filings.toolsGeneral Mills 10-Q 2023-08-27
Filed 2023-09-20. 7 sections, 99K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)
☑
QUARTERLY
REPORT
PURSUANT
TO
SECTION
OR
15(d)
OF
THE
SECURITIES
EXCHANGE
ACT
OF
1934
FOR THE QUARTERLY
PERIOD ENDED
AUGUST 27, 2023
☐
TRANSITION
REPORT
PURSUANT
TO
SECTION
OR
15(d)
OF
THE
SECURITIES
EXCHANGE
ACT
OF
1934
FOR THE TRANSITION PERIOD FROM
TO
Commission file number:
001-01185
GENERAL MILLS, INC.
(Exact name of registrant as specified in its charter)
Delaware
41-0274440
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
Number One General Mills Boulevard
Minneapolis
,
Minnesota
55426
(Address of principal executive offices)
(Zip Code)
(763)
764-7600
(Registrant’s telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange
on which registered
Common Stock, $.10 par value
GIS
New York Stock Exchange
0.125% Notes due 2025
GIS 25A
New York Stock Exchange
0.450% Notes due 2026
GIS 26
New York Stock Exchange
1.500% Notes due 2027
GIS 27
New York Stock Exchange
3.907% Notes due 2029
GIS 29
New York Stock Exchange
Indicate
by
check
mark
whether
the
registrant
(1)
has
filed
all
reports
required
to
be
filed
by
Section
or
15(d)
of
the
Securities
Exchange Act of 1934
during the preceding 12
months (or for such shorter
period that the registrant
was required to file such
reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes
☑
No
☐
Indicate
by
check
mark
whether
the
registrant
has
submitted
electronically
every
Interactive
Data
File
required
to
be
submitted
pursuant to Rule 405
of Regulation S-T (§
232.405 of this chapter) during
the preceding 12 months (or
for such shorter period that
the
registrant was required to submit such files).
Yes
☑
No
☐
Indicate by check mark
whether the registrant is a
large accelerated filer,
an accelerated filer,
a non-accelerated filer,
smaller reporting
company,
or
an
emerging
growth
company.
See
the
definitions
of
“large
accelerated
filer,”
“accelerated
filer,”
“smaller
reporting
company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☑
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If
an
emerging
growth
company,
indicate
by
check
mark
if
the
registrant
has
elected
not
to
use
the
extended
transition
period
for
complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes
☐
No
☑
Number of
shares of
Common Stock
outstanding
as of
September 13,
2023:
581,279,229
(excluding
173,334,099
shares held
in the
treasury).
General Mills, Inc.
Table of Contents
Page
PART I – Financial Information
Consolidated Statements of Earnings for the quarters ended August 27, 2023 and August 28, 2022
Consolidated Balance Sheets as of August 27, 2023 and May 28, 2023
Consolidated Statements of Total Equity for the quarters ended August 27, 2023 and August 28, 2022
Consolidated Statements of Cash Flows for the quarters ended August 27, 2023 and August 28, 2022
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
PART
I.
FINANCIAL INFORMATION
Item 1. Financial Statements
Financial Statements
Consolidated Statements of Earnings
GENERAL MILLS, INC. AND SUBSIDIARIES
(Unaudited) (In Millions, Except per Share Data)
Quarter Ended
Aug. 27, 2023
Aug. 28, 2022
Net sales
$
4,904.7
$
4,717.6
Cost of sales
3,134.2
3,269.9
Selling, general, and administrative expenses
839.3
791.4
Divestitures gain, net
-
(430.9)
Restructuring, impairment, and other exit costs
1.2
1.6
Operating profit
930.0
1,085.6
Benefit plan non-service income
(17.0)
(21.7)
Interest, net
117.0
87.7
Earnings before income taxes and after-tax earnings
from
joint ventures
830.0
1,019.6
Income taxes
173.2
216.1
After-tax earnings from joint ventures
23.5
19.8
Net earnings, including earnings attributable to noncontrolling interests
680.3
823.3
Net earnings attributable to noncontrolling interests
6.8
3.3
Net earnings attributable to General Mills
$
673.5
$
820.0
Earnings per share – basic
$
1.15
$
1.37
Earnings per share – diluted
$
1.14
$
1.35
See accompanying notes to consolidated financial statements.
Consolidated Statements of Comprehensive Income
GENERAL MILLS, INC. AND SUBSIDIARIES
(Unaudited) (In Millions)
Quarter Ended
Aug. 27, 2023
Aug. 28, 2022
Net earnings, including earnings attributable to noncontrolling interests
$
680.3
$
823.3
Other comprehensive (loss) income, net of tax:
Foreign currency translation
(18.1)
3.8
Other fair value changes:
Hedge derivatives
(2.3)
(38.3)
Reclassification to earnings:
Foreign currency translation
-
(7.4)
Hedge derivatives
0.2
(1.4)
Amortization of losses and prior service costs
9.1
14.1
Other comprehensive loss, net of tax
(11.1)
(29.2)
Total comprehensive
income
669.2
794.1
Comprehensive income attributable to noncontrolling interests
6.9
2.0
Comprehensive income attributable to General Mills
$
662.3
$
792.1
See accompanying notes to consolidated financial statements.
Consolidated Balance Sheets
GENERAL MILLS, INC. AND SUBSIDIARIES
(In Millions, Except Par Value)
Aug. 27, 2023
May 28, 2023
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
490.9
$
585.5
Receivables
1,791.1
1,683.2
Inventories
2,228.8
2,172.0
Prepaid expenses and other current assets
596.2
735.7
Total current
assets
5,107.0
5,176.4
Land, buildings, and equipment
3,585.2
3,636.2
Goodwill
14,522.0
14,511.2
Other intangible assets
6,965.7
6,967.6
Other assets
1,139.8
1,160.3
Total assets
$
31,319.7
$
31,451.7
LIABILITIES
AND EQUITY
Current liabilities:
Accounts payable
$
3,705.8
$
4,194.2
Current portion of long-term debt
1,174.6
1,709.1
Notes payable
584.3
31.7
Other current liabilities
1,603.1
1,600.7
Total current
liabilities
7,067.8
7,535.7
Long-term debt
10,523.5
9,965.1
Deferred income taxes
2,085.0
2,110.9
Other liabilities
1,128.0
1,140.0
Total liabilities
20,804.3
20,751.7
Stockholders' equity:
Common stock,
754.6
shares issued, $
0.10
par value
75.5
75.5
Additional paid-in capital
1,185.7
1,222.4
Retained earnings
20,163.6
19,838.6
Common stock in treasury,
at cost, shares of
173.4
and
168.0
(8,874.3)
(8,410.0)
Accumulated other comprehensive loss
(2,288.1)
(2,276.9)
Total stockholders' equity
10,262.4
10,449.6
Noncontrolling interests
253.0
250.4
Total equity
10,515.4
10,700.0
Total liabilities and equity
$
31,319.7
$
31,451.7
See accompanying notes to consolidated financial statements.
Consolidated Statements of Total
Equity
GENERAL MILLS, INC. AND SUBSIDIARIES
(Unaudited) (In Millions, Except per Share Data)
Quarter Ended
Aug. 27, 2023
Aug. 28, 2022
Shares
Amount
Shares
Amount
Total equity,
beginning balance
$
10,700.0
$
10,788.0
Common stock,
billion shares authorized, $
0.10
par value
754.6
75.5
754.6
75.5
Additional paid-in capital:
Beginning balance
1,222.4
1,182.9
Stock compensation plans
7.3
9.3
Unearned compensation related to stock unit awards
(79.4)
(79.0)
Earned compensation
35.4
32.9
Ending balance
1,185.7
1,146.1
Retained earnings:
Beginning balance
19,838.6
18,532.6
Net earnings attributable to General Mills
673.5
820.0
Cash dividends declared ($
0.59
and $
0.54
per share)
(348.5)
(325.0)
Ending balance
20,163.6
19,027.6
Common stock in treasury:
Beginning balance
(168.0)
(8,410.0)
(155.7)
(7,278.1)
Shares purchased, including $
4.2
million of excise tax
(6.4)
(504.7)
(6.9)
(500.8)
Stock compensation plans
1.0
40.4
2.3
102.9
Ending balance
(173.4)
(8,874.3)
(160.3)
(7,676.0)
Accumulated other comprehensive loss:
Beginning balance
(2,276.9)
(1,970.5)
Comprehensive loss
(11.2)
(27.9)
Ending balance
(2,288.1)
(1,998.4)
Noncontrolling interests:
Beginning balance
250.4
245.6
Comprehensive income
6.9
2.0
Distributions to noncontrolling interest holders
(4.3)
(1.9)
Divestiture
-
5.1
Ending balance
253.0
250.8
Total equity,
ending balance
$
10,515.4
$
10,825.6
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
GENERAL MILLS, INC. AND SUBSIDIARIES
(Unaudited) (In Millions)
Quarter Ended
Aug. 27, 2023
Aug. 28, 2022
Cash Flows - Operating Activities
Net earnings, including earnings attributable to noncontrolling interests
$
680.3
$
823.3
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization
137.2
134.3
After-tax earnings from joint ventures
(23.5)
(19.8)
Distributions of earnings from joint ventures
15.8
15.5
Stock-based compensation
35.3
33.5
Deferred income taxes
(14.5)
9.2
Pension and other postretirement benefit plan contributions
(7.4)
(5.3)
Pension and other postretirement benefit plan costs
(5.3)
(6.7)
Divestitures gain, net
-
(430.9)
Restructuring, impairment, and other exit costs
2.4
(15.7)
Changes in current assets and liabilities, excluding the effects of
acquisitions and divestitures
(457.4)
(209.7)
Other, net
15.2
61.1
Net cash provided by operating activities
378.1
388.8
Cash Flows - Investing Activities
Purchases of land, buildings, and equipment
(141.7)
(90.9)
Acquisition, net of cash acquired
-
(252.1)
Proceeds from divestitures, net of cash divested
-
610.7
Other, net
6.2
(1.9)
Net cash (used) provided by investing activities
(135.5)
265.8
Cash Flows - Financing Activities
Change in notes payable
551.8
188.0
Proceeds from common stock issued on exercised options
4.5
65.5
Purchases of common stock for treasury
(500.5)
(500.8)
Dividends paid
(348.5)
(325.0)
Distributions to noncontrolling interest holders
(4.3)
(1.9)
Other, net
(37.2)
(34.9)
Net cash used by financing activities
(334.2)
(609.1)
Effect of exchange rate changes on cash and cash equivalents
(3.0)
(20.5)
(Decrease) Increase in cash and cash equivalents
(94.6)
25.0
Cash and cash equivalents - beginning of year
585.5
569.4
Cash and cash equivalents - end of period
$
490.9
$
594.4
Cash Flow from changes in current assets and liabilities, excluding the effects
of
acquisitions and divestitures:
Receivables
$
(104.4)
$
(91.1)
Inventories
(54.3)
(243.3)
Prepaid expenses and other current assets
140.9
79.5
Accounts payable
(443.8)
(130.4)
Other current liabilities
4.2
175.6
Changes in current assets and liabilities
$
(457.4)
$
(209.7)
See accompanying notes to consolidated financial statements.
GENERAL MILLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
(1) Background
The accompanying
Consolidated Financial
Statements of
General Mills,
Inc. (we,
us, our,
General Mills,
or the Company)
have been
prepared in
accordance with
accounting principles
generally accepted
in the
United States
(GAAP) for
interim financial
information
and with
the rules
and regulations
for reporting
on Form
10-Q. Accordingly,
they do
not include
certain information
and disclosures
required
for
comprehensive
financial
statements.
In
the
opinion
of
management,
all
adjustments
considered
necessary
for
a
fair
presentation have
been included
and are
of a
normal recurring
nature, including
the elimination
of all
intercompany transactions
and
any
noncontrolling
interests’
share
of
those
transactions.
Operating
results
for
the
fiscal
quarter
ended
August
27,
2023,
are
not
necessarily indicative of the results that may be expected for the fiscal year ending
May 26, 2024.
These
statements
should
be
read
in
conjunction
with
the
Consolidated
Financial
Statements
and
footnotes
included
in
our
Annual
Report on Form
10-K for the fiscal
year ended May
28, 2023. The
accounting policies used
in preparing these
Consolidated Financial
Statements are the same as those described in Note 2 to the Consolidated Financial
Statements in that Form 10-K with the exception of
new requirements adopted in the first quarter of fiscal 2024.
In the first quarter
of fiscal 2024, we
adopted optional accounting guidance
to ease the burden
in accounting for reference
rate reform.
The new
standard provides
temporary expedients
and exceptions
to existing
accounting requirements
for contract
modifications
and
hedge accounting
related to transitioning
from discontinued
reference rates.
This resulted in
modifying contracts,
where necessary,
to
apply a new reference rate,
primarily SOFR. The adoption of
this accounting guidance did not
have a material impact on our
results of
operations or financial position.
In the
first quarter
of fiscal
2024, we adopted
new requirements
for enhanced
disclosures related
to supplier
financing programs.
The
new standard 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.
We
have
historically
presented
the
key
terms
of
these programs
and the associated
obligation outstanding
(please see Note
6). The
rollforward requirement
is effective
in fiscal 2025.
The adoption did not have a material impact on our financial statements and related
disclosures.
Certain terms used throughout this report are defined in the “Glossary” section below.
(2) Acquisition and Divestiture
During
the first
quarter
of fiscal
2023,
we
acquired
TNT Crust,
a
manufacturer
of high-quality
frozen pizza
crusts
for
regional
and
national pizza
chains, foodservice
distributors, and
retail outlets,
for a
purchase price
of $
253.0
million. We
financed the
transaction
with U.S. commercial paper.
We consolidated
the TNT Crust business into
our Consolidated Balance Sheets
and recorded goodwill
of
$
156.7
million. The
goodwill is
included in
the North
America Foodservice
segment and
is not
deductible for
tax purposes.
The pro
forma effects of this acquisition were not material.
During the
first quarter
of fiscal
2023,
we completed
the sale
of our
Helper main
meals and
Suddenly
Salad side
dishes business
to
Eagle Family Foods Group for $
606.8
million and recorded a pre-tax gain of $
442.2
million.
(3) Restructuring, Impairment, and Other Exit Costs
During the
first quarter
of fiscal 2024,
we did not
undertake any
new restructuring
actions. We
recorded $
9.8
million of restructuring
charges
in
the first
quarter
of fiscal
2024
and
$
2.3
million
of
restructuring
charges
in the
first
quarter
of
fiscal
2023 for
previously
announced restructuring actions. We
expect these actions to be completed by the end of fiscal 2025.
We
paid net
$
7.4
million of
cash in
the first quarter
of fiscal 2024
related to
restructuring actions
previously announced.
We
paid net
$
18.0
million of cash in the same period of fiscal 2023.
Restructuring and impairment charges and project-related
costs are recorded in our Consolidated Statement of Earnings as follows:
Quarter Ended
In Millions
Aug. 27, 2023
Aug. 28, 2022
Cost of sales
$
8.6
$
0.7
Restructuring, impairment, and other exit costs
1.2
1.6
Total restructuring
charges
$
9.8
$
2.3
Project-related costs classified in cost of sales
$
0.8
$
-
The roll forward of our restructuring and other exit cost reserves, included
in other current liabilities, is as follows:
In Millions
Total
Reserve balance as of May 28, 2023
$
47.7
Fiscal 2024 charges, including foreign currency translation
1.2
Utilized in fiscal 2024
(6.4)
Reserve balance as of Aug. 27, 2023
$
42.5
The reserve balance primarily consists of expected severance payments
associated with restructuring actions.
The charges
recognized in
the roll forward
of our reserves
for restructuring
and other exit
costs do not
include items
charged
directly
to expense
(e.g., asset
impairment charges,
accelerated depreciation,
the gain
or loss
on the
sale of
restructured assets,
and the
write-
off
of
spare parts)
and other
periodic
exit costs
are
recognized
as incurred,
as those
items are
not reflected
in our
restructuring
and
other exit cost reserves on our Consolidated Balance Sheets.
(4) Goodwill and Other Intangible Assets
The components of goodwill and other intangible assets are as follows:
In Millions
Aug. 27, 2023
May 28, 2023
Goodwill
$
14,522.0
$
14,511.2
Other intangible assets:
Intangible assets not subject to amortization:
Brands and other indefinite-lived intangibles
6,715.0
6,712.4
Intangible assets subject to amortization:
Customer relationships and other finite-lived intangibles
386.9
386.3
Less accumulated amortization
(136.2)
(131.1)
Intangible assets subject to amortization, net
250.7
255.2
Other intangible assets
6,965.7
6,967.6
Total
$
21,487.7
$
21,478.8
Based on
the carrying
value of
finite-lived intangible
assets as
of August
27, 2023,
annual amortization
expense for
each of
the next
five fiscal years is estimated to be approximately $
million.
The changes in the carrying amount of goodwill during the first quarter of fiscal 2024
were as follows:
In Millions
North America
Retail
Pet
North America
Foodservice
International
Joint Ventures
Total
Balance as of May 28, 2023
$
6,542.4
$
6,062.8
$
805.6
$
708.4
$
392.0
$
14,511.2
Other activity, primarily
foreign currency translation
0.1
-
(0.1)
8.2
2.6
10.8
Balance as of Aug. 27, 2023
$
6,542.5
$
6,062.8
$
805.5
$
716.6
$
394.6
$
14,522.0
The changes in the carrying amount of other intangible assets during the first quarter
of fiscal 2024 were as follows:
In Millions
Total
Balance as of May 28, 2023
$
6,967.6
Amortization, net of foreign currency translation
(1.9)
Balance as of Aug. 27, 2023
$
6,965.7
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.
(5) Inventories
The components of inventories were as follows:
In Millions
Aug. 27, 2023
May 28, 2023
Finished goods
$
2,093.0
$
2,066.9
Raw materials and packaging
553.5
572.2
Grain
130.1
133.8
Excess of FIFO over LIFO cost
(547.8)
(600.9)
Total
$
2,228.8
$
2,172.0
(6) Risk Management Activities
Many commodities we
use in the
production and distribution
of our products
are exposed to
market price risks.
We
utilize derivatives
to manage price risk for our principal
ingredients and energy costs, including
grains (oats, wheat, and corn), oils
(principally soybean),
dairy products, natural
gas, and diesel fuel.
Our primary objective
when entering into
these derivative contracts
is to achieve
certainty
with
regard
to
the
future
price
of
commodities
purchased
for
use
in
our
supply
chain.
We
manage
our
exposures
through
a
combination of purchase orders, long-term
contracts with suppliers, exchange-traded
futures and options, and over-the-counter
options
and swaps.
We
offset
our exposures
based on
current and
projected market
conditions and
generally seek
to acquire
the inputs
at as
close as possible to or below our planned cost.
We
use derivatives
to manage
our exposure
to changes
in commodity
prices. We
do not
perform the
assessments required
to achieve
hedge
accounting
for
commodity
derivative
positions.
Accordingly,
the
changes
in
the
values
of
these
derivatives
are
recorded
currently in cost of sales in our Consolidated Statements of Earnings.
Although we do
not meet the
criteria for
cash flow hedge
accounting, we believe
that these instruments
are effective
in achieving our
objective of providing certainty
in the future price of commodities purchased
for use in our supply chain.
Accordingly, for
purposes of
measuring
segment
operating
performance,
these
gains
and
losses
are
reported
in
unallocated
corporate
items
outside
of
segment
operating results
until such time
that the exposure
we are manag
ing affects
earnings. At
that time, we
reclassify the
gain or
loss from
unallocated
corporate
items
to
segment
operating
profit,
allowing
our
operating
segments
to
realize
the
economic
effects
of
the
derivative without experiencing any resulting mark-to-market volatility,
which remains in unallocated corporate items.
Unallocated corporate items for the quarters ended August 27, 2023, and
August 28, 2022, included:
Quarter Ended
In Millions
Aug. 27, 2023
Aug. 28, 2022
Net gain (loss) on mark-to-market valuation of certain
commodity positions
$
28.4
$
(72.3)
Net loss (gain) on commodity positions reclassified from
unallocated corporate items to segment operating profit
3.2
(43.0)
Net mark-to-market revaluation of certain grain inventories
13.3
(59.4)
Net mark-to-market valuation of certain commodity
positions recognized in unallocated corporate items
$
44.9
$
(174.7)
As of August 27, 2023,
the net notional value of commodity
derivatives was $
278.2
million, of which $
113.2
million related to energy
inputs and
$
165.0
million related
to agricultural
inputs. These
contracts relate
to inputs
that generally
will be
utilized within
the next
months.
We
also have
net investments
in foreign
subsidiaries that
are denominated
in euros.
As of
August 27,
2023, we
hedged a
portion
of
these investments with €
2,954.1
million of euro-denominated bonds.
The
fair
values
of
the
derivative
positions
used
in
our
risk
management
activities
and
other
assets
recorded
at
fair
value
were
not
material as of
August 27, 2023,
and were Level
1 or Level
2 assets and
liabilities in the
fair value
hierarchy.
We
did not significantly
change our valuation techniques from prior periods.
We
offer
certain
suppliers
access
to
third-party
services
that
allow
them
to
view
our
scheduled
payments
online.
The
third-party
services also
allow suppliers
to finance
advances on
our scheduled
payments at
the sole
discretion of
the supplier
and the third
party.
We
have no
economic interest
in these
financing arrangements
and no
direct relationship
with the
suppliers, the
third parties,
or any
financial institutions
concerning these
services, including
not providing
any form
of guarantee
and not
pledging assets
as security
to
the third
parties or
financial institutions.
All of
our accounts
payable remain
as obligations
to our
suppliers as
stated in
our supplier
agreements. As
of August
27, 2023,
$
1,362.8
million of
our total
accounts payable
were payable
to suppliers
who utilize
these third-
party services.
As of
May 28,
2023, $
1,430.1
million of
our total
accounts payable
were payable
to suppliers
who utilize
these third-
party services.
(7) Debt
The components of notes payable were as follows:
In Millions
Aug. 27, 2023
May 28, 2023
U.S. commercial paper
$
529.2
$
-
Financial institutions
55.1
31.7
Total
$
584.3
$
31.7
To ensure availability
of funds, we maintain bank credit lines and have commercial paper programs
available to us in the United States
and Europe.
The following table details the fee-paid committed and uncommitted credit
lines we had available as of August 27, 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
credit
facilities
contain
covenants,
including
a
requirement
to
maintain
a
fixed
charge
coverage
ratio
of
at
least
2.5
times.
We
were in compliance with all credit facility covenants as of August 27, 2023.
Long-Term
Debt
The fair values
and carrying
amounts of long-term
debt, including
the current portion,
were $
10,811.1
million and $
11,698.1
million,
respectively,
as
of
August
27,
The
fair
value
of
long-term
debt
was
estimated
using
market
quotations
and
discounted
cash
flows based
on our
current incremental
borrowing rates
for similar
types of
instruments. Long
-term debt
is a
Level 2
liability in
the
fair value hierarchy.
In the first
quarter of fiscal
2024, we issued
€
500.0
million of floating-rate
notes due
November 8, 2024
. We
used the net proceeds
to
repay €
500.0
million of floating-rate notes due
July 27, 2023
.
In the fourth quarter
of fiscal 2023, we
issued €
250.0
million of floating-rate notes
due
November 10, 2023
. We
used the net proceeds
to repay €
250.0
million of floating-rate notes due
May 16, 2023
.
In the
fourth quarter
of fiscal
2023, we
issued €
750.0
million of
3.907
percent fixed-rate
notes due
April 13, 2029
. We
used the
net
proceeds to repay €
500.0
million of
1.0
percent fixed-rate notes due
April 27, 2023
, and €
250.0
million of floating-rate notes due
May
16, 2023
.
In the fourth
quarter of fiscal
2023, we
issued $
1,000.0
million of
4.95
percent fixed-rate
notes due
March 29, 2033
. We
used the net
proceeds to repay our outstanding commercial paper and for general
corporate purposes.
In the second
quarter of fiscal
2023, we issued
$
500.0
million of
5.241
percent fixed-rate notes
due
November 18, 2025
. We
used the
net proceeds to repay a portion of our outstanding commercial paper and for general
corporate purposes.
In the
second quarter
of fiscal
2023, we
issued €
250.0
million of
floating-rate notes
due
May 16, 2023
. We
used the
net proceeds
to
repay €
250.0
million of
0.0
percent fixed-rate notes due
November 11, 2022
.
In the
second quarter
of fiscal
2023,
we repaid
$
500.0
million of
2.6
percent fixed-rate
notes due
October 12, 2022
, using
proceeds
from the issuance of commercial paper.
Certain
of
our
long-term
debt
agreements
contain
restrictive
covenants.
As of August 27, 2023, we were in compliance with all of
these covenants.
(8) Noncontrolling Interests
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 $
251.5
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.
Our noncontrolling interests contain restrictive covenants. As of August 27, 2023, we were in compliance with all of these covenants.
(9) Stockholders’ Equity
The following tables provide details of total comprehensive income:
Quarter Ended
Quarter Ended
Aug. 27, 2023
Aug. 28, 2022
General Mills
Noncontrolling
Interests
General Mills
Noncontrolling
Interests
In Millions
Pretax
Tax
Net
Net
Pretax
Tax
Net
Net
Net earnings, including earnings
attributable to noncontrolling interests
$
673.5
$
6.8
$
820.0
$
3.3
Other comprehensive (loss) income:
Foreign currency translation
$
(22.0)
$
3.8
(18.2)
0.1
$
(48.0)
$
53.1
5.1
(1.3)
Other fair value changes:
Hedge derivatives
(2.7)
0.4
(2.3)
-
(49.8)
11.5
(38.3)
-
Reclassification to earnings:
Foreign currency translation
-
-
-
-
(7.4)
-
(7.4)
-
Hedge derivatives (a)
(1.3)
1.5
0.2
-
(1.9)
0.5
(1.4)
-
Amortization of losses and
prior service costs (b)
11.5
(2.4)
9.1
-
18.2
(4.1)
14.1
-
Other comprehensive (loss) income
$
(14.5)
$
3.3
(11.2)
0.1
$
(88.9)
$
61.0
(27.9)
(1.3)
Total comprehensive income
$
662.3
$
6.9
$
$
792.1
$
2.0
(a)
(Gain) loss reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts.
(b)
Loss reclassified from AOCI into earnings is reported in benefit plan non-service income.
Accumulated other comprehensive loss balances, net of tax effects,
were as follows:
In Millions
Aug. 27, 2023
May 28, 2023
Foreign currency translation adjustments
$
(726.8)
$
(708.6)
Unrealized gain from hedge derivatives
3.8
5.9
Pension, other postretirement, and postemployment benefits:
Net actuarial loss
(1,655.7)
(1,670.6)
Prior service credits
90.6
96.4
Accumulated other comprehensive loss
$
(2,288.1)
$
(2,276.9)
(10) Stock Plans
We
have various
stock-based compensation
programs under
which awards,
including stock
options, restricted
stock, restricted
stock
units, and performance
awards, may be granted
to employees and non-employee
directors. These programs
and related accounting
are
described in Note
12 to the
Consolidated Financial
Statements included
in our Annual
Report on Form
10-K for the
fiscal year ended
May 28, 2023.
Compensation expense related to stock-based payments recognized
in the Consolidated Statements of Earnings was as follows:
Quarter Ended
In Millions
Aug. 27, 2023
Aug. 28, 2022
Compensation expense related to stock-based payments
$
35.3
$
33.5
Windfall tax benefits from stock-based payments
in income tax expense in our Consolidated Statements of Earnings
were as follows:
Quarter Ended
In Millions
Aug. 27, 2023
Aug. 28, 2022
Windfall tax benefits from stock-based payments
$
8.4
$
12.8
As
of
August
27,
2023,
unrecognized
compensation
expense
related
to
non-vested
stock
options,
restricted
stock
units,
and
performance share units was $
172.2
million. This expense will be recognized over
months, on average.
Net cash proceeds from the exercise of stock options
less shares used for withholding taxes and the intrinsic
value of options exercised
were as follows:
Quarter Ended
In Millions
Aug. 27, 2023
Aug. 28, 2022
Net cash proceeds
$
4.5
$
65.5
Intrinsic value of options exercised
$
2.1
$
32.0
We estimate the fair value of each stock option on the grant date using a Black-Scholes option-pricing model. Black-Scholes option-
pricing models require us to make predictive assumptions regarding future stock price volatility, employee exercise behavior, and
dividend yield. We estimate our future stock price volatility using the historical volatility over the expected term of the option,
excluding time periods of volatility we believe a marketplace participant would exclude in estimating our stock price volatility. We
also have considered, but did not use, implied volatility in our estimate, because trading activity in options on our stock, especially
those with tenors of greater than 6 months, is insufficient to provide a reliable measure of expected volatility. Our method of selecting
the other valuation assumptions is explained in Note 12 to the Consolidated Financial Statements included in our Annual Report on
Form 10-K for the fiscal year ended May 28, 2023.
The
estimated
fair
values
of
stock
options
granted
and
the
assumptions
used
for
the
Black-Scholes
option-pricing
model
were
as
follows:
Quarter Ended
Aug. 27, 2023
Aug. 28, 2022
Estimated fair values of stock options granted
$
17.47
$
14.16
Assumptions:
Risk-free interest rate
4.0
%
3.3
%
Expected term
8.5
years
8.5
years
Expected volatility
21.4
%
20.9
%
Dividend yield
2.8
%
3.1
%
The total grant date fair value of restricted stock unit awards that vested during
the period was as follows:
Quarter Ended
In Millions
Aug. 27, 2023
Aug. 28, 2022
Total grant date fair
value
$
104.8
$
82.0
(11) Earnings Per Share
Basic and diluted earnings per share (EPS) were calculated using the following:
Quarter Ended
In Millions, Except per Share Data
Aug. 27, 2023
Aug. 28, 2022
Net earnings attributable to General Mills
$
673.5
$
820.0
Average
number of common shares - basic EPS
586.3
600.2
Incremental share effect from: (a)
Stock options
2.8
3.3
Restricted stock units and performance share units
2.3
2.5
Average
number of common shares - diluted EPS
591.4
606.0
Earnings per share – basic
$
1.15
$
1.37
Earnings per share – diluted
$
1.14
$
1.35
(a)
Incremental
shares
from
stock
options,
restricted
stock
units,
and
performance
share
units
are
computed
by
the
treasury
stock
method.
Stock
options,
restricted
stock
units,
and
performance
share units
excluded
from
our
computation
of
diluted
EPS
because
they
were not dilutive were as follows
:
Quarter Ended
In Millions
Aug. 27, 2023
Aug. 28, 2022
Anti-dilutive stock options, restricted stock units, and
performance share units
1.6
0.8
(12) Share Repurchases
Share repurchases were as follows:
Quarter Ended
In Millions
Aug. 27, 2023
Aug. 28, 2022
Shares of common stock
6.4
6.9
Aggregate purchase price
$
504.7
$
500.8
(13) Statements of Cash Flows
Our Consolidated Statements of Cash Flows include the following:
Quarter Ended
In Millions
Aug. 27, 2023
Aug. 28, 2022
Net cash interest payments
$
83.9
$
55.2
Net income tax payments
$
13.7
$
9.0
(14) Retirement and Postemployment Benefits
Components of net periodic benefit expense (income) are as follows:
Defined Benefit
Pension Plans
Other Postretirement
Benefit Plans
Postemployment
Benefit Plans
Quarter Ended
Quarter Ended
Quarter Ended
In Millions
Aug. 27,
2023
Aug. 28,
2022
Aug. 27,
2023
Aug. 28,
2022
Aug. 27,
2023
Aug. 28,
2022
Service cost
$
14.2
$
17.6
$
1.2
$
1.4
$
1.8
$
2.1
Interest cost
74.2
64.6
5.3
4.5
1.0
0.8
Expected return on plan assets
(102.9)
(105.0)
(8.7)
(7.8)
-
-
Amortization of losses (gains)
21.5
28.3
(5.1)
(4.9)
-
0.1
Amortization of prior service costs (credits)
0.4
0.4
(5.4)
(5.8)
0.1
0.1
Other adjustments
-
-
-
-
2.6
3.0
Net expense (income)
$
7.4
$
5.9
$
(12.7)
$
(12.6)
$
5.5
$
6.1
(15) Income Taxes
During
the
first
quarter
of
fiscal
2023,
the
Inflation
Reduction
Act
(IRA)
was
signed
into
law.
The
IRA
introduces
a
Corporate
Alternative Minimum Tax
beginning in our fiscal 2024
and an excise tax on
the repurchase of corporate
stock starting after January
1,
- We
do not expect the IRA to have a material impact on our financial
results, including our annual estimated effective tax
rate, or
on our liquidity.
(16) Contingencies
During
fiscal
2020,
we
received
notice
from
the
tax
authorities of
the
State of
São
Paulo,
Brazil
regarding
our
compliance
with
its
state sales tax requirements.
As a result, we
have been assessed additional
state sales taxes, interest,
and penalties. We
believe that we
have meritorious defenses against this claim and will vigorously defend
our position. As of August 27, 2023, we are unable to estimate
any possible loss and have not recorded a loss contingency for this matter.
(17) Business Segment and Geographic Information
We
operate
in
the
packaged
foods
industry.
Our
operating
segments
are
as
follows:
North
America
Retail,
International,
Pet,
and
North America Foodservice.
Our North America Retail
operating segment reflects business
with a wide variety of
grocery stores, mass merchandisers, membership
stores,
natural
food
chains,
drug,
dollar
and
discount
chains,
convenience
stores,
and
e-commerce
grocery
providers.
Our
product
categories
in
this
business
segment
include
ready-to-eat
cereals,
refrigerated
yogurt,
soup,
meal
kits,
refrigerated
and
frozen
dough
products,
dessert
and
baking
mixes,
frozen
pizza
and
pizza
snacks,
snack
bars,
fruit
snacks,
savory
snacks,
and
a
wide
variety
of
organic products including ready-to-eat cereal, frozen
and shelf-stable vegetables, meal kits, fruit snacks, and snack bars.
Our
International
operating
segment
consists
of
retail
and
foodservice
businesses
outside
of
the
United
States
and
Canada.
Our
product categories include super-premium
ice cream and frozen desserts, meal kits, salty snacks,
snack bars, dessert and baking mixes,
and
shelf
stable
vegetables.
We
also
sell
super-premium
ice
cream
and
frozen
desserts
directly
to
consumers
through
owned
retail
shops. Our
International segment
also includes
products manufactured
in the United
States for
export, mainly
to Caribbean
and Latin
American markets, as well as
products we manufacture
for sale to our international
joint ventures. Revenues from
export activities are
reported in the region or country where the end customer is located.
Our Pet operating segment includes
pet food products sold primarily in the
United States and Canada in national
pet superstore chains,
e-commerce retailers,
grocery stores,
regional pet
store chains,
mass merchandisers,
and veterinary
clinics and
hospitals. Our
product
categories include dog and cat food (dry
foods, wet foods, and treats) made with
whole meats, fruits, vegetables and other
high-quality
natural
ingredients.
Our
tailored
pet
product
offerings
address
specific
dietary,
lifestyle,
and
life-stage
needs
and
span
different
product types, diet types, breed sizes for dogs, lifestages, flavors, product
functions,
and textures and cuts for wet foods.
Our
North
America
Foodservice
segment
consists
of
foodservice
businesses
in
the
United
States
and
Canada.
Our
major
product
categories
in
our
North
America
Foodservice
operating
segment
are
ready-to-eat
cereals,
snacks,
refrigerated
yogurt,
frozen
meals,
unbaked and
fully baked
frozen dough products,
baking mixes,
and bakery
flour.
Many products we
sell are branded
to the consumer
and nearly
all are
branded to
our customers.
We
sell to
distributors and
operators in
many customer
channels including
foodservice,
vending, and supermarket bakeries.
Operating profit
for these
segments excludes
unallocated corporate
items, gain
or loss
on divestitures,
and restructuring,
impairment,
and
other
exit
costs.
Unallocated
corporate
items
include
corporate
overhead
expenses,
variances
to
planned
North
American
employee
benefits
and
incentives,
certain
charitable
contributions,
restructuring
initiative
project-related
costs,
gains
and
losses
on
corporate investments,
and other
items that
are not
part of
our measurement
of segment
operating performance.
These include
gains
and
losses
arising
from
the
revaluation
of
certain
grain
inventories
and
gains
and
losses
from
mark-to-market
valuation
of
certain
commodity positions
until passed back
to our operating
segments. These items
affecting operating
profit are centrally
managed at
the
corporate
level
and
are
excluded
from
the
measure
of
segment
profitability
reviewed
by
executive
management.
Under
our
supply
chain organization, our manufacturing,
warehouse, and distribution activities are substantially integrated
across our operations in order
to maximize
efficiency
and productivity.
As a
result, fixed
assets and
depreciation and
amortization expenses
are neither
maintained
nor available by operating segment.
Our operating segment results were as follows:
Quarter Ended
In Millions
Aug. 27, 2023
Aug. 28, 2022
Net sales:
North America Retail
$
3,073.0
$
2,988.8
International
715.8
652.5
Pet
579.9
579.9
North America Foodservice
536.0
496.4
Total
$
4,904.7
$
4,717.6
Operating profit:
North America Retail
$
798.2
$
777.8
International
50.0
34.8
Pet
111.2
123.1
North America Foodservice
59.1
53.6
Total segment operating
profit
$
1,018.5
$
989.3
Unallocated corporate items
87.3
333.0
Divestitures gain, net
-
(430.9)
Restructuring, impairment, and other exit costs
1.2
1.6
Operating profit
$
930.0
$
1,085.6
Net sales for our North America Retail operating units were as follows:
Quarter Ended
In Millions
Aug. 27, 2023
Aug. 28, 2022
U.S. Snacks
$
954.5
$
887.2
U.S. Meals & Baking Solutions
941.9
949.2
U.S. Morning Foods
927.8
904.0
Canada
248.8
248.4
Total
$
3,073.0
$
2,988.8
Net sales by class of similar products were as follows:
Quarter Ended
In Millions
Aug. 27, 2023
Aug. 28, 2022
Snacks
$
1,136.7
$
1,068.4
Cereal
817.9
814.7
Convenient meals
665.5
679.2
Pet
579.9
580.8
Dough
534.9
464.8
Baking mixes and ingredients
466.5
473.5
Yogurt
368.4
346.0
Super-premium ice cream
224.0
183.5
Other
110.9
106.7
Total
$
4,904.7
$
4,717.6
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
28,
2023
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 2024
will be the economic
health of consumers, the
moderating rate
of input
cost inflation
,
and
the increasing
stability of
the supply
chain environment
.
We
expect
to drive
organic
net sales
growth
in
fiscal 2024
through strong
marketing, innovation,
in-store support,
and net
price realization
generated through
our Strategic
Revenue
Management (SRM)
capability,
most of
which will
be carried
over from
SRM actions
taken in
fiscal 2023.
We
anticipate input
cost
inflation of
approximately 5
percent in
fiscal 2024
and expect
to generate
higher levels
of Holistic
Margin Management
(HMM) cost
savings compared to fiscal 2023.
CONSOLIDATED
RESULTS
OF OPERATIONS
First Quarter Results
In the first
quarter of fiscal
2024, net sales
and organic net
sales increased 4
percent compared to
the same period
last year.
Operating
profit decreased
14 percent
to $930
million, primarily
driven by
a net
gain on
divestitures
in fiscal
2023, higher
input costs,
and
an
increase in selling,
general and administrative
(SG&A) expenses, including
increased media and
advertising expenses, partially
offset
by favorable net price
realization and mix
and a favorable change
to the mark-to-market valuation
of certain commodity positions
and
grain
inventories.
Operating
profit
margin
of
19.0
percent
decreased
basis
points.
Adjusted
operating
profit
of
$899
million
increased 2 percent on
a constant-currency basis, primarily
driven by favorable net price
realization and mix, partially offset
by higher
input costs, an
increase in SG&A
expenses, including
increased media and
advertising expenses, and
a decrease in
contributions from
volume
growth.
Adjusted
operating
profit
margin
decreased
basis
points
to
18.3
percent.
Diluted
earnings
per
share
of
$1.14
decreased 16 percent in the first
quarter of fiscal 2024. Adjusted diluted
earnings per share of $1.09 decreased 1
percent on a constant-
currency basis compared
to the first quarter
of fiscal 2023.
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 first quarter of
fiscal 2024 follows:
Quarter Ended Aug. 27, 2023
In millions,
except per share
Quarter Ended
Aug. 27, 2023 vs.
Aug. 28, 2022
Percent
of Net
Sales
Constant-
Currency
Growth (a)
Net sales
$
4,904.7
%
Operating profit
930.0
(14)
%
19.0
%
Net earnings attributable to General Mills
673.5
(18)
%
Diluted earnings per share
$
1.14
(16)
%
Organic net sales growth rate (a)
%
Adjusted operating profit (a)
899.0
%
18.3
%
%
Adjusted diluted earnings per share (a)
$
1.09
(2)
%
(1)
%
(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
Aug. 27, 2023
Aug. 27, 2023 vs.
Aug. 28, 2022
Aug. 28, 2022
Net sales (in millions)
$
4,904.7
4%
$
4,717.6
Contributions from volume growth (a)
(2)
pts
Net price realization and mix
pts
Foreign currency exchange
Flat
Note: Table may
not foot due to rounding.
(a)
Measured in tons based on the stated weight of our product shipments.
Net sales
in the
first quarter
of fiscal
2024
increased 4
percent compared
to the
same period
in fiscal
2023,
driven by
favorable
net
price realization and mix, partially offset by a decrease in
contributions from volume growth.
Components of organic net sales growth are shown in the following
table:
Quarter Ended Aug. 27, 2023 vs.
Quarter Ended Aug. 28, 2022
Contributions from organic volume growth (a)
(2)
pts
Organic net price realization and mix
pts
Organic net sales growth
pts
Foreign currency exchange
Flat
Acquisitions and divestitures
Flat
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 4 percent
in the first quarter of fiscal 2024 compared
to the same period in fiscal 2023, driven by favorable
organic net price realization and mix, partially offset
by a decrease in contributions from organic volume growth
.
Cost of
sales
decreased $136 million
to $3,134
million in
the first
quarter of
fiscal 2024
compared to
the same
period in
fiscal 2023.
The decrease included
a $54 million decrease attributable
to lower volume and
a $150 million increase attributable
to product rate and
mix. We
recorded a
$45 million
net decrease
in cost
of sales
related to
the mark-to-market
valuation of
certain commodity
positions
and grain inventories in the first quarter of fiscal 2024
compared to a $175 million net increase in the first quarter
of fiscal 2023.
In the
first quarter
of fiscal
2023,
we recorded
a $21
million
charge
related
to a
voluntary recall
on certain
international
Häagen-Dazs
ice
cream products.
We
also recorded $9
million of restructuring
charges and $1
million of restructuring
initiative project-related
costs in
cost of sales in the first
quarter of fiscal 2024 compared
to $1 million of restructuring
charges in the first
quarter of fiscal 2023 (please
refer to Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report).
SG&A expenses
increased $48 million
to $839 million in
the first quarter
of fiscal 2024,
compared to the
same period in
fiscal 2023,
primarily driven
by increased
media and
advertising expenses.
SG&A expenses
as a
percent of
net sales
in the
first quarter
of fiscal
2024 increased 30 basis points compared to the first quarter of fiscal 2023.
Divestitures
gain,
net
totaled $431
million in
the first
quarter of
fiscal 2023,
primarily related
to the
sale of
our Helper
main meals
and
Suddenly
Salad
side
dishes
business
(please
refer
to
Note
to
the
Consolidated
Financial
Statements
in
Part
I,
Item
of
this
report).
Restructuring, impairment,
and other exit
costs
totaled $1 million
in the first
quarter of fiscal
2024,
compared to $2
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 $17 million
in the
first quarter
of fiscal
2024, compared
to $22 million
in the
same period
last year, primarily reflecting an increase
in interest costs, partially offset by lower amortization of losses.
Interest,
net
for
the
first
quarter
of
fiscal
2024
totaled
$117 million,
up
$29 million
from
the
first
quarter
of fiscal
2023,
primarily
driven by higher interest rates and higher average long-term debt levels.
The
effective tax rate
for the first quarter of fiscal
2024 was 20.9 percent compared
to 21.2 percent for the first
quarter of fiscal 2023.
The
0.3
percentage
point
decrease
was
primarily
due
to
certain
unfavorable
tax
components
related
to
the
divestitures
in
the
first
quarter of
fiscal 2023,
partially offset
by certain
nonrecurring discrete
tax benefits
in the
first quarter
of fiscal
2023 and
unfavorable
earnings mix
by jurisdiction
in the
first quarter
of fiscal
- Our
effective
tax rate
excluding certain
items affecting
comparability
was
21.1
percent
in
the
first
quarter
of
fiscal
2024,
compared
to
19.7
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
1.4
percentage
point
increase
was
primarily
due
to
certain
nonrecurring
discrete
tax
benefits
in
the
first
quarter
of
fiscal
2023
and
unfavorable
earnings
mix
by
jurisdiction in the first quarter of fiscal 2024.
After-tax
earnings from
joint ventures
for the
first quarter
of fiscal
2024
increased to
$24 million compared
to $20 million
in the
same period in fiscal 2023,
primarily driven by higher net
sales as a result of favorable
net price realization and mix
at Cereal Partners
Worldwide
(CPW) and
favorable
discrete tax
items at
CPW,
partially
offset
by higher
input
costs at
CPW and
Häagen-Dazs
Japan,
Inc. (HDJ). On
a constant-currency basis,
after-tax earnings from
joint ventures increased 26
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 Aug. 27, 2023 vs.
Quarter Ended Aug. 28, 2022
CPW
HDJ
Total
Contributions from volume growth (a)
(11)
pts
(5)
pts
Net price realization and mix
pts
pts
Net sales growth in constant currency
pts
pts
pts
Foreign currency exchange
pt
(5)
pts
Flat
Net sales growth
pts
(1)
pt
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
million
in
the
first
quarter
of
fiscal
2024
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
Aug. 27,
2023
Aug. 27, 2023 vs
Aug. 28, 2022
Aug. 28,
2022
Net sales (in millions)
$
3,073.0
%
$
2,988.8
Contributions from volume growth (a)
(5)
pts
Net price realization and mix
pts
Foreign currency exchange
Flat
Note: Table may
not foot due to rounding.
(a)
Measured in tons based on the stated weight of our product shipments.
North
America
Retail
net
sales
increased
percent
in
the
first
quarter
of
fiscal
2024,
compared
to
the
same
period
in
fiscal
2023,
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
Aug. 27, 2023
Contributions from organic volume growth (a)
(4)
pts
Organic net price realization and mix
pts
Organic net sales growth
pts
Foreign currency exchange
Flat
Divestiture (b)
(1)
pt
Net sales growth
pts
Note: Table may
not foot due to rounding.
(a) Measured in tons based on the stated weight of our product shipments.
(b) Divestiture 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 4
percent in
the first
quarter of
fiscal 2024,
compared to
the same
period in
fiscal
2023,
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
Aug. 27, 2023
U.S. Snacks
%
U.S. Morning Foods
%
Canada (a)
Flat
U.S. Meals & Baking Solutions
(1)
%
Total
%
(a)
On a constant-currency basis,
Canada net sales increased 4
percent in the first quarter of
fiscal 2024,
compared to the same period
in fiscal 2023. See the "Non-GAAP Measures" section below for our use of this measure not
defined by GAAP.
Segment operating
profit increased 3
percent to
$798 million in the
first quarter of
fiscal 2024,
compared to $778 million
in the same
period in
fiscal 2023,
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
,
including increased media
and advertising expenses. Segment
operating
profit
increased
percent
on
a
constant-currency
basis
in
the
first
quarter
of
fiscal
2024
compared
to
the
same
period
in
fiscal 2023 (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
Aug. 27,
2023
Aug. 27, 2023 vs
Aug. 28, 2022
Aug. 28,
2022
Net sales (in millions)
$
715.8
%
$
652.5
Contributions from volume growth (a)
(5)
pts
Net price realization and mix
pts
Foreign currency exchange
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 increased 10 percent in the first quarter of fiscal 2024,
compared to the same period in fiscal 2023 which
included the impact of the voluntary recall on certain international
Häagen-Dazs
ice cream products, driven by favorable net price
realization and mix and favorable foreign currency exchange, partially
offset by a decrease in contributions from volume growth.
The components of International organic net sales growth
are shown in the following table:
Quarter Ended
Aug. 27, 2023
Contributions from organic volume growth (a)
(5)
pts
Organic net price realization and mix
pts
Organic net sales growth
pts
Foreign currency exchange
pt
Net sales growth
pts
Note: Table may
not foot due to rounding.
(a) Measured in tons based on the stated weight of our product shipments.
International organic net
sales increased 9 percent
in the first quarter of
fiscal 2024,
compared to the same period
in fiscal 2023 which
included the
impact of
the voluntary
recall on
certain international
Häagen-Dazs
ice cream
products,
driven by
favorable organic
net
price realization and mix, partially offset by a decrease in
contributions from organic volume growth.
Segment operating
profit increased
44 percent
to $50 million
in the
first quarter
of fiscal
2024,
compared to
$35 million in
the same
period
in
fiscal
2023,
primarily
driven
by
favorable
net
price
realization
and
mix
and
the
voluntary
recall
on
certain
international
Häagen-Dazs
ice cream
products in
fiscal 2023,
partially offset
by higher
input costs.
Segment operating
profit increased
52 percent
on
a
constant-currency
basis
in
the
first
quarter
of
fiscal
2024
compared
to
the
same
period
in
fiscal
2023
(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
Aug. 27,
2023
Aug. 27, 2023 vs
Aug. 28, 2022
Aug. 28,
2022
Net sales (in millions)
$
579.9
Flat
$
579.9
Contributions from volume growth (a)
(5)
pts
Net price realization and mix
pts
Foreign currency exchange
Flat
Note: Table may
not foot due to rounding.
(a)
Measured in tons based on the stated weight of our product shipments.
Pet net
sales in
the first
quarter of
fiscal 2024
matched the same
period in
fiscal 2023,
as favorable
net price realization
and mix
was
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
Aug. 27, 2023
Contributions from organic volume growth (a)
(5)
pts
Organic net price realization and mix
pts
Organic net sales growth
Flat
Foreign currency exchange
Flat
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.
Pet
organic
net
sales
in
the
first
quarter
of
fiscal
2024
matched
the
same
period
in
fiscal
2023,
as
favorable
organic
net
price
realization and mix was offset by a decrease in contributions from
organic volume growth.
Segment operating profit decreased 10 percent
to $111 million in the
first quarter of fiscal 2024,
compared to $123 million in the same
period
in
fiscal
2023,
primarily
driven
by
higher
input
costs,
a
decrease
in
contributions
from
volume
growth,
and
an
increase
in
SG&A
expenses,
partially
offset
by
favorable
net
price
realization
and
mix.
Segment
operating
profit
decreased
percent
on
a
constant-currency basis in
the first quarter
of fiscal 2024
compared to the
same period in
fiscal 2023 (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
Aug. 27,
2023
Aug. 27, 2023 vs
Aug. 28, 2022
Aug. 28,
2022
Net sales (in millions)
$
536.0
%
$
496.4
Contributions from volume growth (a)
pts
Net price realization and mix
pt
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.
North America Foodservice net sales increased 8 percent in the first
quarter of fiscal 2024, compared to the same period in fiscal 2023,
driven by an increase in contributions from volume growth and favorable
net price realization and mix.
The components of North America Foodservice organic
net sales growth are shown in the following table:
Quarter Ended
Aug. 27, 2023
Contributions from organic volume growth (a)
pts
Organic net price realization and mix
Flat
Organic net sales growth
pts
Foreign currency exchange
Flat
Acquisition (b)
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.
(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 4
percent in
the first
quarter of
fiscal 2024,
compared to
the same
period in
fiscal 2023, driven by an increase in contributions from organic
volume growth.
Segment operating
profit increased
10 percent
to $59
million in
the first
quarter of
fiscal 2024,
compared to
$54 million in
the same
period
in
fiscal
2023,
primarily
driven
by
favorable
net
price
realization
and
mix,
partially
offset
by
higher
input
costs.
Segment
operating
profit increased
10 percent
on a
constant-currency
basis in
the first
quarter of
fiscal 2024
compared to
the same
period in
fiscal 2023 (see the “Non-GAAP Measures” section below for our use of this measure
not defined by GAAP).
UNALLOCATED
CORPORATE
ITEMS
Unallocated corporate
expenses totaled $87
million in the
first quarter of
fiscal 2024, compared
to $333 million
in the same
period in
fiscal
In
the
first
quarter
of
fiscal
2024,
we
recorded
a
$45 million
net
decrease
in
expense
related
to
the
mark-to-market
valuation of certain commodity positions
and grain inventories, compared to
a $175 million net increase in expense
in the same period
last year.
We
recorded $3 million
of net losses
related to valuation
adjustments on certain
corporate investments
in the first quarter
of
fiscal
2024,
compared
to
$26 million
of
net
losses
related
to
valuation
adjustments
and
the
loss
on
sale
of
certain
corporate
investments
in
the
first
quarter
of
fiscal
In
the
first
quarter
of
fiscal
2023,
we
recorded
a
$22
million
charge
related
to
a
voluntary
recall
on
certain
international
Häagen-Dazs
ice
cream
products.
We
recorded
$9
million
of
restructuring
charges
and
$1
million
of
restructuring
initiative
project-related
costs
in
cost
of
sales
in
the
first quarter
of
fiscal
2024,
compared
to
$1
million
of
restructuring
charges
in cost
of sales
in the
same period
last year.
In addition,
we recorded
$2 million
of integration
costs primarily
related to our acquisition of TNT Crust in the first quarter of fiscal 2023.
LIQUIDITY
AND CAPITAL
RESOURCES
During the first quarter of
fiscal 2024, cash provided by operations
was $378 million compared to $389
million in the same period last
year.
The $11 million
decrease was mainly
driven by
a $248 million
change in
current assets and
liabilities and
a $46
million change
in
other
non-cash
items
in
net
earnings,
including
changes
in
the
valuation
of
certain
corporate
investments.
These
were
partially
offset
by a
$288 million
increase
in
net
earnings,
excluding
the
$431 million
net
divestitures
gain
in fiscal
The $248
million
change in current assets and liabilities is primarily driven by a $313 million
change in the timing of accounts payable.
Cash
used
by
investing
activities
during
the
first
quarter
of
fiscal
2024
was
$136
million
compared
to
cash
provided
by
investing
activities
of
$266 million
for
the
same
period
in
fiscal
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 addition, we spent $142 million
on purchases of land, buildings, and equipment in
the first quarter of fiscal 2024 compared to $91 million in the same period
last year.
Cash used
by financing
activities during
the first
quarter of
fiscal 2024
was $334 million
compared
to $609 million
of cash
used by
financing activities
in the
same period
in fiscal 202
- We
paid $348 million
of dividends
in the
first quarter
of fiscal
2024, compared
to $325 million
in the
same period
last year.
We
paid $500
million for
purchases of
common stock
for treasury
in the first
quarter of
fiscal 2024, consistent with the same period in fiscal 2023
.
In addition, we had $552 million of net debt issuances in the first
quarter of
fiscal 2024 compared to $188 million of net debt issuances in the first quarter
of fiscal 2023.
As of August
27, 2023, we had
$425 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 August 27, 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 three
-month Term
SOFR plus 186
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
August 27, 2023, we were in compliance with all of these covenants.
We
have
$1,175
million
of
long-term
debt
maturing
in
the
next
months
that
is
classified
as
current,
including
$400
million
of
floating-rate
notes
due
October
17,
2023,
€250
million
of
floating-rate
notes
due
November
10,
2023,
and
$500
million
of
3.65
percent fixed-rate
notes due
February 15,
- 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 28,
- The
accounting policies
used in
preparing our
interim fiscal
2024
Consolidated
Financial
Statements
are
the
same
as
those
described
in
our
Form
10-K
with
the
exception
of
the
new
accounting
requirements
adopted in the first quarter of fiscal 2024. Please see Note 1
to the Consolidated Financial Statements in Part I, Item 1
of this report for
additional information.
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 August
27, 2023, are the
same as those described in
our Annual Report on Form 10-K for the fiscal year ended May 28, 2023.
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.
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.
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.
Restructuring charges and project-related costs
Restructuring
charges and
project-related
costs for
previously announced
restructuring actions
recorded in
fiscal 2024.
Restructuring
charges
for
previously
announced
restructuring
actions
recorded
in
fiscal
Please
see
Note
to
the
Consolidated
Financial
Statements in Part I, Item 1 of this report.
Investment activity, net
Valuation
adjustments of
certain corporate
investments in
fiscal 2024. Valuation
adjustments and
the loss on
sale of certain
corporate
investments in fiscal 2023.
Acquisition integration costs
Integration
costs
primarily
resulting
from
the
acquisition
of
TNT
Crust
in
fiscal
2024
and
fiscal
Please
see
Note
to
the
Consolidated Financial Statements in Part I, Item 1 of this report.
Product recall
Costs related to the fiscal 2023 voluntary recall of certain international
Häagen-Dazs
ice cream products.
