General Mills Reports Fiscal 2020 Third-Quarter Results and Updates Full-Year Guidance

  • Net sales of $4.2 billion were flat to last year; organic net sales¹ were also flat. Through nine months, net sales were down 1 percent and organic net sales were flat to last year.
  • Operating profit of $651 million essentially matched year-ago results; constant-currency adjusted operating profit was down 8 percent, including a strong increase in media investment. Through nine months, operating profit was up 18 percent and constant-currency adjusted operating profit increased 2 percent.
  • Diluted earnings per share (EPS) of $0.74 were flat to last year; adjusted diluted EPS of $0.77 were down 6 percent in constant currency. Through nine months, diluted EPS were up 30 percent and constant-currency adjusted diluted EPS increased 5 percent.
  • Company updates its full-year fiscal 2020 guidance, raising the ranges for adjusted operating profit and adjusted diluted EPS

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 23, 2020.

We began fiscal 2020 with three key priorities: accelerate our organic sales growth, maintain our strong margins, and reduce our leverage,” said General Mills Chairman and Chief Executive Officer Jeff Harmening. “Our focus and execution in a dynamic environment this year have kept us on track to achieve those goals. Our third-quarter results were broadly in line with our expectations, except for the negative impact in Asia of the COVID-19 virus outbreak.

During the rapidly evolving situation related to COVID-19, our number one objective continues to be the health and safety of our consumers, employees, and other stakeholders. General Mills plays a critical role in making food to meet the needs of our consumers, and I’m proud of the way we’ve partnered with our retail customers in recent weeks to service consumers’ increased demand for food at home during this unique time. Looking forward, we’ll remain agile to adapt to changing demand patterns around the world as circumstances with COVID-19 continue to develop.”

Third Quarter Results Summary

  • Net sales of $4.2 billion were flat to last year. Organic net sales were also flat to last year, with strong growth for the Pet segment largely offset by declines in North America Retail and Convenience Stores & Foodservice. A modest decline in organic volume was offset by favorable organic net price realization and mix. Third-quarter net sales results versus the prior year included a 50 basis-point headwind from lower Häagen-Dazs net sales in Asia in February, driven by the impact of the COVID-19 virus outbreak on consumer traffic in Häagen-Dazs shops and foodservice outlets.
  • Gross margin declined 80 basis points to 33.6 percent of net sales. Adjusted gross margin of 33.9 percent was 30 basis points below the prior year, driven by input cost inflation and higher other supply chain costs, partially offset by Holistic Margin Management (HMM) cost savings and favorable net price realization and mix.
  • Operating profit totaled $651 million, essentially in line with the prior year. Operating profit margin of 15.6 percent increased 10 basis points. Adjusted operating profit of $675 million was down 8 percent in constant currency, primarily driven by higher selling, general, and administrative (SG&A) expenses, including higher media investment. Lower contributions from ice cream net sales in Asia in February reduced third-quarter adjusted operating profit results versus the prior year by an estimated 150 basis points. Adjusted operating profit margin decreased 130 basis points to 16.1 percent.
  • Net earnings attributable to General Mills totaled $454 million, up 2 percent from a year ago.
  • Diluted EPS of $0.74 essentially matched prior-year results. Adjusted diluted EPS of $0.77 were down 6 percent from the prior year in constant currency, driven primarily by lower adjusted operating profit, a higher adjusted effective tax rate, and higher average diluted shares outstanding, partially offset by lower net interest expense and higher non-service benefit plan income. Lower contributions from ice cream net sales in Asia in February reduced third-quarter adjusted diluted EPS results versus the prior year by an estimated 150 basis points.

Nine Month Results Summary

  • Net sales declined 1 percent to $12.6 billion. Organic net sales essentially matched year-ago levels, reflecting positive organic net price realization and mix offset by lower organic volume.
  • Gross margin increased 80 basis points to 34.6 percent of net sales. Adjusted gross margin of 34.8 percent was 70 basis points above the prior year, driven primarily by favorable net price realization and mix and last year’s one-time purchase accounting inventory adjustment related to the Blue Buffalo acquisition, partially offset by higher input costs.
  • Operating profit of $2.1 billion increased 18 percent from the prior year.
  • Operating profit margin of 16.9 percent was up 270 basis points. Constant-currency adjusted operating profit increased 2 percent, driven by higher adjusted gross margin, partially offset by higher SG&A expenses including higher media investment. Adjusted operating profit margin increased 40 basis points to 17.2 percent.
  • Net earnings attributable to General Mills totaled $1.6 billion.
  • Diluted EPS of $2.54 was 30 percent above prior-year levels. Adjusted diluted EPS of $2.51 was up 5 percent on a constant-currency basis.

Operating Segment Results

Note: Tables may not foot due to rounding.

Components of Fiscal 2020 Reported Net Sales Growth

Third Quarter

Volume

Price/Mix

Foreign

Exchange

Reported

Net Sales

North America Retail

 

(1) pt

 

 

(1)%

Pet

6 pts

 

5 pts

 

 

11%

Convenience Stores & Foodservice

(2) pts

 

1 pt

 

 

(2)%

Europe & Australia

(1) pt

 

 

(1) pt

 

(2)%

Asia & Latin America

(2) pts

 

 

(3) pts

 

(5)%

Total

(1) pt

 

1 pt

 

 

Flat

 

Nine Months

 

 

 

 

 

 

 

North America Retail

 

 

 

Flat

Pet

6 pts

 

5 pts

 

 

11%

Convenience Stores & Foodservice

(2) pts

 

 

 

(2)%

Europe & Australia

(4) pts

 

1 pt

 

(3) pts

 

(6)%

Asia & Latin America

(6) pts

 

2 pts

 

(2) pts

 

(6)%

Total

(1) pt

 

1 pt

 

(1) pt

 

(1)%

Components of Fiscal 2020 Organic Net Sales Growth

Third Quarter

Organic

Volume

Organic

Price/Mix

Organic

Net Sales

Foreign

Exchange

Acquisitions &

Divestitures

Reported

Net Sales

North America Retail

 

(1) pt

 

(1)%

 

 

 

(1)%

Pet

6 pts

 

5 pts

 

11%

 

 

 

11%

Convenience Stores & Foodservice

(2) pts

 

1 pt

 

(2)%

 

 

 

(2)%

Europe & Australia

(1) pt

 

 

(1)%

 

(1) pt

 

 

(2)%

Asia & Latin America

1 pt

 

(1) pt

 

Flat

 

(3) pts

 

(2) pts

 

(5)%

Total

 

1 pt

 

Flat

 

 

 

Flat

 

Nine Months

 

 

 

 

 

 

 

 

 

 

 

North America Retail

 

 

Flat

 

 

 

Flat

Pet

6 pts

 

5 pts

 

11%

 

 

 

11%

Convenience Stores & Foodservice

(2) pts

 

 

(2)%

 

 

 

(2)%

Europe & Australia

(4) pts

 

1 pt

 

(3)%

 

(3) pts

 

 

(6)%

Asia & Latin America

(1) pt

 

1 pt

 

(1)%

 

(2) pts

 

(4) pts

 

(6)%

Total

(1) pt

 

1 pt

 

Flat

 

(1) pt

 

 

(1)%

Fiscal 2020 Segment Operating Profit Growth

Third Quarter

% Change as Reported

% Change in Constant Currency

North America Retail

(9)%

 

(9)%

Pet

29%

 

29%

Convenience Stores & Foodservice

(5)%

 

(5)%

Europe & Australia

(9)%

 

(11)%

Asia & Latin America

(58)%

 

(64)%

Total

(6)%

 

(6)%

 

Nine Months

 

 

 

North America Retail

(1)%

 

(1)%

Pet

62%

 

62%

Convenience Stores & Foodservice

(2)%

 

(2)%

Europe & Australia

Flat

 

3%

Asia & Latin America

(14)%

 

(13)%

Total

3%

 

3%

North America Retail Segment

Third-quarter net sales for General Mills’ North America Retail segment totaled $2.50 billion, down 1 percent from the prior year. Net sales were down 2 percent in the U.S. Meals & Baking operating unit and down 1 percent each in U.S. Cereal, U.S. Snacks, and U.S. Yogurt. Canada operating unit net sales were up 6 percent as reported and up 5 percent in constant currency. Segment operating profit of $532 million was 9 percent below year-ago results that increased 12 percent, driven primarily by higher media expenses, unfavorable net price realization and mix, and higher input costs.

Through nine months, North America Retail segment net sales totaled $7.55 billion, essentially matching year-ago levels. Segment operating profit totaled $1.73 billion, down 1 percent from a year ago due primarily to higher SG&A expenses, including higher media expense.

Pet Segment

Third-quarter net sales for the Pet segment increased 11 percent to $384 million, driven by positive contributions from volume growth and positive net price realization and mix. Net sales performance was led by double-digit growth on BLUE’s two largest product lines: Life Protection Formula and Wilderness. Segment operating profit increased 29 percent to $94 million, driven primarily by higher net sales, partially offset by higher media expense.

Through nine months, Pet segment net sales increased 11 percent to $1.14 billion, driven by positive contributions from volume growth and positive net price realization and mix. All-channel retail sales were up double digits in the first nine months of the year. Segment operating profit of $256 million was up 62 percent, driven primarily by a $53 million one-time purchase accounting inventory adjustment in the year-ago period, as well as favorable net price realization and mix.

Convenience Stores & Foodservice Segment

Third-quarter net sales for the Convenience Stores & Foodservice segment declined 2 percent to $465 million, driven by declines on non-Focus 6 products including flour and mixes, partially offset by low-single digit growth for the Focus 6 platforms including cereal, frozen baked goods, and yogurt. Segment operating profit of $92 million was down 5 percent, primarily driven by higher input costs.

Through nine months, Convenience Stores & Foodservice net sales decreased 2 percent to $1.42 billion, due primarily to lower bakery flour volume and unfavorable index pricing, partially offset by low-single digit growth for the Focus 6 platforms. Segment operating profit of $298 million was down 2 percent, primarily driven by lower net sales.

Europe & Australia Segment

Third-quarter net sales for the Europe & Australia segment declined 2 percent to $422 million, including 1 point of unfavorable foreign currency exchange. Organic net sales were down 1 percent. Net sales declines in Yoplait yogurt and Häagen-Dazs ice cream were partially offset by growth for Nature Valley and Fibre One snack bars and Old El Paso Mexican food. Segment operating profit of $22 million was down 9 percent as reported and down 11 percent in constant currency, driven primarily by higher input costs, partially offset by lower SG&A expenses.

Through nine months, Europe & Australia net sales decreased 6 percent to $1.31 billion, including 3 points of unfavorable foreign currency exchange. Organic net sales decreased 3 percent, with lower contributions from organic volume partially offset by positive organic net price realization and mix. Net sales declines in yogurt and ice cream were partially offset by growth for snack bars and Mexican food. Segment operating profit of $81 million was flat as reported and was up 3 percent in constant currency, reflecting lower SG&A expenses and favorable net price realization and mix, partially offset by lower volume and higher input costs.

Asia & Latin America Segment

Third-quarter net sales for the Asia & Latin America segment declined 5 percent to $408 million, driven by 3 points of unfavorable foreign currency exchange and a 2-point headwind from divestitures executed in fiscal 2019. Organic net sales essentially matched year-ago results, with growth in Latin America offset by declines in Asia. Third-quarter segment net sales growth included a 5-point headwind from lower Häagen-Dazs ice cream net sales in Asia in February, driven by the impact of the COVID-19 virus outbreak on consumer traffic in Häagen-Dazs shops and foodservice outlets. Segment operating profit of $8 million was down $11 million in the quarter, driven by higher SG&A expenses and lower ice cream net sales in Asia in February, partially offset by higher net sales in Latin America.

Through nine months, Asia & Latin America net sales declined 6 percent to $1.18 billion, driven by a 4-point headwind from divestitures executed in fiscal 2019 and 2 points of unfavorable foreign currency exchange. Organic net sales were down 1 percent, with declines in Asia partially offset by growth in Latin America. Nine-month segment net sales growth included a 2-point headwind from lower ice cream net sales in Asia in February. Segment operating profit of $43 million was down 14 percent as reported and down 13 percent in constant currency, driven by higher input costs and the impact of lower contributions from ice cream net sales in Asia in February, partially offset by favorable net price realization and mix and lower SG&A expenses.

Joint Venture Summary

Third-quarter net sales for Cereal Partners Worldwide (CPW) increased 1 percent in constant currency, and constant-currency net sales for Häagen-Dazs Japan (HDJ) were down 5 percent. Combined after-tax earnings from joint ventures were $11 million compared to $12 million last year. Through nine months, after-tax earnings from joint ventures totaled $58 million compared to $52 million a year ago, driven primarily by General Mills’ share of lower restructuring charges at CPW.

Other Income Statement Items

Unallocated corporate items totaled $92 million net expense in the third quarter of fiscal 2020 compared to $49 million net expense a year ago. Excluding mark-to-market valuation effects and other items affecting comparability, unallocated corporate items totaled $73 million net expense this year compared to $65 million net expense last year.

Restructuring, impairment, and other exit costs totaled $6 million in the third quarter compared to $60 million in the prior year (please see Note 3 below for more information on these charges).

Net interest expense totaled $110 million in the third quarter compared to $131 million a year ago, driven by lower average debt balances and lower rates. The effective tax rate in the quarter was 20.7 percent compared to 17.7 percent last year (please see Note 6 below for more information on our effective tax rate). The third-quarter adjusted effective tax rate was 21.0 percent compared to 19.9 percent a year ago, primarily driven by discrete tax benefits in the prior year.

Cash Flow Generation and Cash Returns

Cash provided by operating activities totaled $2.16 billion through nine months of fiscal 2020, up 7 percent from the prior year, primarily driven by higher net earnings, partially offset by changes in non-cash restructuring, impairment, and other exit costs and deferred income taxes. Capital investments totaled $269 million. The company reduced debt by $862 million and paid $895 million of dividends in the first nine months of the year. Average diluted shares outstanding through nine months increased 1 percent to 612 million.

Fiscal 2020 Outlook

For the fourth quarter of fiscal 2020, General Mills expects to see a step up in organic net sales growth, driven in part by an extra month of results for the Pet segment as the company aligns that business to the General Mills fiscal year end. Fourth-quarter reported net sales will also benefit from a 53rd week.

The impact of the recent COVID-19 virus outbreak on the company’s full-year fiscal 2020 results is still uncertain. The company’s current outlook incorporates increased orders from retail customers in North America and Europe subsequent to the end of the third quarter in response to increased consumer demand for food at home, as well as headwinds in Häagen-Dazs shops and other foodservice channels resulting from lower consumer traffic. The most significant element of uncertainty in the company’s full-year outlook is the intensity and duration of increased demand for food at home across all its major markets. Additionally, the company’s outlook assumes its supply chain continues to operate with minimal disruption for the remainder of fiscal 2020.

Based on its year-to-date performance and fourth-quarter expectations, General Mills updated its full-year fiscal 2020 targets:

  • Organic net sales are still expected to increase 1 to 2 percent. The combination of currency translation, the impact of divestitures executed in fiscal 2019, and contributions from the 53rd week in fiscal 2020 are expected to increase reported net sales by approximately 1 percentage point.
  • Constant-currency adjusted operating profit is now expected to increase 4 to 6 percent from the base of $2.86 billion reported in fiscal 2019, which is ahead of the previous range of 2 to 4 percent growth. The primary drivers of the increased outlook for constant-currency adjusted operating profit are increased Holistic Margin Management productivity savings, a modest reduction in the outlook for input cost inflation, and continued tight control over administrative expenses. The benefit of the extra fiscal week is being reinvested in capabilities and brand-building initiatives to drive improvement in the company’s organic sales growth rate in 2020 and beyond.
  • Constant-currency adjusted diluted EPS are now expected to increase 6 to 8 percent from the base of $3.22 earned in fiscal 2019, which is ahead of the previous range of 3 to 5 percent growth. The primary drivers of the increased outlook for constant-currency adjusted diluted EPS are the increased forecast for constant-currency adjusted operating profit and a reduced expectation for full-year net interest expense.
  • The company continues to expect free cash flow conversion of at least 105 percent of adjusted after-tax earnings.
  • Currency translation is expected to have an immaterial impact on fiscal 2020 adjusted operating profit and adjusted diluted EPS.

General Mills will hold a briefing for investors today, March 18, 2020, beginning at 7:30 a.m. Central time (8:30 a.m. Eastern time). You can access the webcast 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 2020 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) outbreak on our business, suppliers, consumers, customers, and employees; disruptions or inefficiencies in the supply chain, including any impact of the coronavirus (COVID-19) outbreak; 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, including our acquisition of Blue Buffalo and issues in the integration of Blue Buffalo and retention of key management and employees; unfavorable reaction to our acquisition of Blue Buffalo by customers, competitors, suppliers, and employees; 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.

Consolidated Statements of Earnings and Supplementary Information

GENERAL MILLS, INC. AND SUBSIDIARIES

(Unaudited) (In Millions, Except per Share Data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Nine-Month Period Ended

 

 

Feb. 23,

 

 

Feb. 24,

 

 

 

 

 

Feb. 23,

 

 

Feb. 24,

 

 

 

 

 

2020

 

 

2019

 

% Change

 

 

2020

 

 

2019

 

% Change

Net sales

$

4,180.3

 

$

4,198.3

 

%

 

$

12,603.6

 

$

12,703.5

 

(1

)%

Cost of sales

 

2,777.1

 

 

2,755.3

 

1

%

 

 

8,241.8

 

 

8,408.0

 

(2

)%

Selling, general, and administrative expenses

 

746.6

 

 

696.6

 

7

%

 

 

2,224.5

 

 

2,192.6

 

1

%

Divestiture loss

 

 

 

35.4

 

NM

 

 

 

 

 

35.4

 

NM

 

Restructuring, impairment, and other exit costs

 

5.8

 

 

59.7

 

(90

)%

 

 

12.9

 

 

267.7

 

(95

)%

Operating profit

 

650.8

 

 

651.3

 

%

 

 

2,124.4

 

 

1,799.8

 

18

%

Benefit plan non-service income

 

(30.3)

 

 

(21.4)

 

42

%

 

 

(90.7)

 

 

(63.3)

 

43

%

Interest, net

 

109.8

 

 

130.8

 

(16

)%

 

 

347.9

 

 

397.0

 

(12

)%

Earnings before income taxes and after-tax earnings from joint ventures

 

571.3

 

 

541.9

 

5

%

 

 

1,867.2

 

 

1,466.1

 

27

%

Income taxes

 

118.2

 

 

95.8

 

23

%

 

 

340.9

 

 

313.1

 

9

%

After-tax earnings from joint ventures

 

10.8

 

 

11.8

 

(8

)%

 

 

57.5

 

 

52.0

 

11

%

Net earnings, including earnings attributable to redeemable and noncontrolling interests

 

463.9

 

 

457.9

 

1

%

 

 

1,583.8

 

 

1,205.0

 

31

%

Net earnings attributable to redeemable and noncontrolling interests

 

9.8

 

 

11.1

 

(12

)%

 

 

28.3

 

 

22.5

 

26

%

Net earnings attributable to General Mills

$

454.1

 

$

446.8

 

2

%

 

$

1,555.5

 

$

1,182.5

 

32

%

Earnings per share – basic

$

0.75

 

$

0.74

 

1

%

 

$

2.56

 

$

1.97

 

30

%

Earnings per share – diluted

$

0.74

 

$

0.74

 

%

 

$

2.54

 

$

1.96

 

30

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

 

Nine-Month Period Ended

 

 

Feb. 23,

 

 

Feb. 24,

 

Basis Pt

 

 

 

Feb. 23,

 

 

Feb. 24,

 

Basis Pt

 

Comparisons as a % of net sales:

 

2020

 

 

2019

 

Change

 

 

 

2020

 

 

2019

 

Change

 

Gross margin

 

33.6 %

 

 

34.4 %

 

(80

)

 

 

34.6 %

 

 

33.8 %

 

80

 

Selling, general, and administrative expenses

 

17.9 %

 

 

16.6 %

 

130

 

 

 

17.6 %

 

 

17.3 %

 

30

 

Operating profit

 

15.6 %

 

 

15.5 %

 

10

 

 

 

16.9 %

 

 

14.2 %

 

270

 

Net earnings attributable to General Mills

 

10.9 %

 

 

10.6 %

 

30

 

 

 

12.3 %

 

 

9.3 %

 

300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

 

Nine-Month Period Ended

Comparisons as a % of net sales excluding

 

Feb. 23,

 

 

Feb. 24,

 

Basis Pt

 

 

 

Feb. 23,

 

 

Feb. 24,

 

Basis Pt

 

certain items affecting comparability (a):

 

2020

 

 

2019

 

Change

 

 

 

2020

 

 

2019

 

Change

 

Adjusted gross margin

 

33.9 %

 

 

34.2 %

 

(30

)

 

 

34.8 %

 

 

34.1 %

 

70

 

Adjusted operating profit

 

16.1 %

 

 

17.4 %

 

(130

)

 

 

17.2 %

 

 

16.8 %

 

40

 

Adjusted net earnings attributable to General Mills

 

11.4 %

 

 

12.0 %

 

(60

)

 

 

12.2 %

 

 

11.4 %

 

80

 

(a) See Note 7 for a reconciliation of these measures not defined by generally accepted accounting principles (GAAP).

See accompanying notes to consolidated financial statements.

Contacts

(analysts) Jeff Siemon: 763-764-2301

(media) Kelsey Roemhildt: 763-764-6364

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