General Mills, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2021, ended August 30, 2020; comparisons are with the quarter ended August 25, 2019, unless noted. General Mills is a packaged-foods company with five operating segments. Results are unaudited interim results and are not necessarily indicative of full-year performance.
Financial performance
| Metric | Q1 FY2021 | Prior-year quarter | Change or context |
|---|---|---|---|
| Net sales | $4.364 billion | $4.003 billion | Up 9% reported; organic sales up 10%, led by volume growth |
| Gross profit / margin | $1.590 billion / 36.4% | $1.390 billion / 34.7% | Calculated as net sales less cost of sales; margin improved about 1.7 percentage points |
| Operating profit / margin | $853.7 million / 19.6% | $662.4 million / 16.5% | Up 29%; adjusted operating profit was $832.5 million and adjusted margin 19.1%, up 22% and 210 basis points, respectively |
| Net earnings attributable to General Mills | $638.9 million | $520.6 million | Up 23% |
| Diluted EPS | $1.03 | $0.85 | Up 21%; adjusted diluted EPS was $1.00 versus $0.79, up 27% on a constant-currency basis |
| Operating cash flow | $583.6 million | $572.1 million | Up $11.5 million |
| Capital expenditures | $117.0 million | $69.8 million | Free cash flow, calculated as operating cash flow less capital expenditures, was $466.6 million versus $502.3 million |
| Cash and cash equivalents | $1.797 billion | $1.678 billion at May 31, 2020 | Includes $650 million held in foreign jurisdictions |
| Total debt | $13.621 billion | $13.540 billion at May 31, 2020 | Includes $2.626 billion of current maturities; long-term debt fair value was $14.940 billion versus $13.459 billion carrying value |
| Current assets / liabilities | $5.355 billion / $7.613 billion | $5.121 billion / $7.492 billion at May 31, 2020 | Current liabilities exceeded current assets |
The company paid $302.8 million in dividends. It reported $2.9 billion of committed credit facilities, none borrowed, and $0.7 billion of uncommitted facilities, of which $0.1 billion was borrowed. Management said operating cash flows and available financing should meet liquidity and capital needs for at least the next 12 months; it reported compliance with debt and credit covenants.
Material changes and operating drivers
- Consolidated sales growth reflected 8 percentage points from volume and 2 points from price and mix, partly offset by a 1-point foreign-exchange impact. At-home demand remained elevated versus pre-pandemic levels, although it had moderated from the prior quarter.
- North America Retail sales rose 14% to $2.707 billion and operating profit rose 24% to $695 million. U.S. Meals & Baking sales increased 31%; U.S. Snacks declined 2%.
- Europe & Australia sales rose 8% to $491 million and operating profit rose 93% to $53 million. Pet sales rose 6% to $392 million and operating profit rose 12% to $90 million.
- Convenience Stores & Foodservice sales fell 12% to $392 million and operating profit fell 24% to $70 million, reflecting lower volume and unfavorable price and mix.
- Asia & Latin America sales rose 6% to $383 million and operating profit rose 99% to $20 million; reported sales were affected by a 10-point foreign-exchange headwind.
- Joint-venture after-tax earnings increased to $41.3 million from $21.8 million, primarily on higher sales and lower input costs at Cereal Partners Worldwide.
Outlook, risks and unusual items
- Management identified the balance between at-home and away-from-home food demand as the largest expected factor affecting fiscal 2021 results. The filing provides no specific numerical full-year guidance.
- COVID-19 had not materially affected liquidity sources as of the filing, but the company continued to assess effects on demand, suppliers, customers, employees, and operations. Management cited supply-chain disruption, competition, input-cost availability, currency movements, consumer demand changes, and product quality and safety among risks.
- Operating results included a $7.1 million charge for a product recall in the international Green Giant business. Commodity and grain mark-to-market effects were a net $16.4 million benefit to operating profit, compared with a net $15.0 million expense in the prior-year quarter. Restructuring charges were $1.0 million versus $14.3 million.
- The reported effective tax rate was 22.0%, versus 11.7% a year earlier, when a $53.1 million discrete tax benefit from subsidiary reorganizations reduced tax expense. The adjusted rates were 21.9% and 20.9%, respectively.
- Brazil’s São Paulo state tax authorities assessed additional sales taxes, interest, and penalties. The company said it would defend its position, could not estimate a possible loss, and recorded no loss contingency.
- Management flagged potential impairment sensitivity for the Europe & Australia reporting unit and Progresso brand, whose fair values exceeded carrying values by 14% and 5%, respectively, at the fiscal 2020 test date. Pillsbury also had a risk of decreasing impairment-test coverage.
- The company adopted expected-credit-loss accounting in the quarter, reducing retained earnings by $5.7 million after tax. Long-term debt due within 12 months totaled $2.626 billion.
Important facts for investors to verify
- Whether elevated at-home demand persists and how recovery in away-from-home channels affects Convenience Stores & Foodservice.
- How much earnings growth is supported by recurring sales and operating performance versus commodity mark-to-market effects, investment adjustments, recall costs, and other adjustments.
- The company’s ability to refinance or repay $2.626 billion of debt classified as current, and continued covenant compliance.
- Developments in the Brazil tax assessment and any resulting estimated exposure.
- Changes in impairment-test headroom for Europe & Australia, Progresso, and Pillsbury, and the continuing effects of COVID-19 on demand and supply chains.