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.
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 2023.
Please
see Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report.
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
Aug. 27, 2023
Aug. 28, 2022
In Millions
Value
Percent of
Net Sales
Value
Percent of
Net Sales
Operating profit as reported
$
930.0
19.0
%
$
1,085.6
23.0
%
Mark-to-market effects
(44.9)
(0.9)
%
174.7
3.7
%
Restructuring charges
9.8
0.2
%
2.3
-
%
Investment activity, net
2.9
0.1
%
26.3
0.6
%
Project-related costs
0.8
-
%
-
-
%
Acquisition integration costs
0.2
-
%
1.5
-
%
Product recall
0.2
-
%
21.5
0.5
%
Divestitures gain, net
-
-
%
(430.9)
(9.1)
%
Transaction costs
-
-
%
0.2
-
%
Adjusted operating profit
$
899.0
18.3
%
$
881.2
18.7
%
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 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
Aug. 27, 2023
Aug. 28, 2022
Change
Operating profit as reported
$
930.0
$
1,085.6
(14)
%
Mark-to-market effects
(44.9)
174.7
Restructuring charges
9.8
2.3
Investment activity, net
2.9
26.3
Project-related costs
0.8
-
Acquisition integration costs
0.2
1.5
Product recall
0.2
21.5
Divestitures gain, net
-
(430.9)
Transaction costs
-
0.2
Adjusted operating profit
$
899.0
$
881.2
%
Foreign currency exchange impact
Flat
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
Per Share Data
Aug. 27, 2023
Aug. 28, 2022
Change
Diluted earnings per share, as reported
$
1.14
$
1.35
(16)
%
Mark-to-market effects
(0.06)
0.22
Restructuring charges
0.01
-
Investment activity, net
-
0.04
Product recall
-
0.03
Divestitures gain, net
-
(0.54)
Adjusted diluted earnings per share
$
1.09
$
1.11
(2)
%
Foreign currency exchange impact
(1)
pt
Adjusted diluted earnings per share growth, on a constant-currency basis
(1)
%
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 Aug. 27, 2023
%
(7)
pts
%
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 Aug. 27, 2023
Flat
(4)
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 Aug. 27, 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
(10)
%
Flat
(10)
%
North America Foodservice
%
Flat
%
Note: Table 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
Aug. 27, 2023
Aug. 28, 2022
In Millions
(Except Per Share Data)
Pretax
Earnings (a)
Income
Taxes
Pretax
Earnings (a)
Income
Taxes
As reported
$
830.0
$
173.2
$
1,019.6
$
216.1
Mark-to-market effects
(44.9)
(10.3)
174.7
40.2
Restructuring charges
9.8
4.7
2.3
0.6
Investment activity, net
2.9
1.0
26.3
0.5
Project-related costs
0.8
0.3
-
-
Acquisition integration costs
0.2
0.1
1.5
0.3
Product recall
0.2
0.1
21.5
4.9
Divestitures gain, net
-
-
(430.9)
(101.9)
Transaction costs
-
-
0.2
-
As adjusted
$
799.1
$
169.0
$
815.2
$
160.8
Effective tax rate:
As reported
20.9%
21.2%
As adjusted
21.1%
19.7%
Sum of adjustment to income taxes
$
(4.3)
$
(55.3)
Average number
of common shares - diluted EPS
591.4
606.0
Impact of income tax adjustments on adjusted diluted EPS
$
0.01
$
0.09
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.
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.
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.
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:
disruptions
or
inefficiencies
in
the
supply
chain;
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 28, 2023, 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Quantitative and Qualitative Disclosures About Market Risk.
The
estimated
maximum
potential
value-at-risk
arising
from
a
one-day
loss
in
fair
value
for
our
interest
rate,
foreign
exchange,
commodity, and equity
market-risk-sensitive instruments outstanding as of August 27, 2023,
was as follows:
In Millions
One-day Risk
of Loss
Change During
Quarter Ended
Aug. 27, 2023
Analysis of Change
Interest rate instruments
$
$
(6)
Lower interest rate volatility
Foreign currency instruments
(1)
Immaterial
Commodity instruments
(3)
Decrease in commodity prices
Equity instruments
-
Immaterial
For additional information, see Item 7A of Part II of our Annual Report on Form 10-K
for the fiscal year ended May 28, 2023.
Item 4. Controls and Procedures.
Controls and Procedures.
We,
under the
supervision and
with the
participation of
our management,
including our
Chief Executive
Officer and
Chief Financial
Officer,
have
evaluated
the
effectiveness
of
the design
and
operation
of
our
disclosure
controls
and
procedures
(as
defined
in
Rule
13a-15(e)
under
the
Securities
Exchange
Act
of
1934).
Based
on
our
evaluation,
our
Chief
Executive
Officer
and
Chief
Financial
Officer have
concluded that,
as of
August 27,
2023, our
disclosure controls
and procedures
were effective
to ensure
that information
required to
be disclosed
by us
in reports
that we file
or submit
under the
Securities Exchange
Act of
1934 is (1)
recorded, processed,
summarized,
and
reported
within
the
time
periods
specified
in
Securities
and
Exchange
Commission
rules
and
forms,
and
(2)
accumulated and
communicated to
our management,
including our
Chief Executive
Officer and
Chief Financial
Officer,
in a
manner
that allows timely decisions regarding required disclosure.
There were no changes in our internal
control over financial reporting (as defined
in Rule 13a-15(f) under the Securities Exchange
Act
of 1934)
during the
quarter ended
August 27,
2023, that
materially affected,
or are reasonably
likely to
materially affect,
our internal
control
over financial reporting.
PART
II.
OTHER INFORMATION
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
The
following
table
sets forth
information
with
respect
to
shares
of
our
common
stock
that we
purchased
during
the quarter
ended
August 27, 2023:
Period
Total
Number
of Shares
Purchased (a)
Average
Price Paid
Per Share
Total
Number of Shares
Purchased as Part of a Publicly
Announced Program (b)
Maximum Number of Shares
that may yet be Purchased
Under the Program (b)
May 29, 2023 -
July 2, 2023
3,648,025
$
80.40
3,648,025
81,214,844
July 3, 2023 -
July 30, 2023
2,739,485
77.18
2,739,485
78,475,359
July 31, 2023 -
August 27, 2023
-
-
-
78,475,359
Total
6,387,510
$
79.02
6,387,510
78,475,359
(a)
The total number
of shares purchased
includes shares of
common stock withheld
for the payment
of withholding taxes
upon the distribution
of
deferred option units.
(b)
On June
27, 2022,
our Board
of Directors approved
an authorization
for the
repurchase of
up to
100,000,000 shares of
our common stock
and
terminated the
prior authorization.
Purchases can
be made
in the
open market
or in
privately negotiated
transactions, including
the use
of call
options
and
other
derivative
instruments,
Rule
10b5-1
trading
plans,
and
accelerated
repurchase
programs.
The
Board
did
not
specify
an
expiration date for the authorization.
Item 5. Other Information.
Other Information.
None.
PART
II. OTHER INFORMATION
Item 6. Exhibits.
Exhibits.
10.1
Form of Performance Share Unit Award Agreements
10.2
Form of Stock Option Agreements
10.3
Form of Restricted Stock Unit Agreements
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Financial
Statements
from
the Quarterly
Report
on Form
10-Q
of the
Company
for
the quarter
ended
August
27,
2023,
formatted
in
Inline
Extensible
Business
Reporting
Language:
(i)
Consolidated
Statements
of
Earnings;
(ii)
Consolidated
Statements
of
Comprehensive
Income,
(iii)
Consolidated
Balance
Sheets;
(iv)
Consolidated
Statements of
Total
Equity; (v)
Consolidated Statements
of Cash
Flows; and
(vi) Notes
to Consolidated
Financial
Statements.
Cover Page, formatted in Inline Extensible Business Reporting Language
and contained in Exhibit 101.
SIGNATURES
Pursuant
to
the
requirements
of
the
Securities
Exchange
Act
of
1934,
the
registrant
has
duly
caused
this
report
to
be
signed
on
its
behalf by the undersigned thereunto duly authorized.
GENERAL MILLS, INC.
(Registrant)
Date: September 20, 2023
/s/ Mark A. Pallot
Mark A. Pallot
Vice President, Chief Accounting
Officer
(Principal Accounting Officer and Duly Authorized
Officer)