# GENERAL MILLS INC (GIS) FY 2024 MD&A Verbatim Item 7 Management's Discussion and Analysis from GENERAL MILLS INC's 10-K for fiscal year 2024. SEC filing source: https://www.sec.gov/Archives/edgar/data/40704/000119312524168943/d764890d10k.htm Accession: 0001193125-24-168943 Filing date: 2024-06-26 Report date: 2024-05-26 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/GIS/ All MD&A years: /company/GIS/mda/ Previous year: /company/GIS/mda/fy2023/ (FY 2023) Next year: /company/GIS/mda/fy2025/ (FY 2025) 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. In   fiscal   2024,   we   experienced   a   more   challenging   category   and   competitive   backdrop   than   we   initially   expected.   As   a   result,   we pivoted our plans and enhanced our   efficiency to generate adjusted operating   profit and adjusted diluted EPS that   were in line with our original targeted   ranges, even   in a   slower-than-anticipated   topline growth   environment. We   delivered mixed   performance against   the three priorities we established at the beginning of the year: On our   priority of   competing effectively,   we did   not achieve   our objective   of holding   or growing   market share   in more   than 50   percent   of   our   global   priority   businesses.   Our   fiscal   2024   performance   was   hindered   by   an   uncertain   macroeconomic environment, which   resulted in   greater-than-expected value   -seeking behaviors   by consumers.   Our organic   net sales   declined 1 percent   for the   year,   with a   decrease   in contributions   from organic   volume growth,   partially offset   by favorable   net price realization and mix in response to 4 percent input cost inflation. We   successfully   improved   our supply   chain efficiency,   including generating   industry-leading   Holistic Margin   Management (HMM)   cost   savings   and   removing   significant   disruption-related   costs   from   the   supply   chain.   These   efforts   allowed   us   to continue to invest in our   brands and in leading capabilities, such   as digital and technology capabilities,   that will be critical for driving future growth. We   maintained our disciplined   approach to capital allocation,   driving increased   operating cash flow that   we used to grow our capital   investment   level,   raise   our   dividend,   and   increase   our   share   repurchase   activity.   We   also   continued   to   reshape   our portfolio, including closing on acquisitions   that further improved our portfolio’s   ability to generate profitable growth   over the long term. Our consolidated   net sales   for fiscal   2024   decreased 1   percent to   $19,857 million. On   an organic   basis, net   sales decreased   1 percent compared to   year-ago levels.   Operating profit   of $3,432 million   essentially matched   fiscal 2023.   Adjusted operating   profit of   $3,603 million increased   4 percent   on a   constant-currency basis.   Diluted EPS   of $4.31   matched fiscal   2023 results.   Adjusted diluted   EPS of $4.52 increased   6 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   $3,303 million in   fiscal 2024,   representing a   conversion rate   of 131   percent of   net earnings, including earnings attributable   to redeemable and noncontrolling   interests. This cash generation   supported capital investments   totaling $774   million, and our resulting free cash flow was $2,528   million at a conversion rate of 96 percent of adjusted   net earnings, including earnings attributable   to redeemable   and noncontrolling   interests. We   returned cash   to shareholders   through dividends   totaling $1,363 million and   net share   repurchases totaling   $1,977 million   (See the   “Non-GAAP Measures”   section below   for a description   of our use of measures not defined by GAAP). 17 A   detailed   review   of   our   fiscal   2024   performance   compared   to   fiscal   2023   appears   below   in   the   section   titled   “Fiscal   2024 Consolidated Results of Operations.” A detailed review of   our fiscal 2023   performance compared to our fiscal 2022   performance is set forth   in Part   II, Item   7 of   our Form   10-K for   the fiscal   year   ended   May 28, 2023   under the   caption   “Management’s   Discussion and Analysis of   Financial Condition   and Results   of Operations   – Fiscal   2023   Results of   Consolidated Operations,”   which is incorporated herein by reference. In fiscal 2025, we plan to continue advancing our Accelerate   strategy. Our key   priorities 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   HMM   cost   savings   of   roughly   4   to   5   percent   of   cost   of goods sold,   which we   expect to   exceed our   forecast for   3 to 4   percent 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. Based on these assumptions, our key full-year fiscal 2025 targets are   summarized below: ● Organic net sales are expected to range between flat and up 1 percent. ● Adjusted operating   profit is expected   to range between   down 2 percent   and flat in   constant-currency from   the base of $3,603 million reported in fiscal 2024. ● Adjusted diluted   EPS is   expected to   range between   down 1   percent and   up 1   percent in   constant-currency   from the   base of $4.52 earned in fiscal 2024. ● Free cash flow conversion is expected to be at least 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 2024 CONSOLIDATED   RESULTS   OF OPERATIONS In   fiscal   2024,   net   sales   and   organic   net   sales   decreased   1   percent   compared   to   fiscal   2023.   Operating   profit   of   $3,432   million essentially   matched   fiscal   2023,   primarily   driven   by   a   net   gain   on   divestitures   in   fiscal   2023,   higher   impairment   and   restructuring charges, a decrease   in contributions from volume   growth, and higher   input costs, partially offset   by favorable net price   realization and mix,   a   favorable   change   in   the   mark-to-market   valuation   of   certain   commodity   positions   and   grain   inventories,   and   lower   selling, general, and   administrative   (SG&A) expenses,   including   a decrease   in certain   compensation and   benefits   expenses. Operating   profit margin   of   17.3   percent   increased   20   basis   points.   Adjusted   operating   profit   of   $3,603   million   increased   4   percent   on   a   constant- currency   basis,   primarily   driven   by   favorable   net   price   realization   and   mix   and   a   decrease   in   SG&A   expenses,   including   certain compensation   and   benefits   expenses,   partially   offset   by   a   decrease   in   contributions   from   volume   growth   and   higher   input   costs. Adjusted operating   profit margin   increased 90   basis points   to 18.1   percent. Diluted   earnings per   share of   $4.31 matched   fiscal 2023. Adjusted diluted earnings per   share of $4.52 increased   6 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). A summary of our consolidated financial results for fiscal 2024 follows: Fiscal 2024 In millions, except per share Fiscal 2024 vs. Fiscal 2023 Percent of Net Sales Constant- Currency Growth (a) Net sales $ 19,857.2 (1) % Operating profit 3,431.7 Flat 17.3 % Net earnings attributable to General Mills 2,496.6 (4) % Diluted earnings per share $ 4.31 Flat Organic net sales growth rate (a) (1) % Adjusted operating profit (a) 3,602.7 4 % 18.1 % 4 % Adjusted diluted earnings per share (a) $ 4.52 5 % 6 % (a)   See the “Non-GAAP Measures” section below for our use of measures not defined by   GAAP. 18 Consolidated net sales were as follows: Fiscal 2024 Fiscal 2024 vs. Fiscal 2023 Fiscal 2023 Net sales (in millions) $ 19,857.2 (1) % $ 20,094.2 Contributions from volume growth (a) (3) 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   fiscal   2024   decreased   1   percent   compared   to   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: Fiscal 2024 vs. Fiscal 2023 Contributions from organic volume growth (a) (3) pts Organic net price realization and mix 2 pts Organic net sales growth (1) pt Foreign currency exchange Flat Acquisitions 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   in   fiscal   2024   decreased   1   percent   compared   to   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 $623 million in   fiscal 2024 to $12,925   million. The decrease   was primarily driven   by a $360 million   decrease due to   lower volume,   partially offset   by an   $80 million   increase attributable   to product   rate and   mix. We   recorded a   $39 million   net decrease   in   cost   of   sales   related   to   mark-to-market   valuation   of   certain   commodity   positions   and   grain   inventories   in   fiscal   2024, compared to a net increase   of $292 million in fiscal   2023   (please see Note 8 to the   Consolidated Financial Statements   in Item 8 of this report   for   additional   information).   In   fiscal   2023,   we   recorded   a   $25   million   charge   related   to   a   voluntary   recall   on   certain international Häagen-Dazs ice cream   products. We   also recorded   $18 million   of restructuring   charges and   $2 million   of restructuring initiative   project-related   costs   in   cost   of   sales   in   fiscal   2024   compared   to   $5   million   of   restructuring   charges   and   $2   million   of restructuring initiative   project-related costs in   cost of sales   in fiscal 2023   (please see Note   4 to the   Consolidated Financial   Statements in Item 8 of this report for additional information). Gross   margin increased   6   percent   in   fiscal   2024   compared   to   fiscal   2023.   Gross   margin   as   a   percent   of   net   sales   of   34.9   percent increased 230 basis points compared to fiscal 2023. SG&A expenses decreased $241   million to   $3,259 million in   fiscal 2024   compared to   fiscal 2023   primarily   driven by   a decrease   in certain compensation   and benefits expenses,   favorable net corporate   investment activity,   a legal recovery,   and net recoveries   from the fiscal   2023   voluntary   recall   on   certain   international Häagen-Dazs ice   cream   products.   SG&A   expenses   as   a   percent   of   net   sales   in fiscal 2024 decreased 100 basis points compared to fiscal 2023. Divestitures   gain, net totaled $445   million in   fiscal 2023 primarily related   to the   sale of our   Helper main   meals and   Suddenly Salad side dishes business (please refer to Note 3 to the Consolidated Financial Statements   in Item 8 of this report). Restructuring, impairment, and other exit costs totaled $241 million in fiscal 2024   compared to $56 million in fiscal 2023. In fiscal 2024, we recorded   a $117   million non-cash goodwill   impairment charge   related to our   Latin America reporting   unit and $103   million of non-cash impairment charges   related to our Top   Chews , True Chews , and EPIC brand intangible assets. 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   $17   million   of   charges   in   fiscal   2024.   In   fiscal   2023,   we   approved   restructuring   actions   to   enhance   the efficiency   of   our   global   supply   chain   structure   and   to   optimize   our   Häagen-Dazs   shops   network,   and   as   a   result,   we   recorded   $41 million   of charges   in fiscal   2023.   Please see   Note 4   to the   Consolidated   Financial   Statements   in Item   8 of   this report   for   additional information. 19 Benefit   plan   non-service   income totaled   $76   million   in   fiscal   2024   compared   to   $89 million   in   fiscal   2023,   primarily   reflecting higher interest   costs, partially   offset by   lower amortization   of losses   (please see   Note 14   to the   Consolidated Financial   Statements in