General Mills Inc: Form 10-Q for the period ended Feb 25, 2024

INTRODUCTION

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in

conjunction with the MD&A included in our Annual Report on Form 10-K for the fiscal year ended May 28, 2023, for important

background regarding, among other things, our key business drivers. Significant trademarks and service marks used in our business

are set forth in

italics

herein. Certain terms used throughout this report are defined in the “Glossary” section below.

We expect the largest factors impacting our 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. We anticipate input cost inflation of

approximately 4 percent in fiscal 2024 and expect to generate higher levels of Holistic Margin Management (HMM) cost savings

compared to fiscal 2023.

CONSOLIDATED RESULTS OF OPERATIONS

Third Quarter Results

In the third quarter of fiscal 2024, net sales and organic net sales decreased 1 percent compared to the same period last year. Operating

profit increased 25 percent to $911 million, primarily driven by favorable net price realization and mix, a decrease in certain

compensation and benefits expenses, a favorable change in the mark-to-market valuation of certain commodity positions and grain

inventories, and net recoveries from the fiscal 2023 voluntary recall on certain international

Häagen-Dazs

ice cream products,

partially offset by higher input costs and a decrease in contributions from volume growth. Operating profit margin of 17.9 percent

increased 370 basis points. Adjusted operating profit of $914 million increased 14 percent on a constant-currency basis, primarily

driven by favorable net price realization and mix and a decrease in certain compensation and benefits expenses, partially offset by

higher input costs and a decrease in contributions from volume growth. Adjusted operating profit margin increased 220 basis points to

17.9 percent. Diluted earnings per share of $1.17 increased 27 percent in the third quarter of fiscal 2024. Adjusted diluted earnings per

share of $1.17 increased 22 percent on a constant-currency basis compared to the third quarter of fiscal 2023. See the “Non-GAAP

Measures” section below for a description of our use of measures not defined by GAAP.

A summary of our consolidated financial results for the third quarter of fiscal 2024 follows:

Quarter Ended Feb. 25, 2024

In millions,

except per share

Quarter Ended

Feb. 25, 2024 vs.

Feb. 26, 2023

Percent

of Net

Sales

Constant-

Currency

Growth (a)

Net sales

5,099.2

(1)

Operating profit

910.7

25

17.9

Net earnings attributable to General Mills

670.1

21

Diluted earnings per share

1.17

27

Organic net sales growth rate (a)

(1)

Adjusted operating profit (a)

914.5

13

17.9

14

Adjusted diluted earnings per share (a)

1.17

21

22

(a) See the “Non-GAAP Measures” section below for our use of measures not defined by GAAP.

Consolidated

net sales

were as follows:

Quarter Ended

Feb. 25, 2024

Feb. 25, 2024 vs.

Feb. 26, 2023

Feb. 26, 2023

Net sales (in millions)

5,099.2

(1)

5,125.9

Contributions from volume growth (a)

(2)

pts

Net price realization and mix

2

pts

Foreign currency exchange

Flat

Note: Table may not foot due to rounding.

(a) Measured in tons based on the stated weight of our product shipments.

Net sales in the third quarter of fiscal 2024 decreased 1 percent compared to the same period in fiscal 2023, driven by a decrease in

contributions from volume growth, partially offset by favorable net price realization and mix.

Components of organic net sales growth are shown in the following table:

Quarter Ended Feb. 25, 2024 vs.

Quarter Ended Feb. 26, 2023

Contributions from organic volume growth (a)

(2)

pts

Organic net price realization and mix

2

pts

Organic net sales growth

(1)

pt

Foreign currency exchange

Flat

Acquisition and divestitures

Flat

Net sales growth

(1)

pt

Note: Table may not foot due to rounding.

(a) Measured in tons based on the stated weight of our product shipments.

Organic net sales decreased 1 percent in the third quarter of fiscal 2024 compared to the same period in fiscal 2023, driven by a

decrease in contributions from organic volume growth, partially offset by favorable organic net price realization and mix.

Cost of sales

decreased $69 million to $3,392 million in the third quarter of fiscal 2024 compared to the same period in fiscal 2023.

The decrease was primarily driven by a $74 million decline attributable to lower volume, partially offset by a $46 million increase

attributable to product rate and mix. We recorded a $26 million net increase in cost of sales related to the mark-to-market valuation of

certain commodity positions and grain inventories in the third quarter of fiscal 2024, compared to a $67 million net increase in the

third quarter of fiscal 2023.

Divestitures gain, net

totaled $14 million in the third quarter of fiscal 2023.

Selling, general, and administrative (SG&A) expenses

decreased $156 million to $791 million in the third quarter of fiscal 2024,

compared to the same period in fiscal 2023, primarily driven by a decrease in certain compensation and benefits expenses, net

recoveries from the fiscal 2023 voluntary recall of certain international

Häagen-Dazs

ice cream products , and favorable net corporate

investment activity. SG&A expenses as a percent of net sales in the third quarter of fiscal 2024 decreased 300 basis points compared

to the third quarter of fiscal 2023.

Restructuring, impairment, and other exit costs

totaled $6 million in the third quarter of fiscal 2024, compared to $1 million in the

same period last year. In fiscal 2024, we approved restructuring actions to enhance the go-to-market commercial strategy and

associated organizational structure of our Pet segment, and as a result, we recorded $8 million of restructuring charges in the third

quarter of fiscal 2024. In addition, we recorded a $3 million net recovery of restructuring charges in the third quarter of fiscal 2024

related to actions previously announced (please refer to Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this

report).

Benefit plan non-service income

totaled $19 million in the third quarter of fiscal 2024, compared to $22 million in the same period

last year, primarily reflecting higher interest costs, partially offset by lower amortization of losses.

Interest, net

for the third quarter of fiscal 2024 totaled $122 million, up $23 million from the third quarter of fiscal 2023, primarily

driven by higher interest rates and higher average long-term debt levels.

The

effective tax rate

for the third quarter of fiscal 2024 was 18.5 percent compared to 16.6 percent for the third quarter of fiscal

2023. The 1.9 percentage point increase was primarily due to certain favorable tax components related to the divestitures in fiscal

2023, partially offset by certain nonrecurring discrete tax benefits in the third quarter of fiscal 2024. Our effective tax rate excluding

certain items affecting comparability was 18.4 percent in the third quarter of fiscal 2024, compared to 21.6 percent in the same period

last year (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). The 3.2

percentage point decrease was primarily due to certain nonrecurring discrete tax benefits in the third quarter of fiscal 2024.

After-tax earnings from joint ventures

for the third quarter of fiscal 2024

increased to $18 million compared to $13 million in the

same period in fiscal 2023, primarily due to higher net sales driven by favorable net price realization and mix at Cereal Partners

Worldwide (CPW) and discrete tax items at CPW, partially offset by higher input costs at CPW and Häagen-Dazs Japan, Inc. (HDJ).

On a constant-currency basis, after-tax earnings from joint ventures increased 64 percent (see the “Non-GAAP Measures” section

below for a description of our use of measures not defined by GAAP).

The components of our joint ventures’ net sales growth are shown in the following table:

Quarter Ended Feb. 25, 2024 vs.

Quarter Ended Feb. 26, 2023

CPW

HDJ

Total

Contributions from volume growth (a)

(4)

pts

(9)

pts

Net price realization and mix

16

pts

7

pts

Net sales growth in constant currency

11

pts

(2)

pts

9

pts

Foreign currency exchange

(4)

pts

(10)

pts

(5)

pts

Net sales growth

7

pts

(12)

pts

3

pts

Note: Table may not foot due to rounding.

(a) Measured in tons based on the stated weight of our product shipments.

Average diluted shares outstanding

decreased by 26 million in the third quarter of fiscal 2024 from the same period a year ago

primarily due to share repurchases, partially offset by option exercises.

Nine-Month Results

In the nine-month period ended February 25, 2024, net sales and organic net sales increased 1 percent compared to the same period

last year. Operating profit increased 1 percent to $2,652 million, primarily driven by favorable net price realization and mix, a

favorable change in the mark-to-market valuation of certain commodity positions and grain inventories, a decrease in certain

compensation and benefits expense, favorable net corporate investment activity, and net recoveries from the fiscal 2023 voluntary

recall on certain international

Häagen-Dazs

ice cream products compared to recall-related charges in fiscal 2023, partially offset by a

net gain on divestitures in fiscal 2023, higher input costs, a decrease in contributions from volume growth, higher impairment and

restructuring charges, and higher media and advertising expenses. Operating profit margin of 17.5 percent increased 10 basis points

compared to the same period last year. Adjusted operating profit of $2,803 million increased 9 percent on a constant-currency basis,

primarily driven by favorable net price realization and mix and a decrease in certain compensation and benefits expenses, partially

offset by higher input costs and a decrease in contributions from volume growth. Adjusted operating profit margin increased 150 basis

points to 18.5 percent. Diluted earnings per share of $3.33 increased 2 percent in the nine-month period ended February 25, 2024, and

adjusted diluted earnings per share of $3.51 increased 11 percent on a constant-currency basis compared to the same period last year

(see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP).

A summary of our consolidated financial results for the nine-month period ended February 25, 2024, follows:

Nine-Month Period Ended Feb. 25, 2024

In millions,

except per share

Nine-Month

Period Ended

Feb. 25, 2024 vs.

Feb. 26, 2023

Percent of Net

Sales

Constant-

Currency

Growth (a)

Net sales

15,143.3

1

Operating profit

2,652.5

1

17.5

Net earnings attributable to General Mills

1,939.1

(2)

Diluted earnings per share

3.33

2

Organic net sales growth rate (a)

1

Adjusted operating profit (a)

2,802.9

9

18.5

9

Adjusted diluted earnings per share (a)

3.51

10

11

(a) See the “Non-GAAP Measures” section below for our use of measures not defined by GAAP.

Consolidated

net sales

were as follows:

Nine-Month Period Ended

Feb. 25, 2024

Feb. 25, 2024 vs.

Feb. 26, 2023

Feb. 26, 2023

Net sales (in millions)

15,143.3

1

15,064.2

Contributions from volume growth (a)

(3)

pts

Net price realization and mix

3

pts

Foreign currency exchange

Flat

Note: Table may not foot due to rounding.

(a) Measured in tons based on the stated weight of our product shipments.

The 1 percent increase in net sales for the nine-month period ended February 25, 2024, was driven by favorable net price realization

and mix, partially offset by a decrease in contributions from volume growth.

Components of organic net sales growth are shown in the following table:

Nine-Month Period Ended Feb. 25, 2024 vs.

Nine-Month Period Ended Feb. 26, 2023

Contributions from organic volume growth (a)

(3)

pts

Organic net price realization and mix

4

pts

Organic net sales growth

1

pt

Foreign currency exchange

Flat

Acquisition and divestitures

Flat

Net sales growth

1

pt

Note: Table may not foot due to rounding.

(a) Measured in tons based on the stated weight of our product shipments.

Organic net sales increased 1 percent in the nine-month period ended February 25, 2024, driven by favorable organic net price

realization and mix, partially offset by a decrease in contributions from organic volume growth.

Cost of sales

decreased $347 million to $9,900 million in the nine-month period ended February 25, 2024, compared to the same

period in fiscal 2023. The decrease was primarily driven by a $281 million decline due to lower volume, partially offset by a

$202 million increase attributable to product rate and mix. We recorded a $6 million net increase in cost of sales related to the mark-

to-market valuation of certain commodity positions and grain inventories in the nine-month period ended February 25, 2024,

compared to a $266 million net increase in the nine-month period ended February 26, 2023. In the nine-month period ended February

26, 2023, we recorded a $25 million charge related to a voluntary recall on certain international

Häagen-Dazs

ice cream products. In

addition, we recorded $17 million of restructuring charges and $2 million of restructuring initiative project-related costs in cost of

sales in the nine-month period ended February 25, 2024, compared to $2 million of restructuring charges in the same period last year

(please refer to Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report).

SG&A expenses

decreased $171 million to $2,461 million in the nine-month period ended February 25, 2024, compared to the same

period in fiscal 2023, primarily driven by a decrease in certain compensation and benefits expenses, favorable net corporate

investment activity, and net recoveries from the fiscal 2023 voluntary recall on certain international

Häagen-Dazs

ice cream products

in fiscal 2024, partially offset by higher media and advertising expenses. SG&A expenses as a percent of net sales decreased 130 basis

points in the nine-month period ended February 25, 2024, compared to the same period of fiscal 2023.

Divestitures gain, net

totaled $445 million in the nine-month period ended February 26, 2023, primarily related to the sale of our

Helper main meals and Suddenly Salad side dishes business (please refer to Note 2 to the Consolidated Financial Statements in Part I,

The estimated maximum potential value-at-risk arising from a one-day loss in fair value for our interest rate, foreign exchange,

commodity, and equity market-risk-sensitive instruments outstanding as of February 25, 2024, was as follows:

In Millions

One-day Risk

of Loss

Change During

Nine-Month

Period Ended

Feb. 25, 2024

Analysis of Change

Interest rate instruments

55

(11)

Lower interest rate volatility

Foreign currency instruments

26

(11)

Net price stability in portfolio

Commodity instruments

5

(3)

Decrease in commodity prices

Equity instruments

2

(1)

Immaterial

For additional information, see Item 7A of Part II of our Annual Report on Form 10-K for the fiscal year ended May 28, 2023.

We, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial

Officer, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule

13a-15(e) under the Securities Exchange Act of 1934). Based on our evaluation, our Chief Executive Officer and Chief Financial

Officer have concluded that, as of February 25, 2024, our disclosure controls and procedures were effective to ensure that information

required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is (1) recorded, processed,

summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2)

accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner

that allows timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act

of 1934) during the quarter ended February 25, 2024, that materially affected, or are reasonably likely to materially affect, our internal

control over financial reporting.