General Mills, Inc. — Form 10-Q summary
Business context and reporting period. General Mills is a packaged-foods company with five operating segments: North America Retail, Europe & Australia, Pet, Asia & Latin America, and Convenience Stores & Foodservice. This filing covers the third quarter and first nine months of fiscal 2021, ended February 28, 2021; comparisons are with the corresponding prior-year periods. Amounts below are in U.S. dollars.
Financial performance
| Metric | Quarter | Nine months |
|---|---|---|
| Net sales | $4.520 billion, up 8% | $13.603 billion, up 8% |
| Organic net sales growth | 7% | 8% |
| Operating profit | $826.6 million, up 27% | $2.597 billion, up 22% |
| GAAP operating margin | 18.3%, up 270 basis points | 19.1%, up 220 basis points |
| Adjusted operating margin (non-GAAP) | 15.8%, down 30 basis points | 17.7%, up 50 basis points |
| Net earnings attributable to General Mills | $595.7 million, up 31% | $1.923 billion, up 24% |
| Diluted EPS | $0.96, up 30%; adjusted $0.82, up 6% on a constant-currency basis | $3.10, up 22%; adjusted $2.88, up 14% on a constant-currency basis |
Quarterly sales growth reflected volume, price and mix, and favorable currency. Nine-month sales growth was primarily volume and price/mix. Higher input costs weighed on adjusted margins. Reported operating profit also benefited from favorable commodity and grain mark-to-market results and corporate investment activity. Adjusted figures are non-GAAP and exclude specified items.
Cash flow and investment: Nine-month operating cash flow was $2.208 billion versus $2.160 billion. Capital expenditures were $346 million, up $77 million year over year; operating cash flow less capital expenditures was approximately $1.862 billion. Dividends paid were $932 million. Cash and equivalents rose to $2.754 billion from $1.678 billion at May 31, 2020.
Debt and liquidity: Total debt was $13.851 billion, compared with $13.540 billion at fiscal year-end; cash less total debt implies net debt of approximately $11.097 billion. Current portion of long-term debt was $3.900 billion, including debt maturing within 12 months. General Mills reported $3.5 billion of committed and uncommitted credit facilities, with $0.2 billion borrowed, and said it complied with debt and credit covenants. Management expects operating cash flow and available financing to cover liquidity and capital needs for at least 12 months.
Material changes and segment trends
- North America Retail sales rose 9% in the quarter and 11% year to date, primarily on volume growth. Pet sales rose 14% and 13%, respectively, also led by volume.
- Europe & Australia sales rose 15% in the quarter and 10% year to date; foreign exchange contributed to reported growth. Asia & Latin America sales rose 12% and 8%, respectively, despite unfavorable currency effects.
- Convenience Stores & Foodservice was the principal weakness: sales fell 10% in the quarter and 12% year to date, while operating profit fell 31% and 29%, respectively. The company cited lower volume, unfavorable price/mix, and higher input costs.
- Interest expense declined year to date, primarily due to lower rates and lower average debt. The effective tax rate was 22.0% year to date versus 18.3%, largely because the prior-year period included a $53.1 million discrete tax benefit related to a subsidiary reorganization.
Outlook, management commentary, and risks
- Management said elevated at-home food demand remained above pre-pandemic levels but had moderated from the fourth quarter of fiscal 2020. The relative balance of at-home versus away-from-home demand was identified as the largest expected factor affecting fiscal 2021 performance. The filing text does not provide a clear numerical full-year financial guidance target.
- In the third quarter, the company approved Asia & Latin America route-to-market and supply-chain restructuring, expecting approximately $21 million of charges, about $15 million cash, with completion expected by the end of the first quarter of fiscal 2022.
- On March 23, 2021, after quarter-end, General Mills entered a non-binding memorandum of understanding to sell its 51% controlling interest in its European Yoplait business to Sodiaal and acquire Sodiaal’s 49% interest in the Canadian yogurt business. A fiscal 2022 closing is proposed, subject to consultations, regulatory filings, and other conditions.
- The company is defending an assessment by São Paulo, Brazil, for additional state sales taxes, interest, and penalties. It said it could not estimate a possible loss and recorded no contingency.
- No impairment was identified in the annual goodwill and indefinite-lived intangible asset test. Management noted decreasing coverage risk for the Europe & Australia reporting unit and the Progresso, Green Giant, and EPIC brands, which it will continue to monitor.
- Other cited risks include COVID-19 effects on demand and supply chains, input-cost and commodity volatility, competition, consumer preferences, product safety and recalls, foreign exchange, and potential impairment. The filing also reports a favorable $8 million adjustment related to an international Green Giant product recall in the quarter.
Important facts for investors to verify
- Whether elevated at-home demand persists and how away-from-home demand affects Convenience Stores & Foodservice.
- How much reported profit growth depended on commodity mark-to-market and investment gains versus underlying adjusted performance.
- The refinancing or repayment plan for the $3.9 billion of debt classified as current, and liquidity after maturities and dividends.
- Progress, terms, approvals, and closing conditions for the proposed Yoplait transaction.
- Any developments in the Brazil tax assessment and impairment monitoring for the identified brands and Europe & Australia reporting unit.