General Mills, Inc. — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2020, with the quarter ended February 23, 2020; filed March 18, 2020. The request metadata labels this “2019 Q3,” but the filing identifies the period as fiscal 2020 Q3.
Financial performance
| Metric | Quarter ended Feb. 23, 2020 | Nine months ended Feb. 23, 2020 |
|---|---|---|
| Net sales | $4.180 billion, down about 0.4% | $12.604 billion, down 1% |
| Operating profit | $651 million, essentially flat | $2.124 billion, up 18% |
| Operating margin | 15.6%, up 10 basis points | 16.9%, up 270 basis points |
| Net earnings attributable to General Mills | $454 million, up 2% | $1.556 billion, up 32% |
| Diluted EPS | $0.74, flat | $2.54, up 30% |
| Adjusted diluted EPS (non-GAAP) | $0.77, down 6% on a constant-currency basis | $2.51, up 5% on a constant-currency basis |
Quarterly adjusted operating profit was $675 million, down 8% on a constant-currency basis, and adjusted margin was 16.1%, down 130 basis points. For the nine months, adjusted operating profit was $2.170 billion, up 2% on a constant-currency basis, and adjusted margin was 17.2%, up 40 basis points. Organic sales were essentially flat in both periods.
Nine-month operating cash flow was $2.160 billion, versus $2.028 billion a year earlier. Capital spending was $269 million; operating cash flow less capital spending was approximately $1.890 billion. Cash and cash equivalents were $607 million at quarter-end.
Total debt was $13.628 billion, down from $14.490 billion at May 26, 2019. Current debt was $864 million, notes payable $1.175 billion, and long-term debt $11.590 billion. Total current liabilities were $6.697 billion and current assets $4.309 billion. The company had $3.6 billion of committed and uncommitted credit facilities, of which $0.3 billion was borrowed, and reported compliance with debt and credit covenants. Dividends paid in the first nine months were $895 million.
Changes versus comparable periods
- Quarterly sales were broadly unchanged: a 1-point volume decline was offset by 1 point of price and mix. Nine-month sales fell 1%, reflecting lower volume and unfavorable currency, partly offset by price and mix.
- Nine-month reported operating profit and EPS benefited materially from lower restructuring and impairment charges than in the prior year. The prior-year period included $207 million of asset impairments, a $35 million divestiture loss, and a $53 million Blue Buffalo inventory purchase-accounting charge.
- Quarterly SG&A rose $50 million to $747 million, mainly from higher advertising and administrative expenses. Quarterly adjusted operating profit declined despite stable reported operating profit.
- Pet was the strongest segment: sales increased 11% and quarterly operating profit rose 29%. Asia & Latin America weakened, with quarterly operating profit down to $8 million from $20 million.
- Interest expense fell: net interest was $110 million for the quarter and $348 million for the nine months, primarily due to lower average debt balances and rates.
Outlook, commentary and risks
- The filing gives no clear numerical full-year sales or EPS guidance. Management said the effect of COVID-19 was uncertain. It expected reduced away-from-home food traffic to hurt sales at least through the remainder of fiscal 2020; increased retail orders in North America and Europe after quarter-end might reverse in coming months. Reduced traffic was also expected to affect Häagen-Dazs shops and foodservice in Asia in Q4.
- Management expects operating cash flows and available financing to meet liquidity and capital needs for at least the next 12 months. Approximately $864 million of long-term debt was classified as current and due or subject to remarketing within 12 months.
- Previously announced supply-chain restructuring actions are expected to be completed by the end of fiscal 2022; approximately $30 million of remaining expense was expected, with total cash spending estimated at about $31 million.
- Annual impairment testing found no impairment, but fair-value coverage was relatively narrow for the Europe & Australia reporting unit (14%) and Progresso brand (5%); Pillsbury was identified as having risk of decreasing coverage.
- General Mills received a Brazilian state sales-tax assessment, including interest and penalties. It intends to contest the claim but could not estimate a possible loss and recorded no contingency.
- Other stated risks include supply-chain disruption and input-cost volatility, changing consumer demand, competition, currency movements, product safety, and possible impairments. Commodity, interest-rate, foreign-exchange, and equity market risk estimates were $3 million, $42 million, $13 million, and $2 million, respectively, for a one-day potential loss.
Important facts for investors to verify
- How COVID-19 affected retail demand, away-from-home channels, and subsequent-quarter results, including any reversal of elevated retail orders.
- Whether Pet growth and margins can continue to offset weakness in other segments, particularly Asia & Latin America and Europe & Australia.
- Cash generation, dividend funding, and refinancing plans for the $864 million of current debt and other near-term maturities.
- Developments in the Brazil tax assessment and any change in the company’s ability to estimate or record a loss.
- Impairment-test assumptions and valuation headroom for Europe & Australia, Progresso, and Pillsbury.
- Reconciliation of non-GAAP adjusted results to GAAP results; reported nine-month profit growth includes substantial year-over-year effects from prior-period charges.