General Mills Reports Fiscal 2024 Second-quarter Results and Updates Full-year Outlook

• Net sales of $5.1 billion were down 2 percent in the second quarter and organic net sales¹ were also down 2 percent; on a 2-year compound growth basis, net sales were up 1 percent and organic net sales were up 4 percent
• Operating profit of $812 million was up 2 percent; adjusted operating profit of $989 million increased 13 percent in constant currency
• Diluted earnings per share (EPS) of $1.02 was up 1 percent; adjusted diluted EPS of $1.25 increased 14 percent in constant currency
• Company updates full-year fiscal 2024 outlook to reflect expectations for slower volume recovery and greater Holistic Margin Management (HMM) cost savings

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, Inc. (NYSE:GIS) today reported results for its fiscal 2024 second quarter.

"While we saw a slower-than-expected volume recovery in the second quarter amid a continued challenging consumer landscape, we generated bottom-line growth thanks primarily to strong HMM cost savings," said General Mills Chairman and Chief Executive Officer Jeff Harmening. "We're adapting our plans to the evolving consumer environment and staying focused on driving long-term growth, with a priority on winning through innovation, brand building, and in-store execution. At the same time, we're stepping up our HMM performance and further eliminating disruption-related costs in the supply chain. For the full year, we've revised our topline outlook to account for a slower volume recovery, narrowed our profit and EPS expectations within our original guidance ranges, and maintained our outlook for strong free cash flow conversion."

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 were down 2 percent to $5.1 billion, with lower pound volume partially offset by favorable net price realization and mix. Organic net sales were 2 percent below year-ago results that grew double digits; organic net sales were up 4 percent on a 2-year compound growth basis.
• Gross margin was up 170 basis points to 34.4 percent of net sales, driven by HMM cost savings and favorable net price realization and mix, partially offset by input cost inflation, higher other supply chain costs, and supply chain deleverage. Adjusted gross margin was up 180 basis points to 35.0 percent of net sales, driven primarily by HMM cost savings and favorable net price realization and mix, partially offset by input cost inflation, higher other supply chain costs, and supply chain deleverage.
• Operating profit of $812 million was up 2 percent, driven by higher gross profit dollars and lower compensation and benefits expenses, partially offset by a goodwill impairment charge related to the Latin America reporting unit. Operating profit margin of 15.8 percent was up 50 basis points. Adjusted operating profit of $989 million increased 13 percent in constant currency, driven by higher adjusted gross profit dollars and lower compensation and benefits expenses. Adjusted operating profit margin was up 240 basis points to 19.3 percent.
• Net earnings attributable to General Mills of $596 million were down 2 percent. Diluted EPS was up 1 percent to $1.02, driven primarily by higher operating profit and lower net shares outstanding, partially offset by higher net interest expense. Adjusted diluted EPS of $1.25 was up 14 percent in constant currency, driven primarily by higher adjusted operating profit and lower net shares outstanding, partially offset by higher net interest expense.

Six Month Results Summary

• Net sales increased 1 percent to $10.0 billion, driven by favorable net price realization and mix, partially offset by lower pound volume. Organic net sales were 1 percent above year-ago results that grew double digits; organic net sales were up 6 percent on a 2-year compound growth basis.
• Gross margin was up 350 basis points to 35.2 percent of net sales, driven by favorable net price realization and mix, HMM cost savings, and favorable mark-to-market effects, partially offset by input cost inflation, higher other supply chain costs, and supply chain deleverage. Adjusted gross margin was up 120 basis points to 35.2 percent of net sales, driven by favorable net price realization and mix and HMM cost savings, partially offset by input cost inflation, higher other supply chain costs, and supply chain deleverage.
• Operating profit of $1.7 billion was down 8 percent, driven primarily by net gains on divestitures in the prior year and a goodwill impairment charge related to the Latin America reporting unit, partially offset by higher gross profit dollars. Operating profit margin of 17.3 percent was down 170 basis points. Adjusted operating profit of $1.9 billion increased 7 percent in constant currency, driven by higher adjusted gross profit dollars, partially offset by higher adjusted selling, general, and administrative (SG&A) expenses, including a high-single-digit increase in media investment. Adjusted operating profit margin was up 110 basis points to 18.8 percent.
• Net earnings attributable to General Mills were down 11 percent to $1.3 billion and diluted EPS was down 8 percent to $2.16, driven primarily by lower operating profit and higher net interest expense, partially offset by lower net shares outstanding. Adjusted diluted EPS of $2.34 was up 6 percent in constant currency, driven primarily by higher adjusted operating profit and lower net shares outstanding, partially offset by higher net interest expense and a higher adjusted effective tax rate.

Notes on Comparability

The following transactions impacted the comparability of year-to-date financial results between fiscal 2023 and fiscal 2024: 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. In addition, results in the first half of fiscal 2023 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.

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 were down 2 percent to $3.3 billion, driven by lower pound volume, partially offset by favorable net price realization and mix. Organic net sales were 2 percent below year-ago results that grew double digits; organic net sales were up 5 percent on a 2-year compound growth basis. Net sales performance outpaced Nielsen-measured retail sales growth in the quarter due to faster growth in non-measured channels. Net sales were down mid-single digits for the U.S. Snacks and U.S. Morning Foods operating units. Net sales were up low-single digits for U.S. Meals & Baking Solutions and were up high-single digits for Canada. Segment operating profit of $860 million was up 3 percent as reported and in constant currency, driven primarily by favorable net price realization and mix and HMM cost savings, partially offset by lower volume, input cost inflation, higher other supply chain costs, supply chain deleverage, and higher SG&A expenses.

Through six months, North America Retail segment net sales of $6.4 billion essentially matched year-ago levels, including a 1-point headwind from divestitures. Organic net sales were up 1 percent. Segment operating profit of $1.7 billion was up 3 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, higher other supply chain costs, higher SG&A expenses, and supply chain deleverage.

Pet Segment

Second-quarter net sales for the Pet segment were down 4 percent to $569 million, driven by lower pound volume, partially offset by favorable net price realization and mix. Organic net sales were also down 4 percent. Net sales performance lagged all-channel retail sales results by roughly 2 points, despite the comparison to the year-ago quarter that included a significant retailer inventory reduction. Relative to fiscal 2022, second-quarter net sales were down mid-single digits and all-channel retail sales were up mid-single digits. Net sales in the quarter were down mid-single digits for dry pet food, down double digits for wet pet food, and up double digits for pet treats compared to the prior year. Segment operating profit of $102 million was up 18 percent, driven primarily by favorable net price realization and mix and HMM cost savings, partially offset by lower volume, higher other supply chain costs, and higher SG&A expenses.

Through six months, Pet segment net sales were down 2 percent to $1.1 billion. Organic net sales were also down 2 percent. Segment operating profit was up 2 percent to $214 million, driven primarily by favorable net price realization and mix and HMM cost savings, partially offset by higher other supply chain costs, lower volume, input cost inflation, higher SG&A expenses, and supply chain deleverage.

North America Foodservice Segment

Second-quarter net sales for the North America Foodservice segment essentially matched year-ago levels at $582 million. Organic net sales were in line with last year despite a 2-point headwind from market index pricing on bakery flour. Segment operating profit increased 17 percent to $96 million, driven primarily by HMM cost savings and favorable net price realization and mix, partially offset by higher other supply chain costs.

Through six months, North America Foodservice net sales increased 4 percent to $1.1 billion, including a 2-point benefit from the TNT Crust acquisition. Organic net sales were up 2 percent. Segment operating profit was up 14 percent to $155 million, driven by favorable net price realization and mix and HMM cost savings, partially offset by higher other supply chain costs and higher SG&A expenses.

International Segment

Second-quarter net sales for the International segment increased 2 percent to $683 million, driven by favorable net price realization and mix and a 2-point benefit from foreign currency exchange, partially offset by lower pound volume. Organic net sales essentially matched year-ago levels, with a decline in Brazil offset by growth in distributor markets and Europe & Australia. Segment operating profit of $35 million was up 94 percent as reported and up 100 percent in constant currency from year-ago results that included the impact of the ice cream recall, driven by favorable net price realization and mix and HMM cost savings, partially offset by input cost inflation.

Through six months, International net sales increased 6 percent to $1.4 billion, including a 2-point benefit from foreign currency exchange. Organic net sales were up 4 percent. Segment operating profit of $85 million was up 61 percent as reported and up 68 percent in constant currency from year-ago results that included the impact of the ice cream recall, driven by favorable net price realization and mix and HMM cost savings, partially offset by input cost inflation and lower volume.

Joint Venture Summary

Second-quarter constant-currency net sales increased 11 percent for Cereal Partners Worldwide (CPW), driven by favorable net price realization and mix, partially offset by lower pound volume. Constant-currency net sales for Häagen-Dazs Japan (HDJ) were up 6 percent, driven by favorable net price realization and mix, partially offset by lower pound volume. Combined after-tax earnings from joint ventures of $24 million were down 5 percent, driven by unfavorable foreign currency exchange, partially offset by constant-currency after-tax earnings growth for HDJ.

Other Income Statement Items

Second-quarter unallocated corporate items totaled $157 million net expense in fiscal 2024 compared to $212 million net expense a year ago. Excluding mark-to-market valuation effects and other items affecting comparability, unallocated corporate items totaled $103 million net expense this year compared to $142 million net expense last year, driven primarily by lower compensation and benefits expenses.

Restructuring, impairment, and other exit costs totaled $124 million in the second quarter compared to $11 million a year ago (please see Note 3 below for more information on these charges). Benefit plan non-service income totaled $20 million in the second quarter compared to $22 million a year ago, driven primarily by an increase in interest costs, partially offset by lower amortization of losses and higher expected return on plan assets.

Net interest expense totaled $118 million in the second quarter compared to $92 million a year ago, driven primarily by higher interest rates and higher average long-term debt levels. The effective tax rate in the quarter was 19.0 percent compared to 20.2 percent last year (please see Note 6 below for more information on our effective tax rate). The second-quarter adjusted effective tax rate was 20.8 percent compared to 21.1 percent a year ago, driven primarily by favorable earnings mix by jurisdiction in fiscal 2024.

Cash Flow Generation and Cash Returns

Cash provided by operating activities totaled $1.5 billion through six months of fiscal 2024 compared to $1.2 billion a year ago. Capital investments totaled $294 million compared to $227 million a year ago. Dividends paid increased 7 percent to $691 million. General Mills repurchased approximately 18.8 million shares of common stock through six months of fiscal 2024 for a total of $1.3 billion compared to $901 million in share repurchases a year ago. Average diluted shares outstanding in the first half decreased 3 percent to 587 million.

Fiscal 2024 Outlook

General Mills continues to expect the largest factors impacting its performance in fiscal 2024 will be the economic health of consumers, the moderating rate of input cost inflation, and the increasing stability of the supply chain environment. Relative to its previous expectation, the company now expects a slower volume recovery in fiscal 2024, reflecting a more cautious consumer economic outlook and a faster normalization of competitive on-shelf availability. For the full year, the company continues to expect input cost inflation of approximately 5 percent of total cost of goods sold, driven primarily by labor inflation that impacts sourcing, manufacturing, and logistics costs. The company now expects to generate Holistic Margin Management (HMM) cost savings of roughly 5 percent of cost of goods sold in fiscal 2024, up from its previous expectation of 4 percent and higher than the 3 percent achieved in fiscal 2023.

Based on the above assumptions, the company updated its full-year fiscal 2024 financial targets²:

• Organic net sales are now expected to range between down 1 percent and flat, compared to the previous range of 3 to 4 percent growth, reflecting a slower volume recovery in fiscal 2024.
• Adjusted operating profit and adjusted diluted EPS are now expected to increase 4 to 5 percent in constant currency, compared to the previous range of 4 to 6 percent growth in constant currency, reflecting the impact of lower organic sales growth, largely offset by higher HMM cost savings and greater elimination of disruption-related costs in the supply chain.
• Free cash flow conversion is still expected to be at least 95 percent of adjusted after-tax earnings.
• The net impact of divestitures and foreign currency exchange is now expected to have an immaterial impact on full-year reported net sales growth, and foreign currency exchange is still expected to have an immaterial impact on adjusted operating profit and adjusted diluted EPS growth.

² Financial targets are provided on a non-GAAP basis because certain information necessary to calculate comparable GAAP measures is not available. Please see Note 7 to the Consolidated Financial Statements below for discussion of the unavailable information.

General Mills will issue pre-recorded management remarks today, December 20, 2023, 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 2024 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: disruptions or inefficiencies in the supply chain; 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.

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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.

Goodwill impairment

Non-cash goodwill impairment charge related to our Latin America reporting unit. Please see Note 3.

Restructuring charges and project-related costs

Restructuring charges and project-related costs related to a commercial strategy restructuring action and previously announced restructuring actions recorded in fiscal 2024. Restructuring charges for previously announced restructuring actions recorded in fiscal 2023. Please see Note 3.

Investment activity, net

Valuation adjustments of certain corporate investments in fiscal 2024. Valuation adjustments and the loss on sale of certain corporate investments in fiscal 2023. Please see Note 4.

Mark-to-market effects

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

Transaction costs

Immaterial transaction costs incurred in fiscal 2024. Transaction costs primarily related to the sale of our Helper main meals and Suddenly Salad side dishes business in fiscal 2023. Please see Note 2.

Product recall

Costs related to the fiscal 2023 voluntary recall of certain international Häagen-Dazs ice cream products. Please see Note 4.

Acquisition integration costs

Integration costs primarily resulting from the acquisition of TNT Crust in fiscal 2024 and fiscal 2023. Please see Note 2.

Divestitures gain, net

Net divestitures gain primarily related to the sale of our Helper main meals and Suddenly Salad side dishes business in fiscal 2023. Please see Note 2.

CPW restructuring charges

CPW restructuring charges related to previously announced restructuring actions.

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 2024 to performance in fiscal 2022 that preceded historic levels of input cost inflation and net price realization the industry experienced over the past two years.

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

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: