General Mills Inc: Form 10-Q for the period ended Aug 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 26, 2024, 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.

Our key priorities in fiscal 2025 are to accelerate our organic net sales growth, create fuel for investment, and drive strong cash

generation. Amid a continued uncertain macroeconomic backdrop for consumers, we expect volume trends in our categories will

gradually improve over the course of the year, though full-year category dollar growth is expected to be below our long-term growth

projections. We expect to increase our organic net sales growth by delivering remarkable experiences across our leading food brands,

resulting in improved household penetration and stronger market share trends versus the prior year. Our fiscal 2025 plan calls for

product news and innovation focused on taste, health, convenience, and value, supported with strong brand campaigns and

omnichannel visibility. We expect to generate higher levels of Holistic Margin Management (HMM) cost savings to more than offset

input cost inflation in fiscal 2025. We expect to reinvest in the business, including plans for increased brand-building investment in

fiscal 2025 to drive improved volume performance.

CONSOLIDATED RESULTS OF OPERATIONS

First Quarter Results

In the first quarter of fiscal 2025, net sales and organic net sales decreased 1 percent compared to the same period last year. Operating

profit decreased 11 percent to $832 million, primarily driven by an unfavorable change in the mark-to-market valuation of certain

commodity positions and grain inventories, unfavorable net price realization and mix, and an increase in selling, general and

administrative (SG&A) expenses, partially offset by lower input costs. Operating profit margin of 17.2 percent decreased 180 basis

points. Adjusted operating profit of $865 million decreased 4 percent on a constant-currency basis, primarily driven by unfavorable

net price realization and mix and an increase in SG&A expenses, partially offset by lower input costs. Adjusted operating profit

margin decreased 50 basis points to 17.8 percent. Diluted earnings per share of $1.03 decreased 10 percent in the first quarter of fiscal

2025. Adjusted diluted earnings per share of $1.07 decreased 2 percent on a constant-currency basis compared to the first quarter of

fiscal 2024. 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 first quarter of fiscal 2025 follows:

Quarter Ended Aug. 25, 2024

In millions,

except per share

Quarter Ended

Aug. 25, 2024 vs.

Aug. 27, 2023

Percent

of Net

Sales

Constant-

Currency

Growth (a)

Net sales

4,848.1

(1)

Operating profit

831.5

(11)

17.2

Net earnings attributable to General Mills

579.9

(14)

Diluted earnings per share

1.03

(10)

Organic net sales growth rate (a)

(1)

Adjusted operating profit (a)

865.3

(4)

17.8

(4)

Adjusted diluted earnings per share (a)

1.07

(2)

(2)

(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

Aug. 25, 2024

Aug. 25, 2024 vs.

Aug. 27, 2023

Aug. 27, 2023

Net sales (in millions)

4,848.1

(1)

4,904.7

Contributions from volume growth (a)

Flat

Net price realization and mix

(1)

pt

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 first quarter of fiscal 2025 decreased 1 percent compared to the same period in fiscal 2024, driven by unfavorable net

price realization and mix.

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

Quarter Ended Aug. 25, 2024 vs.

Quarter Ended Aug. 27, 2023

Contributions from organic volume growth (a)

Flat

Organic net price realization and mix

(1)

pt

Organic net sales growth

(1)

pt

Foreign currency exchange

Flat

Acquisition

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 first quarter of fiscal 2025 compared to the same period in fiscal 2024, driven by

unfavorable organic net price realization and mix.

Cost of sales

increased $25 million to $3,159 million in the first quarter of fiscal 2025 compared to the same period in fiscal 2024.

The increase included a $7 million increase attributable to volume and a $47 million decrease attributable to product rate and mix. We

recorded a $29 million net increase in cost of sales related to the mark-to-market valuation of certain commodity positions and grain

inventories in the first quarter of fiscal 2025, compared to a $45 million net decrease in the first quarter of fiscal 2024. We also

recorded $1 million of restructuring charges in the first quarter of fiscal 2025 compared to $9 million of restructuring charges and $1

million of restructuring initiative project-related costs in cost of sales in the first quarter of fiscal 2024 (please refer to Note 3 to the

Consolidated Financial Statements in Part I, Item 1 of this report).

SG&A expenses

increased $16 million to $855 million in the first quarter of fiscal 2025, compared to the same period in fiscal 2024,

primarily driven by increased media and advertising expenses. SG&A expenses as a percent of net sales in the first quarter of fiscal

2025 increased 50 basis points compared to the first quarter of fiscal 2024.

Restructuring, impairment, and other exit costs

totaled $2 million in the first quarter of fiscal 2025, compared to $1 million in the

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

Benefit plan non-service income

totaled $14 million in the first quarter of fiscal 2025, compared to $17 million in the same period

last year, primarily reflecting higher amortization of losses.

Interest, net

for the first quarter of fiscal 2025 totaled $124 million, up $7 million from the first quarter of fiscal 2024, primarily

driven by higher average long-term debt levels.

The

effective tax rate

for the first quarter of fiscal 2025 was 21.8 percent compared to 20.9 percent for the first quarter of fiscal 2024.

The 0.9 percentage point increase was primarily due to certain nonrecurring discrete tax benefits in the first quarter of fiscal 2024,

partially offset by favorable earnings mix by jurisdiction in the first quarter of fiscal 2025. Our effective tax rate excluding certain

items affecting comparability was 21.9 percent in the first quarter of fiscal 2025, compared to 21.1 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 0.8 percentage

point increase was primarily due to certain nonrecurring discrete tax benefits in the first quarter of fiscal 2024, partially offset by

favorable earnings mix by jurisdiction in the first quarter of fiscal 2025.

After-tax earnings from joint ventures

for the first quarter of fiscal 2025

decreased to $19 million compared to $24 million in the

same period in fiscal 2024, primarily due to favorable discrete tax items in the first quarter of fiscal 2024, higher SG&A expenses, and

a decrease in volume at Cereal Partners Worldwide (CPW), partially offset by favorable net price realization and mix at CPW and

lower SG&A expenses at Häagen-Dazs Japan, Inc. (HDJ). On a constant-currency basis, after-tax earnings from joint ventures

decreased 14 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 Aug. 25, 2024 vs.

Quarter Ended Aug. 27, 2023

CPW

HDJ

Total

Contributions from volume growth (a)

(2)

pts

1

pt

Net price realization and mix

3

pts

(1)

pt

Net sales growth in constant currency

1

pt

Flat

1

pt

Foreign currency exchange

(4)

pts

(8)

pts

(5)

pts

Net sales growth

(4)

pts

(8)

pts

(4)

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 28 million in the first quarter of fiscal 2025 from the same period a year ago

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

SEGMENT OPERATING RESULTS

Our businesses are organized into four operating segments: North America Retail, International, North America Pet, and North

America Foodservice. Please refer to Note 17 of the Consolidated Financial Statements in Part I, Item 1 of this report for a description

of our operating segments.

North America Retail Segment Results

North America Retail net sales were as follows:

Quarter Ended

Aug. 25,

2024

Aug. 25, 2024 vs

Aug. 27, 2023

Aug. 27,

2023

Net sales (in millions)

3,016.6

(2)

3,073.0

Contributions from volume growth (a)

(3)

pts

Net price realization and mix

1

pt

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.

North America Retail net sales decreased 2 percent in the first quarter of fiscal 2025 compared to the same period in fiscal 2024,

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

The components of North America Retail organic net sales growth are shown in the following table:

Quarter Ended

Aug. 25, 2024

Contributions from organic volume growth (a)

(3)

pts

Organic net price realization and mix

1

pt

Organic net sales growth

(2)

pts

Foreign currency exchange

Flat

Net sales growth

(2)

pts

Note: Table may not foot due to rounding.

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

North America Retail organic net sales decreased 2 percent in the first quarter of fiscal 2025 compared to the same period in fiscal

2024, driven by a decrease in contributions from organic volume growth, partially offset by favorable organic net price realization and

mix.

North America Retail net sales percentage change by operating unit are shown in the following table:

Quarter Ended

Aug. 25, 2024

U.S. Snacks

(5)

U.S. Morning Foods

(3)

Canada (a)

3

U.S. Meals & Baking Solutions

Flat

Total

(2)

(a) On a constant-currency basis, Canada net sales increased 6 percent in the first quarter of fiscal 2025 compared to the same period

in fiscal 2024. See the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP.

Segment operating profit decreased 7 percent to $746 million in the first quarter of fiscal 2025, compared to $798 million in the same

period in fiscal 2024, primarily driven by higher input costs and a decrease in contributions from volume growth, partially offset by

favorable net price realization and mix. Segment operating profit decreased 6 percent on a constant -currency basis in the first quarter

of fiscal 2025, compared to the same period in fiscal 2024 (see the “Non-GAAP Measures” section below for our use of this measure

not defined by GAAP).

International Segment Results

International net sales were as follows:

Quarter Ended

Aug. 25,

2024

Aug. 25, 2024 vs

Aug. 27, 2023

Aug. 27,

2023

Net sales (in millions)

717.0

Flat

715.8

Contributions from volume growth (a)

8

pts

Net price realization and mix

(6)

pts

Foreign currency exchange

(2)

pts

Note: Table may not foot due to rounding.

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

International net sales in the first quarter of fiscal 2025 essentially matched the same period in fiscal 2024.

The components of International organic net sales growth are shown in the following table:

Quarter Ended

Aug. 25, 2024

Contributions from organic volume growth (a)

6

pts

Organic net price realization and mix

(7)

pts

Organic net sales growth

(1)

pt

Foreign currency exchange

(2)

pts

Acquisition (b)

3

pts

Net sales growth

Flat

Note: Table may not foot due to rounding.

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

(b) Acquisition of a pet food business in Europe in fiscal 2024. Please see 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 August 25, 2024, was as follows:

In Millions

One-day Risk

of Loss

Change During

Quarter Ended

Aug. 25, 2024

Analysis of Change

Interest rate instruments

53

Immaterial

Foreign currency instruments

34

4

Increase in exchange rate volatility

Commodity instruments

3

(1)

Decrease in commodity contracts

Equity instruments

2

Immaterial

For additional information, see Item 7A of Part II of our Annual Report on Form 10-K for the fiscal year ended May 26, 2024.

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 August 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 August 25, 2024, that materially affected, or are reasonably likely to materially affect, our internal

control over financial reporting.