General Mills Reports Fiscal 2021 Third-Quarter Results

• Net sales increased 8 percent to $4.5 billion; organic net sales¹ increased 7 percent
• Operating profit increased 27 percent to $827 million; constant-currency adjusted operating profit increased 5 percent
• Diluted earnings per share (EPS) totaled $0.96, up 30 percent from the prior year; adjusted diluted EPS of $0.82 increased 6 percent in constant currency
• Company provides outlook for full-year organic net sales growth and adjusted operating profit margin; announces resumption of share repurchase activity beginning in the fourth quarter

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

MINNEAPOLIS–(BUSINESS WIRE)–General Mills (NYSE: GIS) today reported results for the third quarter ended February 28, 2021.

“We continued to execute well and delivered profitable growth in the third quarter,” said General Mills Chairman and Chief Executive Officer Jeff Harmening. “We’ve made good progress on our fiscal 2021 priorities, including competing effectively, fueling investment in our brands and capabilities, and reducing our leverage. With our balance sheet in a strong position, we have resumed share repurchase activity in the fourth quarter. We’re continuing to advance our Accelerate strategy, including yesterday’s announcement of our proposed divestiture of our European Yoplait business. Looking ahead, we remain focused on strengthening our momentum and emerging from the pandemic a stronger company, even better positioned to drive long-term shareholder value.”

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 proposed divestiture of its European Yoplait operations, to further enhance its growth profile.

General Mills expects that 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. The company plans to capitalize on these opportunities, addressing evolving consumer needs through its leading brands, innovation, and advantaged capabilities to generate profitable growth.

Proposed Divestiture of European Yoplait Operations

General Mills announced yesterday that it entered into a memorandum of understanding to sell its 51 percent controlling interest in its European Yoplait operations to Sodiaal, a leading French dairy cooperative, in exchange for full ownership of the Canadian Yoplait business and a reduced royalty rate for use of the Yoplait and Liberté brands in the United States and Canada. This growth- and margin-accretive transaction advances General Mills’ portfolio reshaping efforts within its Accelerate strategy. The proposed transaction is expected to close by the end of calendar 2021, subject to appropriate labor consultations, regulatory filings, and other customary closing conditions.

Third Quarter Results Summary

• Net sales increased 8 percent to $4.5 billion and organic net sales were up 7 percent, reflecting broad-based market share gains amid elevated at-home food demand resulting from the COVID-19 pandemic.
• Gross margin increased 80 basis points to 34.4 percent of net sales, driven by favorable net price realization and mix and lower mark-to-market expenses, partially offset by higher input costs. Adjusted gross margin decreased 90 basis points to 33.0 percent of net sales, driven by higher input costs, including input cost inflation, costs to secure incremental capacity, and higher logistics costs, partially offset by favorable net price realization and mix.
• Operating profit of $827 million was up 27 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. Operating profit margin of 18.3 percent increased 270 basis points. Adjusted operating profit of $716 million increased 5 percent in constant currency, driven by higher constant-currency adjusted gross profit dollars, partially offset by higher SG&A expenses, including higher investment in capabilities and media. Adjusted operating profit margin decreased 30 basis points to 15.8 percent.
• Net earnings attributable to General Mills increased 31 percent to $596 million and diluted EPS increased 30 percent to $0.96, primarily reflecting higher operating profit, partially offset by higher average diluted shares outstanding. Adjusted diluted EPS totaled $0.82, up 6 percent in constant currency, primarily driven by higher adjusted operating profit and lower net interest expense, partially offset by higher average diluted shares outstanding.

