• Net sales essentially matched year-ago results at $4.5 billion; organic net sales¹ were up 4 percent
• Operating profit declined 1 percent to $815 million; adjusted operating profit was down 6 percent in constant currency
• Diluted earnings per share (EPS) of $1.08 increased 13 percent from the prior year; adjusted diluted EPS of $0.84 increased 2 percent in constant currency
• Company raises full-year fiscal 2022 outlook

¹ Please see Note 8 to the Consolidated Financial Statements below for reconciliation of this and other non-GAAP measures used in this release.

General Mills (NYSE: GIS) today reported results for the third quarter ended February 27, 2022.

“Our solid execution in a highly volatile environment enabled us to close the third quarter with improved momentum,” said General Mills Chairman and Chief Executive Officer Jeff Harmening. “Demand for our brands remains robust, and our team has shown great agility to overcome disruptions throughout the supply chain and deliver for our customers and consumers. We expect to drive strong growth in the fourth quarter, fueled by accelerating net price realization. With confidence in our plans and positive momentum on our business, we’re raising our guidance for fiscal 2022.”

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 its recent pet treats acquisition and European yogurt and dough divestitures, to further enhance its growth profile.

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.

Third Quarter Results Summary

• Net sales were essentially flat to last year at $4.5 billion, including a 3-point net headwind from divestiture and acquisition activity. Organic net sales increased 4 percent, reflecting 7 points of positive organic net price realization and mix, partially offset by a 4-point headwind from lower organic pound volume.
• Gross margin was down 350 basis points to 30.9 percent of net sales, driven by higher input costs and unfavorable mark-to-market effects, partially offset by favorable net price realization and mix. Adjusted gross margin was down 160 basis points to 31.4 percent of net sales, driven by input cost inflation, supply chain deleverage, and higher other cost of goods sold, partially offset by favorable net price realization and mix and Holistic Margin Management (HMM) cost savings.
• Operating profit of $815 million was down 1 percent, driven primarily by lower gross profit dollars and less favorable investment activity, partially offset by a gain on divestitures. Operating profit margin of 18.0 percent was down 30 basis points. Constant-currency adjusted operating profit declined 6 percent, driven by lower adjusted gross profit dollars. Adjusted operating profit margin decreased 90 basis points to 14.9 percent.
• Net earnings attributable to General Mills were up 11 percent to $660 million and diluted EPS was up 13 percent to $1.08, driven primarily by a lower adjusted tax rate and lower net interest expense. Adjusted diluted EPS of $0.84 increased 2 percent in constant currency, driven primarily by lower net interest expense, higher after-tax earnings from joint ventures, and lower net earnings attributable to redeemable and noncontrolling interests, partially offset by lower adjusted operating profit.
• On a 2-year compound growth basis, relative to pre-pandemic levels, third-quarter results included: net sales up 4 percent and organic net sales up 5 percent; operating profit up 12 percent and adjusted operating profit down 1 percent in constant currency; and diluted EPS up 21 percent and constant-currency adjusted diluted EPS up 4 percent.

Nine Month Results Summary

• Net sales increased 4 percent to $14.1 billion, including 1 point of favorable foreign currency exchange and a 1-point net headwind from divestiture and acquisition activity. Organic net sales increased 4 percent, reflecting 5 points of positive organic net price realization and mix, partially offset by a 1-point headwind from lower organic pound volume.
• Gross margin was down 300 basis points to 32.8 percent of net sales, driven by higher input costs and unfavorable mark-to-market effects, partially offset by favorable net price realization and mix. Adjusted gross margin was down 210 basis points to 32.8 percent of net sales, driven by input cost inflation, supply chain deleverage, and higher other cost of goods sold, partially offset by favorable net price realization and mix and HMM cost savings.
• Operating profit of $2.5 billion was down 5 percent, driven primarily by lower gross profit dollars, partially offset by lower selling, general, and administrative (SG&A) expenses. Operating profit margin of 17.4 percent was down 170 basis points. Constant-currency adjusted operating profit declined 5 percent, driven by lower adjusted gross profit dollars, partially offset by lower adjusted SG&A expenses. Adjusted operating profit margin decreased 130 basis points to 16.4 percent.
• Net earnings attributable to General Mills were down 2 percent to $1.9 billion and diluted EPS was down 1 percent to $3.07, primarily reflecting lower operating profit, partially offset by lower net interest expense and a effective tax rate. Adjusted diluted EPS of $2.82 was down 2 percent in constant currency, driven primarily by lower adjusted operating profit, partially offset by lower net interest expense.
• On a 2-year compound growth basis, relative to pre-pandemic levels, nine-month results included: net sales and organic net sales each up 6 percent; operating profit up 8 percent and adjusted operating profit up 3 percent in constant currency; diluted EPS up 10 percent and adjusted diluted EPS up 6 percent in constant currency.

Operating Segment Results

In the third quarter of fiscal 2022, General Mills announced a new organization structure to streamline its global operations. As a result of these changes, beginning in the third quarter of fiscal 2022, the company is reporting results for its four operating segments as follows: North America Retail, Pet, North America Foodservice, and International. Net sales by segment and segment operating profit amounts have been restated to reflect the new operating segments (please see Note 2 below for more information on our operating segments).

Note: Tables may not foot due to rounding.

North America Retail Segment

Third-quarter net sales for General Mills’ North America Retail segment increased 1 percent to $2.81 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 11 percent. On a 2-year compound growth basis, relative to pre-pandemic levels, third-quarter organic net sales were up 6 percent. Net sales were up 4 percent in U.S. Morning Foods, which represents the combination of the previous U.S. Cereal and U.S. Yogurt units, and up 3 percent in U.S. Snacks. Net sales for the U.S. Meals & Baking Solutions and Canada units were each down 2 percent. Net sales performance lagged Nielsen-measured retail sales growth by approximately 3 points in the quarter, driven by supply shortages on the refrigerated dough, pizza, and hot snacks categories. The company took actions to address the shortages and drove notable improvement in customer service levels on those platforms in the final weeks of the quarter. Segment operating profit of $612 million was down 3 percent as reported and in constant currency, driven primarily by higher input costs and lower volume, partially offset by favorable net price realization and mix and lower SG&A expenses. On a 2-year compound growth basis, segment operating profit was up 5 percent in constant currency.

Through nine months, North America Retail segment net sales were essentially in line with last year at $8.57 billion. Organic net sales were flat to last year. On a 2-year compound growth basis, nine-month organic net sales were up 6 percent. Segment operating profit of $1.94 billion was down 7 percent as reported and in constant currency, driven primarily by higher input costs and lower volume, partially offset by favorable net price realization and mix and lower SG&A expenses. On a 2-year compound growth basis, nine-month segment operating profit was up 3 percent in constant currency.

Pet Segment

Third-quarter net sales for the Pet segment increased 30 percent to $568 million, driven by favorable net price realization and mix and strong volume growth. Net sales results in the quarter included a 14-point benefit from the pet treats acquisition. Organic net sales were up 16 percent. Segment operating profit increased 8 percent to $111 million, driven primarily by favorable net price realization and mix and higher volume, including benefits from the pet treats acquisition, partially offset by higher input costs and higher SG&A expenses.

Through nine months, Pet segment net sales increased 28 percent to $1.65 billion, driven by favorable net price realization and mix and positive contributions from volume growth. Organic net sales were up 16 percent. Segment operating profit increased 15 percent to $357 million, driven primarily by favorable net price realization and mix and higher volume, including benefits from the pet treats acquisition, partially offset by higher input costs and higher SG&A expenses.

North America Foodservice Segment

Third-quarter net sales for the North America Foodservice segment increased 22 percent to $437 million, driven by favorable net price realization and mix, including market index pricing on bakery flour, and positive contributions from volume growth. On a 2-year compound growth basis, relative to pre-pandemic levels, third-quarter net sales were down 3 percent. Segment operating profit decreased 13 percent to $35 million, driven by higher input costs, partially offset by favorable net price realization and mix. On a 2-year compound growth basis, segment operating profit was down 29 percent.

Through nine months, North America Foodservice net sales increased 24 percent to $1.32 billion. On a 2-year compound growth basis, nine-month net sales were down 4 percent. Segment operating profit increased 27 percent to $175 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, nine-month segment operating profit was down 13 percent.

International Segment

Third-quarter net sales for the International segment were down 23 percent to $721 million, including a 20-point headwind from the divestitures of the European yogurt and dough businesses and 2 points of unfavorable foreign currency exchange. Organic net sales were down 1 percent, reflecting a difficult comparison to year-ago results that were up 10 percent. On a 2-year compound growth basis, third-quarter organic net sales were up 4 percent. Segment operating profit of $36 million was down 13 percent as reported and down 16 percent in constant currency, driven primarily by lower volume, including the impact of the European yogurt and dough divestitures, and higher input costs, partially offset by favorable net price realization and mix and lower SG&A expenses. On a 2-year compound growth basis, segment operating profit was up 1 percent in constant currency.

Through nine months, International net sales declined 5 percent to $2.57 billion, including an 8-point headwind from the divestitures of the European yogurt and dough businesses and 1 point of favorable foreign currency exchange. Organic net sales were up 1 percent. On a 2-year compound growth basis, nine-month organic net sales were up 5 percent. Segment operating profit of $156 million was down 14 percent as reported and down 18 percent in constant currency, driven primarily by higher input costs and lower volume, including the impact of the European yogurt and dough divestitures, partially offset by favorable net price realization and mix and lower SG&A expenses. On a 2-year compound growth basis, nine-month segment operating profit was up 5 percent in constant currency.

Joint Venture Summary

Third-quarter net sales for Cereal Partners Worldwide (CPW) were up 1 percent in constant currency, driven by positive net price realization and mix, partially offset by lower volume. Constant-currency net sales increased 9 percent for Häagen-Dazs Japan (HDJ), driven by strong core performance and improved distribution. Combined after-tax earnings from joint ventures were $30 million compared to $12 million a year ago, driven by higher profit at CPW. Through nine months, after-tax earnings from joint ventures increased 3 percent to $92 million. On a 2-year compound growth basis, after-tax earnings from joint ventures were up 66 percent in the third quarter and up 27 percent through nine months.

Other Income Statement Items

Unallocated corporate items totaled $141 million net expense in the third quarter of fiscal 2022, compared to $24 million of income a year ago. Excluding mark-to-market valuation effects and other items affecting comparability, unallocated corporate items totaled $117 million net expense this year compared to $98 million net expense last year.

The company recorded a net $170 million pre-tax gain on divestitures in the third quarter (please see Note 3 below for more information on these items). Restructuring, impairment, and other exit costs totaled $7 million in the third quarter compared to $11 million a year ago. An additional $2 million of restructuring and project-related charges was recorded in cost of sales this year compared to $1 million a year ago (please see Note 4 below for more information on these charges).

Net interest expense totaled $86 million in the third quarter compared to $106 million a year ago, driven primarily by lower average long-term debt balances. The effective tax rate in the quarter was 16.3 percent compared to 21.5 percent last year (please see Note 7 below for more information on our effective tax rate). The adjusted effective tax rate was 21.0 percent compared to 21.6 percent a year ago.

Cash Flow Generation and Cash Returns

Cash provided by operating activities increased 1 percent to $2.23 billion through nine months of fiscal 2022, driven primarily by changes in inventories, partially offset by a gain on divestitures, changes in accounts payable, and lower net earnings. Capital investments of $351 million were up 1 percent from a year ago. Dividends paid essentially matched year-ago levels at $934 million. General Mills repurchased approximately 8.8 million shares of common stock through nine months of fiscal 2022 for a total of $550 million. Average diluted shares outstanding decreased 1 percent to 614 million.

Fiscal 2022 Outlook

General Mills raised its guidance for fiscal 2022 to reflect year-to-date performance and an outlook for strong top- and bottom-line growth in the fourth quarter. The company’s updated full-year fiscal 2022 financial targets are summarized below:

• Organic net sales are now expected to increase approximately 5 percent, including an expectation for organic net price realization and mix to increase sequentially from the third quarter to the fourth quarter. Full-year organic net sales were previously expected to increase 4 to 5 percent.
• Constant-currency adjusted operating profit is now expected to range between down 2 percent and flat, reflecting the increased guidance on organic net sales. For the full year, the company continues to expect input cost inflation of 8 to 9 percent and significant costs related to supply chain disruptions. Adjusted operating profit was previously expected to decline 4 to 1 percent.
• Constant-currency adjusted diluted EPS are now expected to range between flat and up 2 percent, driven by the higher outlook on adjusted operating profit. Adjusted diluted EPS were previously expected to range between down 2 percent and up 1 percent.
• Free cash flow conversion is expected to be at least 95 percent of adjusted after-tax earnings.
• The net impact of divestitures, acquisitions, and foreign currency exchange is expected to reduce full-year reported net sales growth by approximately 1 percent, and foreign currency exchange is not expected to have a material impact on adjusted operating profit growth or adjusted diluted EPS growth.

General Mills will issue pre-recorded management remarks today, March 23, 2022, 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 2022 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) pandemic on our business, suppliers, consumers, customers, and employees; disruptions or inefficiencies in the supply chain, including any impact of the coronavirus (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, 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.

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 judgment, significantly affect the year-to-year assessment of operating results.

The following are descriptions of significant items impacting comparability of our results.

Divestitures gain

Divestitures gain related to the sale of our interests in Yoplait SAS, Yoplait Marques SNC, and Liberté Marques Sàrl to Sodiaal and the sale of a European dough businesses in fiscal 2022. Please see Note 3.

Transaction costs

Transaction costs related to the sale of our interests in Yoplait SAS, Yoplait Marques SNC, and Liberté Marques Sàrl to Sodiaal and the sale of our European dough businesses in fiscal 2022. Please see Note 3.

Non-income tax recovery

Recovery related to a Brazil indirect tax item recorded in fiscal 2022. Please see Note 5.

Acquisition integration costs

Integration costs resulting from the acquisition of Tyson Foods’ pet treats business. Please see Note 3.

Investment activity, net

Valuation adjustments and the gain on sale of certain corporate investments in fiscal 2022 and fiscal 2021. Please see Note 5.

Mark-to-market effects

Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items. Please see Note 5.

Restructuring charges

Restructuring charges for International supply chain optimization actions and previously announced restructuring actions in fiscal 2022. Restructuring charges for previously announced restructuring actions in fiscal 2021. Please see Note 4.

Product recall

Product recall adjustment recorded in fiscal 2021 related to our international Green Giant business. Please see Note 5.

CPW restructuring charges

CPW restructuring charges related to previously announced restructuring actions.

Project related costs

Project related charges for previously announced restructuring actions in fiscal 2020.

Tax item

Discrete tax benefit related to the reorganization of certain wholly owned subsidiaries in fiscal 2020.

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: