Item 2.
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Managements Discussion and Analysis of Financial Condition and Results of Operations.
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INTRODUCTION
This Managements
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 28, 2017 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.
CONSOLIDATED RESULTS OF OPERATIONS
First Quarter Results
In the first
quarter of fiscal 2018, our net sales results finished in line with our expectations, and our execution against our global growth priorities drove market share improvement in a number of important markets, including the U.S. Our results were
impacted by a challenging macro environment, unfavorable trade expense phasing, and higher input costs. Net sales declined 4 percent, driven by declining contributions from volume in the North America Retail and Asia & Latin America
segments. Operating profit margin of 16.6 percent was up 10 basis points from
year-ago
levels primarily driven by a decrease in restructuring expenses and
mark-to-market
valuation of certain commodity positions, partially offset by lower segment operating profit results. Adjusted operating profit margin decreased 210 basis points to 17.1 percent,
primarily driven by higher input costs including currency-driven inflation on imported products in certain markets, and unfavorable trade expense phasing in the first quarter of fiscal 2018. Diluted earnings per share of $0.69 increased
3 percent compared to the first quarter of fiscal 2017 and adjusted diluted earnings per share, which excludes certain items affecting comparability, on a constant-currency basis decreased 9 percent compared to the first quarter last year
(see the
Non-GAAP
Measures section below for a description of our use of measures not defined by GAAP).
A summary of our consolidated financial results for the first quarter of fiscal 2018 follows:
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Quarter Ended Aug. 27, 2017
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In millions, except
per share
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Quarter Ended
Aug. 27, 2017 vs.
Aug. 28, 2016
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Percent of Net
Sales
|
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|
Constant-
Currency
Growth (a)
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Net sales
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$
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3,769.2
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(4
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)%
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|
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|
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Operating profit
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625.8
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(3
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)%
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16.6
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%
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Net earnings attributable to General Mills
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404.7
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(1
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)%
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Diluted earnings per share
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$
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0.69
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3
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%
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Organic net sales growth rate (a)
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(4
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)%
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Total segment operating profit (a)
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664.1
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(16
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)%
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(16
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)%
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Adjusted operating profit margin (a)
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17.1
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%
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Diluted earnings per share, excluding certain items affecting
comparability (a)
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$
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0.71
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(9
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)%
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(9
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)%
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(a) See the
Non-GAAP
Measures
section below for our use of measures not defined by GAAP.
21
Consolidated
net sales
were as follows:
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Quarter Ended
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Aug. 27,
2017
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Aug. 27, 2017 vs
Aug. 28, 2016
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Aug. 28,
2016
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Net sales (in millions)
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$
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3,769.2
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|
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(4) %
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$
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3,907.9
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|
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Contributions from volume growth (a)
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(4) pts
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Net price realization and mix
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Flat
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Foreign currency exchange
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Flat
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(a)
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Measured in tons based on the stated weight of our product shipments.
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The 4 percent decline in net sales primarily reflected lower organic net sales. Organic net sales declined 4 percent primarily driven by declines in contributions from organic volume growth in
North America Retail and Asia & Latin America. To improve comparability of results from period to period, organic net sales exclude the impacts of foreign currency exchange rate fluctuations, as well as acquisitions, divestitures, and a
53
rd
week of results, when applicable.
Components of organic net sales growth are shown in the following table:
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Quarter Ended Aug. 27, 2017 vs.
Quarter Ended Aug. 28, 2016
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|
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Contributions from organic volume growth (a)
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(4)
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pts
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Organic net price realization and mix
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|
|
Flat
|
|
|
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Organic net sales growth
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(4)
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pts
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Foreign currency exchange
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|
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|
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Flat
|
Acquisitions and divestitures
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Flat
|
Net sales growth
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(4)
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pts
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(a)
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Measured in tons based on the stated weight of our product shipments.
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Cost of sales
decreased $32 million from the first quarter of fiscal 2017 to $2,459 million. The decrease included a $94 million decrease attributable to lower volume and a
$96 million increase attributable to product rate and mix. We recorded a $2 million net decrease in cost of sales related to the
mark-to-market
valuation of
certain commodity positions and grain inventories in the first quarter of fiscal 2018 compared to a net increase of $17 million in the first quarter of fiscal 2017. We recorded $12 million of restructuring charges in cost of sales in the
first quarter of fiscal 2018 compared to $14 million in the same period last year. We also recorded $1 million of restructuring initiative project-related costs in the first quarter of fiscal 2018 compared to $14 million in the same
period last year (please refer to Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report).
Selling, general, and
administrative (SG&A) expenses
decreased $33 million to $679 million in the first quarter of fiscal 2018 compared to the same period in fiscal 2017. The decrease in SG&A expenses primarily reflects savings from cost management
initiatives partially offset by a 1 percentage point increase in media and advertising expense. SG&A expenses as a percent of net sales in the first quarter of fiscal 2018 decreased 20 basis points compared with the first quarter of fiscal 2017.
Restructuring, impairment, and other exit costs
totaled $5 million in the first quarter of fiscal 2018 compared to
$59 million in the same period last year.
22
Total charges associated with our current restructuring initiatives were as follows:
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As Reported
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Quarter Ended
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Fiscal Years
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Estimated
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Aug. 27, 2017
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Aug. 28, 2016
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2015 - 2017
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Future
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Total
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In Millions
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Charge
|
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Cash
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|
Charge
|
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Cash
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|
Charge
|
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Cash
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Charge
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Cash
|
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Charge
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Cash
|
|
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Savings (b)
|
|
Global reorganization
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$
|
0.8
|
|
|
$
|
15.6
|
|
|
$
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|
|
|
$
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|
|
|
$
|
72.1
|
|
|
$
|
20.0
|
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|
$
|
2
|
|
|
$
|
39
|
|
|
$
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75
|
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|
$
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75
|
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Closure of Melbourne, Australia plant
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2.1
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0.8
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21.9
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1.6
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|
10
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|
1
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34
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|
3
|
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Restructuring of certain international product lines
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|
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|
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36.4
|
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|
3.3
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|
|
45.1
|
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|
|
10.3
|
|
|
|
(3
|
)
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|
|
(10
|
)
|
|
|
42
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|
|
|
|
|
|
|
|
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Closure of Vineland, New Jersey plant
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|
13.4
|
|
|
|
6.0
|
|
|
|
20.9
|
|
|
|
|
|
|
|
41.4
|
|
|
|
7.3
|
|
|
|
|
|
|
|
(1
|
)
|
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|
55
|
|
|
|
12
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|
|
|
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|
Project Compass
|
|
|
(0.2
|
)
|
|
|
2.4
|
|
|
|
1.0
|
|
|
|
4.3
|
|
|
|
54.3
|
|
|
|
48.9
|
|
|
|
|
|
|
|
3
|
|
|
|
54
|
|
|
|
54
|
|
|
|
|
|
Project Century
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|
|
1.4
|
|
|
|
1.6
|
|
|
|
14.2
|
|
|
|
7.6
|
|
|
|
408.4
|
|
|
|
95.5
|
|
|
|
4
|
|
|
|
46
|
|
|
|
414
|
|
|
|
143
|
|
|
|
|
|
Project Catalyst
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
140.9
|
|
|
|
94.1
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
|
94
|
|
|
|
|
|
Combination of certain operational facilities
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
1.1
|
|
|
|
13.3
|
|
|
|
16.3
|
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
15
|
|
|
|
14
|
|
|
|
|
|
Total restructuring
charges (a)
|
|
|
17.5
|
|
|
|
26.7
|
|
|
|
72.5
|
|
|
|
15.9
|
|
|
|
797.4
|
|
|
|
294.0
|
|
|
|
15
|
|
|
|
75
|
|
|
|
830
|
|
|
|
395
|
|
|
|
|
|
Project-related costs
|
|
|
1.2
|
|
|
|
2.7
|
|
|
|
13.8
|
|
|
|
16.7
|
|
|
|
114.6
|
|
|
|
111.1
|
|
|
|
12
|
|
|
|
16
|
|
|
|
128
|
|
|
|
130
|
|
|
|
|
|
Restructuring charges and project-related costs
|
|
$
|
18.7
|
|
|
$
|
29.4
|
|
|
$
|
86.3
|
|
|
$
|
32.6
|
|
|
$
|
912.0
|
|
|
$
|
405.1
|
|
|
$
|
27
|
|
|
$
|
91
|
|
|
$
|
958
|
|
|
$
|
525
|
|
|
$
|
700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(a)
|
Includes $12.3 million of restructuring charges recorded in cost of sales in the first quarter of fiscal 2018 and $13.6 million in the first quarter of fiscal
2017.
|
(b)
|
Cumulative annual savings versus fiscal 2015 base targeted by fiscal 2018. Includes savings from SG&A cost reduction projects.
|
For further information on these restructuring initiatives, please refer to Note 3 to the Consolidated Financial Statements in Part 1, Item 1 of this
report.
Interest, net
for the first quarter of fiscal 2018 totaled $72 million, down $2 million from fiscal 2017, driven
primarily by changes in the mix of debt, partially offset by higher average debt balances.
The
effective tax rate
for the first
quarter of fiscal 2018 was 30.4 percent compared to 30.9 percent for the first quarter of fiscal 2017. The 0.5 percentage point decrease was primarily due to the impact of the prospective adoption of the new accounting standard related to
windfall tax benefits from stock-based payments (see note 16 to the Consolidated Financial Statements in Part 1, Item 1 of this report), partially offset by certain discrete items. Our effective tax rate excluding certain items affecting
comparability was 30.5 percent in the first quarter of fiscal 2018 compared to 31.4 percent in the first quarter of fiscal 2017 (see the
Non-GAAP
Measures section below for a description
of our use of measures not defined by GAAP).
After-tax
earnings from joint ventures
for the
first quarter of fiscal 2018 decreased 2 percent compared to the same quarter last fiscal year, driven by unfavorable foreign currency exchange and higher product costs for
Häagen-Dazs
Japan, Inc.
(HDJ) partially offset by favorable foreign currency exchange and volume growth for Cereal Partners Worldwide (CPW). On a constant-currency basis,
after-tax
earnings from joint ventures decreased
1 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:
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Quarter Ended Aug. 27, 2017 vs.
Quarter Ended Aug. 28, 2016
|
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CPW
|
|
HDJ
|
Contributions from volume growth (a)
|
|
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1
|
|
|
pt
|
|
|
12
|
|
|
pts
|
Net price realization and mix
|
|
|
1
|
|
|
pt
|
|
|
2
|
|
|
pts
|
Foreign currency exchange
|
|
|
2
|
|
|
pts
|
|
|
(8)
|
|
|
pts
|
Net sales growth
|
|
|
4
|
|
|
pts
|
|
|
6
|
|
|
pts
|
|
|
|
|
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|
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|
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(a) Measured in tons based on the stated weight of our product shipments.
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23
The change in net sales for each joint venture on a constant-currency basis is set forth in the following
table:
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|
|
|
|
|
|
|
|
Quarter Ended Aug. 27, 2017
|
|
|
|
Percentage Change
in Joint Venture
Net Sales
as Reported
|
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in
Joint Venture
Net Sales on Constant-
Currency
Basis
|
|
CPW
|
|
|
4%
|
|
|
|
2 pts
|
|
|
|
2%
|
|
HDJ
|
|
|
6%
|
|
|
|
(8) pts
|
|
|
|
14%
|
|
Joint Ventures
|
|
|
4%
|
|
|
|
Flat
|
|
|
|
4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average diluted shares outstanding
decreased by 26 million in the first quarter of fiscal 2018 from the same
period a year ago due to the impact of share repurchases, partially offset by option exercises.
SEGMENT OPERATING RESULTS
In the third quarter of fiscal 2017, we announced a new global organization structure to streamline our leadership, enhance global scale, and drive
improved operational agility to maximize our growth capabilities. As a result of this global reorganization, beginning in the third quarter of fiscal 2017, we are reporting results for our four operating segments as follows: North America Retail;
Convenience Stores & Foodservice; Europe & Australia; and Asia & Latin America. We have restated our net sales by segment and segment operating profit amounts to reflect our new operating segments. These segment changes
had no effect on previously reported consolidated net sales, operating profit, net earnings attributable to General Mills, or earnings per share.
Our North America Retail operating segment consists of our former U.S. Retail operating units and our Canada region. Within our North America Retail operating segment, our former U.S. Meals operating unit
and U.S. Baking operating unit have been combined into one operating unit: U.S. Meals & Baking. Our Europe & Australia operating segment consists of our former Europe region. Our Asia & Latin America operating segment
consists of our former Asia/Pacific and Latin America regions. Our Convenience Stores & Foodservice operating segment was unchanged. For further information on our operating segments, please refer to Note 15 to the Consolidated Financial
Statements in Part 1, Item 1 of this report.
North America Retail Segment Results
North America Retail net sales were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Aug. 27,
2017
|
|
|
Aug. 27, 2017 vs
Aug. 28, 2016
|
|
|
Aug. 28,
2016
|
|
Net sales (in millions)
|
|
$
|
2,438.2
|
|
|
|
(5) %
|
|
|
$
|
2,557.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
(3) pts
|
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
(2) pts
|
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
|
Flat
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The 5 percent decrease in North America Retail net sales in the first quarter of fiscal 2018 was driven by declines in the U.S. Yogurt, U.S. Cereal, U.S. Snacks, and Canada operating units.
24
The components of North America Retail organic net sales growth are shown in the following table:
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Aug. 27, 2017
|
|
Contributions from organic volume growth (a)
|
|
|
(3) pts
|
|
Organic net price realization and mix
|
|
|
(2) pts
|
|
|
|
|
|
|
Organic net sales growth
|
|
|
(5) pts
|
|
Foreign currency exchange
|
|
|
Flat
|
|
Acquisitions and divestitures
|
|
|
Flat
|
|
Net sales growth
|
|
|
(5) pts
|
|
|
|
|
|
|
(a) Measured in tons based on the stated weight of our product shipments.
North America Retail organic net sales decreased 5 percentage points for the quarter ended August 27, 2017, which was primarily driven by volume
declines in the U.S. Yogurt and U.S. Cereal operating units, and increased trade expense.
North America Retail net sales percentage change by
operating unit are shown in the following table:
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Aug. 27, 2017
|
|
U.S. Yogurt
|
|
|
(22
|
)%
|
U.S. Cereal
|
|
|
(7
|
)
|
U.S. Snacks
|
|
|
(2
|
)
|
Canada (a)
|
|
|
(2
|
)
|
U.S. Meals & Baking
|
|
|
Flat
|
|
Total
|
|
|
(5
|
)%
|
|
|
|
|
|
(a)
|
On a constant currency basis, Canada net sales decreased 2 percent for the quarter ended August 27, 2017. See the
Non-GAAP
Measures section below for our use of this measure not defined by GAAP.
|
Segment operating profit decreased 15 percent to $533 million in the first quarter of fiscal 2018 compared to $628 million in the same period of fiscal 2017, driven primarily by lower
volume growth, unfavorable trade expense phasing, higher input costs, and an increase in media and advertising expense. Segment operating profit decreased 15 percent on a constant-currency basis in the first quarter of fiscal 2018 compared to
the first quarter of fiscal 2017 (see the
Non-GAAP
Measures section below for our use of this measure not defined by GAAP).
Europe & Australia Segment Results
Europe & Australia net sales were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Aug. 27,
2017
|
|
|
Aug. 27, 2017 vs.
Aug. 28, 2016
|
|
|
Aug. 28,
2016
|
|
Net sales (in millions)
|
|
$
|
491.9
|
|
|
|
3 %
|
|
|
$
|
478.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
(1) pt
|
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
3 pts
|
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
|
1 pt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The 3 percent increase in Europe & Australia net sales in the first quarter of fiscal 2018 was driven by growth in the super-premium ice cream and snacks businesses, and favorable foreign
currency exchange.
25
The components of Europe & Australia organic net sales growth are shown in the following table:
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Aug. 27, 2017
|
|
Contributions from organic volume growth (a)
|
|
|
(1)pt
|
|
Organic net price realization and mix
|
|
|
3 pts
|
|
|
|
|
|
|
Organic net sales growth
|
|
|
2 pts
|
|
Foreign currency exchange
|
|
|
1 pt
|
|
Net sales growth
|
|
|
3 pts
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The 2 percent increase in Europe & Australia organic net sales growth was driven by a 3 percentage point increase from organic net price realization and mix, partially offset by a 1
percentage point reduction in contributions from organic volume growth for the first quarter of fiscal 2018.
Segment operating profit
decreased 30 percent to $31 million in the first quarter of fiscal 2018 compared to $44 million in the same period of fiscal 2017. These results were primarily driven by input cost inflation, including currency-driven inflation on
imported products in certain markets. Europe & Australia segment operating profit decreased 31 percent on a constant-currency basis in the first quarter of fiscal 2018 compared to the first quarter of fiscal 2017 (see the
Non-GAAP
Measures section below for our use of this measure not defined by GAAP).
Convenience Stores & Foodservice Segment Results
Convenience Stores & Foodservice net sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Aug. 27,
2017
|
|
|
Aug. 27, 2017 vs
Aug. 28, 2016
|
|
|
Aug. 28,
2016
|
|
Net sales (in millions)
|
|
$
|
447.1
|
|
|
|
Flat
|
|
|
$
|
446.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
Flat
|
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
Flat
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Convenience Stores & Foodservice net sales in the first quarter of fiscal 2018 were flat compared to the first quarter of fiscal 2017.
The components of Convenience Stores & Foodservice organic net sales growth are shown in the following table:
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Aug. 27, 2017
|
|
Contributions from organic volume growth (a)
|
|
|
Flat
|
|
Organic net price realization and mix
|
|
|
Flat
|
|
|
|
|
|
|
Organic net sales growth
|
|
|
Flat
|
|
Net sales growth
|
|
|
Flat
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Segment operating profit declined 8 percent to $85 million in the first quarter of fiscal 2018 compared to $93 million in the first quarter of fiscal 2017, primarily driven by higher input
costs and unfavorable mix.
26
Asia & Latin America Segment Results
Asia & Latin America net sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Aug. 27,
2017
|
|
|
Aug. 27, 2017 vs.
Aug. 28, 2016
|
|
|
Aug. 28,
2016
|
|
Net sales (in millions)
|
|
$
|
392.0
|
|
|
|
(8) %
|
|
|
$
|
426.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
(17) pts
|
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
9 pts
|
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
|
Flat
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Asia & Latin America net sales declined 8 percent in the first quarter of fiscal 2018 compared to the same period in the prior year which reflects the shift in reporting period in fiscal
2017 and challenges related to an enterprise reporting system implementation at our General Mills Brasil Alimentos Ltda subsidiary (Yoki).
The components of Asia & Latin America organic net sales growth are shown in the following table:
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Aug. 27, 2017
|
|
Contributions from organic volume growth (a)
|
|
|
(17)pts
|
|
Organic net price realization and mix
|
|
|
9 pts
|
|
|
|
|
|
|
Organic net sales growth
|
|
|
(8)pts
|
|
Foreign currency exchange
|
|
|
Flat
|
|
Net sales growth
|
|
|
(8)pts
|
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The 8 percent decrease in Asia & Latin America organic net sales for the quarter ended August 27, 2017 was primarily driven by a 17 percentage point decline in organic volume which
reflects the shift in reporting period in fiscal 2017 and challenges related to an enterprise reporting system implementation at Yoki. This was partially offset by a 9 percentage point increase of organic net price realization and mix driven by
pricing actions.
Segment operating profit decreased to $16 million in the first quarter of fiscal 2018 compared to $22 million in
the same period of fiscal 2017. These results were primarily driven by lower sales volume and currency driven inflation on imported products in certain markets. Asia & Latin America segment operating profit decreased 33 percent on a
constant-currency basis in the first quarter of fiscal 2018 compared to the first quarter of fiscal 2017 (see the
Non-GAAP
Measures section below for our use of this measure not defined by GAAP).
UNALLOCATED CORPORATE ITEMS
Unallocated corporate expense totaled $33 million in the first quarter of fiscal 2018 compared to $82 million in the same period in fiscal
2017. In the first quarter of fiscal 2018, we recorded $12 million of restructuring charges and $1 million of restructuring initiative project-related costs in cost of sales compared to $14 million of restructuring charges and
$14 million of restructuring initiative project-related costs in cost of sales in the same period last year. In addition, we recorded a $2 million net decrease in expense related to the
mark-to-market
valuation of certain commodity positions and grain inventories in the first quarter of fiscal 2018 compared to a $17 million net increase in expense in the same period last year.
LIQUIDITY
During the first
quarter ended August 27, 2017, cash provided by operations was $590 million compared to $371 million in the same period last year. The $219 million increase is primarily driven by a $310 million change in current assets and
liabilities. The $310 million change in current assets and liabilities is primarily due to changes in timing of accounts payable including the impact of extension of payment terms and changes in other current liabilities, which was largely
driven by changes in trade and incentive accruals.
27
Cash used by investing activities during the first quarter ended August 27, 2017 was $123 million,
compared to cash used by investing activities of $127 million in the same period in fiscal 2017. Investments of $116 million in land, buildings and equipment in the three-month period ended August 27, 2017 decreased $37 million
compared to the same period a year ago. In addition, we received the final payment of $13 million from Sodiaal International (Sodiaal) in the first quarter of 2017 to fully repay the exchangeable note we purchased in fiscal 2012.
Cash used by financing activities during the first quarter ended August 27, 2017, was $451 million compared to $238 million in the same
period last year. We paid $600 million in cash to repurchase common stock and paid $284 million of dividends in the first quarter of fiscal 2018 compared to $400 million and $291 million, respectively, in the same period last
year.
As of August 27, 2017, we had $790 million of cash and cash equivalents held in foreign jurisdictions which will be used to
fund foreign operations and potential acquisitions. There is currently no need to repatriate these funds in order to meet domestic funding obligations or scheduled cash distributions. If we choose to repatriate historical earnings from foreign
jurisdictions, we intend to do so only in a
tax-neutral
manner.
CAPITAL RESOURCES
Our capital structure was as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
Aug. 27,
2017
|
|
|
May 28,
2017
|
|
Notes payable
|
|
$
|
1,660.3
|
|
|
$
|
1,234.1
|
|
Current portion of long-term debt
|
|
|
604.7
|
|
|
|
604.7
|
|
Long-term debt
|
|
|
7,822.7
|
|
|
|
7,642.9
|
|
Total debt
|
|
|
10,087.7
|
|
|
|
9,481.7
|
|
Redeemable interest
|
|
|
967.5
|
|
|
|
910.9
|
|
Noncontrolling interests
|
|
|
379.1
|
|
|
|
357.6
|
|
Stockholders equity
|
|
|
3,903.8
|
|
|
|
4,327.9
|
|
Total capital
|
|
$
|
15,338.1
|
|
|
$
|
15,078.1
|
|
|
|
|
|
|
|
|
|
|
To ensure availability of funds, we maintain bank credit lines sufficient to cover our outstanding notes payable.
Commercial paper is a continuing source of short-term financing. We have commercial paper programs available to us in the United States and Europe. We also have committed, uncommitted, and asset-backed credit lines that support our foreign
operations.
The following table details the
fee-paid
committed and uncommitted credit lines we had
available as of August 27, 2017:
|
|
|
|
|
|
|
|
|
In Billions
|
|
Facility
Amount
|
|
|
Borrowed
Amount
|
|
Credit facility expiring:
|
|
|
|
|
|
|
|
|
May 2022
|
|
$
|
2.7
|
|
|
$
|
|
|
June 2019
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Total committed credit facilities
|
|
|
2.9
|
|
|
|
0.1
|
|
Uncommitted credit facilities
|
|
|
0.5
|
|
|
|
0.2
|
|
Total committed and uncommitted credit facilities
|
|
$
|
3.4
|
|
|
$
|
0.3
|
|
|
|
|
|
|
|
|
|
|
The third-party holder of the General Mills Cereals, LLC (GMC) Class A Interests receives quarterly preferred
distributions from available net income based on the application of a floating preferred return rate to the holders capital account balance established in the most recent
mark-to-market
valuation (currently $252 million). On June 1, 2015, the floating preferred return rate on GMCs Class A Interests was reset to the sum of
three-month LIBOR plus 125 basis points. The preferred return rate is adjusted every three years through a negotiated agreement with the Class A Interest holder or through a remarketing auction.
We have an option to purchase the Class A Interests for consideration equal to the then current capital account value, plus any unpaid preferred
return and the prescribed make-whole amount. If we purchase these interests, any change in the third-party holders capital account from its original value will be charged directly to retained earnings and will increase or decrease the net
earnings used to calculate EPS in that period.
28
We have a 51 percent controlling interest in Yoplait SAS and a 50 percent interest in Yoplait
Marques SNC and Liberté Marques Sàrl. Sodiaal holds the remaining interests in each of these entities. We consolidate these entities into our consolidated financial statements. As of August 27, 2017, we recorded
Sodiaals 50 percent interests in Yoplait Marques SNC and Liberté Marques Sàrl as noncontrolling interests, and the redemption value of its 49 percent interest in Yoplait SAS as a redeemable interest on our Consolidated
Balance Sheets. These euro- and Canadian dollar-denominated interests are reported in U.S. dollars on our Consolidated Balance Sheets. Sodiaal has the ability to put all or a portion of its redeemable interest to us at fair value once per year, up
to three times before December 2024. As of August 27, 2017, the redemption value of the redeemable interest was $968 million, which approximates its fair value.
Certain of our long-term debt agreements, our credit facilities, and our noncontrolling interests contain restrictive covenants. As of August 27, 2017, we were in compliance with all of these
covenants.
We have $605 million of long-term debt maturing in the next 12 months that is classified as current, including
$500 million of 1.4 percent notes due October 2017 and $100 million of 6.39 percent fixed rate medium term notes due for remarketing in February 2018. We believe that cash flows from operations, together with available short- and
long-term debt financing, will be adequate to meet our liquidity and capital needs for at least the next 12 months.
OFF-BALANCE
SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
There were no material changes outside the
ordinary course of our business in our contractual obligations or
off-balance
sheet arrangements during the first quarter of fiscal 2018.
SIGNIFICANT ACCOUNTING ESTIMATES
Our significant accounting policies are described in
Note 2 to the Consolidated Financial Statements included in our Annual Report on Form
10-K
for the fiscal year ended May 28, 2017. The accounting policies used in preparing our interim fiscal 2018
Consolidated Financial Statements are the same as those described in our Form
10-K
with the exception of the new accounting requirements adopted in the first quarter of fiscal 2018 for stock-based payments and
goodwill impairment testing. See Note 16 to the Consolidated Financial Statements in Part I, Item 1 of this report for additional information.
Our significant accounting estimates are those that have meaningful impact on the reporting of our financial condition and results of operations. These estimates include our accounting for promotional
expenditures, valuation of long-lived assets, intangible assets, redeemable interest, stock-based compensation, income taxes, and defined benefit pension, other postretirement benefit, and postemployment benefit plans. The assumptions and
methodologies used in the determination of those estimates as of August 27, 2017, are the same as those described in our Annual Report on Form
10-K
for the fiscal year ended May 28, 2017, with the
exception of the new accounting requirements adopted in the first quarter of fiscal 2018 for goodwill impairment testing. See Note 16 to the Consolidated Financial Statements in Part I, Item 1 of this report for additional information.
We tested our goodwill and brand intangible assets for impairment on our annual assessment date in the second quarter of fiscal 2017. As of
our annual impairment assessment date, there was no impairment of any of our intangible assets as their related fair values were substantially in excess of the carrying values, except for the Latin America reporting unit and
Immaculate Baking
brand intangible asset. The excess fair value above the carrying value of these intangible assets is as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
Carrying
Value
|
|
|
Excess Fair Value
Above Carrying
Value
|
|
Latin America
|
|
$
|
523.0
|
|
|
|
15
|
%
|
Immaculate Baking
|
|
$
|
12.0
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
In addition, while having significant coverage as of our fiscal 2017 assessment date, the
Progresso
,
Green
Giant
and
Food Should Taste Good
brand intangible assets and U.S. Yogurt reporting unit had risk of decreasing coverage. We will continue to monitor these businesses for potential impairment.
29
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 2017, the Financial Accounting Standards Board (FASB) issued new accounting requirements related to the presentation of net periodic defined benefit pension expense, net periodic postretirement
benefit expense, and net periodic postemployment benefit expense. The new standard requires the service cost component of net periodic benefit expense to be recorded in the same line items as other employee compensation costs within our Consolidated
Statements of Earnings. Other components of net periodic benefit expense must be presented separately outside of operating profit in our Consolidated Statements of Earnings. In addition, the new standard requires that only the service cost component
of net periodic benefit expense is eligible for capitalization. We recognized net periodic benefit expense of $56 million in fiscal 2017, $163 million in fiscal 2016, and $153 million in fiscal 2015 of which $141 million,
$161 million, and $167 million, respectively, related to service cost. These amounts may not necessarily be indicative of future amounts that may be recognized subsequent to the adoption of this new standard. The requirements of the new
standard are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods, which for us is the first quarter of fiscal 2019. Early adoption is permitted.
In October 2016, the FASB issued new accounting requirements related to the recognition of income taxes resulting from intra-entity transfers of assets
other than inventory. This will result in the recognition of the income tax consequences resulting from the intra-entity transfer of assets in our Consolidated Statements of Earnings in the period of the transfer. The requirements of the new
standard are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods, which for us is the first quarter of fiscal 2019. Early adoption is permitted. Based on our assessment to
date, we do not expect this guidance to have a material impact on our results of operations or financial position.
In February 2016, the FASB
issued new accounting requirements for accounting, presentation and classification of leases. This will result in most leases being capitalized as a right of use asset with a related liability on our Consolidated Balance Sheets. The requirements of
the new standard are effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, which for us is the first quarter of fiscal 2020. We are in the process of evaluating lease
accounting software and analyzing the impact of this standard on our results of operations and financial position. Based on our assessment to date, we expect this guidance will have a material impact on our Consolidated Balance Sheets due to the
amount of our lease commitments but we are unable to quantify the impact at this time.
In May 2014, the FASB issued new accounting
requirements for the recognition of revenue from contracts with customers. The requirements of the new standard and its subsequent amendments are effective for annual reporting periods beginning after December 15, 2017, and interim periods
within those annual periods, which for us is the first quarter of fiscal 2019. We are in the process of documenting the impact of the guidance on our current accounting policies and practices in order to identify material differences, if any, that
would result from applying the new requirements to our revenue contracts. We continue to make progress on our revenue recognition review and are also in the process of evaluating the impact, if any, on changes to our business processes, systems, and
controls to support recognition and disclosure requirements under the new guidance. In addition, we continue to assess our adoption approach. Based on our assessment to date, we do not expect this guidance to have a material impact on our results of
operations or financial position.
NON-GAAP
MEASURES
We have included in this report measures of financial performance that are not defined by GAAP. We believe that these measures provide useful information
to investors and include these measures in other communications to investors.
For each of these
non-GAAP
financial measures, we are providing below a reconciliation of the differences between the
non-GAAP
measure and the most directly comparable GAAP measure, an
explanation of why we believe the
non-GAAP
measure provides useful information to investors, and any additional purposes for which we use the
non-GAAP
measure. These
non-GAAP
measures should be viewed in addition to, and not in lieu of, the comparable GAAP measure.
Organic Net Sales Growth Rates
This measure is used in reporting to our executive management and as a component of the Board of Directors measurement of our performance for incentive compensation purposes. We provide organic net
sales growth rates for our consolidated net sales and segment net sales. We believe that organic net sales growth rates provide useful information to investors because they provide transparency to underlying performance in our net sales by excluding
the effect that foreign currency exchange rate fluctuations, as well as acquisitions, divestitures, and a
53
rd
week, when applicable, have on
year-to-year
comparability. A reconciliation of these measures to reported net sales growth rates, the relevant GAAP measures, are included in our Consolidated Results of
Operations and Segment Operating Results discussions in the MD&A above.
30
Total Segment Operating Profit and Related Constant-Currency Growth Rate
This measure is used in reporting to our executive management and as a component of the Board of Directors measurement of our performance for
incentive compensation purposes. We believe that this measure provides useful information to investors because it is the profitability measure we use to evaluate segment performance. A reconciliation of this measure to operating profit, the relevant
GAAP measure, is included in Note 15 to the Consolidated Financial Statements in Part I, Item 1 of this report.
Constant-currency total
segment operating profit growth is calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change in Total
Segment Operating Profit
as
Reported
|
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in Total
Segment Operating Profit on
a
Constant-Currency Basis
|
|
Quarter Ended Aug. 27, 2017
|
|
|
(16
|
)%
|
|
|
Flat
|
|
|
|
(16
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Profit as a Percent of Net Sales (Adjusted Operating Profit Margin) Excluding Certain Items
Affecting Comparability
We believe this measure provides useful information to investors because it is important for assessing our
operating profit margin on a comparable basis. The adjustments are either items resulting from infrequently occurring events or items that, in managements judgment, significantly affect the year-over-year assessment of operating results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Aug. 27, 2017
|
|
|
Aug. 28, 2016
|
|
In Millions
|
|
Value
|
|
|
Percent of Net
Sales
|
|
|
Value
|
|
|
Percent of
Net Sales
|
|
Operating profit as reported
|
|
$
|
625.8
|
|
|
|
16.6
|
%
|
|
$
|
645.8
|
|
|
|
16.5
|
%
|
Mark-to-market
effects (a)
|
|
|
(1.8
|
)
|
|
|
|
%
|
|
|
16.6
|
|
|
|
0.4
|
%
|
Restructuring charges (b)
|
|
|
17.5
|
|
|
|
0.5
|
%
|
|
|
72.5
|
|
|
|
1.9
|
%
|
Project-related costs (b)
|
|
|
1.2
|
|
|
|
|
%
|
|
|
13.8
|
|
|
|
0.4
|
%
|
Adjusted operating profit
|
|
$
|
642.7
|
|
|
|
17.1
|
%
|
|
$
|
748.7
|
|
|
|
19.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
See Note 6 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(b)
|
See Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
31
Diluted EPS Excluding Certain Items Affecting Comparability and Related Constant-Currency Growth Rate
This measure is used in reporting to our executive management and as a component of the Board of Directors measurement of our
performance for incentive compensation purposes. 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-over-year basis. The
adjustments are either items resulting from infrequently occurring events or items that, in managements judgment, significantly affect the year-over-year assessment of operating results.
The reconciliation of our GAAP measure, diluted EPS, to diluted EPS excluding certain items affecting comparability and the related constant-currency
growth rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Per Share Data
|
|
Aug. 27,
2017
|
|
|
Aug. 28,
2016
|
|
|
Change
|
|
Diluted earnings per share, as reported
|
|
$
|
0.69
|
|
|
$
|
0.67
|
|
|
|
3
|
%
|
Mark-to-market
effects (a)
|
|
|
|
|
|
|
0.02
|
|
|
|
|
|
Restructuring costs (b)
|
|
|
0.02
|
|
|
|
0.08
|
|
|
|
|
|
Project-related costs (b)
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share, excluding certain items affecting comparability
|
|
$
|
0.71
|
|
|
$
|
0.78
|
|
|
|
(9
|
)%
|
|
|
|
|
|
|
Foreign currency exchange impact
|
|
|
|
|
|
|
|
|
|
|
Flat
|
|
Diluted earnings per share growth, excluding certain items affecting comparability, on
a constant-currency basis
|
|
|
|
|
|
|
|
|
|
|
(9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
See Note 6 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(b)
|
See Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
See our reconciliation below of the effective income tax rate as reported to the effective income tax rate excluding certain items affecting comparability for the tax impact of each item affecting
comparability.
Constant-Currency
After-tax
Earnings from Joint Ventures Growth Rates
We believe that this measure provides useful information to investors because it provides transparency to underlying performance of
our joint ventures by excluding the effect that foreign currency exchange rate fluctuations have on
year-to-year
comparability given volatility in foreign currency
exchange markets.
After-tax
earnings from joint ventures growth rate on a constant-currency basis is
calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change in After-tax
Earnings
from Joint
Ventures as Reported
|
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in After-tax
Earnings
from Joint Ventures
on Constant-
Currency Basis
|
|
Quarter Ended Aug. 27, 2017
|
|
|
(2
|
)%
|
|
|
(1
|
) pt
|
|
|
(1
|
) %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales Growth Rates for Our Canada Operating Unit on Constant-Currency Basis
We believe that this measure of our Canada operating unit net sales provides useful information to investors because it provides transparency to the
underlying performance for the Canada operating unit within our North America Retail segment by excluding the effect that foreign currency exchange rate fluctuations have on
year-to-year
comparability given volatility in foreign currency exchange markets.
32
Net sales growth rates for our Canada operating unit on a constant-currency basis are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change in
Net
Sales
as Reported
|
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in
Net Sales on Constant-
Currency
Basis
|
|
Quarter Ended Aug. 27, 2017
|
|
|
(2
|
)%
|
|
|
Flat
|
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant-Currency Segment Operating Profit Growth Rates
We believe that this measure provides useful information to investors because it provides transparency to underlying performance of our segments by
excluding the effect that foreign currency exchange rate fluctuations have on
year-to-year
comparability given volatility in foreign currency exchange markets.
Our segments operating profit growth rates on a constant-currency basis are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended Aug. 27, 2017
|
|
|
|
Percentage Change in
Operating Profit as
Reported
|
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in
Operating Profit
on
Constant-Currency Basis
|
|
North America Retail
|
|
|
(15
|
)%
|
|
|
Flat
|
|
|
|
(15
|
)%
|
Europe & Australia
|
|
|
(30
|
)%
|
|
|
1 pt
|
|
|
|
(31
|
)%
|
Asia & Latin America
|
|
|
(31
|
)%
|
|
|
2 pts
|
|
|
|
(33
|
)%
|
Effective Income Tax Rate Excluding Certain Items Affecting Comparability
We believe this measure provides useful information to investors because it is important for assessing the effective tax rate excluding certain items
affecting comparability and presents the income tax effects of certain items affecting comparability.
Effective income tax rates excluding
certain items affecting comparability are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Aug. 27, 2017
|
|
|
Aug. 28, 2016
|
|
In Millions (Except Per Share Data)
|
|
Pretax
Earnings (a)
|
|
|
Income
Taxes
|
|
|
Pretax
Earnings (a)
|
|
|
Income
Taxes
|
|
As reported
|
|
$
|
553.4
|
|
|
$
|
168.5
|
|
|
$
|
571.9
|
|
|
$
|
176.6
|
|
Mark-to-market
effects (b)
|
|
|
(1.8
|
)
|
|
|
(0.7
|
)
|
|
|
16.6
|
|
|
|
6.1
|
|
Restructuring charges (c)
|
|
|
17.5
|
|
|
|
5.9
|
|
|
|
72.5
|
|
|
|
24.2
|
|
Project-related costs (c)
|
|
|
1.2
|
|
|
|
0.3
|
|
|
|
13.8
|
|
|
|
5.0
|
|
As adjusted
|
|
$
|
570.3
|
|
|
$
|
174.0
|
|
|
$
|
674.8
|
|
|
$
|
211.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
30.4
|
%
|
|
|
|
|
|
|
30.9
|
%
|
As adjusted
|
|
|
|
|
|
|
30.5
|
%
|
|
|
|
|
|
|
31.4
|
%
|
Sum of adjustment to income taxes
|
|
|
|
|
|
$
|
5.5
|
|
|
|
|
|
|
$
|
35.3
|
|
Average number of common shares - diluted EPS
|
|
|
|
|
|
|
586.9
|
|
|
|
|
|
|
|
612.4
|
|
Impact of income tax adjustments on diluted EPS excluding certain items affecting
comparability
|
|
|
|
|
|
$
|
0.01
|
|
|
|
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Earnings before income taxes and
after-tax
earnings from joint ventures.
|
(b)
|
See Note 6 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(c)
|
See Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
33
GLOSSARY
Accelerated depreciation associated with restructured assets.
The increase in depreciation expense caused by updating the salvage value and shortening the useful life of depreciable fixed assets to
coincide with the end of production under an approved restructuring plan, but only if impairment is not present.
Adjusted operating profit
margin.
Operating profit adjusted for certain items affecting year-over-year comparability, divided by net sales.
AOCI
.
Accumulated other comprehensive income (loss).
Constant currency.
Financial results translated to U.S. dollars using constant foreign
currency exchange rates based on the rates in effect for the comparable prior-year period. To present this information, current period results for entities reporting in currencies other than United States dollars are translated into United States
dollars at the average exchange rates in effect during the corresponding period of the prior fiscal year, rather than the actual average exchange rates in effect during the current fiscal year. Therefore, the foreign currency impact is equal to
current year results in local currencies multiplied by the change in the average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.
Derivatives.
Financial instruments such as futures, swaps, options, and forward contracts that we use to manage our risk arising from changes in
commodity prices, interest rates, foreign exchange rates, and stock prices.
Euribor.
Euro Interbank Offered Rate.
Fair value hierarchy.
For purposes of fair value measurement, we categorize assets and liabilities into one of three levels based on the
assumptions (inputs) used in valuing the asset or liability. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment. The three levels are defined as follows:
|
|
|
Level 1:
|
|
Unadjusted quoted prices in active markets for identical assets or liabilities.
|
|
|
Level 2:
|
|
Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets
or liabilities in inactive markets.
|
|
|
Level 3:
|
|
Unobservable inputs reflecting managements assumptions about the inputs used in pricing the asset or liability.
|
Fixed charge coverage ratio.
The sum of earnings before income taxes and fixed charges (before tax),
divided by the sum of the fixed charges (before tax) and interest.
Focus 6 platforms.
The Focus 6 platforms for the Convenience
Stores & Foodservice segment consist of cereal, yogurt, snacks, frozen meals, biscuits, and baking mixes.
Foundation
businesses.
Foundation businesses consist primarily of refrigerated dough, desserts, and soup in our North America Retail segment and bakery flour and frozen dough products in our Convenience Stores & Foodservice segment, as well as
other product lines not included in Growth businesses.
Generally Accepted Accounting Principles (GAAP).
Guidelines, procedures, and
practices that we are required to use in recording and reporting accounting information in our financial statements.
Goodwill.
The
difference between the purchase price of acquired companies plus the fair value of any noncontrolling and redeemable interests and the related fair values of net assets acquired.
Growth businesses.
Growth businesses include cereal, snack bars, the natural and organic portfolio, hot snacks, Mexican products, and yogurt in our North America Retail segment; our
Europe & Australia segment; our Asia & Latin America segment; and our Focus 6 platforms in our Convenience Stores & Foodservice segment.
Hedge accounting.
Accounting for qualifying hedges that allows changes in a hedging instruments fair value to offset corresponding changes in the hedged item in the same reporting period.
Hedge accounting is permitted for certain hedging instruments and hedged items only if the hedging relationship is highly effective, and only prospectively from the date a hedging relationship is formally documented.
34
Interest bearing instruments.
Notes payable, long-term debt, including current portion, cash and cash
equivalents, and certain interest bearing investments classified within prepaid expenses and other current assets and other assets.
LIBOR.
London Interbank Offered Rate.
Mark-to-market.
The
act of determining a value for financial instruments, commodity contracts, and related assets or liabilities based on the current market price for that item.
Net
mark-to-market
valuation of certain commodity positions.
Realized and unrealized gains and losses on derivative
contracts that will be allocated to segment operating profit when the exposure we are hedging affects earnings.
Net price realization.
The impact of list and promoted price changes, net of trade and other price promotion costs.
Noncontrolling interests.
Interests
of subsidiaries held by third parties.
Notional principal amount.
The principal amount on which fixed-rate or floating-rate interest
payments are calculated.
OCI.
Other Comprehensive Income.
Organic net sales growth
. Net sales growth adjusted for foreign currency translation, as well as acquisitions,
divestitures, and a 53
rd
week impact, when
applicable.
Project-related costs.
Costs incurred related to our restructuring initiatives not included in restructuring charges.
Redeemable interest.
Interest of subsidiaries held by a third party that can be redeemed outside of our control and therefore cannot
be classified as a noncontrolling interest in equity.
Total debt.
Notes payable and long-term debt, including current portion.
Translation adjustments.
The impact of the conversion of our foreign affiliates financial statements to U.S. dollars for the
purpose of consolidating our financial statements.
35
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF SAFE HARBOR
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains or incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations and assumptions. We also may make written or oral forward-looking statements, including statements contained in our
filings with the Securities and Exchange Commission and in our reports to stockholders.
The words or phrases will likely result,
are expected to, will continue, is anticipated, estimate, plan, project, or similar expressions identify forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results and those currently anticipated or projected. We wish to caution
you not to place undue reliance on any such forward-looking statements.
In connection with the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, we are identifying important factors that could affect our financial performance and could cause our actual results in future periods to differ materially from any current opinions or statements.
Our future results could be affected by a variety of factors, such as: 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 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.
You should also consider the risk factors that we identify in Item 1A of Part I of our Annual Report on Form
10-K
for the fiscal year ended May 28, 2017, which could also affect our future results.
We
undertake no obligation to publicly revise any forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events.