General Mills : Q1 Press Release(opens in new window)

FOR IMMEDIATE RELEASE

September 22, 2021

GENERAL MILLS REPORTS FISCAL 2022 FIRST-QUARTER RESULTS

• Net sales increased 4 percent to $4.5 billion; organic net sales1 were up 2 percent
• Operating profit declined 1 percent to $844 million; constant-currency adjusted operating profit was down 2 percent
• Diluted earnings per share (EPS) totaled $1.02, down 1 percent from the prior year; adjusted diluted EPS of $0.99 was down 2 percent in constant currency
• Company reaffirms full-year fiscal 2022 outlook

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

MINNEAPOLIS, Minn. - September 22, 2021 - General Mills (NYSE: GIS) today reported results for the first quarter ended August 29, 2021.

"I'm proud of the way our team is performing in a dynamic and challenging operating environment," said General Mills Chairman and Chief Executive Officer Jeff Harmening. "Our strong execution in the first quarter enabled us to deliver top- and bottom-line results ahead of our expectations. We delivered these good results while continuing to advance our Accelerate strategy, including making important progress on portfolio reshaping in the quarter."

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 acquisition of Tyson Foods' pet treats business and the planned divestiture of its European Yoplait operations, to further enhance its growth profile.

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General Mills expects 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. In addition, an increase in the pet

population and further humanization and premiumization of pet food during the pandemic are expected to create tailwinds

for the pet food category. The company plans to capitalize on these opportunities, addressing evolving consumer needs

through its leading brands, innovation, and advantaged capabilities to generate profitable growth.

First Quarter Results Summary

• Net sales increased 4 percent to $4.5 billion, including 1 point of favorable foreign currency exchange. Organic net sales increased 2 percent, including contributions from positive organic net price realization and mix and higher organic pound volume.
• Gross margin was down 120 basis points to 35.2 percent of net sales, primarily driven by higher input costs, partially offset by favorable net price realization and mix and mark-to-market effects. Adjusted gross margin was down 150 basis points to 34.7 percent of net sales, driven by input cost inflation, higher other supply chain costs, and fixed cost deleverage in the supply chain, partially offset by Holistic Margin Management (HMM) cost savings and favorable net price realization and mix.
• Operating profit of $844 million was down 1 percent, primarily driven by the comparison to net gains on certain corporate investments in the prior year, partially offset by higher gross profit dollars. Operating profit margin of 18.6 percent was down 100 basis points. Constant-currency adjusted operating profit declined 2 percent, driven by lower adjusted gross profit dollars, partially offset by lower administrative expenses. Adjusted operating profit margin decreased 110 basis points to 18.0 percent.
• Net earnings attributable to General Mills was down 2 percent to $627 million and diluted EPS was down 1 percent to $1.02, primarily reflecting lower operating profit. Adjusted diluted EPS of $0.99 was down 2 percent in constant currency, primarily driven by lower adjusted operating profit.

Portfolio Reshaping

General Mills took important steps to advance its portfolio reshaping efforts in the first quarter. On July 6, the company

completed the acquisition of Tyson Foods' pet treats business, including the Nudges, True Chews, and Top Chews brands.

The acquisition strengthens the company's position as the leading natural pet food manufacturer in the $37 billion U.S.

pet food category. The company estimates the acquisition will add approximately 2 cents to fiscal 2022 adjusted diluted

EPS. In addition, on August 27, General Mills signed a definitive agreement in relation to the previously announced

divestiture of its European Yoplait operations. The divestiture is scheduled to close by the end of calendar 2021.

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Operating Segment Results

Note: Tables may not foot due to rounding.

Components of Fiscal 2022 Reported Net Sales Growth

			Foreign	Reported
First Quarter	Volume	Price/Mix	Exchange	Net Sales
North America Retail	(7) pts	4 pts	1 pt	(3)%
Pet	13 pts	12 pts	--	25%
Convenience Stores & Foodservice	12 pts	11 pts	--	23%
Europe & Australia	2 pts	(1) pt	5 pts	5%
Asia & Latin America	(6) pts	10 pts	5 pts	8%
Total	--	3 pts	1 pt	4%

Components of Fiscal 2022 Organic Net Sales Growth

	Organic	Organic	Organic	Foreign	Acquisitions &	Reported
First Quarter	Volume	Price/Mix	Net Sales	Exchange	Divestitures	Net Sales
North America Retail	(7) pts	4 pts	(3)%	1 pt	--	(3)%
Pet	12 pts	8 pts	20%	--	5 pts	25%
Convenience Stores &	12 pts	11 pts	23%	--	--	23%
Foodservice
Europe & Australia	2 pts	(1) pt	Flat	5 pts	--	5%
Asia & Latin America	1 pt	4 pts	6%	5 pts	(2) pts	8%
Total	1 pt	2 pts	2%	1 pt	--	4%

Fiscal 2022 Segment Operating Profit Growth

First Quarter	% Change as Reported	% Change in Constant Currency
North America Retail	(11)%	(12)%
Pet	28%	28%
Convenience Stores & Foodservice	47%	47%
Europe & Australia	(15)%	(22)%
Asia & Latin America	(23)%	(26)%
Total	(3)%	(4)%

