General Mills, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended November 29, 2020; comparable periods ended November 24, 2019. Amounts are in millions except per-share data.
Business context and results
General Mills sells packaged foods through five segments: North America Retail, Europe & Australia, Pet, Convenience Stores & Foodservice, and Asia & Latin America. Management said at-home food demand remained elevated versus pre-pandemic levels but had moderated from fiscal Q4 2020. The balance between at-home and away-from-home demand was expected to be the largest factor affecting fiscal 2021 performance.
| Metric | Fiscal Q2 2021 | Fiscal Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $4,719.4 | $4,420.8 | $9,083.4 | $8,423.3 |
| Operating profit | $916.6 | $811.2 | $1,770.3 | $1,473.6 |
| Operating margin | 19.4% | 18.3% | 19.5% | 17.5% |
| Net earnings attributable to General Mills | $688.4 | $580.8 | $1,327.3 | $1,101.4 |
| Diluted EPS | $1.11 | $0.95 | $2.14 | $1.80 |
| Adjusted operating margin | 18.3% | 18.4% | 18.7% | 17.8% |
| Adjusted diluted EPS | $1.06 | $0.95 | $2.06 | $1.74 |
Financial position and cash flow
- Cash and liquidity: Cash and equivalents were $2,582.8 at November 29, up from $1,677.8 at May 31, 2020. Current assets were $6,408.2 and current liabilities $8,464.2.
- Debt: Total debt was $13,964.4, versus $13,539.5 at May 31; cash-adjusted debt was approximately $11,381.6. Long-term debt, including its current portion, had a carrying value of $13,838.2. Debt fair value was $15,421.1.
- Near-term maturities and facilities: $2,885.7 of long-term debt was classified as current, including maturities due through November 2021. The company had $2.9 billion of committed credit facilities, none borrowed, and $0.7 billion of uncommitted facilities, with $0.1 billion borrowed. It reported compliance with debt and credit covenants.
- Six-month cash flow: Operating cash flow was $1,426.8, compared with $1,456.6. Capital expenditures were $226.2, compared with $158.5; operating cash flow less capital expenditures was $1,200.6. Financing cash outflow was $353.6, including $617.7 of dividends paid. Cash increased by $905.0.
- Capital returns: Dividends declared were $1.51 per share for the six-month period, versus $0.98 in the comparable period.
Material changes and segment performance
Q2 net sales and organic net sales each increased 7%; volume contributed 4 percentage points and price/mix 3 points. Six-month net sales and organic net sales increased 8%, primarily from volume and favorable price/mix. Q2 reported diluted EPS rose 17%; adjusted EPS rose 9% on a constant-currency basis. For the six months, reported diluted EPS rose 19% and adjusted EPS rose 17% on a constant-currency basis.
| Segment | Q2 sales change | Q2 operating profit change | Key driver or offset |
|---|---|---|---|
| North America Retail | +9% | +9% | Volume growth; price/mix was unfavorable. |
| Europe & Australia | +8% | +14% | Favorable price/mix and currency; volume declined. |
| Pet | +18% | +48% | Strong volume, favorable price/mix, and lower input costs. |
| Convenience Stores & Foodservice | -14% | -32% | Lower volume and unfavorable price/mix. |
| Asia & Latin America | +5% | +25% | Volume growth; currency was a significant reported-sales offset. |
Adjusted operating margin fell 10 basis points in Q2, as higher input costs and SG&A partly offset favorable price/mix. Six-month adjusted operating margin increased 90 basis points. Lower average debt levels reduced net interest expense by $19 in Q2 and $26 for the six months. The six-month effective tax rate was 22.2%, up from 17.2%, chiefly because the prior-year period included a $53.1 discrete tax benefit from a subsidiary reorganization.
Outlook, risks, and unusual items
- The filing provides no specific fiscal 2021 revenue or earnings guidance. Management said operating results for the quarter are not necessarily indicative of full-year results, and expected pandemic-driven shifts between at-home and away-from-home demand to remain a key performance factor.
- Management said liquidity sources were not materially affected by COVID-19 and believed operating cash flows and available financing would meet liquidity and capital needs for at least the next 12 months.
- A $7.1 charge was recorded for a product recall in the international Green Giant business during the six-month period. Previously announced restructuring charges were $1.9 for the six months; no new restructuring actions were undertaken. Existing actions were expected to be completed by fiscal 2022.
- The annual impairment test found no impairment, but Europe & Australia and the Progresso, Green Giant, and EPIC brands were identified as having risk of decreasing impairment-test coverage and will be monitored.
- Brazil’s São Paulo state tax authorities assessed additional sales taxes, interest, and penalties. General Mills disputes the claim; as of November 29, 2020, it could not estimate a possible loss and had recorded no contingency.
- Sodiaal can put all or part of its redeemable Yoplait SAS interest to General Mills at fair value once annually, up to three times before December 2024. Its redemption value was $587.7.
- Commodity and currency movements, supply-chain disruption, consumer demand changes, product quality and recalls, competition, input-cost inflation, and impairment are among the risks identified. Certain commodity derivatives are marked to market through earnings, which can add volatility.
Key facts for investors to verify
- Whether elevated at-home demand persists and how ongoing away-from-home weakness affects Convenience Stores & Foodservice.
- How much reported profit growth reflects underlying operations versus commodity mark-to-market, investment valuation changes, restructuring, and other adjustments; adjusted measures are non-GAAP.
- The pace of near-term debt refinancing or repayment, including $2,885.7 of current long-term debt, and the effect on interest expense and liquidity.
- Developments in the Brazil tax dispute, the Green Giant recall, and impairment coverage for the identified reporting unit and brands.
- Any subsequent change in management’s pandemic assessment or the absence of specific full-year guidance in this filing.