• Net sales increased 4 percent to $4.5 billion; organic net sales¹ were up 2 percent
• Operating profit declined 1 percent to $844 million; constant-currency adjusted operating profit was down 2 percent
• Diluted earnings per share (EPS) totaled $1.02, down 1 percent from the prior year; adjusted diluted EPS of $0.99 was down 2 percent in constant currency
• Company reaffirms full-year fiscal 2022 outlook

¹ Please see Note 7 to the Consolidated Financial Statements below for reconciliation of this and other non-GAAP measures used in this release.

General Mills (NYSE: GIS) today reported results for the first quarter ended August 29, 2021.

“I’m proud of the way our team is performing in a dynamic and challenging operating environment,” said General Mills Chairman and Chief Executive Officer Jeff Harmening. “Our strong execution in the first quarter enabled us to deliver top- and bottom-line results ahead of our expectations. We delivered these good results while continuing to advance our Accelerate strategy, including making important progress on portfolio reshaping in the quarter.”

General Mills is executing its Accelerate strategy to drive sustainable, profitable growth and top-tier shareholder returns over the long term. The strategy focuses on four pillars to create competitive advantages and win: boldly building brands, relentlessly innovating, unleashing scale, and being a force for good. The company is prioritizing its core markets, global platforms, and local gem brands that have the best prospects for profitable growth and is committed to reshaping its portfolio with strategic acquisitions and divestitures, including the acquisition of Tyson Foods’ pet treats business and the planned divestiture of its European Yoplait operations, to further enhance its growth profile.

General Mills expects changes in consumer behaviors driven by the COVID-19 pandemic will result in ongoing elevated consumer demand for food at home, relative to pre-pandemic levels. These changes include more time spent working from home and increased consumer appreciation for cooking and baking. In addition, an increase in the pet population and further humanization and premiumization of pet food during the pandemic are expected to create tailwinds for the pet food category. The company plans to capitalize on these opportunities, addressing evolving consumer needs through its leading brands, innovation, and advantaged capabilities to generate profitable growth.

First Quarter Results Summary

• Net sales increased 4 percent to $4.5 billion, including 1 point of favorable foreign currency exchange. Organic net sales increased 2 percent, including contributions from positive organic net price realization and mix and higher organic pound volume.
• Gross margin was down 120 basis points to 35.2 percent of net sales, primarily driven by higher input costs, partially offset by favorable net price realization and mix and mark-to-market effects. Adjusted gross margin was down 150 basis points to 34.7 percent of net sales, driven by input cost inflation, higher other supply chain costs, and fixed cost deleverage in the supply chain, partially offset by Holistic Margin Management (HMM) cost savings and favorable net price realization and mix.
• Operating profit of $844 million was down 1 percent, primarily driven by the comparison to net gains on certain corporate investments in the prior year, partially offset by higher gross profit dollars. Operating profit margin of 18.6 percent was down 100 basis points. Constant-currency adjusted operating profit declined 2 percent, driven by lower adjusted gross profit dollars, partially offset by lower administrative expenses. Adjusted operating profit margin decreased 110 basis points to 18.0 percent.
• Net earnings attributable to General Mills was down 2 percent to $627 million and diluted EPS was down 1 percent to $1.02, primarily reflecting lower operating profit. Adjusted diluted EPS of $0.99 was down 2 percent in constant currency, primarily driven by lower adjusted operating profit.

Portfolio Reshaping

General Mills took important steps to advance its portfolio reshaping efforts in the first quarter. On July 6, the company completed the acquisition of Tyson Foods’ pet treats business, including the Nudges, True Chews, and Top Chews brands. The acquisition strengthens the company’s position as the leading natural pet food manufacturer in the $37 billion U.S. pet food category. The company estimates the acquisition will add approximately 2 cents to fiscal 2022 adjusted diluted EPS. In addition, on August 27, General Mills signed a definitive agreement in relation to the previously announced divestiture of its European Yoplait operations. The divestiture is scheduled to close by the end of calendar 2021.

Operating Segment Results

Note: Tables may not foot due to rounding.

North America Retail Segment

First-quarter net sales for General Mills’ North America Retail segment declined 3 percent to $2.64 billion, driven by lower at-home food demand and the comparison to the prior-year period when net sales benefited from retailers rebuilding inventory that had been drawn down at the onset of the pandemic. Organic net sales also were down 3 percent. On a 2-year compound growth basis, relative to pre-pandemic levels, first-quarter organic net sales were up 5 percent. Net sales declined 7 percent in U.S. Meals & Baking and 6 percent in U.S. Cereal, and were up 3 percent in U.S. Snacks and up 3 percent in constant currency in Canada. U.S. Yogurt net sales essentially matched year-ago levels. Segment operating profit of $618 million was down 11 percent as reported and down 12 percent in constant currency, primarily driven by higher input costs and lower volume, partially offset by favorable net price realization and mix and lower administrative expenses. On a 2-year compound growth basis, segment operating profit was up 4 percent in constant currency.

Pet Segment

First-quarter net sales for the Pet segment increased 25 percent to $488 million, driven by strong volume growth and favorable net price realization and mix. Net sales growth included 5 points of benefit from the acquisition of Tyson Foods’ pet treats business, which closed on July 6 and is being accounted for on a 1-month lag. Organic net sales were up 20 percent, including double-digit growth for both dog food and cat food. Organic net sales growth benefited from the comparison to the prior-year period that was negatively impacted by a reduction in at-home pet food inventory, and on a 2-year compound growth basis, first-quarter organic net sales were up 13 percent. The Blue Buffalo brand continued to drive strong retail sales growth and market share gains in measured channels in the quarter. In addition, retail sales for the recently acquired pet treat brands were up 20 percent in measured channels. Segment operating profit increased 28 percent to $115 million, primarily driven by favorable net price realization and mix and higher volume, partially offset by higher input costs and higher selling, general, and administrative (SG&A) expenses. On a 2-year compound growth basis, segment operating profit was up 20 percent in constant currency.

Convenience Stores & Foodservice Segment

First-quarter net sales for the Convenience Stores & Foodservice segment increased 23 percent to $482 million, reflecting sequential recovery in key away-from-home food channels including schools, restaurants, lodging, and convenience stores. On a 2-year compound growth basis, relative to pre-pandemic levels, first-quarter organic net sales were up 4 percent. Segment operating profit increased 47 percent to $102 million, driven by favorable net price realization and mix and higher volume, partially offset by higher input costs. On a 2-year compound growth basis, segment operating profit was up 6 percent.

Europe & Australia Segment

First-quarter net sales for the Europe & Australia segment increased 5 percent to $518 million, driven by favorable foreign currency exchange. Organic net sales essentially matched year-ago levels. On a 2-year compound growth basis, relative to pre-pandemic levels, first-quarter organic net sales were up 3 percent. Net sales growth for snack bars and yogurt was offset by a decline in ice cream. Segment operating profit of $45 million was down 15 percent as reported and down 22 percent in constant currency, primarily driven by input cost inflation and unfavorable product mix, partially offset by HMM cost savings. On a 2-year compound growth basis, segment operating profit was up 21 percent in constant currency.

Asia & Latin America Segment

First-quarter net sales for the Asia & Latin America segment increased 8 percent to $413 million, driven by favorable net price realization and mix and foreign currency exchange, partially offset by lower volume. Organic net sales increased 6 percent. On a 2-year compound growth basis, relative to pre-pandemic levels, first-quarter organic net sales were up 11 percent. Net sales performance was led by Yoki meals and snacks in Brazil and Häagen-Dazs ice cream in China. Segment operating profit of $15 million was down 23 percent as reported and down 26 percent in constant currency, primarily driven by higher input costs and higher SG&A expenses, partially offset by favorable net price realization and mix. On a 2-year compound growth basis, segment operating profit was up 11 percent in constant currency.

Joint Venture Summary

First-quarter net sales for Cereal Partners Worldwide (CPW) were down 5 percent in constant currency, reflecting the comparison against elevated demand for food at home a year ago in the early stages of the pandemic. Constant-currency net sales increased 14 percent for Häagen-Dazs Japan (HDJ), driven by strong new product performance. Combined after-tax earnings from joint ventures totaled $29 million compared to $41 million a year ago, primarily driven by lower net sales and higher media investment at CPW.

Other Income Statement Items

Unallocated corporate items totaled $56 million net expense in the first quarter of fiscal 2022, compared to $74 million net expense a year ago. Excluding mark-to-market valuation effects and other items affecting comparability, unallocated corporate items totaled $77 million net expense this year compared to $96 million net expense last year.

Restructuring, impairment, and other exit costs totaled a $4 million net recovery in the quarter and were an insignificant amount a year ago (please see Note 3 below for more information on these charges).

Net interest expense totaled $96 million in the first quarter compared to $111 million a year ago, primarily driven by lower rates and lower average debt balances. The effective tax rate in the quarter was 21.7 percent compared to 22.0 percent last year (please see Note 6 below for more information on our effective tax rate). The adjusted effective tax rate was 21.7 percent compared to 21.9 percent a year ago.

Cash Flow Generation and Cash Returns

Cash provided by operating activities totaled $370 million in the first quarter of fiscal 2022 compared to $584 million in the prior year, primarily driven by timing-related changes in accounts payable and accounts receivable. Capital investments totaled $104 million compared to $117 million a year ago. Dividends paid increased to $312 million. General Mills repurchased approximately 2.5 million shares of common stock in the first quarter for a total of $150 million. Average diluted shares outstanding decreased 1 percent to 615 million.

Fiscal 2022 Outlook

General Mills reaffirmed its key full-year fiscal 2022 targets:

• Organic net sales are expected to be toward the higher end of the company’s initial guidance range of down 1 to 3 percent, reflecting stronger-than-expected net sales performance in the first quarter.
• Constant-currency adjusted operating profit and constant-currency adjusted diluted EPS are each expected to be toward the higher end of the company’s initial guidance ranges of down 2 to 4 percent and flat to down 2 percent, respectively, largely due to the impact of the pet treats acquisition, which is estimated to add approximately 2 cents to fiscal 2022 adjusted diluted EPS.
• Free cash flow conversion is expected to be approximately 95 percent of adjusted after-tax earnings.
• The above targets exclude the impact of the European Yoplait divestiture, which is scheduled to close by the end of the calendar year.

General Mills will issue pre-recorded management remarks today, September 22, 2021, at approximately 6:30 a.m. Central time (7:30 a.m. Eastern time) and will hold a live, webcasted question and answer session beginning at 8:00 a.m. Central time (9:00 a.m. Eastern time). The pre-recorded remarks and the webcast will be made available at www.generalmills.com/investors.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations and assumptions. These forward-looking statements, including the statements under the caption “Fiscal 2022 Outlook,” and statements made by Mr. Harmening, are subject to certain risks and uncertainties that could cause actual results to differ materially from the potential results discussed in the forward-looking statements. In particular, our predictions about future net sales and earnings could be affected by a variety of factors, including: the impact of the coronavirus (COVID-19) pandemic on our business, suppliers, consumers, customers, and employees; disruptions or inefficiencies in the supply chain, including any impact of the coronavirus (COVID-19) pandemic; competitive dynamics in the consumer foods industry and the markets for our products, including new product introductions, advertising activities, pricing actions, and promotional activities of our competitors; economic conditions, including changes in inflation rates, interest rates, tax rates, or the availability of capital; product development and innovation; consumer acceptance of new products and product improvements; consumer reaction to pricing actions and changes in promotion levels; acquisitions or dispositions of businesses or assets; changes in capital structure; changes in the legal and regulatory environment, including tax legislation, labeling and advertising regulations, and litigation; impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets, or changes in the useful lives of other intangible assets; changes in accounting standards and the impact of significant accounting estimates; product quality and safety issues, including recalls and product liability; changes in consumer demand for our products; effectiveness of advertising, marketing, and promotional programs; changes in consumer behavior, trends, and preferences, including weight loss trends; consumer perception of health-related issues, including obesity; consolidation in the retail environment; changes in purchasing and inventory levels of significant customers; fluctuations in the cost and availability of supply chain resources, including raw materials, packaging, energy, and transportation; effectiveness of restructuring and cost saving initiatives; volatility in the market value of derivatives used to manage price risk for certain commodities; benefit plan expenses due to changes in plan asset values and discount rates used to determine plan liabilities; failure or breach of our information technology systems; foreign economic conditions, including currency rate fluctuations; and political unrest in foreign markets and economic uncertainty due to terrorism or war. The company undertakes no obligation to publicly revise any forward-looking statement to reflect any future events or circumstances.