North America Retail Segment

First-quarter net sales for General Mills' North America Retail segment declined 3 percent to $2.64 billion, driven by lower at-home food demand and the comparison to the prior-year period when net sales benefited from retailers rebuilding inventory that had been drawn down at the onset of the pandemic. Organic net sales also were down 3 percent. On a 2- year compound growth basis, relative to pre-pandemic levels, first-quarter organic net sales were up 5 percent. Net sales declined 7 percent in U.S. Meals & Baking and 6 percent in U.S. Cereal, and were up 3 percent in U.S. Snacks and up 3 percent in constant currency in Canada. U.S. Yogurt net sales essentially matched year-ago levels. Segment operating profit of $618 million was down 11 percent as reported and down 12 percent in constant currency, primarily driven by higher input costs and lower volume, partially offset by favorable net price realization and mix and lower administrative expenses. On a 2-year compound growth basis, segment operating profit was up 4 percent in constant currency.

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Pet Segment

First-quarter net sales for the Pet segment increased 25 percent to $488 million, driven by strong volume growth and favorable net price realization and mix. Net sales growth included 5 points of benefit from the acquisition of Tyson Foods' pet treats business, which closed on July 6 and is being accounted for on a 1-month lag. Organic net sales were up 20 percent, including double-digit growth for both dog food and cat food. Organic net sales growth benefited from the comparison to the prior-year period that was negatively impacted by a reduction in at-home pet food inventory, and on a 2-year compound growth basis, first-quarter organic net sales were up 13 percent. The Blue Buffalo brand continued to drive strong retail sales growth and market share gains in measured channels in the quarter. In addition, retail sales for the recently acquired pet treat brands were up 20 percent in measured channels. Segment operating profit increased 28 percent to $115 million, primarily driven by favorable net price realization and mix and higher volume, partially offset by higher input costs and higher selling, general, and administrative (SG&A) expenses. On a 2-year compound growth basis, segment operating profit was up 20 percent in constant currency.

Convenience Stores & Foodservice Segment

First-quarter net sales for the Convenience Stores & Foodservice segment increased 23 percent to $482 million, reflecting sequential recovery in key away-from-home food channels including schools, restaurants, lodging, and convenience stores. On a 2-year compound growth basis, relative to pre-pandemic levels, first-quarter organic net sales were up 4 percent. Segment operating profit increased 47 percent to $102 million, driven by favorable net price realization and mix and higher volume, partially offset by higher input costs. On a 2-year compound growth basis, segment operating profit was up 6 percent.

Europe & Australia Segment

First-quarter net sales for the Europe & Australia segment increased 5 percent to $518 million, driven by favorable foreign currency exchange. Organic net sales essentially matched year-ago levels. On a 2-year compound growth basis, relative to pre-pandemic levels, first-quarter organic net sales were up 3 percent. Net sales growth for snack bars and yogurt was offset by a decline in ice cream. Segment operating profit of $45 million was down 15 percent as reported and down 22 percent in constant currency, primarily driven by input cost inflation and unfavorable product mix, partially offset by

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HMM cost savings. On a 2-year compound growth basis, segment operating profit was up 21 percent in constant currency.

Asia & Latin America Segment

First-quarter net sales for the Asia & Latin America segment increased 8 percent to $413 million, driven by favorable net price realization and mix and foreign currency exchange, partially offset by lower volume. Organic net sales increased 6 percent. On a 2-year compound growth basis, relative to pre-pandemic levels, first-quarter organic net sales were up 11 percent. Net sales performance was led by Yoki meals and snacks in Brazil and Häagen-Dazs ice cream in China. Segment operating profit of $15 million was down 23 percent as reported and down 26 percent in constant currency, primarily driven by higher input costs and higher SG&A expenses, partially offset by favorable net price realization and mix. On a 2-year compound growth basis, segment operating profit was up 11 percent in constant currency.

Joint Venture Summary

First-quarter net sales for Cereal Partners Worldwide (CPW) were down 5 percent in constant currency, reflecting the comparison against elevated demand for food at home a year ago in the early stages of the pandemic. Constant-currency net sales increased 14 percent for Häagen-Dazs Japan (HDJ), driven by strong new product performance. Combined after-tax earnings from joint ventures totaled $29 million compared to $41 million a year ago, primarily driven by lower net sales and higher media investment at CPW.

Other Income Statement Items

Unallocated corporate items totaled $56 million net expense in the first quarter of fiscal 2022, compared to $74 million net expense a year ago. Excluding mark-to-market valuation effects and other items affecting comparability, unallocated corporate items totaled $77 million net expense this year compared to $96 million net expense last year.

Restructuring, impairment, and other exit costs totaled a $4 million net recovery in the quarter and were an insignificant amount a year ago (please see Note 3 below for more information on these charges).

Net interest expense totaled $96 million in the first quarter compared to $111 million a year ago, primarily driven by lower rates and lower average debt balances. The effective tax rate in the quarter was 21.7 percent compared to 22.0

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