Full Year Highlights

• Net sales of $18.1 billion increased 3 percent from the prior year; organic net sales¹ were up 4 percent.
• Operating profit increased 6 percent to $3.1 billion; constant-currency adjusted operating profit was up 2 percent.
• Diluted EPS of $3.78 were up 6 percent; adjusted diluted EPS of $3.79 increased 4 percent in constant currency.
• The company resumed dividend growth and share repurchase activity; total cash returned to shareholders increased 29 percent to $1.5 billion.

Fourth Quarter Highlights

• Net sales declined 10 percent to $4.5 billion and organic net sales were down 6 percent, reflecting the comparison against the surge in at-home food demand at the outset of the pandemic in the prior year.
• Operating profit of $548 million was down 34 percent; constant-currency adjusted operating profit was down 18 percent.
• Diluted earnings per share (EPS) of $0.68 declined 33 percent; adjusted diluted EPS of $0.91 were down 19 percent in constant currency.

¹ Please see Note 7 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 fourth quarter and fiscal year ended May 30, 2021. Fiscal 2021 results reflect the impact of one fewer week compared to fiscal 2020.

“I’m pleased with the results the General Mills team delivered in fiscal 2021 under difficult circumstances,” said General Mills Chairman and Chief Executive Officer Jeff Harmening. “We competed effectively, generated strong top- and bottom-line growth, and further improved our balance sheet, allowing us to resume dividend growth and share repurchases. In addition, we advanced our Accelerate strategy by investing in our brands, strengthening our capabilities, building on our leading position as a force for good, and taking significant steps to reshape our portfolio and our organization for future growth.

“We enter fiscal 2022 ready to compete and win in a highly dynamic consumer environment. We’re taking actions to address near-term cost pressures while remaining focused on the long-term growth opportunities we will capture through our Accelerate strategy.”

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 proposed divestiture of its European Yoplait operations, to further enhance its growth profile.

General Mills expects that 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. The company plans to capitalize on these opportunities, addressing evolving consumer needs through its leading brands, innovation, and advantaged capabilities to generate profitable growth.

Fourth Quarter Results Summary

• Net sales declined 10 percent to $4.5 billion, including a 5-point headwind from an extra week of results in last year’s fourth quarter and 2 points of favorable foreign currency exchange. Organic net sales were down 6 percent, driven by lower organic pound volume reflecting the comparison against the surge in at-home food demand at the outset of the pandemic in the prior year. On a 2-year compound growth basis, relative to pre-pandemic levels, fourth-quarter organic net sales were up 4 percent.
• Gross margin was down 20 basis points to 35.0 percent of net sales, driven by higher input costs, partially offset by a mark-to-market gain compared to a loss in the prior year and comparison against a product recall charge in the prior year. Adjusted gross margin decreased 160 basis points to 34.5 percent, primarily driven by unfavorable manufacturing leverage.
• Operating profit of $548 million was down 34 percent, driven by lower gross profit dollars, higher restructuring charges, and a loss on the sale of the Laticínios Carolina yogurt business in Brazil, partially offset by lower selling, general, and administrative (SG&A) expenses. Operating profit margin of 12.1 percent was down 440 basis points. Adjusted operating profit of $740 million was down 18 percent in constant currency, primarily driven by lower constant-currency adjusted gross profit dollars, partially offset by lower SG&A expenses. Adjusted operating profit margin was down 140 basis points to 16.3 percent.
• Net earnings attributable to General Mills were down 33 percent to $417 million and diluted EPS were down 33 percent to $0.68, primarily reflecting lower operating profit. Adjusted diluted EPS of $0.91 were down 19 percent in constant currency, primarily reflecting lower adjusted operating profit.

Full Year Results Summary

• Net sales increased 3 percent to $18.1 billion, driven by higher organic net sales and 1 point of favorable foreign currency exchange, partially offset by a 2-point headwind from an extra week of results in last year’s fourth quarter. Organic net sales increased 4 percent, reflecting strong execution and broad-based market share gains amid elevated at-home food demand resulting from the pandemic.
• Gross margin was up 80 basis points to 35.6 percent of net sales, primarily driven by favorable net price realization and mix, lower mark-to-market expenses, and lower restructuring charges in cost of sales, partially offset by higher input costs. Adjusted gross margin was down 40 basis points to 34.8 percent of net sales, primarily driven by input cost inflation, costs to secure incremental capacity, and higher logistics costs, partially offset by Holistic Margin Management (HMM) cost savings and favorable manufacturing leverage.
• Operating profit of $3.1 billion was up 6 percent, primarily driven by higher gross profit dollars and favorable net corporate investment activity, partially offset by higher restructuring charges, a loss on the sale of the Laticínios Carolina yogurt business in Brazil, and higher other SG&A expenses, including higher investment in media and capabilities. Operating profit margin of 17.3 percent was up 50 basis points. Adjusted operating profit of $3.2 billion increased 2 percent in constant currency, primarily driven by higher constant-currency adjusted gross profit dollars, partially offset by higher SG&A expenses, including increased investment in media and capabilities. Adjusted operating profit margin increased 10 basis points to 17.4 percent.
• Net earnings attributable to General Mills were up 7 percent to $2.3 billion and diluted EPS were up 6 percent to $3.78, primarily reflecting higher operating profit. Adjusted diluted EPS of $3.79 were up 4 percent in constant currency, primarily reflecting higher adjusted operating profit, lower net interest expense, and higher after-tax earnings from joint ventures, partially offset by a higher adjusted effective tax rate and higher average diluted shares outstanding.

Operating Segment Results

Note: Tables may not foot due to rounding.

North America Retail Segment

Fourth-quarter net sales for General Mills’ North America Retail segment were down 17 percent to $2.64 billion, primarily reflecting the comparison against the surge in at-home food demand at the outset of the pandemic as well as a 6-point headwind from an extra week of results in last year’s fourth quarter. Organic net sales were down 13 percent, with lower organic pound volume partially offset by favorable organic net price realization and mix. Net sales declines totaled 30 percent in U.S. Meals & Baking, 16 percent in U.S. Cereal, 6 percent in U.S. Yogurt, and 2 percent in U.S. Snacks. Constant-currency net sales were down 9 percent in Canada. On a 2-year compound growth basis, relative to pre-pandemic levels, fourth-quarter organic net sales were up 6 percent. Segment operating profit was down 30 percent to $620 million, primarily driven by lower net sales and higher input costs, including unfavorable manufacturing leverage.

For the full year, North America Retail segment net sales increased 2 percent to $11.0 billion, primarily driven by strong execution to service increased at-home food demand, partially offset by a 2-point headwind from an extra week of results a year ago. Organic net sales increased 4 percent. On a 2-year compound growth basis, annual organic net sales were up 5 percent. Segment operating profit was essentially unchanged at $2.62 billion, driven by input cost inflation, costs to secure incremental capacity, and higher media and other SG&A expenses, offset by HMM cost savings and higher volume.

Pet Segment

Fourth-quarter net sales for the Pet segment were down 20 percent to $444 million, reflecting an extra month of results in the prior-year quarter as the segment’s calendar was aligned to the company’s May fiscal year end, as well as comparison against pandemic-driven stock-up demand from pet parents in last year’s fourth quarter. Retail sales in measured channels were up double digits in the quarter. On a 2-year compound growth basis, which eliminates the impact of the extra month of results in fiscal 2020, fourth-quarter net sales were up 5 percent. Segment operating profit was down 24 percent to $103 million, primarily driven by lower volume and higher input costs, partially offset by lower SG&A expenses and favorable net price realization and mix.

For the full year, Pet segment net sales increased 2 percent to $1.73 billion, driven by positive contributions from volume growth on a like-for-like basis, partially offset by the comparison to the extra month of results a year ago. On a 2-year compound growth basis, annual net sales were up 10 percent. The BLUE brand continued to win with pet parents in fiscal 2021, with full-year retail sales up double digits and a strong increase in market share. Segment operating profit of $415 million was up 6 percent, driven by higher net sales and lower SG&A expenses, partially offset by higher input costs.

Convenience Stores & Foodservice Segment

Fourth-quarter net sales for the Convenience Stores & Foodservice segment increased 25 percent to $493 million, reflecting the favorable comparison against the pandemic-driven reduction in away-from-home food demand a year ago, partially offset by an 8-point headwind from an extra week of results in last year’s fourth quarter. Organic net sales were up 33 percent. On a 2-year compound growth basis, relative to pre-pandemic levels, fourth-quarter organic net sales were down 3 percent. Segment operating profit increased 143 percent to $94 million, driven by higher net sales and lower SG&A expenses.

For the full year, Convenience Stores & Foodservice net sales decreased 4 percent to $1.74 billion, reflecting reduced away-from-home food demand and a 1-point headwind from an extra week of results a year ago. Organic net sales declined 3 percent. On a 2-year compound growth basis, annual organic net sales were down 6 percent. Segment operating profit declined 9 percent to $306 million, primarily driven by lower net sales and higher input costs, partially offset by lower SG&A expenses.

Europe & Australia Segment

Fourth-quarter net sales for the Europe & Australia segment increased 2 percent to $539 million, primarily driven by 10 points of favorable foreign currency exchange, partially offset by a 6-point headwind from an extra week of results in last year’s fourth quarter. Organic net sales were down 2 percent, reflecting the comparison against elevated at-home food demand at the outset of the pandemic. Net sales declines in Old El Paso Mexican food and Betty Crocker dessert mixes were partially offset by growth in away-from-home channels. On a 2-year compound growth basis, relative to pre-pandemic levels, fourth-quarter organic net sales were up 1 percent. Segment operating profit of $33 million was essentially unchanged as reported and down 16 percent in constant currency, primarily driven by higher input costs and lower net sales, partially offset by lower SG&A expenses.

For the full year, Europe & Australia net sales increased 8 percent to $1.98 billion, including 7 points of favorable foreign currency exchange and a 2-point headwind from an extra week of results in last year’s fourth quarter. Organic net sales increased 3 percent, reflecting positive market share performance amid increased at-home food demand. On a 2-year compound growth basis, annual organic net sales were up 1 percent. Segment operating profit of $151 million was up 33 percent as reported and up 24 percent in constant currency, primarily driven by higher net sales and lower SG&A expenses, partially offset by higher input costs.

Asia & Latin America Segment

Fourth-quarter net sales for the Asia & Latin America segment increased 17 percent to $407 million, reflecting a pandemic-driven increase in at-home food demand in Latin America, recovery in away-from-home food outlets including Häagen-Dazs shops in Asia, and 3 points of favorable foreign currency exchange, partially offset by an 8-point headwind from an extra week of results in last year’s fourth quarter. Organic net sales increased 22 percent. On a 2-year compound growth basis, relative to pre-pandemic levels, fourth-quarter organic net sales were up 7 percent. Segment operating profit totaled $23 million compared to a loss of $24 million a year ago, driven by higher net sales and lower SG&A expenses, partially offset by higher input costs.

For the full year, Asia & Latin America net sales increased 10 percent to $1.68 billion, including 4 points of unfavorable foreign currency exchange and a 2-point headwind from an extra week of results in last year’s fourth quarter. Organic net sales were up 15 percent, including double-digit growth in both Latin America and Asia. On a 2-year compound growth basis, annual organic net sales were up 6 percent. Segment operating profit increased $67 million to $86 million, primarily driven by higher net sales and favorable foreign currency exchange, partially offset by higher input costs.

Joint Venture Summary

Fourth-quarter net sales for Cereal Partners Worldwide (CPW) were down 2 percent in constant currency, reflecting the comparison against the surge in at-home food demand at the outset of the pandemic a year ago. Constant-currency net sales for Häagen-Dazs Japan (HDJ) were up 12 percent in the quarter, driven by successful new product launches and strong growth on the core. Combined after-tax earnings from joint ventures in the quarter were down 16 percent to $28 million. For the full year, after-tax earnings from joint ventures increased 29 percent to $118 million, driven by net sales growth for both CPW and HDJ.

Other Income Statement Items

Full-year unallocated corporate items totaled $212 million net expense in fiscal 2021 compared to $509 million net expense a year ago. Excluding mark-to-market valuation effects and other items affecting comparability, unallocated corporate items totaled $428 million net expense this year compared to $429 million net expense last year.

The company recorded a $54 million pre-tax loss on a divestiture in fiscal 2021 (please see Note 2 below for more information on these charges). Restructuring, impairment, and other exit costs totaled $170 million this year compared to $24 million a year ago. An additional $2 million of restructuring and project-related charges were recorded in cost of sales this year compared to $27 million a year ago (please see Note 3 below for more information on these charges).

Net interest expense in fiscal 2021 totaled $420 million compared to $466 million a year ago, primarily driven by lower rates and lower average debt balances. The effective tax rate for fiscal 2021 was 22.0 percent compared to 18.5 percent last year (please see Note 6 below for more information on our effective tax rate). The adjusted effective tax rate was 21.1 percent compared to 20.7 percent a year ago.

Net earnings attributable to redeemable and non-controlling interests totaled $6 million compared to $30 million a year ago, primarily driven by the joint venture partner’s 49 percent share of the loss on the sale of the Laticínios Carolina yogurt business in Brazil.

Cash Flow Generation, Cash Returns, and Debt Leverage

Fiscal 2021 cash provided by operating activities of $2.98 billion was down 19 percent from the prior year, primarily driven by changes in current assets and liabilities, partially offset by a change in deferred income taxes and higher net earnings. The decrease in operating cash flow included a comparison against timing benefits from pandemic-driven volume increases in the prior-year fourth quarter. Capital investments totaled $531 million compared to $461 million a year ago. Full-year operating cash flow conversion was 127 percent of after-tax earnings and free cash flow conversion was 103 percent of adjusted after-tax earnings. Dividends paid increased 4 percent to $1.25 billion. General Mills repurchased approximately 5 million shares of common stock in fiscal 2021 for a total of $301 million. Average diluted shares outstanding increased 1 percent to 619 million. Debt was reduced by $928 million. The net debt-to-operating cash flow ratio was 3.7x compared to 3.2x a year ago, and the net-debt-to-adjusted-EBITDA ratio was 2.9x compared to 3.2x in fiscal 2020.

Fiscal 2022 Outlook

General Mills expects the largest factors impacting its performance in fiscal 2022 will be relative balance of at-home versus away-from-home consumer food demand and the inflationary cost environment, both of which remain uncertain. The company expects at-home food demand will decline year over year in fiscal 2022 across most of its core markets, though will remain above pre-pandemic levels. Conversely, away-from-home food demand is expected to continue to recover in fiscal 2022, though not fully to pre-pandemic levels. With roughly 85 percent of the company’s net sales representing at-home food occasions, these dynamics are expected to result in lower aggregate consumer demand in the company’s categories in fiscal 2022 compared to fiscal 2021 levels.

Total input cost inflation is currently expected to be approximately 7 percent of cost of goods sold in fiscal 2022. The company is addressing the inflationary environment with strong HMM cost savings expected to total roughly 4 percent of cost of goods sold and with positive net price realization generated through its Strategic Revenue Management capability, including pricing actions the company has already announced across most of its portfolio.

With these assumptions in mind, General Mills outlined its key full-year fiscal 2022 targets:

• Organic net sales are expected to decline 1 to 3 percent, reflecting the outlook for lower consumer demand.
• Constant-currency adjusted operating profit is expected to decline 2 to 4 percent from the base of $3.2 billion reported in fiscal 2021.
• Constant-currency adjusted diluted EPS are expected to range between flat and down 2 percent from the base of $3.79 earned in fiscal 2021.
• Relative to pre-pandemic levels in fiscal 2019, the midpoints of these fiscal 2022 guidance ranges equate to 3-year compound annual growth rates of approximately 2 percent for organic net sales, 2 percent for constant-currency adjusted operating profit, and 5 percent for constant-currency adjusted diluted EPS.
• Free cash flow conversion is expected to be approximately 95 percent of adjusted after-tax earnings.
• The above targets exclude any impact from recent acquisition and divestiture transactions that have not yet closed.

General Mills will issue pre-recorded management remarks today, June 30, 2021, 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.

For the Pet operating segment, fiscal 2021 and fiscal 2019 included 12 months of results. Fiscal 2020 included 13 months of results as we changed the Pet operating segment’s reporting period from an April fiscal year-end to a May fiscal year-end to match our fiscal calendar.

See accompanying notes to the consolidated financial statements.

For the Pet operating segment, the fourth quarter of fiscal 2021 and fiscal 2019 included 3 months of results. The fourth quarter of fiscal 2020 includes 4 months of results as we changed the Pet operating segment’s reporting period from an April fiscal year-end to a May fiscal year-end to match our fiscal calendar.

See accompanying notes to the consolidated financial statements.

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: