General Mills Board of Directors Declares Nine Percent Dividend Increase

Full Year Highlights

• Net sales of $20.1 billion increased 6 percent from the prior year; organic net sales¹ were up 10 percent
• Operating profit of $3.4 billion was down 1 percent; adjusted operating profit of $3.46 billion was up 8 percent in constant currency
• Diluted earnings per share (EPS) of $4.31 was down 2 percent from the prior year; adjusted diluted EPS of $4.30 was up 10 percent in constant currency

Fourth Quarter Highlights

• Net sales of $5.0 billion increased 3 percent; organic net sales increased 5 percent
• Operating profit of $818 million was down 19 percent; adjusted operating profit of $889 million effectively matched year-ago levels in constant currency
• Diluted EPS of $1.03 was down 24 percent; adjusted diluted EPS of $1.12 increased 1 percent in constant currency

¹Please see Note 7 to the Consolidated Financial Statements below for reconciliation of this and other non-GAAP measures used in this release.

General Mills, Inc. (NYSE: GIS) today reported results for the fourth quarter and fiscal year ended May 28, 2023.

“We delivered excellent results in fiscal 2023, including generating double-digit growth in organic net sales and constant-currency adjusted diluted EPS and exceeding $20 billion in annual net sales for the first time in our company’s history,” said General Mills Chairman and Chief Executive Officer Jeff Harmening. “Led by our Accelerate strategy, our team successfully navigated a highly dynamic operating environment with agility, focus, and resilience.”

“As we turn to fiscal 2024, we’ll lean on these same traits to continue to succeed in an evolving business landscape. We’ll focus on continuing to compete effectively, driving efficiency in our operations, and maintaining our disciplined approach to capital allocation, which we expect to result in financial performance that meets or exceeds each of our key long-term goals. To underscore our commitment to driving strong returns to General Mills shareholders, our Board approved a nine percent dividend increase effective with the August 2023 payment.”

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 standing 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 to further enhance its growth profile.

Fourth Quarter Results Summary

• Net sales increased 3 percent to $5.0 billion, including a 1-point headwind from net divestiture and acquisition activity and 1 point of unfavorable foreign currency exchange. Organic net sales increased 5 percent, driven by positive organic net price realization and mix, partially offset by lower organic pound volume, including a headwind from a reduction in retailer inventory in North America Retail.
• Gross margin was down 180 basis points to 34.4 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 up 120 basis points to 35.0 percent of net sales, driven by favorable net price realization and mix, partially offset by higher input costs, including 9 percent input cost inflation in the quarter.
• Operating profit of $818 million was down 19 percent, reflecting higher selling, general, and administrative (SG&A) expenses, higher restructuring charges, and lower gross profit dollars, partially offset by favorable net investment activity. Operating profit margin of 16.3 percent was down 450 basis points. Adjusted operating profit of $889 million effectively matched year-ago levels in constant currency, with higher adjusted SG&A expenses, including a double-digit increase in media investment, offset by higher adjusted gross profit dollars. Adjusted operating profit margin was down 60 basis points to 17.7 percent.
• Net earnings attributable to General Mills of $615 million were down 25 percent and diluted EPS was down 24 percent to $1.03, driven primarily by lower operating profit. Adjusted diluted EPS of $1.12 increased 1 percent in constant currency, driven primarily by lower net shares outstanding, partially offset by lower benefit plan non-service income.

Full Year Results Summary

• Net sales increased 6 percent to $20.1 billion, including a 4-point headwind from net divestiture and acquisition activity and 1 point of unfavorable foreign currency exchange. Organic net sales increased 10 percent, driven by positive organic net price realization and mix, partially offset by lower organic pound volume.
• Gross margin was down 110 basis points to 32.6 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 up 120 basis points to 34.2 percent of net sales, driven by favorable net price realization and mix, partially offset by higher input costs, including 13 percent annual input cost inflation.
• Operating profit of $3.4 billion was down 1 percent, driven primarily by higher SG&A expenses and higher restructuring charges, partially offset by gains on divestitures and higher gross profit dollars. Operating profit margin of 17.1 percent was down 120 basis points. Adjusted operating profit of $3.46 billion increased 8 percent in constant currency, driven by higher adjusted gross profit dollars, partially offset by higher adjusted SG&A expenses, including a double-digit increase in media investment. Adjusted operating profit margin increased 30 basis points to 17.2 percent.
• Net earnings attributable to General Mills were down 4 percent to $2.6 billion and diluted EPS was down 2 percent to $4.31, primarily reflecting lower operating profit, a higher effective tax rate, and lower after-tax earnings from joint ventures, partially offset by lower net shares outstanding. Adjusted diluted EPS of $4.30 was up 10 percent in constant currency, driven primarily by higher adjusted operating profit, a lower adjusted effective tax rate, and lower net shares outstanding, partially offset by lower benefit plan non-service income and lower after-tax earnings from joint ventures.

Notes on Comparability

The following transactions had a significant impact on the comparability of financial results between fiscal 2022 and fiscal 2023: the acquisition of Tyson Foods’ pet treat business in the first quarter of fiscal 2022; the divestiture of the European yogurt business in the third quarter of fiscal 2022; the divestiture of certain international dough businesses in the third and fourth quarters of fiscal 2022; the acquisition of the TNT Crust foodservice business in the first quarter of fiscal 2023; and the divestiture of the Helper main meals and Suddenly Salad side dishes business in the first quarter of fiscal 2023.

In addition, fiscal 2023 results included the impact of a voluntary recall on certain international Häagen-Dazs ice cream products, which was a headwind to net sales and operating profit results in the International segment. Unallocated corporate items in fiscal 2023 included an additional $22 million of charges related to product disposals associated with the ice cream recall that were excluded from adjusted operating profit results. The company does not expect a material impact from the ice cream recall beyond fiscal 2023.

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 increased 2 percent to $3.1 billion, driven by favorable net price realization and mix, partially offset by lower pound volume, including a 2-point headwind from divestitures, and a 1-point headwind from unfavorable foreign currency exchange. Organic net sales increased 5 percent. Net sales performance was negatively impacted by a reduction in retailer inventory, with comparable Nielsen-measured retail sales up 10 percent in the quarter. Segment operating profit of $780 million was up 2 percent as reported and in constant currency, driven primarily by favorable net price realization and mix, partially offset by higher input costs, lower volume, and higher SG&A expenses, including a double-digit increase in media investment.

For the full year, North America Retail segment net sales increased 9 percent to $12.66 billion, including a 2-point headwind from divestitures and a 1-point headwind from unfavorable foreign currency exchange. Organic net sales were up 12 percent. Net sales growth was broad based, including increases of 13 percent in U.S. Snacks, 10 percent in U.S. Meals & Baking Solutions, and 7 percent in U.S. Morning Foods. Constant-currency net sales were up 8 percent in Canada. Segment operating profit of $3.2 billion was up 18 percent as reported and in constant currency, driven primarily by favorable net price realization and mix, partially offset by higher input costs, lower volume, and higher SG&A expenses, including a double-digit increase in media investment.

Pet Segment

Fourth-quarter net sales for the Pet segment increased 7 percent to $655 million, driven by favorable net price realization and mix, partially offset by lower pound volume. Organic net sales were also up 7 percent. Net sales were up double digits for dry pet food, up high-single digits for pet treats, and down high-single digits for wet pet food. Segment operating profit of $133 million was up 18 percent, driven primarily by favorable net price realization and mix and Holistic Margin Management (HMM) cost savings, partially offset by input cost inflation, higher SG&A expenses, including a double-digit increase in media investment, and higher other cost of goods sold.

For the full year, Pet segment net sales increased 9 percent to $2.5 billion. Organic net sales were also up 9 percent. Net sales were up double digits for dry pet food and pet treats and were flat for wet pet food. Segment operating profit was down 5 percent to $446 million, driven primarily by higher input costs, higher SG&A expenses, and lower volume, partially offset by favorable net price realization and mix.

North America Foodservice Segment

Fourth-quarter net sales for the North America Foodservice segment increased 7 percent to $564 million, driven primarily by a 6-point benefit from the TNT Crust acquisition. Organic net sales were up 1 percent, including a 2-point headwind from market index pricing on bakery flour. Segment operating profit was down 10 percent to $72 million, driven primarily by higher input costs and higher SG&A expenses, partially offset by favorable net price realization and mix and higher volume.

For the full year, North America Foodservice net sales increased 19 percent to $2.2 billion, including a 6-point benefit from the TNT Crust acquisition. Organic net sales were up 13 percent. Segment operating profit increased 14 percent to $290 million, driven primarily by favorable net price realization and mix and higher volume, partially offset by higher input costs and higher SG&A expenses.

International Segment

Fourth-quarter net sales for the International segment were down 1 percent to $745 million, driven by lower pound volume, including the impact of the dough divestitures, and a 3-point headwind from foreign currency exchange, partially offset by favorable net price realization and mix. Organic net sales were up 6 percent, led by high-single-digit growth in Europe & Australia and China. Segment operating profit of $67 million was down 12 percent as reported and down 9 percent in constant currency, driven by higher input costs, lower volume, and higher SG&A expenses, partially offset by favorable net price realization and mix.

For the full year, International net sales were down 16 percent to $2.8 billion, driven by lower pound volume, including the impact of the yogurt and dough divestitures and the ice cream recall, and a 5-point headwind from foreign currency exchange, partially offset by favorable net price realization and mix. Organic net sales were up 4 percent. Segment operating profit of $162 million was down 30 percent as reported and down 25 percent in constant currency, driven by higher input costs and lower volume, including the impacts of the yogurt and dough divestitures and the ice cream recall, partially offset by favorable net price realization and mix and lower SG&A expenses.

Joint Venture Summary

Fourth-quarter constant-currency net sales increased 8 percent for Cereal Partners Worldwide (CPW) and essentially matched year-ago levels for Häagen-Dazs Japan (HDJ). Combined after-tax earnings from joint ventures increased 19 percent to $23 million, driven primarily by favorable net price realization and mix for CPW, partially offset by higher input costs for CPW and HDJ. For the full year, after-tax earnings from joint ventures totaled $81 million compared to $112 million a year ago.

Other Income Statement Items

Full-year unallocated corporate items totaled $1,033 million net expense in fiscal 2023 compared to $403 million net expense a year ago. Excluding mark-to-market valuation effects and other items affecting comparability, unallocated corporate items totaled $621 million net expense this year compared to $445 million net expense last year, driven primarily by higher compensation and benefits expense, capability investments, and corporate charitable contributions.

The company recorded a net $445 million pre-tax gain on divestitures in fiscal 2023 compared to a net $194 million gain a year ago (please see Note 2 below for more information on these items). Restructuring, impairment, and other exit costs totaled $56 million this year compared to a $26 million net recovery a year ago (please see Note 3 below for more information on these charges). Benefit plan non-service income totaled $89 million this year compared to $113 million a year ago, driven primarily by an increase in interest cost, partially offset by lower amortization of losses and a higher expected return on plan assets.

Net interest expense in fiscal 2023 totaled $382 million compared to $380 million a year ago, with higher interest rates largely offset by lower average long-term debt balances. The effective tax rate for fiscal 2023 was 19.5 percent compared to 18.3 percent last year (please see Note 6 below for more information on our effective tax rate). The adjusted effective tax rate was 20.4 percent compared to 20.9 percent a year ago.

Cash Flow Generation and Cash Returns

Cash provided by operating activities totaled $2.8 billion in fiscal 2023 compared to $3.3 billion a year ago, driven primarily by changes in inventory and accounts payable. Capital investments of $690 million were up 21 percent from a year ago. Full-year operating cash flow conversion was 106 percent of after-tax earnings and free cash flow conversion was 80 percent of adjusted after-tax earnings. Dividends paid increased 3 percent to $1.3 billion. General Mills repurchased approximately 18 million shares of common stock in fiscal 2023 for a total of $1.4 billion compared to $877 million in share repurchases a year ago. Average diluted shares outstanding decreased 2 percent to 601 million.

Dividend Increase

The General Mills board of directors declared a quarterly dividend of $0.59 per share, payable August 1, 2023, to shareholders of record July 10, 2023. This represents a 9 percent increase from the previous quarterly rate of $0.54 per share. General Mills and its predecessor company have paid dividends without interruption for 124 years.

Fiscal 2024 Outlook

General Mills expects the largest factors impacting its 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. The company expects to drive organic net sales growth in fiscal 2024 through strong marketing, innovation, in-store support, and net price realization generated through its Strategic Revenue Management (SRM) capability, most of which will be carried over from SRM actions taken in fiscal 2023. For the full year, input cost inflation is expected to be 5 percent of total cost of goods sold, driven primarily by labor inflation that continues to impact sourcing, manufacturing, and logistics costs. The company expects to generate HMM cost savings of roughly 4 percent of cost of goods sold, compared to 3 percent achieved in fiscal 2023.

With these assumptions in mind, General Mills outlined its full-year financial targets for fiscal 2024²:

• Organic net sales are expected to increase 3 to 4 percent.
• Adjusted operating profit is expected to increase 4 to 6 percent in constant currency from the base of $3.5 billion reported in fiscal 2023.
• Adjusted diluted EPS is expected to increase 4 to 6 percent in constant currency from the base of $4.30 earned in fiscal 2023.
• Free cash flow conversion is expected to be at least 95 percent of adjusted after-tax earnings.
• The net impact of divestitures and foreign currency exchange is expected to reduce full-year reported net sales growth by approximately one half of one percent, and foreign currency exchange is expected to have an immaterial impact on adjusted operating profit and adjusted diluted EPS growth.

² Financial targets are provided on a non-GAAP basis because certain information necessary to calculate comparable GAAP measures is not available. Please see Note 7 to the Consolidated Financial Statements below for discussion of the unavailable information.

General Mills will issue pre-recorded management remarks today, June 28, 2023, 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 2024 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: disruptions or inefficiencies in the supply chain; 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.

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

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

Divestitures gain (loss), net

Net divestitures gain primarily related to the sale of our Helper main meals and Suddenly Salad side dishes business in fiscal 2023. Divestitures gain related to the sale of our interests in Yoplait SAS, Yoplait Marques SNC, and Liberté Marques Sàrl and the sale of our European dough businesses in fiscal 2022. Divestiture loss related to the sale of our Laticínios Carolina business in Brazil in fiscal 2021. Please see Note 2.

Mark-to-market effects

Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items. Please see Note 4.

Investment activity, net

Valuation adjustments and the loss on sale of certain corporate investments in fiscal 2023. Valuation adjustments and the gain on sale of certain corporate investments in fiscal 2022 and fiscal 2021. Please see Note 4.

Restructuring charges (recoveries) and project-related costs

Restructuring charges and project-related costs for global supply chain actions, network optimization actions, and previously announced actions in fiscal 2023. Restructuring charges for International restructuring actions and net restructuring recoveries for previously announced restructuring actions in fiscal 2022. Restructuring charges for previously announced restructuring actions in fiscal 2021. Please see Note 3.

Product recall, net

Voluntary recall costs recorded in fiscal 2023 related to certain international Häagen-Dazs ice cream products, net of insurance recovery. Product recall adjustment recorded in fiscal 2021 related to a recall in our international Green Giant business in fiscal 2020. Please see Note 4.

Acquisition integration costs

Integration costs primarily resulting from the acquisition of TNT Crust in fiscal 2023. Integration costs resulting from the acquisition of Tyson Foods’ pet treats business in fiscal 2022. Please see Note 4.

Transaction costs

Transaction costs primarily related to the sale of our Helper main meals and Suddenly Salad side dishes business in fiscal 2023. Fiscal 2022 transaction costs related primarily to the sale of our interests in Yoplait SAS, Yoplait Marques SNC, and Liberté Marques Sàrl, the sale of our European dough businesses, the sale of our Helper main meals and Suddenly Salad side business, and the acquisition of TNT Crust. Fiscal 2021 transaction costs related to the sale of our interests in Yoplait SAS, Yoplait Marques SNC, and Liberté Marques Sàrl and the acquisition of Tyson Foods’ pet treats business. Please see Note 2.

Non-income tax recovery

Recovery related to a Brazil indirect tax item recorded in fiscal 2022 and fiscal 2021. Please see Note 4.

CPW restructuring charges

CPW restructuring charges related to previously announced restructuring actions.

Tax item

Discrete tax benefit recognized in fiscal 2022 related to a release of a valuation allowance associated with our capital loss carryforwards expected to be used against future divestiture gains. Discrete tax item related to amendments to reorganize certain U.S. retiree health and welfare benefits plans in fiscal 2021.

Adjusted Operating Profit and Related Constant-currency Growth Rate

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:

Adjusted Diluted EPS and Related Constant-currency Growth Rate

This measure is used in reporting to our Board of Directors and executive management. We believe that this measure provides useful information to investors because it is the profitability measure we use to evaluate earnings performance on a comparable year-to-year basis.

The reconciliation of our GAAP measure, diluted EPS, to adjusted diluted EPS and the related constant-currency growth rate follows: