MINNEAPOLIS--(BUSINESS WIRE)--General Mills (NYSE: GIS) today reported results for the second quarter ended November 29, 2020.

“We executed very well again in the second quarter, driving strong performance on the top and bottom lines,” said General Mills Chairman and Chief Executive Officer Jeff Harmening. “In this dynamic environment, I’m proud of the way we’re taking care of our people and serving our consumers with brands they love and trust. We strongly believe that the work we’re doing today to strengthen our brands and capabilities and deepen our connection with consumers will translate to profitable growth and shareholder value creation for the long term.”

Second Quarter Results Summary

Net sales increased 7 percent to $4.7 billion and organic net sales were also up 7 percent, reflecting broad-based market share gains amid elevated at-home food demand resulting from the COVID-19 pandemic.
Gross margin increased 100 basis points to 36.5 percent of net sales, driven by favorable net price realization and mix, lower mark-to-market expenses, and lower restructuring charges recorded in cost of sales, partially offset by higher input costs, including costs to secure incremental capacity, as well as the comparison to the prior-year period that included favorable manufacturing leverage. Adjusted gross margin increased 20 basis points to 35.5 percent of net sales, driven by favorable net price realization and mix, partially offset by higher input costs, including costs to secure incremental capacity, as well as the comparison to the prior-year period that included favorable manufacturing leverage.
Operating profit of $917 million was up 13 percent, primarily driven by higher gross profit dollars and a net gain on investment activity, partially offset by higher selling, general, and administrative (SG&A) expenses, including higher media investment. Operating profit margin of 19.4 percent increased 110 basis points. Constant-currency adjusted operating profit increased 6 percent, driven by higher adjusted gross profit dollars, partially offset by higher SG&A expenses, including higher media investment. Adjusted operating profit margin decreased 10 basis points to 18.3 percent.
Net earnings attributable to General Mills increased 19 percent to $688 million and diluted EPS increased 17 percent to $1.11, primarily reflecting higher operating profit, lower net interest expense, and higher after-tax earnings from joint ventures. Adjusted diluted EPS totaled $1.06, up 9 percent in constant currency, primarily driven by higher adjusted operating profit, lower net interest expense, and higher after-tax earnings from joint ventures.

Six Month Results Summary

Net sales increased 8 percent to $9.1 billion and organic net sales also increased 8 percent, reflecting positive pound volume and favorable net price realization and mix.
Gross margin increased 140 basis points to 36.5 percent of net sales, driven by favorable net price realization and mix, lower mark-to-market expenses, and lower restructuring charges recorded in cost of sales, partially offset by higher input costs. Adjusted gross margin increased 60 basis points to 35.9 percent of net sales, driven by favorable net price realization and mix, partially offset by higher input costs.
Operating profit of $1.8 billion increased 20 percent, primarily driven by higher gross profit dollars, partially offset by higher SG&A expenses, including higher media investment. Operating profit margin of 19.5 percent was up 200 basis points. Adjusted operating profit of $1.7 billion increased 13 percent in constant currency, driven by higher constant-currency adjusted gross profit dollars, partially offset by higher SG&A expenses, including higher media investment. Adjusted operating profit margin increased 90 basis points to 18.7 percent.
Net earnings attributable to General Mills increased 21 percent to $1.3 billion and diluted EPS of $2.14 increased 19 percent, primarily reflecting higher operating profit, lower net interest expense, and higher after-tax earnings from joint ventures, partially offset by a higher effective tax rate and higher average diluted shares outstanding. Adjusted diluted EPS of $2.06 was up 17 percent in constant currency, primarily driven by higher adjusted operating profit, higher after-tax earnings from joint ventures, and lower net interest expense, partially offset by higher average diluted shares outstanding and a higher adjusted effective tax rate.

Operating Segment Results

Note: Tables may not foot due to rounding.

Components of Fiscal 2021 Reported Net Sales Growth
Second Quarter	Volume	Price/Mix	Foreign Exchange	Reported Net Sales
North America Retail	10 pts	(1) pt	--	9%
Pet	15 pts	4 pts	--	18%
Convenience Stores & Foodservice	(12) pts	(2) pts	--	(14)%
Europe & Australia	(1) pt	3 pts	6 pts	8%
Asia & Latin America	8 pts	1 pt	(5) pts	5%
Total	4 pts	3 pts	--	7%

Six Months
North America Retail	13 pts	(2) pts	--	11%
Pet	13 pts	--	--	13%
Convenience Stores & Foodservice	(11) pts	(3) pts	--	(13)%
Europe & Australia	(1) pt	5 pts	4 pts	8%
Asia & Latin America	14 pts	(1) pt	(7) pts	6%
Total	5 pts	3 pts	--	8%

Components of Fiscal 2021 Organic Net Sales Growth
Second Quarter	Organic Volume	Organic Price/Mix	Organic Net Sales	Foreign Exchange	Acquisitions & Divestitures	Reported Net Sales
North America Retail	10 pts	(1) pt	9%	--	--	9%
Pet	15 pts	4 pts	18%	--	--	18%
Convenience Stores & Foodservice	(12) pts	(2) pts	(14)%	--	--	(14)%
Europe & Australia	--	3 pts	3%	6 pts	(1) pt	8%
Asia & Latin America	8 pts	1 pt	10%	(5) pts	--	5%
Total	4 pts	3 pts	7%	--	--	7%

Six Months
North America Retail	13 pts	(2) pts	12%	--	--	11%
Pet	13 pts	--	13%	--	--	13%
Convenience Stores & Foodservice	(11) pts	(3) pts	(13)%	--	--	(13)%
Europe & Australia	--	5 pts	5%	4 pts	(1) pt	8%
Asia & Latin America	14 pts	(1) pt	13%	(7) pts	--	6%
Total	6 pts	3 pts	8%	--	--	8%

Fiscal 2021 Segment Operating Profit Growth
Second Quarter	% Change as Reported	% Change in Constant Currency
North America Retail	9%	9%
Pet	48%	48%
Convenience Stores & Foodservice	(32)%	(32)%
Europe & Australia	14%	7%
Asia & Latin America	25%	8%
Total	8%	7%

Six Months
North America Retail	16%	16%
Pet	30%	30%
Convenience Stores & Foodservice	(28)%	(28)%
Europe & Australia	51%	45%
Asia & Latin America	46%	26%
Total	14%	13%

North America Retail Segment

Second-quarter net sales for General Mills’ North America Retail segment increased 9 percent to $2.92 billion, reflecting positive competitive performance amid elevated demand for food at home due to the pandemic, including stable or growing market share in both the U.S. and Canada. Organic net sales also increased 9 percent, including 10 points of benefit from higher organic pound volume and a 1-point headwind from unfavorable organic net price realization and mix, driven by product mix. Net sales increased 18 percent in U.S. Meals & Baking, 7 percent in Canada, 4 percent in U.S. Cereal, and 3 percent in U.S. Yogurt. U.S. Snacks net sales were down 2 percent. Segment operating profit increased 9 percent to $702 million, primarily driven by higher volume and fixed cost leverage in the supply chain, partially offset by higher operational costs to service demand, the comparison to the prior-year period that included a timing-related manufacturing benefit, and higher media and other SG&A expenses.

Through six months, North America Retail segment net sales increased 11 percent to $5.63 billion. Organic net sales were up 12 percent. The segment continued to compete effectively, with year-to-date market share growth in both the U.S. and Canada, including stable or growing market share in 8 of its 10 largest U.S. categories. Segment operating profit totaled $1.40 billion, up 16 percent from a year ago primarily due to higher volume and fixed cost leverage in the supply chain, partially offset by higher operational costs to service demand, unfavorable product mix, and higher media and other SG&A expenses.

Pet Segment

Second-quarter net sales for the Pet segment increased 18 percent to $460 million, including positive contributions from volume growth and favorable net price realization and mix. Net sales growth was driven by all-channel retail sales that were estimated to be up double digits and an estimated mid single-digit benefit from increased retail inventory in the quarter. The BLUE brand continued to win with pet parents across sub-segments, with double-digit net sales growth for both dog food and cat food, more than 25 percent growth for wet food, and approximately 40 percent growth for treats. Segment operating profit increased 48 percent to $119 million, primarily driven by higher volume, favorable net price realization and mix, and benefits from Holistic Margin Management (HMM) cost savings, partially offset by higher media investment.

Through six months, Pet segment net sales increased 13 percent to $852 million, driven by positive contributions from volume growth. The BLUE brand continued to gain market share in measured channels in the first half of the year. Segment operating profit increased 30 percent to $210 million, primarily driven by higher volume and benefits from HMM cost savings, partially offset by higher media investment.

Convenience Stores & Foodservice Segment

Second-quarter net sales for the Convenience Stores & Foodservice segment declined 14 percent to $440 million, reflecting reduced away-from-home food demand related to the pandemic. Lower consumer traffic and other virus-related restrictions negatively impacted the segment’s key away-from-home channels including restaurants, schools, lodging, and convenience stores. Segment operating profit of $78 million was down 32 percent, driven by lower net sales and fixed cost deleverage in the supply chain.

Through six months, Convenience Stores & Foodservice net sales decreased 13 percent to $832 million. Strong operator partnerships and innovation led to market share gains in measured channels in the first half of the year. Segment operating profit of $148 million was down 28 percent, driven by lower net sales and fixed cost deleverage in the supply chain.

Europe & Australia Segment

Second-quarter net sales for the Europe & Australia segment increased 8 percent to $467 million, primarily driven by 6 points of favorable foreign currency exchange and positive net price realization and mix. Organic net sales increased 3 percent, led by growth for Old El Paso Mexican food and Häagen-Dazs ice cream. Segment operating profit of $36 million was up 14 percent as reported and up 7 percent in constant currency, primarily driven by higher net sales, including favorable net price realization and mix and favorable foreign currency exchange, partially offset by higher media investment and higher input costs.

Through six months, Europe & Australia net sales increased 8 percent to $958 million, including 4 points of favorable foreign currency exchange. Organic net sales increased 5 percent. The segment held or grew market share in France and the U.K., its two largest markets, in the first half. Segment operating profit of $89 million was up 51 percent as reported and up 45 percent in constant currency, primarily driven by higher net sales, including favorable net price realization and mix, partially offset by higher input costs.

Asia & Latin America Segment

Second-quarter net sales for the Asia & Latin America segment increased 5 percent to $430 million, driven by volume growth and favorable net price realization and mix, partially offset by 5 points of unfavorable foreign currency exchange. Organic net sales increased 10 percent. Elevated at-home food demand stemming from the pandemic resulted in strong net sales growth for Yoki meals and snacks and Kitano seasonings in Brazil, Wanchai Ferry frozen dumplings in China, and Betty Crocker dessert mixes in the Middle East. Häagen-Dazs ice cream trends in Asia continued to improve sequentially, with constant-currency net sales up low single digits in the quarter. Segment operating profit of $30 million was up 25 percent as reported and up 8 percent in constant currency, driven by higher net sales and favorable foreign currency exchange, partially offset by higher media and other SG&A expenses and higher input costs.

Through six months, Asia & Latin America net sales increased 6 percent to $813 million, driven by higher volume, partially offset by 7 points of unfavorable foreign currency exchange. Organic net sales increased 13 percent. Segment operating profit of $50 million was up 46 percent as reported and up 26 percent in constant currency, driven by higher net sales and favorable foreign currency exchange, partially offset by higher SG&A expenses.

Joint Venture Summary

Second-quarter net sales for Cereal Partners Worldwide (CPW) increased 7 percent in constant currency, and constant-currency net sales for Häagen-Dazs Japan (HDJ) were up 12 percent. Combined after-tax earnings from joint ventures increased 46 percent to $36 million, primarily driven by higher net sales at CPW and HDJ. Through six months, after-tax earnings from joint ventures increased 66 percent to $78 million, primarily driven by higher net sales at CPW.

Other Income Statement Items

Unallocated corporate items totaled $48 million net expense in the second quarter of fiscal 2021, compared to $84 million net expense a year ago. Excluding mark-to-market valuation effects and other items affecting comparability, unallocated corporate items totaled $100 million net expense this year compared to $81 million net expense last year.

Restructuring, impairment, and other exit costs were insignificant in the quarter compared to a $1 million net recovery a year ago. An insignificant amount of restructuring charges was recorded in cost of sales this year compared to $12 million a year ago (please see Note 2 below for more information on these charges).

Net interest expense totaled $101 million in the second quarter compared to $119 million a year ago, primarily driven by lower average debt levels. The effective tax rate in the quarter was 22.3 percent compared to 21.5 percent last year (please see Note 5 below for more information on our effective tax rate). The adjusted effective tax rate was 22.3 percent compared to 21.9 percent a year ago.

Cash Flow Generation and Cash Returns

Cash provided by operating activities decreased 2 percent to $1.43 billion through six months of fiscal 2021, primarily driven by changes in inventory, non-cash items in net earnings, and the timing of accounts payable, partially offset by higher net earnings. Capital investments totaled $226 million compared to $158 million a year ago. Dividends paid totaled $618 million in the first half of the year and average diluted shares outstanding increased 1 percent to 620 million.

Outlook

General Mills expects that the COVID-19 pandemic will drive continued elevated consumer demand for food at home, relative to pre-pandemic levels, through the remainder of fiscal 2021. Third-quarter demand trends are expected to be generally consistent with recent months, due to ongoing virus concerns in many markets around the world. Based on that assumption, the company expects to generate continued strong top- and bottom-line growth in the third quarter of fiscal 2021, with organic net sales growth roughly similar to the second quarter’s growth rate and an adjusted operating profit margin in line with the year-ago period.

Because the magnitude and duration of elevated at-home food demand remains highly uncertain, the company is not currently providing a full-year outlook for fiscal 2021 growth in organic net sales, adjusted operating profit, and adjusted diluted EPS. Due to first-half adjusted operating profit margin results that exceeded the company’s expectations, General Mills now expects its full-year fiscal 2021 adjusted operating profit margin will be in line or better than the previous year. The company previously expected its full-year adjusted operating profit margin to be approximately in line with fiscal 2020 levels.

General Mills will issue pre-recorded management remarks today, December 17, 2020, 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 “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 COVID-19 pandemic on our business, suppliers, consumers, customers, and employees; disruptions or inefficiencies in the supply chain, including any impact of the 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, and energy; 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 Reports Fiscal 2021 Second-Quarter Results