General Mills Reports Fiscal 2023 First-Quarter Results and Raises Full-Year Outlook

• Net sales increased 4 percent to $4.7 billion; organic net sales1 were up 10 percent

• Operating profit increased 29 percent to $1.1 billion; adjusted operating profit was up 8 percent in constant currency

• Diluted earnings per share (EPS) of $1.35 increased 32 percent from the prior year; adjusted diluted EPS of $1.11 was up 13 percent in constant currency

• Company raises full-year fiscal 2023 outlook

1 Please see Note 8 to the Consolidated Financial Statements below for reconciliation of this and other non-GAAP measures used in this release.

MINNEAPOLIS–(BUSINESS WIRE)–General Mills (NYSE: GIS) today reported results for the first quarter ended August 28, 2022.

“We continue to deliver strong performance in a highly volatile operating environment,” said General Mills Chairman and Chief Executive Officer Jeff Harmening. “Given the strength of our first-quarter results and confidence in our ability to adapt to continued volatility ahead, we are increasing our full-year outlook for net sales, operating profit, and EPS growth.”

General Mills is executing its Accelerate strategy to drive sustainable, profitable growth and top-tier shareholder returns over the long term. The strategy focuses on four pillars to create competitive advantages and win: boldly building brands, relentlessly innovating, unleashing scale, and standing for good. The company is prioritizing its core markets, global platforms, and local gem brands that have the best prospects for profitable growth and is committed to reshaping its portfolio with strategic acquisitions and divestitures to further enhance its growth profile.

First Quarter Results Summary

• Net sales increased 4 percent to $4.7 billion, including a 5-point headwind from net divestiture and acquisition activity and 1 point of unfavorable foreign currency exchange. Organic net sales increased 10 percent, driven by positive organic net price realization and mix, partially offset by lower organic pound volume, including the impact of a voluntary recall on certain international Häagen-Dazs ice cream products.

• Gross margin was down 450 basis points to 30.7 percent of net sales, driven by higher input costs, unfavorable mark-to-market effects, and the impact of market index pricing on bakery flour, partially offset by favorable net price realization and mix. Adjusted gross margin was up 20 basis points to 34.9 percent of net sales, driven by favorable net price realization and mix and Holistic Margin Management (HMM) cost savings, partially offset by input cost inflation, the impact of market index pricing on bakery flour, and supply chain deleverage.

• Operating profit of $1.1 billion was up 29 percent, primarily driven by net gains on divestitures, partially offset by lower gross profit dollars and unfavorable net corporate investment activity. Operating profit margin of 23.0 percent was up 440 basis points. Constant-currency adjusted operating profit increased 8 percent, driven by higher adjusted gross profit dollars, partially offset by higher adjusted selling, general, and administrative (SG&A) expenses. Adjusted operating profit margin increased 70 basis points to 18.7 percent.

• Net earnings attributable to General Mills increased 31 percent to $820 million and diluted EPS was up 32 percent to $1.35, primarily reflecting higher operating profit. Adjusted diluted EPS of $1.11 increased 13 percent in constant currency, primarily driven by higher adjusted operating profit.

Notes on Comparability

Financial results in the quarter reflected the acquisition of Tyson Foods’ pet treat business in the first quarter of fiscal 2022; the divestiture of the European yogurt business in the third quarter of fiscal 2022; the divestiture of certain international dough businesses in the third and fourth quarters of fiscal 2022; the acquisition of the TNT Crust foodservice business in the first quarter of fiscal 2023; and the divestiture of the Helper main meals and Suddenly Salad side dishes business in the first quarter of fiscal 2023.

First-quarter results in fiscal 2023 also included the impact of a voluntary recall on certain international Häagen-Dazs ice cream products, which was a headwind to net sales and operating profit results in the International segment. Unallocated corporate items in the first quarter included an additional $22 million of charges related to product disposals associated with the ice cream recall that were excluded from adjusted operating profit results. Impacts of the recall are expected to be completed by the second quarter of fiscal 2023.

Operating Segment Results

Note: Tables may not foot due to rounding.

North America Retail Segment

First-quarter net sales for General Mills’ North America Retail segment increased 10 percent to $3.0 billion, driven by favorable net price realization and mix, partially offset by lower pound volume and a 1-point headwind from the Helper and Suddenly Salad divestiture. Organic net sales increased 12 percent. Net sales increased 14 percent in U.S. Snacks, 10 percent in U.S. Meals & Baking Solutions, 9 percent in U.S. Morning Foods, and 4 percent in Canada. Segment operating profit of $778 million was up 20 percent as reported and in constant currency, primarily driven by favorable net price realization and mix and HMM cost savings, partially offset by input cost inflation, lower volume, and supply chain deleverage.

Pet Segment

First-quarter net sales for the Pet segment increased 19 percent to $580 million, primarily driven by favorable net price realization and mix. Net sales results included a 5-point benefit from the pet treats acquisition. Organic net sales were up 14 percent. Segment operating profit increased 7 percent to $123 million, primarily driven by favorable net price realization and mix and HMM cost savings, partially offset by input cost inflation and higher SG&A expenses.

North America Foodservice Segment

First-quarter net sales for the North America Foodservice segment increased 21 percent to $496 million, primarily driven by favorable net price realization and mix, including a 17-point benefit from market index pricing on bakery flour. Net sales results also included a 3-point benefit from the TNT Crust acquisition. Organic net sales were up 18 percent. Segment operating profit was down 25 percent to $54 million, driven by higher input costs and higher SG&A expenses, partially offset by favorable net price realization and mix.

International Segment

First-quarter net sales for the International segment were down 30 percent to $652 million, driven by lower pound volume, including the impact of yogurt and dough divestitures and the ice cream recall, and a 5-point headwind from foreign currency exchange, partially offset by favorable net price realization and mix. Organic net sales were down 2 percent, driven by lower organic pound volume, including the impact of the ice cream recall, partially offset by positive organic net price realization and mix. Segment operating profit of $35 million was down 43 percent as reported and down 34 percent in constant currency, driven by lower volume, including the impacts of the yogurt and dough divestitures and the ice cream recall, and higher input costs, partially offset by favorable net price realization and mix and lower SG&A expenses.

Joint Venture Summary

First-quarter net sales for Cereal Partners Worldwide (CPW) increased 3 percent in constant currency, driven by favorable net price realization and mix, partially offset by lower volume. Constant-currency net sales for Häagen-Dazs Japan (HDJ) were down 8 percent, driven by lower volume. Combined after-tax earnings from joint ventures totaled $20 million compared to $29 million a year ago, primarily driven by higher input costs, partially offset by favorable net price realization and mix at CPW.

Other Income Statement Items

Unallocated corporate items totaled $333 million net expense in the first quarter of fiscal 2023, compared to $56 million net expense a year ago. Excluding mark-to-market valuation effects and other items affecting comparability, unallocated corporate items totaled $107 million net expense this year compared to $77 million net expense last year, primarily driven by certain one-time favorable items a year ago.

The company recorded a net $431 million gain on divestitures in the first quarter (please see Note 3 below for more information on this item). Restructuring, impairment, and other exit costs totaled $2 million of expense compared to a $4 million net recovery a year ago (please see Note 4 below for more information on these charges). Benefit plan non-service income totaled $22 million in the first quarter compared to $30 million a year ago, primarily driven by an increase in interest cost, partially offset by lower amortization of losses.

Net interest expense totaled $88 million in the first quarter compared to $96 million a year ago, primarily driven by lower average long-term debt balances. The effective tax rate in the quarter was 21.2 percent compared to 21.7 percent last year (please see Note 7 below for more information on our effective tax rate). The adjusted effective tax rate was 19.7 percent compared to 21.7 percent a year ago.

Net earnings attributable to redeemable and non-controlling interests totaled $3 million in the quarter compared to $11 million a year ago, primarily driven by the sale of the company’s interests in Yoplait SAS, Yoplait Marques SNC, and Liberté Marques Sàrl in fiscal 2022.

Cash Flow Generation and Cash Returns

Cash provided by operating activities totaled $389 million in the first quarter of fiscal 2023 compared to $370 million in the prior year, primarily driven by higher net earnings, a favorable change in current assets and liabilities, and a favorable change in other operating items, partially offset by a net gain on divestitures. Capital investments totaled $91 million compared to $104 million a year ago. Dividends paid increased 4 percent to $325 million. General Mills repurchased approximately 6.9 million shares of common stock in the first quarter for a total of $501 million compared to $150 million in share repurchases a year ago. Average diluted shares outstanding in the quarter decreased 1 percent to 606 million.

Fiscal 2023 Outlook

General Mills continues to expect the largest factors impacting its 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. The company expects volume elasticities will increase over the remaining quarters of fiscal 2023 but remain below historical levels. Relative to its initial full-year expectations, the company now expects lower volume elasticities and better volume performance, increased input cost inflation to 14 to 15 percent of total cost of goods sold, and increased investment in brand building and other growth-driving activities. Other key fiscal 2023 assumptions, including HMM cost savings of 3 to 4 percent of cost of goods sold, low-double-digit positive price/mix, and an expectation for moderately lower supply chain disruptions, remain unchanged.

The company’s updated full-year fiscal 2023 financial targets are summarized below:

• Organic net sales are now expected to increase 6 to 7 percent, compared to the previous expectation of 4 to 5 percent growth.

• Constant-currency adjusted operating profit is now expected to range between flat and up 3 percent in constant currency, including a 3-point net headwind from divestitures and acquisitions and an estimated 1-point headwind from the ice cream recall. Adjusted operating profit was previously expected to range between down 2 percent and up 1 percent in constant currency, including the 3-point net headwind from divestitures and acquisitions.

• Constant-currency adjusted diluted EPS is now expected to increase 2 to 5 percent in constant currency, including a 3-point net headwind from divestitures and acquisitions and an estimated 1-point headwind from the ice cream recall. Adjusted diluted EPS was previously expected to range between flat and up 3 percent in constant currency, including the 3-point net headwind from divestitures and acquisitions.

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

• The net impact of divestitures, acquisitions, and foreign currency exchange is now expected to reduce full-year reported net sales growth by approximately 4 percent, and foreign currency exchange is still expected to reduce adjusted operating profit and adjusted diluted EPS growth by approximately 1 percent.

General Mills will issue pre-recorded management remarks today, September 21, 2022, at approximately 6:30 a.m. Central time (7:30 a.m. Eastern time) and will hold a live, webcasted question and answer session beginning at 8:00 a.m. Central time (9:00 a.m. Eastern time). The pre-recorded remarks and the webcast will be made available at www.generalmills.com/investors.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations and assumptions. These forward-looking statements, including the statements under the caption “Fiscal 2023 Outlook,” and statements made by Mr. Harmening, are subject to certain risks and uncertainties that could cause actual results to differ materially from the potential results discussed in the forward-looking statements. In particular, our predictions about future net sales and earnings could be affected by a variety of factors, including: the impact of the coronavirus (COVID-19) pandemic on our business, suppliers, consumers, customers, and employees; disruptions or inefficiencies in the supply chain, including any impact of the coronavirus (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. The company undertakes no obligation to publicly revise any forward-looking statement to reflect any future events or circumstances.

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 judgement, significantly affect the year-to-year assessment of operating results.

The following are descriptions of significant items impacting comparability of our results.

Divestitures gain, netNet divestitures gain primarily related to the sale of our Helper main meals and Suddenly Salad side dishes business in fiscal 2023. Please see Note 3.

Transaction costsTransaction costs primarily related to the sale of our Helper main meals and Suddenly Salad side dishes business in fiscal 2023. Transaction costs related to the sale of our interests in Yoplait SAS, Yoplait Marques SNC, and Liberté Marques Sàrl in fiscal 2022. Please see Note 3.

Non-income tax recoveryRecovery related to a Brazil indirect tax item recorded in fiscal 2022.

Acquisition integration costsIntegration 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 3.

Investment activity, netValuation adjustments and the loss on sale of certain corporate investments in fiscal 2023. Valuation adjustments of certain corporate investments in fiscal 2022. Please see Note 5.

Mark-to-market effectsNet mark-to-market valuation of certain commodity positions recognized in unallocated corporate items. Please see Note 5.

Restructuring charges (recoveries)Restructuring charges for previously announced restructuring actions recorded in fiscal 2023 and fiscal 2022. Please see Note 4.

Product recallVoluntary recall costs recorded in fiscal 2023 related to certain international Häagen-Dazs ice cream products. Please see Note 5.

CPW restructuring chargesCPW restructuring charges related to previously announced restructuring actions.

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:

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:

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.

Adjusted Earnings Comparisons as a Percent of Net Sales

We believe that these measures provide useful information to investors because they are important for assessing our adjusted earnings comparisons as a percent of net sales on a comparable year-to-year basis.

Our adjusted earnings comparisons as a percent of net sales are calculated as follows:

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:

Adjusted Effective Income Tax Rate

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: