General Mills, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter of 2023, ended August 28, 2022; comparative quarter ended August 29, 2021. Amounts are in U.S. dollars.
Financial performance
| Metric | Q1 FY2023 | Prior-year quarter | Change / context |
|---|---|---|---|
| Net sales | $4.718 billion | $4.540 billion | Up 4%; organic net sales up 10% |
| Operating profit | $1.086 billion | $844 million | Up 29%, including a $431 million net divestiture gain |
| Adjusted operating profit | $881 million | $819 million | Up 8% on a constant-currency basis |
| Operating margin | 23.0% | 18.6% | Adjusted margin was 18.7%, up from 18.0% |
| Net earnings attributable to General Mills | $820 million | $627 million | Up 31% |
| Diluted EPS | $1.35 | $1.02 | Up 32%; adjusted diluted EPS was $1.11, up 13% on a constant-currency basis |
| Operating cash flow | $389 million | $370 million | Capital expenditures were $91 million; operating cash flow less capital expenditures was approximately $298 million |
Sales growth reflected 17 percentage points from net price realization and mix, offset by a 12-point decline in volume contributions; foreign exchange reduced growth by 1 point. Organic growth was driven by 15 points of price and mix, partly offset by a 5-point decline in organic volume.
Cash and cash equivalents were $594 million at quarter-end. Current assets were $5.134 billion versus current liabilities of $8.596 billion. Long-term debt, including its current portion, was $10.570 billion; notes payable were $992 million. Debt due within 12 months was $2.095 billion. The company reported compliance with debt and credit facility covenants and said operating cash flows and available financing should meet liquidity and capital needs for at least 12 months.
Material changes and segment results
- The $431 million net divestiture gain primarily arose from selling the Helper main meals and Suddenly Salad businesses for $607 million in cash; the reported pre-tax gain was $442 million.
- Adjusted results were affected by a $175 million net expense from commodity and grain mark-to-market changes, a $22 million charge related to a voluntary international Häagen-Dazs ice cream recall, and investment-related losses. These items were among the adjustments excluded from adjusted operating profit and EPS.
- North America Retail sales rose 10% and segment operating profit rose 20% to $778 million. Pet sales rose 19% and operating profit rose 7% to $123 million. North America Foodservice sales rose 21%, while operating profit fell 25% to $54 million. International sales fell 30% and operating profit fell 43% to $35 million, reflecting divestitures, currency effects, volume declines and the recall.
- The company acquired TNT Crust for a purchase price of $253 million, financed with U.S. commercial paper. It recorded $154 million of goodwill in North America Foodservice.
- Financing activities used $609 million, including $501 million of share repurchases and $325 million of dividends paid. The quarterly dividend declared was $0.54 per share.
Outlook, commentary and risks
- Management identified consumer economic health, inflation and supply-chain disruptions as key factors for fiscal 2023. It anticipated double-digit input-cost inflation, planned to offset cost pressures through Holistic Margin Management savings and Strategic Revenue Management price realization, expected volume elasticities to rise but remain below historical levels, and expected supply-chain disruptions to moderate gradually.
- The filing provides no specific full-year sales, earnings or EPS guidance in the supplied text. Management cautioned that first-quarter results are not necessarily indicative of full-year results.
- Commodity price exposure is managed through contracts and derivatives. The company reported $432.6 million of net notional commodity derivatives, generally for inputs to be used within 12 months; mark-to-market changes can add volatility to reported results.
- The company recorded no loss contingency for a Brazilian state sales-tax assessment because it could not estimate a possible loss; it intends to defend the claim. It is also contesting Brazilian tax-authority adjustments concerning goodwill amortization.
- Management did not expect the Inflation Reduction Act to materially affect results or liquidity, but said it would continue assessing the impact. The filing also identifies product quality and safety, input-cost inflation, supply-chain disruption, foreign exchange, consumer demand and potential intangible-asset impairment as risks. Progresso, Green Giant and EPIC brand assets were identified for continued impairment monitoring.
Important facts for investors to verify
- How much reported earnings growth was attributable to the one-time divestiture gain and other items excluded from adjusted results.
- Whether pricing actions and cost savings can continue to offset double-digit input inflation without further material volume declines.
- Near-term refinancing and liquidity needs, particularly the $2.095 billion of debt classified as current.
- The financial and sales impact of the international Häagen-Dazs recall, and the status and potential exposure of the Brazilian tax matters.
- Whether foreign exchange, commodity mark-to-market movements or brand impairment risks materially affect subsequent periods.