
expenses,
an increase
in certain
compensation
and benefits
expenses,
an
increase
in
charitable
contributions,
and
unfavorable
valuation
adjustments
on
certain
corporate
investments
in
fiscal
SG&A
expenses as
a percent
of net
sales in
the third
quarter of
fiscal 2023
increased 190
basis points
compared to
the third
quarter of
fiscal
Restructuring, impairment,
and other exit
costs
totaled $1 million in
the third quarter
of fiscal 2023,
compared to $7 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 $22 million
in the
third quarter
of fiscal
2023, compared
to $27 million
in the
same period
last year,
primarily reflecting
an increase
in interest
costs, partially
offset by
lower amortization
of losses
and higher
expected return
on plan assets.
Interest,
net
for
the third
quarter
of fiscal
2023
totaled
$98 million,
up $12
million
from the
third
quarter of
fiscal
2022,
primarily
driven by higher interest rates, partially offset by lower
average long-term debt levels.
The
effective
tax
rate
for
the third
quarter
of fiscal
2023
was 16.6
percent
compared
to 16.3
percent
for
the
third
quarter
of fiscal
- The
0.3 percentage
point increase
was primarily
due to
certain unfavorable
nonrecurring discrete
tax items,
partially offset
by
favorable changes in
earnings mix by jurisdiction
in fiscal 2023. Our effective
tax rate excluding certain
items affecting comparability
was
21.6 percent
in
the
third
quarter
of
fiscal
2023,
compared
to
21.0
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
increase
was
primarily
due
to
certain
unfavorable
nonrecurring
discrete
tax
items,
partially
offset
by
favorable
changes
in
earnings
mix
by
jurisdiction in fiscal 2023.
After-tax earnings
from joint
ventures
for the
third quarter
of fiscal
2023
decreased to
$13 million compared
to $30
million in
the
same period
in fiscal
2022, primarily
driven by
higher input
costs and
unfavorable nonrecurring
discrete tax
items at
Cereal Partners
Worldwide
(CPW),
partially
offset
by
favorable
net
price
realization
and
mix
at
CPW.
On
a
constant-currency
basis,
after-tax
earnings
from
joint
ventures
decreased
51 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. 26, 2023 vs.
Quarter Ended Feb. 27, 2022
CPW
HDJ (a)
Total
Contributions from volume growth (b)
(13)
pts
(2)
pts
Net price realization and mix
pts
pts
Net sales growth in constant currency
pts
pt
pts
Foreign currency exchange
(5)
pts
(14)
pts
(7)
pts
Net sales growth
(3)
pts
(13)
pts
(5)
pts
Note: Table may
not foot due to rounding.
(a)
Häagen-Dazs Japan, Inc.
(b)
Measured in tons based on the stated weight of our product shipments.
Average
diluted
shares
outstanding
decreased
by
13 million
in
the
third
quarter
of
fiscal
2023
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
26, 2023,
net sales
increased 7
percent compared
to the
same period
last year,
and organic
net sales increased 12
percent compared to the
same period last year.
Operating profit increased 6
percent to $2,616 million,
primarily
driven by favorable net price realization and
mix and a higher net gain on divestitures, partially
offset by higher input costs, a decrease
in
contributions
from
volume
growth,
an
unfavorable
change
to
the
mark-to-market
valuation
of
certain
commodity
positions
and
grain inventories, an increase in
SG&A expenses,
and lower net corporate investment
activity. Operating
profit margin of 17.4 percent
essentially matched the
same period last year.
Adjusted operating profit of
$2,568 million increased 11
percent on a constant-currency
basis,
primarily
driven
by
favorable
net
price
realization
and
mix,
partially
offset
by
higher
input
costs, a
decrease
in
contributions
from volume
growth, and
an increase in
SG&A expenses.
Adjusted operating
profit margin
increased
60 basis points
to 17.0
percent.
Diluted
earnings
per
share
of
$3.28
increased
percent
in
the
nine-month
period
ended
February
26,
2023,
and
adjusted
diluted
earnings per
share of
$3.18 increased
14 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 26, 2023, follows:
Nine-Month Period Ended Feb. 26, 2023
In millions,
except per
share
Nine-Month
Period Ended
Feb. 26, 2023 vs.
Feb. 27, 2022
Percent of Net
Sales
Constant-
Currency
Growth (a)
Net sales
$
15,064.2
%
Operating profit
2,615.6
%
17.4
%
Net earnings attributable to General Mills
1,979.0
%
Diluted earnings per share
$
3.28
%
Organic net sales growth rate (a)
%
Adjusted operating profit (a)
2,567.9
%
17.0
%
%
Adjusted diluted earnings per share (a)
$
3.18
%
%
(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. 26, 2023
Feb. 26, 2023 vs.
Feb. 27, 2022
Feb. 27, 2022
Net sales (in millions)
$
15,064.2
%
$
14,101.6
Contributions from volume growth (a)
(8)
pts
Net price realization and mix
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 7
percent increase
in net
sales for
the nine-month
period ended
February 26,
2023, was
driven
by favorable
net price
realization
and mix, partially offset by a decrease in contributions
from volume growth and unfavorable foreign currency exchange.
Components of organic net sales growth are shown in the following
table:
Nine-Month Period Ended Feb. 26, 2023 vs.
Nine-Month Period Ended Feb. 27, 2022
Contributions from organic volume growth (a)
(3)
pts
Organic net price realization and mix
pts
Organic net sales growth
pts
Foreign currency exchange
(1)
pt
Acquisition and divestitures
(4)
pts
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
increased
percent
in
the
nine-month
period
ended
February
26,
2023,
driven
by
favorable
organic
net
price
realization and mix, partially offset by a decrease in
contributions from organic volume growth.
Cost
of
sales
increased
$777 million
to
$10,247 million
in
the
nine-month
period
ended
February
26,
2023,
compared
to
the
same
period in
fiscal 2022.
The increase
was driven
by a
$1,229 million increase
attributable to
product rate
and mix,
partially offset
by a
$759
million
decrease due
to lower
volume.
We
recorded
a $266
million
net increase
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
26,
2023,
compared
to
a
$16 million net
decrease in
the nine-month
period ended
February 27,
- In
the nine-month
period ended
February 26,
2023, we
recorded a $25 million charge related to a voluntary recall
on certain international
Häagen-Dazs
ice cream products.
SG&A expenses
increased $295 million
to $2,632 million
in the
nine-month period
ended February
26, 2023,
compared to
the same
period
in
fiscal
2022,
primarily
driven
by
unfavorable
valuation
adjustments
and
the
loss
on
sale
of
certain
corporate
investments,
increased
media
and
advertising
expenses,
an
increase
in
certain
compensation
and
benefits expenses,
and
an
increase
in
charitable
contributions
in
fiscal
SG&A
expenses
as
a
percent
of
net
sales
increased
basis
points
in
the
nine-month
period
ended
February 26, 2023, compared to the same period of fiscal 2022.
Divestitures
gain,
net
totaled
$445
million
in
the
nine-month
period
ended
February
26,
2023,
primarily
related
to
the sale
of
our
Helper main
meals and
Suddenly Salad
side dishes
business.
During the
nine-month period
ended February
27, 2022,
we recorded
a
$170 million divestitures gain related to the sale of our interest 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 $14 million
in the
nine-month period
ended February
26, 2023,
compared
to
$5 million
in
the
same
period
last
year
(please
refer
to Note
to
the
Consolidated
Financial
Statements
in
Part
I,
Item
of
this
report).
Benefit plan non-service
income
totaled $65 million
in the nine-month
period ended
February 26,
2023, compared
to $84 million
in
the same
period last
year, primarily
reflecting an
increase in
interest costs,
partially offset
by lower
amortization of
losses and
higher
expected return on plan assets.
Interest, net
for the nine-month period ended February 26, 2023,
increased $2 million to $278 million compared to the same period
of
fiscal 2022.
The
effective
tax rate
for
the nine-month
period ended
February
26,
2023, was
19.6
percent compared
to 19.9
percent in
the nine-
month
period
ended
February
27,
The
0.3
percentage
point
decrease
was
primarily
due
to
certain
nonrecurring
discrete
tax
benefits
and favorable
changes in
earnings
mix by
jurisdiction,
partially offset
by certain
unfavorable
tax components
related
to the
divestitures
incurred
in
the
nine-month
period
ended
February
26,
Our
effective
tax
rate
excluding
certain
items
affecting
comparability
was 20.8 percent
in the
nine-month period
ended February
26, 2023,
compared to
21.7 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
0.9
percentage
point
decrease
is
primarily
due
to
certain
nonrecurring
discrete
tax
benefits
and
favorable
changes
in
earnings
mix
by
jurisdiction in the nine-month period ended February 26, 2023.
After-tax earnings
from
joint ventures
decreased to
$58 million for
the nine-month
period ended
February 26,
2023, compared
to
$92 million
in the
same period
in fiscal
2022,
primarily
driven by
higher input
costs at
CPW and
HDJ and
lower net
sales at
HDJ,
partially offset by favorable net price realization
and mix at CPW.
On a constant-currency basis, after-tax earnings from
joint ventures
decreased 28
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. 26, 2023 vs.
Nine-Month Period Ended Feb. 27, 2022
CPW
HDJ
Total
Contributions from volume growth (a)
(10)
pts
(7)
pts
Net price realization and mix
pts
Flat
Net sales growth in constant currency
pts
(6)
pts
pt
Foreign currency exchange
(10)
pts
(17)
pts
(11)
pts
Net sales growth
(7)
pts
(23)
pts
(11)
pts
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
11 million
in
the
nine-month
period
ended
February
26,
2023,
from
the
same
period a year ago primarily due to share repurchases, partially offset
by option exercises.
SEGMENT OPERATING
RESULTS
Our businesses are
organized into
four operating segments:
North America Retail,
International, Pet, and
North America Foodservice.
Please
refer
to
Note
of
the
Consolidated
Financial
Statements
in
Part
I,
Item
of
this
report
for
a
description
of
our
operating
segments.
North America Retail Segment Results
North America Retail net sales were as follows:
Quarter Ended
Nine-Month Period Ended
Feb. 26,
2023
Feb. 26, 2023 vs
Feb. 27, 2022
Feb. 27,
2022
Feb. 26,
2023
Feb. 26, 2023 vs
Feb. 27, 2022
Feb. 27,
2022
Net sales (in millions)
$
3,232.0
%
$
2,811.9
$
9,593.9
%
$
8,567.1
Contributions from volume growth (a)
(1)
pt
(5)
pts
Net price realization and mix
pts
pts
Foreign currency exchange
(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
net sales
increased
15 percent
in the
third quarter
of fiscal
2023, compared
to the
same period
in fiscal
2022,
driven by
favorable net price
realization and
mix, partially offset
by a decrease
in contributions from
volume growth
and unfavorable
foreign currency exchange.
North America
Retail net sales
increased 12
percent in the
nine-month period
ended February
26, 2023,
compared to the
same period
in fiscal 2022, driven by favorable net price realization and mix, partially 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. 26, 2023
Feb. 26, 2023
Contributions from organic volume growth (a)
Flat
(4)
pts
Organic net price realization and mix
pts
pts
Organic net sales growth
pts
pts
Foreign currency exchange
(1)
pt
Flat
Divestitures (b)
(3)
pts
(2)
pts
Net sales growth
pts
pts
Note: Table may not foot due to rounding.
(a) Measured in tons based on the stated weight of our product shipments.
(b) Divestitures primarily include the impact of the sale of our Helper main meals and Suddenly Salad side dishes businesses in fiscal 2023. Please
see Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report.
North America
Retail organic
net sales
increased 18
percent in
the third
quarter of
fiscal 2023,
compared to
the same
period in
fiscal
2022, driven by favorable organic net price realization
and mix.
North America Retail organic
net sales increased 14 percent
in the nine-month period
ended February 26, 2023, compared
to the same
period
in fiscal
2022,
driven by
favorable
organic
net price
realization
and
mix, partially
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. 26, 2023
Feb. 26, 2023
U.S. Meals & Baking Solutions
%
%
U.S. Snacks
%
%
U.S. Morning Foods
%
%
Canada (a)
%
%
Total
%
%
(a)
On a constant-currency basis, Canada net
sales increased 8 percent in the
third quarter of fiscal 2023 and
increased 6 percent for the nine-month
period ended February 26, 2023,
compared to the same periods
in fiscal 2022. See the
"Non-GAAP Measures" section below for
our use of this
measure not defined by GAAP.
Segment
operating
profit
increased
percent
to
$787 million
in
the
third
quarter
of
fiscal
2023,
compared
to
$612 million
in
the
same
period
in
fiscal
2022,
primarily
driven
by
favorable
net
price
realization
and
mix,
partially
offset
by
higher
input
costs
and
higher SG&A expenses.
Segment operating profit
increased 29 percent
on a constant-currency
basis in the third
quarter of fiscal
2023
compared to the
same period in
fiscal 2022 (see
the “Non-GAAP Measures”
section below for
our use of
this measure not
defined by
GAAP).
Segment
operating
profit
increased
percent
to
$2,402 million
in
the
nine-month
period
ended
February
26,
2023,
compared
to
$1,936 million in the
same period in fiscal
2022, primarily driven by
favorable net price realization
and mix, partially offset
by higher
input
costs,
a
decrease
in
contributions
from
volume
growth,
and
higher
SG&A
expenses.
Segment
operating
profit
increased
percent on
a constant-currency
basis in
the nine-month
period ended
February 26,
2023, compared
to the
same period
in fiscal
2022
(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. 26,
2023
Feb. 26, 2023 vs
Feb. 27, 2022
Feb. 27,
2022
Feb. 26,
2023
Feb. 26, 2023 vs
Feb. 27, 2022
Feb. 27,
2022
Net sales (in millions)
$
700.6
(3)
%
$
721.0
$
2,024.8
(21)
%
$
2,566.0
Contributions from volume growth (a)
(10)
pts
(31)
pts
Net price realization and mix
pts
pts
Foreign currency exchange
(4)
pts
(5)
pts
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 3
percent in the
third quarter of
fiscal 2023,
compared to the
same period
in fiscal 2022,
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 21
percent in the
nine-month period
ended February 26,
2023, compared
to the same
period in fiscal
2022, driven
by a
decrease in
contributions from
volume growth,
including the
impact of
volume declines
from divestitures
and the
voluntary recall on
certain international
Häagen-Dazs
ice cream products,
and unfavorable foreign
currency exchange, partially
offset
by favorable net price realization and mix.
The components of International organic net sales growth
are shown in the following table:
Quarter Ended
Nine-Month Period Ended
Feb. 26, 2023
Feb. 26, 2023
Contributions from organic volume growth (a)
(4)
pts
(6)
pts
Organic net price realization and mix
pts
pts
Organic net sales growth
pts
pts
Foreign currency exchange
(4)
pts
(5)
pts
Divestitures (b)
(6)
pts
(19)
pts
Net sales growth
(3)
pts
(21)
pts
Note: Table may not foot due to rounding.
(a) Measured in tons based on the stated weight of our product shipments.
(b) Divestitures primarily include the impact of the sale of our interests in Yoplait SAS, Yoplait
Marques SNC, and Liberté Marques Sàrl and our
European dough businesses in fiscal 2022. Please see Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report.
International
organic
net
sales increased
percent
in
the
third
quarter
of
fiscal
2023
and 3
percent
in
the
nine-month
period
ended
February 26,
2023, compared
to the
same periods
in fiscal
2022, driven
by favorable
organic net
price realization
and mix,
partially
offset by a decrease in contributions from organic
volume growth.
Segment operating
profit increased
18 percent
to $42 million
in the
third quarter
of fiscal
2023,
compared to
$36 million in
the same
period in fiscal 2022, primarily driven
by favorable net price realization
and mix and a decrease in SG&A expenses,
partially offset by
higher
input
costs
and
a
decrease
in
contributions
from
volume
growth,
including
the
impact
of volume
declines
from
divestitures.
Segment operating
profit increased
27 percent
on a
constant-currency basis
in the
third quarter
of fiscal
2023 compared
to the
same
period in fiscal 2022 (see the “Non-GAAP Measures”
section below for our use of this measure not defined by GAAP).
Segment
operating
profit
decreased
percent
to
$95 million
in
the
nine-month
period
ended
February
26,
2023,
compared
to
$156 million
in
the
same
period
in
fiscal
2022,
primarily
driven
by
a
decrease
in
contributions
from
volume
growth,
including
the
impact
of
volume declines
from
divestitures
and
the voluntary
recall
on certain
international
Häagen-Dazs
ice
cream
products,
and
higher
input costs,
partially
offset
by favorable
net price
realization and
mix and
a decrease
in SG&A
expenses.
Segment operating
profit
decreased
percent
on a
constant-currency
basis in
the
nine-month
period
ended February
26,
2023,
compared
to
the
same
period in fiscal 2022 (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. 26,
2023
Feb. 26, 2023 vs
Feb. 27, 2022
Feb. 27,
2022
Feb. 26,
2023
Feb. 26, 2023 vs
Feb. 27, 2022
Feb. 27,
2022
Net sales (in millions)
$
645.5
%
$
567.7
$
1,818.3
%
$
1,649.1
Contributions from volume growth (a)
pts
(2)
pts
Net price realization and mix
pts
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
14 percent
in the
third quarter
of fiscal 2023,
compared to
the same period
in fiscal 2022,
driven by
favorable
net price realization and mix and an increase in contributions from volume growth
.
Pet net sales increased 10
percent during the
nine-month period ended February
26, 2023, compared to
the same period in fiscal
2022,
driven by favorable net price realization and mix, partially offset by
a decrease in contributions from volume growth.
The components of Pet organic net sales growth are shown in the following
table:
Quarter Ended
Nine-Month Period Ended
Feb. 26, 2023
Feb. 26, 2023
Contributions from organic volume growth (a)
pts
(3)
pts
Organic net price realization and mix
pts
pts
Organic net sales growth
pts
pts
Foreign currency exchange
Flat
Flat
Acquisition (b)
Flat
pt
Net sales growth
pts
pts
Note: Table may not foot due to rounding.
(a) Measured in tons based on the stated weight of our product shipments.
(b) Acquisition of Tyson Foods’ pet treats business in fiscal 2022. Please see Note 2 to the Consolidated Financial Statements in Part I, Item 1 of
this report.
Pet organic
net sales
increased 14
percent in
the third
quarter of
fiscal 2023,
compared to
the same
period in
fiscal 2022,
driven by
favorable organic net price realization and mix and
an increase in contributions from organic volume growth.
Pet organic
net
sales increased
9 percent
in the
nine-month
period
ended February
26,
2023,
compared
to
the same
period
in fiscal
2022,
driven by
favorable organic
net price
realization and
mix,
partially offset
by a
decrease in
contributions from
organic
volume
growth.
Segment operating profit
decreased 7 percent to $103
million in the third quarter
of fiscal 2023,
compared to $111
million in the same
period
in
fiscal
2022,
primarily
driven
by
higher
input
costs
and
higher
SG&A
expenses,
partially
offset
by
favorable
net
price
realization and mix and
an increase in contributions
from volume growth.
Segment operating profit decreased
7 percent on a constant-
currency basis in
the third
quarter of
fiscal 2023
compared to the
same period
in fiscal 2022
(see the “Non-GAAP
Measures” section
below for our use of this measure not defined by GAAP).
Segment
operating
profit
decreased
percent
to
$312 million
in
the
nine-month
period
ended
February
26,
2023,
compared
to
$357 million in
the same period
in fiscal 2022,
primarily driven
by higher input
costs, an increase
in SG&A expenses,
and a decrease
in contributions
from volume
growth, partially
offset
by favorable
net price
realization and
mix. Segment
operating profit
decreased
13 percent on a constant-currency basis in the nine-month
period ended February 26, 2023, compared to the same period in fiscal
2022
(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. 26,
2023
Feb. 26, 2023 vs
Feb. 27, 2022
Feb. 27,
2022
Feb. 26,
2023
Feb. 26, 2023 vs
Feb. 27, 2022
Feb. 27,
2022
Net sales (in millions)
$
547.8
%
$
437.1
$
1,627.2
%
$
1,319.4
Contributions from volume growth (a)
pts
pts
Net price realization and mix
pts
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
Foodservice
net sales
increased
25 percent
in the
third quarter
of fiscal
2023,
compared to
the same
period in
fiscal
2022, driven by favorable net price realization and mix and an increase
in contributions from volume growth.
North America
Foodservice net
sales increased
23 percent
in the
nine-month period
ended February
26, 2023,
compared to
the same
period
in
fiscal
2022,
driven
by
favorable
net
price
realization
and
mix,
including
market
index
pricing
on
bakery
flour,
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. 26, 2023
Feb. 26, 2023
Contributions from organic volume growth (a)
pt
(1)
pt
Organic net price realization and mix
pts
pts
Organic net sales growth
pts
pts
Foreign currency exchange
Flat
Flat
Acquisition (b)
pts
pts
Net sales growth
pts
pts
Note: Table may not foot due to rounding.
(a) Measured in tons based on the stated weight of our product shipments.
(b) Acquisition of TNT Crust in fiscal 2023. Please see Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report.
North America
Foodservice organic
net sales
increased 19
percent in
the third
quarter of fiscal
2023,
compared to
the same
period in
fiscal 2022, 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 18 percent in the nine-month period
ended February 26, 2023, compared to the
same period in
fiscal 2022, driven
by favorable organic
net price realization
and mix, including
market index pricing
on bakery flour,
partially offset by a decrease in contributions from organic
volume growth.
Segment operating profit
increased 134 percent
to $82 million in
the third quarter of
fiscal 2023,
compared to $35 million
in the same
period
in
fiscal
2022,
primarily
driven
by
favorable
net
price
realization
and
mix,
partially
offset
by
higher
input
costs.
Segment
operating profit
increased 134
percent on
a constant-currency
basis in the
third quarter
of fiscal 2023
compared to
the same period
in
fiscal 2022 (see the “Non-GAAP Measures” section below for our use of this measure
not defined by GAAP).
Segment
operating
profit
increased
percent
to
$218
million
in
the
nine-month
period
ended
February
26,
2023,
compared
to
$175 million in
the same
period in
fiscal 2022,
primarily driven
by favorable
net price
realization and
mix, partially
offset by
higher
input
costs
and
an
increase
in
SG&A
expenses.
Segment
operating
profit
increased
percent
on
a
constant-currency
basis
in
the
nine-month
period
ended
February
26,
2023,
compared
to
the
same
period
in
fiscal
2022
(see
the
“Non-GAAP
Measures”
section
below for our use of this measure not defined by GAAP).
UNALLOCATED
CORPORATE
ITEMS
Unallocated corporate expense
totaled $296 million in the
third quarter of fiscal
2023, compared to $141
million in the same period
in
fiscal
In
the
third
quarter
of
fiscal
2023,
we
recorded
a
$67 million
net
increase
in
expense
related
to
the
mark-to-market
valuation of
certain commodity
positions and
grain inventories
compared to
a $20 million
net increase
in expense
in the
same period
last year.
We
recorded $20 million
of net
losses related
to valuation
adjustments on
certain corporate
investments
in the
third quarter
of fiscal
2023, compared
to $11 million
of net
gains related
to the
sale of
certain corporate
investments and
valuation adjustments
in
the third
quarter of
fiscal 2022.
In addition,
we recorded
$1 million
of integration
costs primarily
related to
our acquisition
of
TNT
Crust
in
the
third
quarter
of fiscal
2023,
compared
to $4 million
of
integration
costs related
to
our
acquisition
of
Tyson
Foods’
pet
treats business in the third
quarter of fiscal 2022. In
the third quarter of fiscal 2022, we
recorded $9 million of transaction costs related
to
the
sale
of
our
interests
in
Yoplait
SAS,
Yoplait
Marques
SNC,
and
Liberté
Marques
Sàrl
and
the
sale
of
our
European
dough
businesses.
In addition, certain compensation
and benefits expenses and charitable
contributions increased in the
third quarter of fiscal
2023,
compared to the same period last year.
Unallocated corporate
expense totaled
$842 million
in the
nine-month period
ended February
26, 2023,
compared to
$329 million
in
the
same
period
last
year.
We
recorded
a
$266
million
net
increase
in
expense
related
to
the
mark-to-market
valuation
of
certain
commodity positions and grain
inventories in the nine-month
period ended February 26, 2023,
compared to a $16 million
net decrease
in
expense
in
the
same
period
last
year.
We
recorded
$82
million
of
net
losses
related
to
valuation
adjustments
and
the
sale
of
corporate investments in the
nine-month period ended February
26, 2023, compared to $21
million of net gains in
the same period last
year.
In
the
nine-month
period
ended
February
26,
2023,
we
recorded
a
$26
million
charge
related
to
a
voluntary
recall
on
certain
international
Häagen-Dazs
ice
cream
products.
In
addition,
we
recorded
$5
million
of
integration
costs
primarily
related
to
our
acquisition of
TNT Crust
in the
nine-month period
ended February
26, 2023,
compared to
$20 million
of integration
costs related
to
our
acquisition
of
Tyson
Foods’
pet
treats
business
in
the
nine-month
period
ended
February
27,
In
the
nine-month
period
ended
February
26,
2023,
we
recorded
$2
million
of
transaction
costs
primarily
related
to
the
sale
of
our
Helper
main
meals
and
Suddenly Salad
side dishes
business compared
to $57
million of
transaction costs
related to
the sale
of our
interests in
Yoplait
SAS,
Yoplait
Marques SNC,
Liberté Marques
Sàrl and
the sale
of our
European dough
businesses. 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.
In
addition,
certain
compensation
and
benefits
expenses
and
charitable
contributions
increased
in
the
nine-month
period
ended
February 26, 2023, compared to the same period last year.
LIQUIDITY
AND CAPITAL
RESOURCES
During the
nine-month period
ended February
26, 2023,
cash provided by
operations was
$2,027 million
compared to
$2,228 million
in the
same period
last year.
The $201
million decrease
was primarily
driven by
an increase in
inventory and
higher cash
income tax
payments in the nine-month period ended February 26, 2023, as compared
to the same period a year ago.
Cash used
by investing
activities
during
the nine
-month
period ended
February
26, 2023,
was $6
million
compared
to cash
used of
$1,462 million for the same period
in fiscal 2022. During the first quarter
of the 2023, we completed the sale of
the Helper main meals
and Suddenly
Salad side dishes
business
for
$607
million cash.
In the
first
quarter
of fiscal
2023,
we
acquired
TNT Crust
for
$252
million cash, net of cash acquired.
In the first quarter of fiscal 2022,
we acquired the Tyson
Foods’ pet treats business for an
aggregate
purchase price of $1.2 billion.
Cash
used
by
financing
activities
during
the
nine-month
period
ended
February
26,
2023,
was
$1,956 million
compared
to
$1,398 million of
cash used
by financing
activities in
the same
period in
fiscal 2022.
We
paid $967
million of
dividends in
the nine-
month period ended February 26, 202
3, compared to $934 million in the
same period last year.
We purchased
$1,152 million of shares
of common
stock in the
nine-month period
ended February 26,
2023, compared
to $550 million
in the same
period in fiscal
In
addition, we had $61 million of net debt issuances in the
nine-month period ended February 26, 2023, compared
to $128 million of net
debt issuances in the same period a year ago.
As
of
February
26,
2023,
we
had
$553 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 26, 2023:
In Billions
Facility
Amount
Borrowed
Amount
Committed credit facility expiring April 2026
$
2.7
$
-
Uncommitted credit facilities
0.6
-
Total committed
and uncommitted credit facilities
$
3.3
$
-
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).
The floating
preferred return
rate on
GMC’s
Class A Interests
is
the
sum
of
the
three-month
Term
SOFR
plus
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.
Certain
of
our
long-term
debt
agreements,
our
credit
facilities,
and
our
noncontrolling
interests
contain
restrictive
covenants.
As
of
February 26, 2023, we were in compliance with all of these covenants.
We
have $2,487 million
of long-term debt
maturing in the
next 12 months
that is classified
as current, including
€500 million of
1.00
percent fixed-rate notes due
April 27, 2023, €250
million of 0.00 percent
fixed-rate notes due May
16, 2023, €250 million
of floating-
rate notes due
May 16, 2023,
€500 million
of 0.00 percent
fixed-rate notes
due July 27,
2023, and $400
million of
floating-rate notes
due October 17, 2023. 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.
CRITICAL 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 29,
- The
accounting policies
used in
preparing our
interim fiscal
2023
Consolidated
Financial Statements are the same as those described in our Form 10-K.
Our
critical
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,
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 26,
2023, are the
same as those
described
in our Annual Report on Form 10-K for the fiscal year ended May 29, 2022.
Our
annual
goodwill
and
indefinite-lived
intangible
assets
impairment
test
was
performed
on
the
first
day
of
the
second
quarter
of
fiscal
2023,
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. In addition,
while having
significant coverage
as of
our fiscal 2023
assessment date, the
Progresso
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
December
2022,
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
through December 31, 2024. 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.
In September 2022,
the FASB
issued Accounting Standards
Update (ASU) 2022-04
requiring enhanced disclosures
related to supplier
financing programs.
The ASU
requires disclosure
of the
key terms
of the
program and
a rollforward
of the
related obligation
during
the annual period,
including the amount of
obligations confirmed and
obligations subsequently paid.
The new disclosure requirements
are effective
for fiscal years beginning
after December 15, 2022,
with the exception
of the rollforward requirement,
which is effective
for fiscal years beginning
after December 15,
2023, which for us
is the first quarter
of fiscal 2024 for
the primary requirement
and the
first quarter
of fiscal
2025 for
the rollforward
requirement. Early
adoption is
permitted. We
have historically
presented the
key terms
of these
programs
and the
associated obligation
outstanding.
We
do not
expect this
ASU to
have a
material
impact on
our financial
statements and related disclosures.
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, net
Net divestitures
gain primarily
related to
the sale
of our
Helper main
meals and
Suddenly Salad
side dishes
business in
fiscal 2023.
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.
Mark-to-market effects
Net
mark-to-market
valuation
of
certain
commodity
positions
recognized
in
unallocated
corporate
items.
Please
see
Note
to
the
Consolidated Financial Statements in Part I, Item 1 of this report.
Investment activity,
net
Valuation
adjustments and the
loss on sale of
certain corporate investments
in fiscal 2023.
Valuation
adjustments and the
gain on sale
of certain corporate investments in fiscal 2022.
Product recall
Voluntary
recall costs recorded in fiscal 2023 related to certain international
Häagen-Dazs
ice cream products.
Restructuring charges
Restructuring charges
for previously announced
restructuring actions recorded
in fiscal 2023
and fiscal 2022.
Please see Note 3
to the
Consolidated Financial Statements in Part I, Item 1 of this report.
Acquisition integration costs
Integration costs
primarily resulting
from the acquisition
of TNT Crust
in fiscal 2023.
Integration costs
resulting from
the acquisition
of Tyson
Foods’ pet treats 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
primarily
related
to
the
sale
of
our
Helper
main
meals
and
Suddenly
Salad
side
dishes
business
in
fiscal
Transaction
costs related
to the sale
of our
interests in
Yoplait
SAS, Yoplait
Marques SNC,
and Liberté
Marques Sàrl
and the sale
of
our
European
dough
businesses in
fiscal
Please see
Note
to
the
Consolidated
Financial
Statements
in
Part
I,
Item
of
this
report.
Non-income tax recovery
Recovery related to a Brazil indirect tax item recorded in fiscal 2022.
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 53
rd
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. 26, 2023
Feb. 27, 2022
In Millions
Value
Percent of
Net Sales
Value
Percent of
Net Sales
Operating profit as reported
$
730.2
14.2
%
$
815.3
18.0
%
Divestitures gain, net
(13.7)
(0.3)
%
(170.1)
(3.7)
%
Mark-to-market effects
66.6
1.3
%
20.0
0.4
%
Investment activity, net
20.1
0.4
%
(11.1)
(0.2)
%
Product recall
1.1
-
%
-
-
%
Restructuring charges
2.1
-
%
9.3
0.2
%
Acquisition integration costs
0.7
-
%
4.3
0.1
%
Transaction costs
-
-
%
8.6
0.2
%
Non-income tax recovery
-
-
%
0.2
-
%
Adjusted operating profit
$
807.0
15.7
%
$
676.5
14.9
%
Nine-Month Period Ended
Feb. 26, 2023
Feb. 27, 2022
In Millions
Value
Percent of
Net Sales
Value
Percent of
Net Sales
Operating profit as reported
$
2,615.6
17.4
%
$
2,459.7
17.4
%
Divestitures gain, net
(444.6)
(3.0)
%
(170.1)
(1.2)
%
Mark-to-market effects
266.4
1.8
%
(16.2)
(0.1)
%
Investment activity, net
82.1
0.5
%
(20.9)
(0.1)
%
Product recall
25.5
0.2
%
-
-
%
Restructuring charges
16.0
0.1
%
7.9
0.1
%
Acquisition integration costs
5.0
-
%
20.2
0.1
%
Transaction costs
2.0
-
%
56.8
0.4
%
Non-income tax recovery
-
-
%
(20.4)
(0.1)
%
Adjusted operating profit
$
2,567.9
17.0
%
$
2,317.0
16.4
%
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. 26, 2023
Feb. 27, 2022
Change
Feb. 26, 2023
Feb. 27, 2022
Change
Operating profit as reported
$
730.2
$
815.3
(10)
%
$
2,615.6
$
2,459.7
%
Divestitures gain, net
(13.7)
(170.1)
(444.6)
(170.1)
Mark-to-market effects
66.6
20.0
266.4
(16.2)
Investment activity, net
20.1
(11.1)
82.1
(20.9)
Product recall
1.1
-
25.5
-
Restructuring charges
2.1
9.3
16.0
7.9
Acquisition integration costs
0.7
4.3
5.0
20.2
Transaction costs
-
8.6
2.0
56.8
Non-income tax recovery
-
0.2
-
(20.4)
Adjusted operating profit
$
807.0
$
676.5
%
$
2,567.9
$
2,317.0
%
Foreign currency exchange impact
(1)
pt
(1)
pt
Adjusted operating profit growth,
on a constant-currency basis
%
%
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. 26, 2023
Feb. 27, 2022
Change
Feb. 26, 2023
Feb. 27, 2022
Change
Diluted earnings per share, as reported
$
0.92
$
1.08
(15)
%
$
3.28
$
3.07
%
Divestitures gain, net
(0.08)
(0.28)
(0.62)
(0.28)
Mark-to-market effects
0.09
0.03
0.34
(0.02)
Investment activity, net
0.03
(0.01)
0.11
(0.03)
Product recall
-
-
0.03
-
Restructuring charges
-
0.02
0.02
0.01
Acquisition integration costs
-
0.01
0.01
0.03
Transaction costs
-
0.01
-
0.07
Non-income tax recovery
-
-
-
(0.02)
Adjusted diluted earnings per share
$
0.97
$
0.84
%
$
3.18
$
2.82
%
Foreign currency exchange impact
(1)
pt
(1)
pt
Adjusted diluted earnings per share
growth, on a constant-currency basis
%
%
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. 26, 2023
(58)
%
(7)
pts
(51)
%
Nine-Month Period Ended Feb. 26, 2023
(37)
%
(9)
pts
(28)
%
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. 26, 2023
%
(6)
pts
%
Nine-Month Period Ended Feb. 26, 2023
%
(6)
pts
%
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. 26, 2023
Percentage Change in
Operating Profit
as Reported
Impact of Foreign
Currency
Exchange
Percentage Change in Operating
Profit on Constant-Currency
Basis
North America Retail
%
Flat
%
International
%
(8)
pts
%
Pet
(7)
%
Flat
(7)
%
North America Foodservice
%
Flat
%
Nine-Month Period Ended Feb. 26, 2023
Percentage Change in
Operating Profit
as Reported
Impact of Foreign
Currency
Exchange
Percentage Change in Operating
Profit on Constant-Currency
Basis
North America Retail
%
Flat
%
International
(39)
%
(6)
pts
(33)
%
Pet
(13)
%
Flat
(13)
%
North America Foodservice
%
Flat
%
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. 26, 2023
Feb. 27, 2022
Feb. 26, 2023
Feb. 27, 2022
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
$
653.5
$
108.3
$
755.9
$
123.2
$
2,403.1
$
471.5
$
2,269.0
$
451.8
Divestitures gain, net
(13.7)
28.7
(170.1)
0.4
(444.6)
(73.2)
(170.1)
0.4
Mark-to-market effects
66.6
15.3
20.0
4.6
266.4
61.3
(16.2)
(3.7)
Investment activity, net
20.1
4.5
(11.1)
(0.2)
82.1
18.0
(20.9)
0.3
Product recall
1.1
0.3
-
-
25.5
5.9
-
-
Restructuring charges
2.1
0.7
9.3
1.7
16.0
4.5
7.9
3.6
Acquisition integration costs
0.7
0.1
4.3
1.0
5.0
1.1
20.2
4.6
Transaction costs
-
-
8.6
(1.2)
2.0
0.6
56.8
11.2
Non-income tax recovery
-
-
0.2
0.1
-
-
(20.4)
(6.9)
As adjusted
$
730.3
$
157.8
$
617.1
$
129.5
$
2,355.4
$
489.6
$
2,126.3
$
461.3
Effective tax rate:
As reported
16.6%
16.3%
19.6%
19.9%
As adjusted
21.6%
21.0%
20.8%
21.7%
Sum of adjustment to
income taxes
$
49.5
$
6.4
$
18.1
$
9.5
Average number
of common
shares - diluted EPS
599.0
612.4
602.4
613.5
Impact of income tax adjustments
on adjusted diluted EPS
$
(0.08)
$
(0.01)
$
(0.03)
$
(0.02)
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.
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
rd
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.
SOFR.
Secured Overnight Financing Rate.
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
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 critical
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 29, 2022 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.
Previous: Item 1. Financial Statements · Next: Item 3. Quantitative and Qualitative Disclosures About Market Risk.