Nine Month Results Summary

• Net sales increased 8 percent to $13.6 billion and organic net sales also increased 8 percent, reflecting positive pound volume and favorable net price realization and mix.
• Gross margin increased 120 basis points to 35.8 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 10 basis points to 34.9 percent of net sales, driven by favorable net price realization and mix, partially offset by higher input costs.
• Operating profit of $2.6 billion increased 22 percent, primarily driven by higher gross profit dollars, partially offset by higher SG&A expenses, including higher media investment. Operating profit margin of 19.1 percent was up 220 basis points. Adjusted operating profit of $2.4 billion increased 11 percent in constant currency, driven by higher constant-currency adjusted gross profit dollars, partially offset by higher SG&A expenses, including higher investment in media and capabilities. Adjusted operating profit margin increased 50 basis points to 17.7 percent.
• Net earnings attributable to General Mills increased 24 percent to $1.9 billion and diluted EPS of $3.10 increased 22 percent, primarily reflecting higher operating profit, higher after-tax earnings from joint ventures, and lower net interest expense, partially offset by a higher effective tax rate and higher average diluted shares outstanding. Adjusted diluted EPS of $2.88 was up 14 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.

North America Retail Segment

Third-quarter net sales for General Mills’ North America Retail segment increased 9 percent to $2.73 billion, reflecting positive competitive performance amid elevated demand for food at home due to the pandemic. Organic net sales increased 9 percent, driven by higher organic pound volume. Net sales increased 15 percent in U.S. Meals & Baking, 13 percent in Canada, 9 percent in U.S. Cereal, and 3 percent in U.S. Yogurt. U.S. Snacks net sales were down 3 percent. Segment operating profit increased 14 percent to $606 million, primarily driven by higher volume, HMM cost savings, and fixed cost leverage in the supply chain, partially offset by input cost inflation, costs to secure incremental capacity, and higher logistics costs.

Through nine months, North America Retail segment net sales increased 11 percent to $8.36 billion. Organic net sales were also up 11 percent. The company continued to compete effectively in the segment, including holding or growing year-to-date market share in 7 of its 10 largest U.S. categories and driving strong share growth in Canada. Segment operating profit totaled $2.0 billion, up 15 percent from a year ago primarily due to higher volume, HMM cost savings, and fixed cost leverage in the supply chain, partially offset by input cost inflation, costs to secure incremental capacity, unfavorable product mix, and higher media and other SG&A expenses.

Pet Segment

Third-quarter net sales for the Pet segment increased 14 percent to $436 million, with positive contributions from volume growth partially offset by unfavorable net price realization and mix, including launch investments for the new Tastefuls product line. The BLUE brand continued to win with pet parents across sub-segments, including double-digit net sales growth for both dog food and cat food. Segment operating profit increased 9 percent to $102 million, primarily driven by higher volume, partially offset by unfavorable net price realization and mix, higher input costs, and higher SG&A expenses.

Through nine months, Pet segment net sales increased 13 percent to $1.29 billion, driven primarily by positive contributions from volume growth. The BLUE brand continued to gain market share in measured channels in the first nine months of the year. Segment operating profit increased 22 percent to $312 million, primarily driven by higher volume and benefits from HMM cost savings, partially offset by input cost inflation, higher media investment, and unfavorable net price realization and mix.

Convenience Stores & Foodservice Segment

Third-quarter net sales for the Convenience Stores & Foodservice segment declined 10 percent to $417 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, and lodging. Segment operating profit of $64 million was down 31 percent, driven by lower net sales and fixed cost deleverage in the supply chain.

Through nine months, Convenience Stores & Foodservice net sales decreased 12 percent to $1.25 billion. Strong operator partnerships and innovation led to year-to-date market share gains in measured channels. Segment operating profit of $212 million was down 29 percent, driven by lower net sales and fixed cost deleverage in the supply chain.

Europe & Australia Segment

Third-quarter net sales for the Europe & Australia segment increased 15 percent to $484 million, primarily driven by 9 points of favorable foreign currency exchange and positive net price realization and mix. Organic net sales increased 7 percent, led by growth for Old El Paso Mexican food and Häagen-Dazs ice cream. Segment operating profit of $29 million was up 33 percent as reported and up 24 percent in constant currency, primarily driven by favorable net price realization and mix, higher pound volume, and lower SG&A expenses, partially offset by higher input costs.

Through nine months, Europe & Australia net sales increased 10 percent to $1.44 billion, including 6 points of favorable foreign currency exchange. Organic net sales increased 5 percent. The segment held or grew year-to-date market share in France, the U.K., and Australia, its three largest markets. Segment operating profit of $118 million was up 46 percent as reported and up 40 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

Third-quarter net sales for the Asia & Latin America segment increased 12 percent to $456 million, driven by volume growth and favorable net price realization and mix, partially offset by 3 points of unfavorable foreign currency exchange. Organic net sales increased 14 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 and Betty Crocker dessert mixes in the Middle East. Häagen-Dazs ice cream net sales in Asia were up double-digits, reflecting the comparison against pandemic-driven shops closures in the prior-year period. Segment operating profit of $12 million was up 48 percent as reported and up 18 percent in constant currency, driven by higher net sales, partially offset by higher input costs.

Through nine months, Asia & Latin America net sales increased 8 percent to $1.27 billion, driven by higher volume and favorable net price realization and mix, partially offset by 6 points of unfavorable foreign currency exchange. Organic net sales increased 13 percent. Segment operating profit of $62 million was up 47 percent as reported and up 24 percent in constant currency, driven by higher net sales and favorable foreign currency exchange, partially offset by higher input costs and higher SG&A expenses.

Joint Venture Summary

Third-quarter net sales for Cereal Partners Worldwide (CPW) increased 5 percent in constant currency, and constant-currency net sales for Häagen-Dazs Japan (HDJ) were up 1 percent. Combined after-tax earnings from joint ventures increased 9 percent to $12 million, primarily driven by higher net sales at CPW. Through nine months, after-tax earnings from joint ventures increased 56 percent to $90 million, primarily driven by higher net sales at CPW and HDJ.

Other Income Statement Items

Unallocated corporate items totaled $24 million net income in the third quarter of fiscal 2021, compared to $92 million net expense a year ago. Excluding mark-to-market valuation effects and other items affecting comparability, unallocated corporate items totaled $98 million net expense this year compared to $73 million net expense last year.

Restructuring, impairment, and other exit costs totaled $11 million in the third quarter compared to $6 million a year ago. An additional $1 million of restructuring and project-related charges was recorded in cost of sales this year compared to $7 million a year ago (please see Note 2 below for more information on these charges).

Net interest expense totaled $106 million in the third quarter compared to $110 million a year ago, primarily driven by lower rates, partially offset by a $4 million charge related to a debt exchange executed in the quarter. The effective tax rate in the quarter was 21.5 percent compared to 20.7 percent last year (please see Note 6 below for more information on our effective tax rate). The adjusted effective tax rate was 21.6 percent compared to 21.0 percent a year ago.

Cash Flow Generation and Cash Returns

Cash provided by operating activities increased 2 percent to $2.21 billion through nine months of fiscal 2021, primarily driven by higher net earnings, partially offset by changes in inventory. Capital investments totaled $346 million compared to $269 million a year ago. Dividends paid totaled $932 million in the first nine months 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. The company expects full-year organic net sales to increase approximately 3.5 percent, reflecting strong year-to-date growth, partially offset by a difficult comparison in the fourth quarter reflecting the initial pandemic-driven surge in at-home food demand as well as the extra month of results in the Pet segment. On the bottom line, better-than-expected first-half adjusted operating profit margin results are now expected to be offset by higher input cost inflation and higher logistics costs in the second half. As a result, full-year fiscal 2021 adjusted operating profit margin is expected to be approximately in line with fiscal 2020 levels, consistent with the guidance the company outlined at the beginning of the year.

^{General Mills will issue pre-recorded management remarks today, March 24, 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 “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.}

Contacts

(analysts) Jeff Siemon: 763-764-2301

(media) Mollie Wulff: 763-764-6364

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