General Mills, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2022, ended August 29, 2021; comparison is the quarter ended August 30, 2020. Figures are in U.S. dollars unless otherwise indicated. The interim statements are unaudited.
Key financial results
| Metric | Quarter ended Aug. 29, 2021 | Prior-year quarter | Change / context |
|---|---|---|---|
| Net sales | $4.540 billion | $4.364 billion | Up 4%; organic sales up 2%. Growth reflected price/mix and currency; volume was flat overall. |
| Gross profit | $1.597 billion | $1.590 billion | Approx. gross margin 35.2%, down from 36.4%, as cost of sales rose faster than sales. |
| Operating profit | $844 million | $854 million | Down 1%; operating margin 18.6%, versus 19.6%. |
| Adjusted operating profit | $819 million | $833 million | Down 2% on a constant-currency basis; adjusted margin 18.0%, down 110 basis points. |
| Net earnings attributable to General Mills | $627 million | $639 million | Down 2%. |
| Diluted EPS | $1.02 | $1.03 | Down 1%; adjusted diluted EPS was $0.99, down 2% on a constant-currency basis. |
| Operating cash flow | $370 million | $584 million | Down $214 million, mainly due to working-capital movements. |
| Capital expenditures | $104 million | $117 million | Derived free cash flow was $266 million, versus $467 million. |
Liquidity, debt, and capital allocation
- Cash and cash equivalents on the balance sheet were $711 million at quarter-end, compared with $1.505 billion at May 30, 2021. The cash-flow statement reports $754 million including $43 million classified as held for sale.
- Long-term debt, including its current portion, had a carrying value of $11.917 billion. Notes payable were $1.036 billion. The company reported $1.590 billion of current long-term debt and $10.327 billion of long-term debt.
- Cash used for investing was $1.298 billion, including the $1.2 billion cash acquisition of Tyson Foods’ pet treats business. Financing activities provided $195 million, including net debt issuance; dividends paid were $312 million.
- The company repurchased 2.5 million shares for $150 million. The quarterly dividend declared was $0.51 per share, compared with $0.49 a year earlier.
- Available committed and uncommitted credit lines totaled $3.5 billion, of which $0.5 billion was borrowed. General Mills said it complied with debt and credit covenants and expected cash flows and financing availability to meet needs for at least the next 12 months.
Material changes and business developments
- General Mills acquired Tyson Foods’ pet treats business for $1.2 billion in cash, financed with cash and short-term debt. The acquisition added $759 million of goodwill and $370 million of intangible assets; one month of the acquired business’s results was included in the quarter.
- The Pet segment’s sales rose 25% to $488 million, including 5 percentage points from the acquisition; organic sales rose 20%. Segment operating profit increased 28% to $115 million.
- General Mills agreed to transfer its controlling interest in Yoplait SAS and its interests in Yoplait Marques SNC and Liberté Marques Sàrl to Sodiaal, in exchange for full ownership of the Canadian Yoplait business, reduced brand royalty rates in the U.S. and Canada, and cash. Completion was expected by the end of calendar 2021. Related assets and liabilities were classified as held for sale.
- North America Retail sales fell 3% and segment operating profit fell 11%, with lower volume and higher input costs weighing on results. Convenience Stores & Foodservice sales rose 23% and operating profit rose 47%. Europe & Australia sales rose 5% but operating profit fell 15%; Asia & Latin America sales rose 8% but operating profit fell 23%.
- After-tax earnings from joint ventures fell to $29 million from $41 million, principally due to lower sales at Cereal Partners Worldwide.
Outlook, commentary, risks, and unusual items
- Management said fiscal 2022 results would be affected by the uncertain balance between at-home and away-from-home food demand and by inflation. It expected at-home demand to decline year over year in most core markets while remaining above pre-pandemic levels; away-from-home demand was expected to recover but remain below pre-pandemic levels. The filing provides no specific full-year earnings or sales guidance in the supplied text.
- Higher input costs were the principal pressure on operating profit. Favorable price realization and mix, lower administrative expenses, and productivity efforts partly offset the pressure.
- Quarterly results included a $21 million recovery on a Brazil indirect-tax item, a $13 million insurance recovery, $12 million of pet-treats integration costs, and $11 million of Yoplait transaction costs. Commodity and grain mark-to-market effects reduced reported operating expense by $24 million. Adjusted measures exclude specified items and are non-GAAP.
- Brazilian tax authorities proposed disallowing certain Yoki acquisition goodwill-amortization tax benefits for 2016–2018, in addition to earlier disputed years. The company said it intends to contest the adjustments. A separate São Paulo state sales-tax assessment includes tax, interest, and penalties; the company said it could not estimate a possible loss and recorded no contingency.
- Management identified continuing risks from COVID-19, inflation and supply-chain disruptions, consumer demand and pricing responses, commodity and currency volatility, competition, tax or regulatory changes, product quality and recalls, and potential impairment. Europe & Australia and the Progresso, Green Giant, and EPIC brands were identified as areas to monitor for impairment risk.
Important facts for investors to verify
- Whether pricing and productivity can offset inflation without further volume declines or margin pressure, particularly in North America Retail.
- The acquired pet treats business’s contribution to growth and profitability as a full quarter of results is included in future periods.
- Completion, consideration, and financial effects of the Yoplait transaction, including the exchange of European interests for Canadian ownership and revised royalty terms.
- Working-capital trends and liquidity after the acquisition, near-term debt maturities, and the planned October 2021 redemption of $1.0 billion of notes.
- Progress and potential financial exposure from the Brazilian tax disputes, and monitoring of the named businesses and brands for impairment.