GENERAL MILLS INC (GIS) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
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