GENERAL MILLS INC (GIS)

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 25, 2025, 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 2026 are to return North America Retail to volume growth, accelerate North America Pet growth with an

expanded portfolio, and drive efficiencies to reinvest in growth. We expect category growth to be below our long-term projections,

reflecting less benefit from net price realization and mix amid a continued challenging consumer backdrop. To strengthen our

categories and market share performance, we plan to increase investment in consumer value, product news, innovation, and brand

building, guided by our remarkable experience framework. This included a significant strategic investment to launch Blue Buffalo into

the fast-growing United States fresh pet food sub-category in calendar 2025. We expect the combination of these growth investments,

input cost inflation, and normalization of corporate incentive will outpace expected Holistic Margin Management cost savings of 5

percent of cost of goods sold, savings from our global transformation initiative, and benefits from a 53rd week in fiscal 2026. In

addition, we expect the net impact of the divestitures of our North American yogurt businesses and the Whitebridge Pet Brands

acquisition will reduce adjusted operating profit growth by approximately 5 points in fiscal 2026.

CONSOLIDATED RESULTS OF OPERATIONS

Third Quarter Results

In the third quarter of fiscal 2026, net sales decreased 8 percent, including the net impact of the divestitures of our North American

yogurt businesses (Divestitures) and the acquisition of Whitebridge Pet Brands (Acquisition). Organic net sales decreased 3 percent

compared to the same period last year. Operating profit decreased 41 percent to $525 million, primarily driven by higher input costs, a

decrease in contributions from volume growth, a gain on divestiture related to the sale of our Canada yogurt business recorded in the

third quarter of fiscal 2025, and higher restructuring and transformation costs, partially offset by favorable net price realization and

mix and higher transaction costs recorded in fiscal 2025 related to the Divestitures and Acquisition. Operating profit margin of 11.8

percent decreased 660 basis points. Adjusted operating profit of $547 million decreased 32 percent on a constant-currency basis,

including the net impact of the Divestitures and Acquisition, primarily driven by higher input costs and a decrease in contributions

from volume growth, partially offset by favorable net price realization and mix. Adjusted operating profit margin decreased 420 basis

points to 12.3 percent. Diluted earnings per share of $0.56 decreased 50 percent in the third quarter of fiscal 2026. Adjusted diluted

earnings per share of $0.64 decreased 37 percent on a constant-currency basis compared to the third quarter of fiscal 2025. 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 2026 follows:

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

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Consolidated net sales were as follows:

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 2026 decreased 8 percent compared to the same period in fiscal 2025, driven by a decrease in

contributions from volume growth, partially offset by favorable net price realization and mix and favorable foreign currency exchange

impacts, and includes the net impact of the Divestitures and Acquisition.

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

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 3 percent in the third quarter of fiscal 2026, compared to the same period in fiscal 2025, driven by a

decrease in contributions from organic volume growth and unfavorable organic net price realization and mix.

Cost of sales decreased $133 million to $3,070 million in the third quarter of fiscal 2026, compared to the same period in fiscal 2025.

The decrease was primarily driven by a $349 million decrease attributable to lower volume, partially offset by a $202 million increase

attributable to product rate and mix, both of which include the net impact of the Divestitures and Acquisition. We recorded $8 million

of restructuring charges in cost of sales in the third quarter of fiscal 2026 (please refer to Note 3 to the Consolidated Financial

Statements in Part I, Item 1 of this report). In addition, we recorded a $17 million net decrease in cost of sales related to the mark-to-

market valuation of certain commodity positions and grain inventories in the third quarter of fiscal 2026, compared to a $23 million

net decrease in the third quarter of fiscal 2025.

Selling, general, and administrative (SG&A) expenses decreased $32 million to $813 million in the third quarter of fiscal 2026,

compared to the same period in fiscal 2025, primarily driven by lower other administrative costs, and including the net impact of the

Divestitures and Acquisition. SG&A expenses as a percent of net sales in the third quarter of fiscal 2026 increased 90 basis points

compared to the third quarter of fiscal 2025.

Divestitures loss (gain), net decreased $101 million, primarily due to a $96 million gain in the third quarter of fiscal 2025, related to

the sale of our Canada yogurt business (please refer to Note 2 to the Consolidated Financial Statements in Part I, Item I of this report).

Restructuring, transformation, impairment, and other exit costs (recoveries) totaled $24 million in the third quarter of fiscal

2026, compared to $1 million of net recoveries in the same period last year. In fiscal 2026, we approved a multi-year organizational

initiative to increase the competitiveness of our supply chain, and as a result, we recorded $17 million of charges in the third quarter of

fiscal 2026. In addition, we recorded $8 million of restructuring and transformation charges in the third quarter of fiscal 2026 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 $15 million in the third quarter of fiscal 2026, compared to $14 million in the same period

last year, primarily driven by lower interest costs partially offset by lower expected return on plan assets.

Interest, net for the third quarter of fiscal 2026 totaled $128 million, down $8 million from the third quarter of fiscal 2025, primarily

driven by lower average long-term debt levels.

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The effective tax rate for the third quarter of fiscal 2026 was 24.3 percent compared to 19.8 percent for the third quarter of fiscal

2025. The 4.5 percentage point increase was primarily due to certain nonrecurring discrete tax benefits in fiscal 2025 and unfavorable

earnings mix by jurisdiction in fiscal 2026. Our effective tax rate excluding certain items affecting comparability was 24.0 percent in

the third quarter of fiscal 2026, compared to 21.0 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 3.0 percentage point increase was primarily due to certain

nonrecurring discrete tax benefits in fiscal 2025 and unfavorable earnings mix by jurisdiction in fiscal 2026.

The impacts of the One Big Beautiful Bill Act (OBBBA) are reflected in our results for the quarter ended February 22, 2026, and there

was no material impact to our income tax expense. We expect certain provisions of the OBBBA will change the timing of cash tax

payments in the current fiscal year and future periods. Please refer to Note 15 to the Consolidated Financial Statements in Part I, Item

1 of this report for additional information.

After-tax (loss) earnings from joint ventures for the third quarter of fiscal 2026 was a $6 million after-tax loss compared to after-tax

earnings of $14 million in the same period in fiscal 2025, primarily driven by our share of transaction costs related to certain assets

held for sale at Cereal Partners Worldwide (CPW). On a constant-currency basis, after-tax loss from joint ventures decreased 129

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:

(a)Häagen-Dazs Japan, Inc. (HDJ).

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

Average diluted shares outstanding decreased by 18 million in the third quarter of fiscal 2026 from the same period a year ago

primarily due to share repurchases.

Nine-Month Results

In the nine-month period ended February 22, 2026, net sales decreased 7 percent, including the net impact of the Divestitures and

Acquisition. Organic net sales decreased 3 percent compared to the same period last year. Operating profit increased 6 percent to

$2,978 million, primarily driven by a divestiture gain related to the sale of our United States yogurt business, favorable net price

realization and mix, and lower SG&A expenses, partially offset by a decrease in contributions from volume growth, higher input costs,

and higher restructuring, transformation, and impairment charges. Operating profit margin of 21.6 percent increased 280 basis points

compared to the same period last year. Adjusted o

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ITEM 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE OVERVIEW

We are a global packaged foods company. We develop distinctive value-added food products and market them under unique brand

names. We work continuously to improve our core products and to create new products that meet consumers’ evolving needs and

preferences. In addition, we build the equity of our brands over time with strong consumer-directed marketing, innovative new

products, and effective merchandising. We believe our brand-building approach is the key to winning and sustaining leading share

positions in markets around the globe.

Our fundamental financial goal is to generate competitively differentiated returns for our shareholders over the long term. We believe

achieving that goal requires us to generate a consistent balance of net sales growth, margin expansion, cash conversion, and cash

return to shareholders over time.

Our long-term growth objectives are to deliver the following performance on average over time:

•2 to 3 percent annual growth in organic net sales;

•mid-single-digit annual growth in adjusted operating profit;

•mid- to high-single-digit annual growth in adjusted diluted earnings per share (EPS);

•free cash flow conversion of at least 95 percent of adjusted net earnings after tax; and

•cash return to shareholders of 80 to 90 percent of free cash flow, including an attractive dividend yield.

Guided by our purpose to make food the world loves, we are executing our 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 our scale, and standing for good. We are prioritizing our core markets,

global platforms, and local gem brands that have the best prospects for profitable growth and we are committed to reshaping our

portfolio with strategic acquisitions and divestitures to further enhance our growth profile.

Our consolidated net sales for fiscal 2026 decreased 5 percent to $18.4 billion. On an organic basis, net sales decreased 2 percent

compared to year-ago levels. Operating profit of $886 million decreased 73 percent. Adjusted operating profit of $2.8 billion

decreased 16 percent on a constant-currency basis. Diluted loss per share decreased 104 percent to $(0.16). Adjusted diluted EPS of

$3.55 decreased 16 percent on a constant-currency basis (See the “Non-GAAP Measures” section below for a description of our use of

measures not defined by generally accepted accounting principles (GAAP)).

Net cash provided by operations totaled $2,166 million in fiscal 2026, with a conversion rate that was not meaningful as a percent of

net loss, including earnings attributable to noncontrolling interests. This cash generation supported capital investments totaling $540

million, and our resulting free cash flow was $1,626 million at a conversion rate of 85 percent of adjusted net earnings, including

earnings attributable to noncontrolling interests. We returned cash to shareholders through dividends totaling $1,315 million and net

share repurchases totaling $500 million (See the “Non-GAAP Measures” section below for a description of our use of measures not

defined by GAAP).

In fiscal 2026, while we made meaningful progress in strengthening the remarkability of our brands to position the business for long-

term sustainable growth, this progress came amid a more challenging category and competitive backdrop than we initially expected.

Weak consumer sentiment, heightened uncertainty, and significant volatility weighed on category growth and impacted consumer

purchase patterns, resulting in a slower pace and higher cost of volume recovery than we originally anticipated. We delivered mixed

performance against the three priorities we established at the beginning of the year:

On our priority of returning North America Retail to volume growth, we did not achieve our objective. Organic pound

volume in North America Retail declined 1 percent for the year, driven in part by Nielsen-measured pound volume in our

categories slowing by 1 point versus fiscal 2025. Even so, we grew household penetration and we delivered improved pound

competitiveness, with 65 percent of our U.S. categories holding or growing pound share.

On our priority of accelerating North America Pet growth, we partially achieved our objective. Our Nielsen-measured retail

sales growth improved by 1 point versus our fiscal 2025 trend. However, our organic net sales growth slowed by 3 points,

driven largely by changes in retailer inventory.

On our priority of driving efficiencies to reinvest in growth, we successfully achieved our objectives to generate Holistic

Margin Management (HMM) savings of 5 percent of cost of goods sold and deliver more than $100 million in additional

savings from our global transformation initiative and other efficiency efforts.

A detailed review of our fiscal 2026 performance compared to fiscal 2025 appears below in the section titled “Fiscal 2026

Consolidated Results of Operations.” A detailed review of our fiscal 2025 performance compared to our fiscal 2024 performance is set

forth in Part II, Item 7 of our Form 10-K for the fiscal year ended May 25, 2025, under the caption “Management’s Discussion and

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Analysis of Financial Condition and Results of Operations – Fiscal 2025 Results of Consolidated Operations,” which is incorporated

herein by reference.

In an effort to help address input cost inflation, fund growth investments, and deliver accelerated profit and cash flow growth, we

expect to generate $3 billion in cumulative cost savings in the four years through fiscal 2030. Roughly $2 billion of this target is

expected to be generated through our ongoing HMM productivity program, equating to annual savings of approximately 4 percent of

cost of goods sold. The remaining $1 billion is expected to be generated by our global transformation initiative and other cost

efficiency efforts, including redesigning the supply chain network, further streamlining business processes, and driving improvement

across other elements of its cost base. These efforts will create a more agile and efficient structure that is better fit for future growth.

In fiscal 2027, we plan to continue advancing our Accelerate strategy and improving the remarkability of our brands. Our key

priorities are to strengthen our organic net sales growth, accelerate our enterprise transformation efforts, and drive disciplined capital

allocation and returns. Amid a continued challenging macroeconomic backdrop for consumers, we expect category growth to be

consistent with recent trends and below our long-term growth projections. With our price investments completed in fiscal 2026, our

plans in fiscal 2027 are focused on delivering product innovation and renovation news centered on the benefits that matter most to

today’s consumers, including better-for-you benefits like protein and fiber, bold flavors, and fun and indulgence, all of which should

help support stronger topline growth. We expect to generate at least $750 million in total savings toward the $3 billion target from

HMM, our global transformation initiative, and other cost savings actions, which will help offset our forecast for 4 to 5 percent input

cost inflation as well as our investments in brand remarkability. In addition to these factors, we expect headwinds of approximately 9

points on operating profit and 11 points on EPS in fiscal 2027 from lapping the 53rd week in fiscal 2026, normalizing corporate

incentive expense, and the impact of fiscal 2026 divestitures.

Based on these assumptions, our key full-year fiscal 2027 targets are summarized below:

•Organic net sales are expected to range between down 1.5 percent and up 0.5 percent.

•Adjusted operating profit is expected to be down 8 to 13 percent in constant-currency from the base of $2.8 billion reported in

fiscal 2026.

•Adjusted diluted EPS is expected to be between $3.00 and $3.20 per share, including an immaterial impact from foreign

currency exchange.

•Free cash flow conversion is expected to be approximately 95 percent of adjusted after-tax earnings.

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

Certain terms used throughout this report are defined in a glossary in Item 8 of this report.

FISCAL 2026 CONSOLIDATED RESULTS OF OPERATIONS

Fiscal 2026 had 53 weeks compared to 52 weeks in fiscal 2025.

In fiscal 2026, net sales decreased 5 percent compared to fiscal 2025, including the net impact of the divestitures of our North

American yogurt businesses (Divestitures) and the acquisition of Whitebridge Pet Brands (Acquisition). Organic net sales decreased 2

percent compared to fiscal 2025. Operating profit of $886 million decreased 73 percent compared to fiscal 2025, primarily driven by

impairments of goodwill and other brand intangible assets, a valuation loss related to our held for sale business in Brazil, higher input

costs, and a decrease in contributions from volume growth, partially offset by a divestiture gain related to the sale of our United States

yogurt business and favorable net price realization and mix. Operating profit margin of 4.8 percent decreased 1,220 basis points.

Adjusted operating profit of $2,812 million decreased 16 percent on a constant-currency basis, including the net impact of the

Divestitures and Acquisition, primarily driven by higher input costs and a decrease in contributions from volume growth, partially

offset by favorable net price realization and mix and lower selling, general & administrative (SG&A) expenses. Adjusted operating

profit margin decreased 190 basis points to 15.3 percent. Diluted loss per share of $(0.16) decreased 104 percent compared to diluted

earnings per share in fiscal 2025. Adjusted diluted earnings per share of $3.55 decreased 16 percent on a constant-currency basis (see

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

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A summary of our consolidated financial results for fiscal 2026 follows:

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

Consolidated net sales were as follows:

Note: Table may not foot due to rounding.

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

Net sales in fiscal 2026 decreased 5 percent compared to fiscal 2025, driven by a decrease in contributions from volume growth,

partially offset by favorable net price realization and mix and favorable foreign currency exchange impacts, and includes the net

impact of the Divestitures and Acquisition.

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

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