Investor Day Fiscal 2020 Second Quarter Fiscal 2020 December … · 2019. 12. 18. · This...

Investor Day Fiscal 2020July 9, 2019

1

General Mills Earnings

Second Quarter Fiscal 2020

December 18, 2019

A Reminder on Forward-looking Statements

This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that

are based on management’s current expectations and assumptions. These forward-looking statements 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: 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, including our acquisition of Blue Buffalo and issues in the integration of Blue Buffalo and retention of key management and

employees; unfavorable reaction to our acquisition of Blue Buffalo by customers, competitors, suppliers, and employees; 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,

and energy; disruptions or inefficiencies in the supply chain; 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 statements to reflect any future events or

circumstances.2


Jeff HarmeningChairman and Chief Executive Officer

3



December 18, 2019

• Broad-based Organic Sales Improvement in Q2

• Strong Earnings and Free Cash Flow Drove Reduced Debt in 1H

• Expect to Step Up Investments and Organic Sales Growth in 2H

• Remain on Track to Deliver Fiscal 2020 Goals for Sales, Profit,

and EPS; Raising Guidance for Cash Conversion

Today’s Key Messages

4

Second Quarter Fiscal 2020Financial Results

*Non-GAAP measure. See appendix for reconciliation.

(1) Constant currency growth rate. Non-GAAP measure. See appendix for reconciliation

Q2

TOTAL GENERAL MILLS $MM VS LY

Net Sales $4,421 Flat

Organic Sales* +1%

Adjusted Operating Profit* $813 +7%1

Adjusted Diluted EPS* $0.95 +11%1

Dollars in millions except per share data

5

AccelerateOrganic Sales

Maintain Strong

Margins

ReduceLeverage

Improve NAR while continuing to drive Pet growth

Fuel growth investments through HMM and SRM

Continue cash discipline and pay down debt

1

2

3

Our Fiscal 2020 Priorities

6

Second Quarter Fiscal 2020Components of Net Sales Growth

+1 pt

Flat

-1 pt

Flat Flat

Organic Net Sales*

= +1%

Organic

Volume

Organic

Price / Mix

Total Net Sales

As Reported

Foreign

Exchange

Acquisitions /

Divestitures

*Non-GAAP measure. 7

Second Quarter Fiscal 2020North America Retail

(1) Organic net sales growth rate. Non-GAAP measure. See appendix for reconciliation


Source: Nielsen xAOC

See slide 29 for net sales results by Operating Unit

Net Sales $2,676 Flat¹

Segment Operating Profit $642 +4%²

• Organic sales in-line with year ago levels

• Net sales growth in U.S. Cereal (+5%) and

Canada (+2% in CC2) offset by declines in U.S.

Meals & Baking (-1%), U.S. Snacks (-2%), and

U.S. Yogurt (-4%)

• First-half market share growth in 5 of top 10

U.S. categories

• Q2 profit growth driven by COGS HMM cost

savings and favorable manufacturing leverage,

partially offset by input cost inflation and higher

media investment

SEGMENT RESULTS $MM VS. LY SEGMENT HIGHLIGHTS

8

GENERAL MILLS U.S. CEREAL(Retail Sales, % vs. LY)

CONTINUED FOCUS ON STRONG FUNDAMENTALS IN THE SECOND HALF


Strong First Half Results on U.S. Cereal

Flat Flat

2%

F18 F19 F20 1H

Consumer Investment and Product News

Strong Innovation

9

Share pts

vs. LY+0.8 +0.3 +1.0

U.S. Yogurt

GENERAL MILLS U.S. YOGURT (Retail Sales % vs. LY)


-11%

-2%-3%

F18 F19 F20 1H

10

Share pts

vs. LY-1.5 +0.1 -0.5

INNOVATION AND CONSUMER SUPPORT TO DRIVE SECOND HALF IMPROVEMENT

Increased Consumer

Support

Flavor News

3 Simple Ingredients

Dairy-Free

Improving U.S. Snacks

• 2H Improvement Driven by Nature Valley

Innovation, Fiber One Renovation, and Fruit

Snacks Momentum

• Lapping Distribution Losses on Nature Valley

and Fiber One

• Increased Brand Building in Snack Bars and Fruit

Source: Nielsen xAOC 11

U.S. SNACKS IMPROVEMENT TO CONTINUE IN SECOND HALF

-4%

-5%

-1%

-3%

Total Snacks Snack Bars

F19 F20 1H

GENERAL MILLS U.S. SNACKS(Retail Sales, % vs. LY)

Competing Effectively in U.S. Meals & Baking

OLD EL PASO REFRIGERATED DOUGH


SOUP

Share: +0.2 PtsShare: +0.9 Pts

12

Share: +0.7 Pts

Retail Sales: +3% Retail Sales: +6% Retail Sales: -3%

(General Mills F20 1H Retail Sales & Market Share vs. LY)

Second Quarter Fiscal 2020Pet Segment


Source: Nielsen xAOC, Profitero, Amazon Portal, Pet Specialty Distributor Data, Management Estimates

Net Sales $389 +16%¹

Segment Operating Profit $81 +14%

SEGMENT RESULTS $MM VS. LY

• Q2 net sales increase led by strong

growth in FDM and E-commerce,

positive price/mix, and shipment timing

benefit

• Life Protection Formula and Wilderness

net sales +DD in Q2

• 1H all-channel retail sales +DD%;

continued market share gains

• Q2 profit growth driven by higher net

sales

SEGMENT HIGHLIGHTS

13

Pet All-channel Retail Sales +DD in First-Half F20

Source: Nielsen and IRI excluding rawhide, chews, and RX sold in-store

Source: Nielsen xAOC, Profitero, Amazon Portal, Pet Specialty Distributor Data, Management Estimates

E-COMMERCEPET SPECIALTYFDM

Retail Sales +++

RETAIL SALES AT CUSTOMERS WITH BLUE MORE THAN 12 MONTHS

F19 Q2 F20 Q2

+45%

14

Retail Sales -DD Retail Sales +High Teens

Second Quarter Fiscal 2020Convenience Stores & Foodservice


Net Sales $514 Flat¹

Segment Operating Profit $115 +5%

• Significant topline improvement vs. Q1

• Focus 6 net sales +2%, led by Cereal,

Frozen Baked Goods, and Yogurt

• Q2 profit growth driven by COGS HMM

savings, partially offset by input cost

inflation and unfavorable price/mix

• 2H growth drivers: Continued Focus 6

performance, led by K-12


15

Second Quarter Fiscal 2020Europe & Australia



Source: Nielsen/IRI F20 3 months ending October 2019

Net Sales $433 -1%¹


• Significant topline improvement vs. Q1;

net sales decline driven by Yogurt,

partially offset by growth in Mexican Food

and Snack Bars

• Q2 retail sales +MSD on Mexican Food

and Snack Bars

• Q2 profit growth driven by timing of

brand-building expense

• 2H growth drivers: Increased

merchandising and brand-building

support


16

Second Quarter Fiscal 2020Asia & Latin America

Net Sales $410 +1%¹




SEGMENT RESULTS $MM VS. LY

• Significant topline improvement vs. Q1

• Net sales growth in Latin America and

China, partially offset by India distribution

network changes

• Q2 profit growth driven by lower SG&A

expense, partially offset by volume

• 2H growth drivers: Benefits from SRM and

distribution expansion

SEGMENT HIGHLIGHTS

17


18

Don MulliganChief Financial Officer



December 18, 2019

Q2 AFTER-TAX EARNINGS: $25MM; +11% VS. LY

Second Quarter Fiscal 2020Joint Ventures

*Growth rates in constant currency

Net Sales* +1% -6%

JV GROWTH HDJCPW

Highlights:

• CPW net sales increase driven by growth in the UK,

Australia, Turkey, and Middle East

• HDJ net sales decline primarily driven by slower

category performance

• After-tax earnings growth driven by positive price/mix

and benefits from cost savings at CPW

19

Second Quarter Fiscal 2020Margin Results

*Non-GAAP measure. See appendix for reconciliation

34.5%35.3%

F19-Q2 F20-Q2

17.3%18.4%

F19-Q2 F20-Q2

20

ADJUSTED GROSS MARGIN*

(% OF NET SALES)

ADJUSTED OP PROFIT MARGIN*

(% OF NET SALES)MARGIN DRIVERS

+ COGS HMM Savings

+ Manufacturing Leverage

- Input Cost Inflation

- Increased Media Expense

• Unallocated Corporate Expenses Increased $6MM ex. Certain Items

• Net Interest Expense Decreased $13MM

• Adjusted Effective Tax Rate 21.9% vs. 23.8% LY*

• Average Diluted Shares Outstanding Up 1%

Second Quarter Fiscal 2020 Other Income Statement Items

*Non-GAAP measure. See appendix for reconciliation21

First Half Fiscal 2020Financial Results

*Non-GAAP measure. See appendix for reconciliation


TOTAL GENERAL MILLS $MM VS LY

Net Sales $8,423 -1%

Organic Sales* Flat

Adjusted Operating Profit* $1,495 +7%1

Adjusted Diluted EPS* $1.74 +12%1

Dollars in millions except per share data

22

First-Half Fiscal 2020Balance Sheet and Cash Flow

OPERATING CASH FLOW($ IN MILLIONS)

• Core Working Capital -19% vs. LY

• Capital Investments = $158MM

• Dividends Paid = $596MM

• Debt Reduction = $655MM

$1,396 $1,457

F19 1H F20 1H

23

• Continued In-market Competitiveness in NAR and Strong Retail Sales Growth in Pet

• Organic Sales Growth Accelerating in 2H, Driven by:• Improved Trends for CS&F, EUAU, and ASLA vs. 1H

• Fiscal Year End Alignment: Extra Month of Results in Pet in Q4

• 2H Profit Impacted by Significant Brand-building and Capability Investments and Unwinding of Q2 Timing Benefits

• 53rd Week in Q4 for All Segments Except Pet

Second Half Expectations

24

Updating Fiscal 2020 Guidance for FCF Conversion

KEY FINANCIAL METRICS*FISCAL 2020

GUIDANCE

Organic Net Sales Growth +1 to +2%

Adjusted Operating Profit Growth +2 to +4%¹

Adjusted Diluted EPS Growth +3 to +5%¹

Free Cash Flow Conversion >105%

Leverage Ratio 3.5x

*Non-GAAP measures

(1) Constant currency growth rate 25

Previously >95%

CFO Transition

26

Don Mulligan

Retirement Effective June 1, 2020

Kofi Bruce

CFO Effective February 1, 2020

Will update background

• Broad-based Organic Sales Improvement in Q2

• Strong Earnings and Free Cash Flow Drove Reduced Debt in 1H

• Expect to Step Up Investments and Organic Sales Growth in 2H

• Remain on Track to Deliver Fiscal 2020 Goals for Sales, Profit,

and EPS; Raising Guidance for Cash Conversion

Today’s Key Messages

27

Our fiscal 2020 outlook for organic net sales growth, adjusted operating profit, and adjusted diluted EPS are non-GAAP

financial measures that exclude, or have otherwise been adjusted for, items impacting comparability, including the effect of

foreign currency exchange rate fluctuations, restructuring charges and project-related costs, acquisition integration costs, and

mark-to-market effects. Our fiscal 2020 outlook for organic net sales growth also excludes the effect of a 53rd week,

acquisitions, and divestitures. We are not able to reconcile these forward-looking non-GAAP financial measures to their most

directly comparable forward-looking GAAP financial measures without unreasonable efforts because we are unable to predict

with a reasonable degree of certainty the actual impact of changes in foreign currency exchange rates and commodity prices or

the timing of acquisitions, divestitures and restructuring actions throughout fiscal 2020. The unavailable information could

have a significant impact on our fiscal 2020 GAAP financial results.

For fiscal 2020, we currently expect: foreign currency exchange rates (based on a blend of forward and forecasted rates and

hedge positions), acquisitions, divestitures, and a 53rd week to increase net sales growth by approximately 1 percentage point;

foreign currency exchange rates to have an immaterial impact on adjusted operating profit and adjusted diluted EPS growth;

and restructuring charges and project-related costs related to actions previously announced to total approximately $49 million.

A Reminder on Non-GAAP Guidance

28

F20 Q2 OPERATING UNIT RESULTS

Appendix: North America Retail

29

Operating Unit Net Sales % vs. LY

U.S. Cereal +5%

U.S. Snacks -2%

U.S. Meals & Baking -1%

U.S. Yogurt -4%

Canada Flat

Canada Constant-currency1 +2%


(FISCAL YEAR)

Reconciliation of Second Quarter Fiscal 2020 Organic Net Sales Growth

30

Q2 2020

Organic

Volume

Organic

Price/Mix

Organic Net

Sales

Foreign

Exchange

Acquisitions &

Divestitures

Reported Net

Sales Growth

North America Retail - - Flat - - Flat

Convenience Stores

& Foodservice2 pts (2) pts Flat - - Flat

Europe & Australia (1) pt - (1) % (4) pts - (5) %

Asia & Latin America (1) pt 2 pts 1 % (2) pts (4) pts (5) %

Pet 13 pts 3 pts 16 % - - 16 %

Total 1 pt - 1 % (1) pt - Flat

*Table may not foot due to rounding

Reconciliation of Second Quarter Fiscal 2020 Adjusted Operating Profit Constant-currency Growth Rate

31

Q2

2020 2019 Change

Operating profit as reported $ 811.2 $ 547.0 48 %

Mark-to-market effects (22.6) 11.8

Restructuring charges 10.5 3.6

Project-related costs 0.7 -

Asset impairments - 205.8

Investment activity, net 13.2 (13.0)

Acquisition integration costs - 6.8

Hyperinflationary accounting - 3.2

Adjusted operating profit $ 813.1 $ 765.2 6 %

Foreign currency exchange impact Flat

Adjusted operating profit growth,

on a constant-currency basis 7 %

(FISCAL YEARS, $ IN MILLIONS)


(FISCAL YEARS)

Reconciliation of Second Quarter Fiscal 2020 Adjusted Diluted EPS and Related Constant-currency Growth Rate

32

Q2

Per Share Data 2020 2019 Change

Diluted earnings per share, as reported $ 0.95 $ 0.57 67 %

Mark-to-market effects** (0.03) 0.02

Restructuring charges** 0.01 -

Asset impairments** - 0.26

Investment activity, net** 0.01 (0.01)

Acquisition integration costs** - 0.01

Adjusted diluted earnings per share $ 0.95 $ 0.85 12 %

Foreign currency exchange impact 1 pt

Adjusted diluted earnings per share growth,


**See reconciliation of tax rate excluding items for tax impact of individual items


(FISCAL YEAR)

Reconciliation of Second Quarter Fiscal 2020 Canada Operating Unit Constant-currency Net Sales Growth

33

Q2 2020

Percentage Change in

Canada Net Sales

as Reported

Impact of

Foreign Currency

Exchange


Canada Net Sales on a

Constant-currency Basis

Flat (1) pt 2 %


(FISCAL YEAR)

Reconciliation of Second Quarter Fiscal 2020 Constant-currency Segment Operating Profit Growth

34

Q2 2020


Segment Operating

Profit as Reported

Impact of Foreign

Currency

Exchange


Segment Operating Profit on

a Constant-currency Basis

North America Retail 4 % Flat 4 %

Europe & Australia 40 % (5) pts 45 %

Asia & Latin America 36 % (5) pts 42 %

*Table may not foot due to rounding.

(FISCAL YEARS)

Reconciliation of Second Quarter Fiscal 2020 Adjusted Gross Margin

35

Q2

2020 2019

% of

Net Sales

% of

Net Sales

Gross margin as reported 35.5 % 34.2 %


Hyperinflationary accounting - -

Restructuring charges 0.3 -

Adjusted gross margin 35.3 % 34.5 %


(FISCAL YEARS)

Reconciliation of Second Quarter Fiscal 2020 Adjusted Operating Profit Margin

36

Q2

2020 2019

% of

Net Sales

% of

Net Sales

Operating profit margin as reported 18.3 % 12.4 %


Restructuring charges 0.2 -

Project-related costs - -

Asset impairments - 4.7

Investment activity, net 0.3 (0.3)

Acquisition integration costs - 0.2

Adjusted operating profit margin 18.4 % 17.3 %



Reconciliation of Second Quarter Fiscal 2020 Tax Rate Excluding Items

37

Q2

2020 2019

Pretax

Earnings**

Income

Taxes

Pretax

Earnings**

Income

Taxes

As reported $722.0 $155.5 $435.3 $106.6

Mark-to-market effects (22.6) (5.2) 11.8 2.7

Restructuring charges 10.5 1.7 3.6 0.5

Project-related costs 0.7 0.1 - -

Asset impairments - - 205.8 47.4

Investment activity, net 13.2 6.6 (13.0) (3.0)

Acquisition integration costs - - 6.8 1.6

Hyperinflationary accounting - - 3.2 -

As adjusted $723.8 $158.6 $653.5 $155.8

Effective tax rate:

As reported 21.5% 24.5%

As adjusted 21.9% 23.8%

Sum of adjustments to income taxes $3.2 $49.2

Average number of common shares - diluted EPS 612.3 604.5

Impact of income tax adjustments on

adjusted diluted EPS $0.01 $0.08

**Earnings before income taxes and after-tax earnings from joint ventures*Table may not foot due to rounding

(FISCAL YEAR)

Reconciliation of First Half Fiscal 2020 Organic Net Sales Growth

38

1H 2020

Organic

Volume

Organic

Price/Mix

Organic Net

Sales

Foreign

Exchange

Acquisitions &

Divestitures

Reported Net

Sales Growth

North America Retail (1) pt - Flat - - Flat

Convenience Stores

& Foodservice(2) pts - (2) % - - (2) %

Europe & Australia (5) pt 1 pt (3) % (4) pts - (7) %

Asia & Latin America (3) pt 2 pts (1) % (2) pts (4) pts (7) %

Pet 7 pts 5 pts 11 % - - 11 %

Total (1) pt 1 pt Flat (1) pt - (1) %


Reconciliation of First Half Fiscal 2020 Adjusted Operating Profit Constant-currency Growth Rate

39

1H

2020 2019 Change

Operating profit as reported $ 1,473.6l $ 1,148.5l 28 %

Mark-to-market effects (7.6) 42.9l

Restructuring charges 24.8l 2.4l

Project-related costs 0.7l 1.2l

Asset impairments - 205.8l

Investment activity, net 3.7l (13.0)

Acquisition integration costs - 15.5l

Hyperinflationary accounting - 3.2l

Adjusted operating profit $ 1,495.2l $ 1,406.5l 6 %


Adjusted operating profit growth,




(FISCAL YEARS)

Reconciliation of First Half Fiscal 2020 Adjusted Diluted EPS and Related Constant-currency Growth Rate

40

1H

Per Share Data 2020 2019 Change

Diluted earnings per share, as reported $ 1.80 $ 1.22 48 %

Tax item (0.09) -

Mark-to-market effects** (0.01) 0.06

Restructuring charges** 0.03 -

Asset impairments** - 0.26

Investment activity, net** - (0.01)

CPW restructuring costs - 0.01

Acquisition integration costs** - 0.02

Adjusted diluted earnings per share $ 1.74 $ 1.56 12 %


Adjusted diluted earnings per share growth,


**See reconciliation of tax rate excluding items for tax impact of individual items

*Table may not foot due to rounding.


Reconciliation of First Half Fiscal 2020 Tax Rate Excluding Items

41

1H

2020 2019

Pretax

Earnings**

Income

Taxes

Pretax

Earnings**

Income

Taxes

As reported $1,295.9 $222.7 $924.2 $217.3

Tax item - 53.1 - -

Mark-to-market effects (7.6) (1.7) 42.9 9.9

Restructuring charges 24.8 4.3 2.4 0.2

Project-related costs 0.7 0.1 1.2 0.3

Asset impairments - - 205.8 47.4

Investment activity, net 3.7 4.4 (13.0) (3.0)

Acquisition integration costs - - 15.5 3.6

Hyperinflationary accounting - - 3.2 -

As adjusted $1,317.5 $282.8 $1,182.2 $275.7

Effective tax rate:

As reported 17.2% 23.5%

As adjusted 21.5% 23.3%

Sum of adjustments to income taxes $60.2 $58.4

Average number of common shares - diluted EPS 611.8 603.8

Impact of income tax adjustments on

adjusted diluted EPS $0.10 $0.10**Earnings before income taxes and after-tax earnings from joint ventures.*Table may not foot due to rounding


Reconciliation of First Half Fiscal 2020 Free Cash Flow

42*Table may not foot due to rounding

1H

2020 2019

Net cash provided by operating activities $ 1,456.6 $ 1,396.5

Purchases of land, buildings, and equipment (158.5) (253.8)

Free cash flow $ 1,298.1 $ 1,142.7

Reconciliation of Fiscal 2019 Adjusted Diluted EPS

43

(FISCAL YEAR)Full Year

Per Share Data 2019

Diluted earnings per share, as reported $ 2.90

Net tax benefit (0.01)

Tax items (0.12)

Mark-to-market effects* 0.05

Divestiture loss, net* 0.03

Acquisition transaction and integration costs* 0.03

Restructuring charges* 0.10

Asset impairments* 0.26

Investment valuation adjustments* (0.03)

CPW restructuring charges 0.02

Legal recovery* (0.01)

Adjusted diluted earnings per share $ 3.22

*See reconciliation of Income Taxes on Adjusting Items for tax impact of individual items

Reconciliation of Fiscal 2019 Income Taxes on Adjusting Items

44

(FISCAL YEAR, $ IN MILLIONS)2019 Full Year

Pretax

Earnings*

Income

Taxes

As reported $2,082.0 $367.8

Net tax benefit - 7.2

Tax items - 72.9

Mark-to-market effects 36.0 8.3

Divestitures loss 30.0 13.6

Acquisition transaction and integration costs 25.6 5.9

Restructuring costs 77.6 14.6

Project-related costs 1.3 0.2

Asset impairments 207.4 47.7

Hyperinflationary accounting 3.2 -

Investment valuation adjustments (22.8) (5.2)

Legal recovery (16.2) (5.4)

As adjusted $2,424.1 $527.6

*Earnings before income taxes and after-tax earnings from joint ventures

Investor Day Fiscal 2020 Second Quarter Fiscal 2020 December … · 2019. 12. 18. · This...

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