General Mills, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended May 28, 2023. The filing is an annual report, not a standalone 2022 fourth-quarter report; it also provides quarterly data, including fiscal Q4 2023. General Mills is a global branded food manufacturer with four operating segments: North America Retail, International, Pet, and North America Foodservice.
Financial performance
| Metric | FY2023 | Comparison |
|---|---|---|
| Net sales | $20.094 billion | Up 6% reported; organic sales up 10% |
| Operating profit | $3.434 billion | Down 1%; operating margin 17.1%, down 120 basis points |
| Adjusted operating profit | $3.457 billion | Up 8% in constant currency; adjusted margin 17.2%, up 30 basis points |
| Net earnings attributable to General Mills | $2.594 billion | Down 4% |
| Diluted EPS | $4.31 | Down 2%; adjusted diluted EPS was $4.30, up 10% in constant currency |
| Net cash from operations | $2.779 billion | Down from $3.316 billion |
| Free cash flow | $2.089 billion | 80% conversion of adjusted net earnings; operating cash flow conversion was 106% |
Organic sales growth reflected 14 percentage points of organic price realization and mix, partly offset by a 4-point decline in organic volume. Reported sales also reflected foreign exchange and portfolio changes. Gross margin was 32.6%, down 110 basis points. Higher input costs and lower volume contributions pressured results, while pricing and mix provided offsets.
Fiscal Q4 2023 net sales were $5.030 billion versus $4.891 billion a year earlier. Net earnings attributable to General Mills were $614.9 million versus $822.8 million; diluted EPS was $1.03 versus $1.36. The quarter included restructuring charges and an insurance-related recall recovery.
Segments
- North America Retail: Sales rose 9% to $12.660 billion; segment operating profit increased 18% to $3.181 billion, primarily on pricing and mix.
- International: Sales fell 16% to $2.770 billion, while segment operating profit fell 30% to $162 million. Divestitures, volume declines, foreign exchange, and a product recall affected reported results.
- Pet: Sales rose 9% to $2.473 billion; segment operating profit fell 5% to $446 million as higher costs and SG&A offset pricing and mix.
- North America Foodservice: Sales increased 19% to $2.192 billion; segment operating profit rose 14% to $290 million. Sales benefited from pricing, market-index pricing on bakery flour, and the TNT Crust acquisition.
Liquidity, debt, and capital allocation
- Cash and cash equivalents were $585.5 million; current assets were $5.176 billion and current liabilities $7.536 billion at year-end.
- Long-term debt, including its current portion, was $11.674 billion; notes payable were $31.7 million. The company separately described total debt and noncontrolling interests of $12.0 billion.
- Debt due within 12 months was $1.709 billion. General Mills had $2.7 billion available under a committed credit facility and $0.6 billion under uncommitted facilities, with no amounts borrowed; it was in compliance with debt and credit covenants.
- Capital expenditures were $690 million. The company paid $1.288 billion in dividends and repurchased $1.404 billion of shares during FY2023.
- Management said operating cash flow and available short- and long-term financing should cover liquidity and capital needs for at least the next 12 months.
Changes, outlook, and material items
- Input cost inflation was 13% in FY2023, following 8% in FY2022. Management expected approximately 5% inflation in FY2024, with labor costs a continuing pressure, and anticipated higher Holistic Margin Management savings.
- FY2024 targets: organic net sales growth of 3% to 4%; adjusted operating profit growth of 4% to 6% in constant currency; adjusted diluted EPS growth of 4% to 6% in constant currency; and free cash flow conversion of at least 95% of adjusted after-tax earnings. These are non-GAAP targets.
- Management identified consumer economic health, moderating input inflation, and supply-chain stability as key factors for FY2024. It emphasized continued marketing, innovation, pricing actions, supply-chain efficiency, and disciplined capital allocation.
- Reported FY2023 results included a $445 million net divestiture gain, primarily from selling the Helper and Suddenly Salad businesses; a $292 million net expense from commodity and grain mark-to-market effects; and $61 million of restructuring charges. Adjusted measures exclude specified items, so GAAP and adjusted trends differ.
- A voluntary recall of certain international Häagen-Dazs ice cream products resulted in a $25 million cost-of-sales charge; recall costs were partly offset by insurance recovery. International sales and profits were also affected by recall-related volume declines.
- The company acquired TNT Crust for approximately $253 million. It reported no impairment of goodwill or indefinite-lived intangibles in its annual test, but identified Uncle Toby’s as having limited coverage and noted potential decreasing coverage for Progresso and EPIC.
- Key risks include commodity, labor, energy, and transportation costs; competition and private-label pressure; dependence on large retailers (Walmart represented 21% of consolidated sales); supply-chain disruption; foreign exchange; product safety and recalls; cyber risk; and potential impairment of goodwill and brands. The filing reported no pending or threatened litigation reasonably likely to have a material adverse effect, while noting environmental matters and tax disputes.
Important facts for investors to verify
- Whether FY2024 organic growth and adjusted profit/EPS targets are achieved, and how much growth comes from price versus volume.
- Whether expected input-cost moderation and higher productivity savings support margin improvement without weakening demand.
- Progress on the $1.709 billion of debt classified as current, refinancing costs, and maintenance of liquidity and covenant compliance.
- Recall resolution and insurance recoveries, restructuring costs and savings, and the impact of divestitures and acquisitions on comparable results.
- Assumptions supporting goodwill and brand valuations, particularly for Uncle Toby’s, Progresso, and EPIC, and developments in disclosed tax and environmental matters.
Audit and controls: KPMG issued an unqualified opinion on the consolidated financial statements and concluded internal control over financial reporting was effective. Valuation of goodwill and brand intangible assets was identified as a critical audit matter.