• Net sales increased 4 percent from the prior year to $5.2 billion; organic net sales¹ were up 11 percent
• Operating profit of $800 million essentially matched year-ago levels; adjusted operating profit was up 7 percent in constant currency
• Diluted earnings per share (EPS) of $1.01 increased 4 percent from the prior year; adjusted diluted EPS of $1.10 was up 12 percent in constant currency
• Company raises full-year fiscal 2023 outlook

¹ Please see Note 8 to the Consolidated Financial Statements below for reconciliation of this and other non-GAAP measures used in this release.

General Mills, Inc. (NYSE: GIS) today reported results for its fiscal 2023 second quarter.

“We continued to execute well and delivered strong top and bottom-line growth in the second quarter,” said General Mills Chairman and Chief Executive Officer Jeff Harmening. “Amid ongoing volatility in the operating environment, we remain focused on driving our Accelerate strategy by investing in brand building and innovation, strengthening our capabilities, and continuing to reshape our portfolio. With strong first-half results and positive momentum on our business, we are increasing our full-year outlook for organic net sales, adjusted operating profit, and adjusted diluted EPS growth.”

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 standing 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 to further enhance its growth profile.

Second Quarter Results Summary

• Net sales increased 4 percent to $5.2 billion, including a 5-point headwind from net divestiture and acquisition activity and 1 point of unfavorable foreign currency exchange. Organic net sales increased 11 percent, driven by positive organic net price realization and mix, partially offset by lower organic pound volume.
• Gross margin was up 20 basis points to 32.7 percent of net sales, driven by favorable net price realization and mix, partially offset by higher input costs and unfavorable mark-to-market effects. Adjusted gross margin was up 100 basis points to 33.2 percent of net sales, driven by favorable net price realization and mix and Holistic Margin Management (HMM) cost savings, partially offset by input cost inflation, higher other cost of goods sold, and supply chain deleverage.
• Operating profit of $800 million essentially matched year-ago levels, reflecting higher gross profit dollars offset by higher selling, general, and administrative (SG&A) expenses. Operating profit margin of 15.3 percent was down 60 basis points. Constant-currency adjusted operating profit increased 7 percent, driven by higher adjusted gross profit dollars, partially offset by higher adjusted SG&A expenses. Adjusted operating profit margin increased 60 basis points to 16.9 percent.
• Net earnings attributable to General Mills increased 1 percent to $606 million and diluted EPS was up 4 percent to $1.01, driven by lower net shares outstanding and a lower effective tax rate, partially offset by lower benefit plan non-service income. Adjusted diluted EPS of $1.10 increased 12 percent in constant currency, driven primarily by higher adjusted operating profit, a lower adjusted effective tax rate, and lower net shares outstanding, partially offset by lower benefit plan non-service income.

Six Month Results Summary

• Net sales increased 4 percent to $9.9 billion, including a 5-point headwind from net divestiture and acquisition activity and 1 point of unfavorable foreign currency exchange. Organic net sales increased 11 percent, driven by positive organic net price realization and mix, partially offset by lower organic pound volume.
• Gross margin was down 210 basis points to 31.7 percent of net sales, driven by higher input costs, unfavorable mark-to-market effects, and the impact of market index pricing on bakery flour, partially offset by favorable net price realization and mix. Adjusted gross margin was up 60 basis points to 34.0 percent of net sales, driven by favorable net price realization and mix, partially offset by higher input costs and the impact of market index pricing on bakery flour.
• Operating profit of $1.9 billion was up 15 percent, driven primarily by net gains on divestitures, partially offset by lower gross profit dollars, unfavorable net corporate investment activity, and higher SG&A expenses. Operating profit margin of 19.0 percent was up 180 basis points. Constant-currency adjusted operating profit increased 8 percent, driven by higher adjusted gross profit dollars, partially offset by higher adjusted SG&A expenses. Adjusted operating profit margin increased 50 basis points to 17.7 percent.
• Net earnings attributable to General Mills increased 16 percent to $1.4 billion and diluted EPS was up 19 percent to $2.36, primarily reflecting higher operating profit and lower net shares outstanding. Adjusted diluted EPS of $2.21 was up 13 percent in constant currency, driven primarily by higher adjusted operating profit, a lower adjusted effective tax rate, and lower net shares outstanding.

Notes on Comparability

Financial results in the first half of fiscal 2023 reflected the acquisition of Tyson Foods’ pet treat business in the first quarter of fiscal 2022; the divestiture of the European yogurt business in the third quarter of fiscal 2022; the divestiture of certain international dough businesses in the third and fourth quarters of fiscal 2022; the acquisition of the TNT Crust foodservice business in the first quarter of fiscal 2023; and the divestiture of the Helper main meals and Suddenly Salad side dishes business in the first quarter of fiscal 2023.

First-half results in fiscal 2023 also included the impact of a voluntary recall on certain international Häagen-Dazs ice cream products, which was a headwind to net sales and operating profit results in the International segment. Unallocated corporate items in the first half included an additional $24 million of charges related to product disposals associated with the ice cream recall that were excluded from adjusted operating profit results. The company does not expect any further material impact from the ice cream recall beyond the first half of fiscal 2023.

Operating Segment Results

Note: Tables may not foot due to rounding.

North America Retail Segment

Second-quarter net sales for General Mills’ North America Retail segment increased 11 percent to $3.4 billion, driven by favorable net price realization and mix, partially offset by lower pound volume and a 2-point headwind from the Helper and Suddenly Salad divestiture. Organic net sales increased 13 percent. Net sales increased 18 percent in U.S. Snacks, 10 percent in U.S. Meals & Baking Solutions, and 10 percent in U.S. Morning Foods. Constant-currency net sales were up 4 percent in Canada. Segment operating profit of $837 million was up 24 percent as reported and in constant currency, driven primarily by favorable net price realization and mix and HMM cost savings, partially offset by input cost inflation, lower volume, and higher SG&A expenses.

Through six months, North America Retail segment net sales increased 11 percent to $6.4 billion, including a 2-point headwind from the Helper and Suddenly Salad divestiture. Organic net sales were up 13 percent. Segment operating profit of $1.6 billion was up 22 percent as reported and in constant currency, driven primarily by favorable net price realization and mix, partially offset by higher input costs, lower volume, and higher SG&A expenses.

Pet Segment

Second-quarter net sales for the Pet segment essentially matched year-ago levels at $593 million, with favorable net price realization and mix offset by lower pound volume. Organic net sales were flat. Net sales performance was negatively impacted by a reduction in retailer inventory, with all-channel retail sales up high single digits in the quarter. Excluding the retailer inventory change, net sales results were broadly in line with company expectations and reflected continued strength of the Blue Buffalo brand, partially offset by a short-term headwind from capacity constraints and related customer service challenges. Pet net sales performance is expected to accelerate in the second half of fiscal 2023 due to increased capacity, improved customer service, increased brand-building investment, and an expectation for stable retailer inventory levels. Segment operating profit totaled $87 million compared to $132 million a year ago, driven primarily by high-teens input cost inflation, a significant increase in costs related to capacity expansion and supply chain disruptions, and lower volume, including the impact of the retailer inventory reduction. These headwinds were partially offset by favorable net price realization and mix.

Through six months, Pet segment net sales increased 8 percent to $1.2 billion, including a 2-point benefit from the pet treats acquisition. Organic net sales were up 6 percent. Segment operating profit was down 15 percent to $210 million, driven primarily by higher input costs, lower volume, and higher SG&A expenses, partially offset by favorable net price realization and mix.

North America Foodservice Segment

Second-quarter net sales for the North America Foodservice segment increased 24 percent to $583 million, driven by favorable net price realization and mix, including a 5-point benefit from market index pricing on bakery flour. Net sales results also included a 6-point benefit from the TNT Crust acquisition. Organic net sales were up 17 percent. Segment operating profit increased 20 percent to $82 million, driven by favorable net price realization and mix, partially offset by higher input costs and higher SG&A expenses.

Through six months, North America Foodservice net sales increased 22 percent to $1.1 billion, including a 5-point benefit from the TNT Crust acquisition. Organic net sales were up 17 percent. Segment operating profit was down 3 percent to $135 million, driven by higher input costs and higher SG&A expenses, partially offset by favorable net price realization and mix.

International Segment

Second-quarter net sales for the International segment were down 27 percent to $672 million, driven by lower pound volume, including the impact of yogurt and dough divestitures and the ice cream recall, and a 6-point headwind from foreign currency exchange, partially offset by favorable net price realization and mix. Organic net sales were up 5 percent, with growth in Brazil, distributor markets, and Europe & Australia, partially offset by a decline in China due to continued consumer mobility restrictions as well as the impact of the international ice cream recall. Segment operating profit totaled $18 million compared to $59 million a year ago, driven by higher input costs and lower volume, including the impacts of the yogurt and dough divestitures and the ice cream recall, partially offset by favorable net price realization and mix and lower SG&A expenses.

Through six months, International net sales were down 28 percent to $1.3 billion, driven by lower pound volume, including the impact of yogurt and dough divestitures and the ice cream recall, and a 6-point headwind from foreign currency exchange, partially offset by favorable net price realization and mix. Organic net sales were up 1 percent. Segment operating profit totaled $53 million compared to $120 million a year ago, driven by lower volume, including the impacts of the yogurt and dough divestitures and the ice cream recall, and higher input costs, partially offset by favorable net price realization and mix and lower SG&A expenses.

Joint Venture Summary

Second-quarter net sales for Cereal Partners Worldwide (CPW) increased 2 percent in constant currency, driven by positive net price realization and mix, partially offset by lower volume. Constant-currency net sales for Häagen-Dazs Japan (HDJ) were down 10 percent as the business lapped strong new product performance a year ago. Combined after-tax earnings from joint ventures totaled $25 million compared to $33 million a year ago, driven by unfavorable foreign currency exchange as well as lower constant-currency profit at HDJ, partially offset by positive price/mix at CPW. Through six months, after-tax earnings from joint ventures totaled $45 million compared to $62 million a year ago.

Other Income Statement Items

Unallocated corporate items totaled $212 million net expense in the second quarter of fiscal 2023, compared to $132 million net expense a year ago. Excluding mark-to-market valuation effects and other items affecting comparability, unallocated corporate items totaled $142 million net expense this year compared to $112 million net expense last year, driven primarily by increased capability investments and certain discrete favorable items a year ago.

Restructuring, impairment, and other exit costs totaled $11 million compared to $2 million a year ago (please see Note 4 below for more information on these charges). Benefit plan non-service income totaled $22 million in the second quarter compared to $28 million a year ago, driven primarily by an increase in interest cost, partially offset by lower amortization of losses.

Net interest expense of $92 million was down 1 percent, driven primarily by lower average long-term debt balances, partially offset by higher rates. The effective tax rate in the quarter was 20.2 percent compared to 21.7 percent last year (please see Note 7 below for more information on our effective tax rate). The adjusted effective tax rate was 21.1 percent compared to 22.3 percent a year ago.

Net earnings attributable to redeemable and non-controlling interests totaled $2 million in the quarter compared to $11 million a year ago, driven primarily by the sale of the company’s interests in Yoplait SAS, Yoplait Marques SNC, and Liberté Marques Sàrl in fiscal 2022.

Cash Flow Generation and Cash Returns

Cash provided by operating activities totaled $1.2 billion through six months of fiscal 2023 compared to $1.5 billion a year ago, driven by an increase in inventory and higher cash tax payments. Capital investments of $227 million were up 1 percent from a year ago. Dividends paid increased 4 percent to $648 million. General Mills repurchased approximately 12.1 million shares of common stock through six months of fiscal 2023 for a total of $901 million compared to $375 million in share repurchases a year ago. Average diluted shares outstanding in the first half decreased 2 percent to 604 million.

Fiscal 2023 Outlook

General Mills continues to expect the largest factors impacting its performance in fiscal 2023 will be the economic health of consumers, the inflationary cost environment, and the frequency and severity of disruptions in the supply chain. Relative to its previous outlook, the company now expects to generate stronger organic net sales growth through better volume performance and improved price/mix. Volume elasticities in the second half of fiscal 2023 are expected to remain below historical levels. For the full year, the company expects input cost inflation of 14 to 15 percent of total cost of goods sold, HMM cost savings of 3 to 4 percent of cost of goods sold, moderately lower supply chain disruptions compared to the prior year, and increased investment in brand building and other growth-driving activities.

The company’s updated full-year fiscal 2023 financial targets are summarized below:

• Organic net sales are now expected to increase 8 to 9 percent, compared to the previous expectation of 6 to 7 percent growth.
• Adjusted operating profit is now expected to increase 3 to 5 percent in constant currency, compared to the previous range of between flat and up 3 percent in constant currency. Both the current and previous ranges include a 3-point net headwind from divestitures and acquisitions and an estimated 1-point headwind from the ice cream recall.
• Adjusted diluted EPS is now expected to increase 4 to 6 percent in constant currency, compared to the previous range of up 2 to 5 percent in constant currency. The updated outlook reflects stronger adjusted operating profit growth and higher net interest expense due to increasing rates. Both the current and previous ranges include a 3-point net headwind from divestitures and acquisitions and an estimated 1-point headwind from the ice cream recall.
• Free cash flow conversion is still expected to be at least 90 percent of adjusted after-tax earnings.
• The net impact of divestitures, acquisitions, and foreign currency exchange is now expected to reduce full-year reported net sales growth by approximately 4.5 percent, and foreign currency exchange is still expected to reduce adjusted operating profit and adjusted diluted EPS growth by approximately 1 percent.

General Mills will issue pre-recorded management remarks today, December 20, 2022, 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 2023 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 critical 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.

GENERAL MILLS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 judgement, significantly affect the year-to-year assessment of operating results.

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

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 Rates

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 rates follows:

See our reconciliation below of the effective income tax rate as reported to the adjusted effective income tax rate for the tax impact of each item affecting comparability.

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: