Business context and reporting period
General Mills, Inc. filed this unaudited Form 10-Q for the first quarter of fiscal 2024, ended August 27, 2023. The company sells packaged food through four segments: North America Retail, International, Pet, and North America Foodservice. Comparisons are with the quarter ended August 28, 2022.
Financial performance
| Metric | Q1 FY2024 | Prior-year quarter |
|---|---|---|
| Net sales | $4.905 billion | $4.718 billion |
| Operating profit | $930 million | $1.086 billion |
| Operating margin | 19.0% | 23.0% |
| Net earnings attributable to General Mills | $674 million | $820 million |
| Diluted EPS | $1.14 | $1.35 |
| Operating cash flow | $378 million | $389 million |
| Capital expenditures | $142 million | $91 million |
| Cash and cash equivalents | $491 million | $586 million at May 28, 2023 |
- Organic net sales increased 4%: organic price realization and mix contributed 7 percentage points, while volume contributed negative 2 points. Foreign exchange and acquisitions/divestitures were flat overall.
- Adjusted operating profit was $899 million, up 2% on a constant-currency basis; adjusted operating margin was 18.3%, down 40 basis points. Adjusted diluted EPS was $1.09, down 1% on a constant-currency basis.
- Interest expense, net, rose to $117 million from $88 million, primarily reflecting higher rates and average debt levels. The effective tax rate was 20.9%, versus 21.2%.
- Operating cash flow less capital expenditures was approximately $236 million, compared with approximately $298 million in the prior-year quarter. Operating cash flow was pressured by working-capital movements, particularly the timing of accounts payable.
Liquidity, debt, and capital allocation
- At August 27, 2023, current assets were $5.107 billion and current liabilities were $7.068 billion. Cash was $491 million; the filing states $425 million was held in foreign jurisdictions.
- Long-term debt, including the current portion, had a carrying amount of $11.698 billion. Notes payable were an additional $584 million, including $529 million of U.S. commercial paper. The filing reports $1.175 billion of long-term debt due within 12 months.
- Available credit facilities totaled $3.3 billion, comprising a $2.7 billion committed facility and $0.6 billion of uncommitted facilities; no amounts were borrowed under these facilities. The company reported compliance with debt and credit covenants and expects operating cash flow and available financing to meet needs for at least 12 months.
- The company paid $349 million in dividends and repurchased $500 million of shares during the quarter. It also had $552 million of net debt issuances.
Material changes and segment results
- Reported operating profit fell 14% and diluted EPS fell 16%. The prior-year quarter included a $431 million divestiture gain, primarily from selling the Helper main meals and Suddenly Salad businesses. Excluding specified comparability items, adjusted operating profit increased 2% and adjusted EPS declined 2% as reported, or 1% on a constant-currency basis.
- Reported cost of sales decreased $136 million, including a favorable $45 million mark-to-market effect in the current quarter versus a $175 million unfavorable effect in the prior-year quarter. SG&A increased $48 million, primarily because of higher media and advertising spending.
- Segment sales and operating profit: North America Retail, $3.073 billion and $798 million; International, $716 million and $50 million; Pet, $580 million and $111 million; North America Foodservice, $536 million and $59 million.
- North America Retail sales rose 3% and operating profit 3%; International sales rose 10% and operating profit 44%; Pet sales were flat and operating profit declined 10%; Foodservice sales rose 8% and operating profit 10%. Price and mix supported sales across segments, while volume was negative in Retail, International, and Pet. Foodservice sales also benefited from the prior-year TNT Crust acquisition.
Outlook, commentary, and risks
- Management expects fiscal 2024 organic net sales growth, supported by marketing, innovation, in-store support, and net price realization, including carryover from prior Strategic Revenue Management actions. The filing does not provide a numerical annual organic-sales-growth target in the supplied text.
- Management anticipates approximately 5% input-cost inflation in fiscal 2024 and expects higher Holistic Margin Management cost savings than in fiscal 2023. Consumer economic health, input costs, and supply-chain stability are identified as major performance factors.
- Previously announced restructuring actions are expected to be completed by the end of fiscal 2025. The company recorded $9.8 million of restructuring charges in the quarter and undertook no new restructuring actions.
- Risks include supply-chain disruption, consumer response to pricing, competition, commodity and energy prices, foreign exchange, interest rates, product quality and recalls, and impairment of goodwill or intangible assets. The company is monitoring the Uncle Toby’s brand and notes risk of decreasing coverage for Progresso and EPIC brand assets.
- General Mills is defending a Brazilian state sales-tax assessment, including interest and penalties; it cannot estimate a possible loss and has recorded no loss contingency. Management does not expect the Inflation Reduction Act to materially affect results or liquidity.
Most important facts for investors to verify
- Whether pricing and mix can sustain organic sales growth while volume remains weak or negative.
- Whether expected cost savings can offset approximately 5% input-cost inflation and support adjusted margins.
- The refinancing or repayment plan for $1.175 billion of debt classified as current, including maturities in October 2023, November 2023, and February 2024.
- The quality and sustainability of earnings comparisons, given large prior-year divestiture and commodity mark-to-market effects; review the company’s non-GAAP reconciliations alongside GAAP results.
- Developments in the Brazilian tax matter and ongoing monitoring of brand impairment risk.