Significant Items Impacting Comparability

Several measures below are presented on an adjusted basis. The adjustments are either items resulting from infrequently occurring events or items that, in management’s judgment, significantly affect the year-to-year assessment of operating results.

The following are descriptions of significant items impacting comparability of our results.

Mark-to-market effects

Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items. Please see Note 4.

Non-income tax recovery

Recovery related to a Brazil indirect tax item recorded in fiscal 2022. Please see Note 4.

Acquisition integration costs

Integration costs resulting from the acquisition of Tyson Foods’ pet treats business. Please see Note 2.

Transaction costs

Transaction costs related to the definitive agreement to sell our 51 percent controlling interest in Yoplait SAS, and our 50 percent interest in Yoplait Marques SNC and Liberté Marques Sàrl to Sodiaal. Please see Note 2.

Restructuring charges

Restructuring charges for previously announced restructuring actions. Please see Note 3.

Investment activity, net

Valuation adjustments of certain corporate investments in fiscal 2022 and fiscal 2021. Please see Note 4.

Product recall

Product recall costs recorded in fiscal 2021 related to our international Green Giant business. Please see Note 4.

CPW restructuring charges

CPW restructuring charges related to previously announced restructuring actions.

Adjusted Operating Profit Growth on a Constant-currency Basis

This measure is used in reporting to our Board of Directors and executive management and as a component of the measurement of our performance for incentive compensation purposes. We believe that this measure provides useful information to investors because it is the operating profit measure we use to evaluate operating profit performance on a comparable year-to-year basis. The measure is evaluated on a constant-currency basis by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given the volatility in foreign currency exchange rates.

Our adjusted operating profit growth on a constant-currency basis is calculated as follows:

Adjusted Diluted EPS and Related Constant-currency Growth Rate

This measure is used in reporting to our Board of Directors and executive management. We believe that this measure provides useful information to investors because it is the profitability measure we use to evaluate earnings performance on a comparable year-to-year basis.

The reconciliation of our GAAP measure, diluted EPS, to adjusted diluted EPS and the related constant-currency growth rate follows:

Adjusted Earnings Comparisons as a Percent of Net Sales

We believe that these measures provide useful information to investors because they are important for assessing our adjusted earnings comparisons as a percent of net sales on a comparable year-to-year basis.

Our adjusted earnings comparisons as a percent of net sales are calculated as follows:

Constant-currency Segment Operating Profit Growth Rates

We believe that this measure provides useful information to investors because it provides transparency to underlying performance of our segments by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given volatility in foreign currency exchange markets.

Our segments’ operating profit growth rates on a constant-currency basis are calculated as follows:

Organic Net Sales on a 2-year Compound Growth Rate Basis

We believe that this measure provides useful information to investors as it compares our organic net sales growth in fiscal 2022 to pre-pandemic levels of activity in fiscal 2020.

Organic net sales on a 2-year compound growth rate basis are calculated as follows:

Constant-currency Segment Operating Profit on a 2-year Compound Growth Rate Basis

We believe that this measure provides useful information to investors as it compares our constant-currency segment operating profit growth in fiscal 2022 to pre-pandemic levels of activity in fiscal 2020.

Our segments’ constant-currency operating profit on a 2-year compound growth rate basis are calculated as follows:

Adjusted Effective Income Tax Rate

We believe this measure provides useful information to investors because it presents the adjusted effective income tax rate on a comparable year-to-year basis.

Adjusted effective income tax rates are calculated as follows: