General Mills, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended May 30, 2021. Although the request metadata refers to 2020 Q4, this filing covers FY2021; it also reports unaudited fourth-quarter results. FY2021 had 52 weeks versus 53 weeks in FY2020, and FY2020 included 13 months of Pet segment results versus 12 months in FY2021, limiting direct comparability.
Business context and performance
General Mills manufactures and markets branded consumer foods and pet food in more than 100 countries. Its five operating segments are North America Retail, Convenience Stores & Foodservice, Europe & Australia, Asia & Latin America, and Pet. Walmart represented 20% of consolidated sales and 29% of North America Retail sales.
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Net sales | $18.127 billion | $17.627 billion | Up 3%; organic sales up 4% |
| Gross margin | 35.6% | 34.8% | Up 80 basis points |
| Operating profit | $3.145 billion | $2.954 billion | Up 6%; operating margin 17.3%, up 50 basis points |
| Adjusted operating profit | $3.153 billion | $3.058 billion | Up 2% on a constant-currency basis; adjusted margin 17.4% |
| Net earnings attributable to General Mills | $2.340 billion | $2.181 billion | Up 7% |
| Diluted EPS | $3.78 | $3.56 | Up 6%; adjusted diluted EPS was $3.79, up 4% constant currency |
| Net cash from operations | $2.983 billion | $3.676 billion | Down $693 million, primarily due to working-capital changes |
| Capital expenditures / free cash flow | $531 million / $2.452 billion | $461 million / — | Free cash flow conversion was 103% of adjusted net earnings |
| Total debt / net debt | $12.612 billion / $11.107 billion | $13.540 billion / $11.862 billion | Total debt reduced by $928 million |
| Cash and cash equivalents | $1.505 billion | $1.678 billion | Includes $687 million held in foreign jurisdictions |
FY2021 diluted EPS was $3.78 versus $3.56 in FY2020; dividends were $2.02 per share versus $1.96. Interest expense, net, declined to $420 million from $467 million. The effective tax rate rose to 22.0% from 18.5%, primarily reflecting prior-year tax benefits and the nondeductible loss on the Brazil divestiture.
Segment sales and operating profit were mixed. North America Retail sales rose 2% to $10.995 billion, while operating profit was essentially flat at $2.623 billion. Europe & Australia sales rose 8% to $1.982 billion, including favorable currency effects; operating profit rose 33% to $151 million. Convenience Stores & Foodservice sales fell 4% to $1.742 billion and operating profit fell 9% to $306 million, reflecting weaker away-from-home demand and cost/mix pressure. Pet sales rose 2% to $1.732 billion and operating profit rose 6% to $415 million; the prior-period comparison includes an extra month. Asia & Latin America sales rose 10% to $1.675 billion and operating profit increased to $86 million from $19 million.
In Q4 FY2021, sales were $4.524 billion versus $5.023 billion in Q4 FY2020; net earnings attributable to General Mills were $417 million versus $626 million, and diluted EPS was $0.68 versus $1.02. Q4 FY2021 included $157 million of restructuring charges and a $54 million loss on the sale of the Laticínios Carolina business. Q4 FY2020 included an extra week and an extra month of Pet results, as well as a Green Giant recall charge.
Liquidity, debt, and capital allocation
Operating cash flow was $2.983 billion; cash capital expenditures were $531 million. The company paid $1.246 billion in dividends, repurchased $301 million of shares, and reported $2.452 billion of free cash flow. Net debt-to-adjusted EBITDA improved to 2.9 from 3.2, while net debt-to-operating-cash-flow increased to 3.7 from 3.2 because operating cash flow declined. At year-end, $2.464 billion of long-term debt was classified as current and due within 12 months. General Mills reported $2.9 billion of committed credit facilities, none drawn, and was in compliance with debt covenants; management said operating cash flow and available financing should meet needs for at least 12 months.
Outlook, commentary, and risks
For FY2022, management expects organic sales to decline 1%–3%, adjusted operating profit in constant currency to decline 2%–4% from $3.2 billion, and adjusted diluted EPS in constant currency to range from flat to down 2% from $3.79. Free cash flow conversion is expected to be approximately 95% of adjusted after-tax earnings. Management expects at-home food demand to decline year over year but remain above pre-pandemic levels, while away-from-home demand recovers but remains below pre-pandemic levels. Input-cost inflation is forecast at approximately 7% of cost of goods sold; HMM savings are expected to be roughly 4% of cost of goods sold, with positive net price realization. Capital expenditures are forecast at approximately 3.5% of sales.
Management said FY2021 benefited from elevated at-home demand, share gains across five global platforms, cost savings, and stronger joint-venture earnings. It also cited lower away-from-home demand and a turbulent inflation environment. Principal risks include COVID-19 and demand shifts, commodity and packaging inflation, supply-chain disruption, intense competition and retailer bargaining power, foreign-exchange volatility, cybersecurity, product safety and recalls, and potential goodwill or brand impairments. Goodwill and indefinite-lived intangibles totaled $20.7 billion; no impairment was recorded, but Europe & Australia and the Progresso, Green Giant, and EPIC brands were identified as having risk of declining valuation headroom. KPMG identified goodwill and brand valuation as a critical audit matter.
Portfolio actions include a proposed exchange with Sodiaal involving the sale of General Mills’ European Yoplait operations and full ownership of the Canadian Yoplait business, subject to approvals and consultations. The company also agreed to acquire Tyson Foods’ pet treats business for $1.2 billion, expected to close in FY2022 subject to regulatory approval. The filing reports two environmental response actions and an unresolved Brazilian state sales-tax assessment for which the company could not estimate a possible loss; management said ordinary-course legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Assess whether FY2022 demand normalization, approximately 7% input-cost inflation, pricing, and productivity savings support the stated guidance.
- Review cash-flow quality: operating cash flow declined substantially, chiefly due to working-capital movements, while inventory rose to $1.821 billion from $1.426 billion.
- Evaluate upcoming debt maturities, refinancing needs, leverage, and the funding impact of the $1.2 billion pet-treats acquisition.
- Track the timing, approvals, and financial implications of the proposed Yoplait transaction and the Tyson pet-treats acquisition.
- Monitor impairment sensitivity for Europe & Australia and the Progresso, Green Giant, and EPIC brands, given the company’s substantial goodwill and intangible-asset balances.
- Consider the Q4 and annual comparisons in light of the differing fiscal-week and Pet-segment reporting periods, and distinguish GAAP results from management’s adjusted non-GAAP measures.