General Mills, Inc. — Fiscal 2024 Second-Quarter 10-Q
Reporting period: Quarter and six months ended November 26, 2023; comparisons are with the periods ended November 27, 2022, except balance-sheet comparisons, which are with May 28, 2023. General Mills is a packaged-foods company with North America Retail, International, Pet, and North America Foodservice segments. Amounts below are in millions of dollars unless stated otherwise.
Financial performance
| Metric | Quarter | Six months |
|---|---|---|
| Net sales | $5,139.4; down 2% | $10,044.1; up 1% |
| Organic net sales | Down 2% | Up 1% |
| Operating profit | $811.8; up 2% | $1,741.8; down 8% |
| Operating margin | 15.8%, versus 15.3% | 17.3%, versus 19.0% |
| Net earnings attributable to General Mills | $595.5; down 2% | $1,269.0; down 11% |
| Diluted EPS | $1.02; up 1% | $2.16; down 8% |
| Adjusted operating profit | $989.4; up 13% on a constant-currency basis | $1,888.4; up 7% on a constant-currency basis |
| Adjusted operating margin | 19.3%, versus 16.9% | 18.8%, versus 17.7% |
| Adjusted diluted EPS | $1.25; up 14% on a constant-currency basis | $2.34; up 6% on a constant-currency basis |
Adjusted figures are non-GAAP measures; they exclude specified items affecting comparability and should be considered alongside reported results. Quarterly sales reflected a 4-point volume decline, partly offset by 3 points from price and mix. For the six months, a 3-point volume decline was more than offset by 4 points from price and mix.
Cash flow, liquidity, and debt
- Six-month operating cash flow was $1,495.8, versus $1,200.7 a year earlier. Capital expenditures were $293.9, versus $226.7; operating cash flow less capital expenditures was approximately $1,201.9.
- Cash and cash equivalents were $593.8 at November 26, 2023. Current assets were $5,045.6 and current liabilities $7,902.2.
- Long-term debt, including its current portion, totaled $11,851.5; notes payable were $799.2, including $730.7 of U.S. commercial paper. The current portion of long-term debt was $1,321.0. Total liabilities were $21,601.5.
- Debt and notes payable increased from May 28, 2023. The company reported compliance with debt and credit-facility covenants and said operating cash flow and available financing should meet liquidity and capital needs for at least 12 months. It had $2.7 billion of unused committed credit capacity expiring in April 2026.
- Financing cash outflow was $1,173.6, including $1,301.4 of treasury-stock purchases and $691.0 of dividends. The company issued $500 million of 5.5% notes due 2028, among other debt refinancing activity.
Changes versus the prior comparable period
- Quarter: Sales fell as lower shipment volume outweighed favorable pricing and mix. Reported operating profit rose despite a $117.1 non-cash Latin America goodwill impairment and higher restructuring costs, supported by pricing and mix and lower SG&A expenses.
- Six months: Reported operating profit and EPS declined, in part because the prior-year period included a $430.9 divestiture gain. Adjusted operating profit and adjusted EPS increased, while sales growth remained price-led amid lower volume.
- Interest expense increased to $117.8 for the quarter and $234.8 for the six months, primarily reflecting higher rates and higher average debt. Share repurchases reduced average diluted shares by 19 million for the quarter and 17 million for the six months.
Segment results
- North America Retail: Quarter sales down 2%; operating profit up 3% to $859.9. Six-month sales were essentially flat; operating profit up 3% to $1,658.1.
- International: Quarter sales up 2% and operating profit up to $34.6 from $17.8. Six-month sales up 6% and operating profit up to $84.6 from $52.6. Comparisons benefited from the prior-year Häagen-Dazs recall.
- Pet: Quarter sales down 4%, with volume contributions down 11 points; operating profit up 18% to $102.5. Six-month sales down 2%; operating profit up 2% to $213.7.
- North America Foodservice: Quarter sales essentially flat and operating profit up 17% to $95.5. Six-month sales up 4% and operating profit up 14% to $154.6.
Outlook, commentary, and risks
- Management identified consumer economic health, moderating input-cost inflation, and improving supply-chain stability as key fiscal 2024 performance factors. It expected approximately 5% input-cost inflation for fiscal 2024 and higher Holistic Margin Management savings than in fiscal 2023. The supplied filing text does not provide a clear full-year sales or EPS guidance range.
- The company recorded a $117.1 non-cash goodwill impairment for its Latin America reporting unit, citing lower projected future profitability. It identified True Chews and Uncle Toby’s intangible assets as exceptions to otherwise substantial impairment coverage and said Progresso, Nudges, Top Chews, and EPIC had risk of decreasing coverage.
- New Pet-segment commercial-strategy restructuring is expected to cost approximately $22 million, about $4 million cash, with completion expected by fiscal 2026. International restructuring actions are expected to cost approximately $36 million, about $18 million cash, with completion expected by fiscal 2025.
- The IRS proposed an adjustment related to a fiscal 2019 capital loss; General Mills said it would contest the assessment and did not expect a material impact on financial position or liquidity. A Brazilian state sales-tax assessment remains contested; the company could not estimate a possible loss and recorded no contingency.
- Disclosed risks include consumer demand and response to pricing, inflation and input availability, competition, supply-chain disruption, product quality and recalls, foreign exchange, interest rates, impairment risk, and effectiveness of restructuring and cost-saving initiatives. Commodity derivatives had a $420.8 net notional value, generally for inputs expected to be used within 12 months.
Most important facts for investors to verify
- Whether weak volume trends, particularly in Pet and North America Retail, improve and whether pricing and mix can continue to offset them.
- How the approximately 5% expected input-cost inflation compares with realized costs and HMM savings, and the resulting effect on margins.
- Whether reported and adjusted performance reconciles consistently, including the impact of the goodwill impairment, restructuring, commodity mark-to-market items, and prior-year divestiture gain.
- Debt maturities, commercial-paper reliance, interest costs, and liquidity following elevated share repurchases and dividends.
- Developments in the Latin America goodwill impairment outlook, other named brand-impairment exposures, and the unresolved tax matters.