Item 2.
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Managements Discussion and Analysis of Financial Condition and Results of Operations.
|
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 27, 2018 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
Third Quarter
Results
In the third quarter of fiscal 2019, net sales increased 8 percent compared to the same period last year, primarily
reflecting the addition of Blue Buffalo Pet Products, Inc. (Blue Buffalo). In the third quarter of fiscal 2019, organic net sales increased 1 percent compared to the same period last year. Operating profit margin of 15.5 percent increased
80 basis points, primarily driven by favorable net price realization and mix across all segments and the addition of Blue Buffalo, partially offset by increased restructuring expense and a divestiture loss. Adjusted operating profit margin increased
230 basis points to 17.4 percent compared to the same period last year, primarily driven by favorable net price realization and mix across all segments and the addition of Blue Buffalo. Diluted earnings per share of $0.74 decreased
54 percent compared to the third quarter of fiscal 2018 and adjusted diluted earnings per share of $0.83, which excludes certain items affecting comparability, on a constant-currency basis increased 6 percent compared to the third 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 third quarter of fiscal 2019 follows:
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|
|
|
|
|
|
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|
Quarter Ended Feb. 24, 2019
|
|
In millions, except
per share
|
|
|
Quarter Ended
Feb. 24, 2019 vs.
Feb. 25, 2018
|
|
|
Percent of Net
Sales
|
|
|
Constant-
Currency
Growth (a)
|
|
Net sales
|
|
$
|
4,198.3
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
651.3
|
|
|
|
14
|
%
|
|
|
15.5
|
%
|
|
|
|
|
Net earnings attributable to General Mills
|
|
|
446.8
|
|
|
|
(52
|
)%
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.74
|
|
|
|
(54
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant-currency net sales growth rate (a)
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|
|
|
|
|
10
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%
|
Organic net sales growth rate (a)
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|
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
Total segment operating profit (a)
|
|
|
795.2
|
|
|
|
27
|
%
|
|
|
|
|
|
|
27
|
%
|
Adjusted operating profit (a)
|
|
|
729.7
|
|
|
|
24
|
%
|
|
|
17.4
|
%
|
|
|
25
|
%
|
Diluted earnings per share,
excluding certain items affecting comparability (a)
|
|
$
|
0.83
|
|
|
|
5
|
%
|
|
|
|
|
|
|
6
|
%
|
(a)
|
See the
Non-GAAP
Measures section below for our use of
measures not defined by GAAP.
|
Consolidated
net sales
were as follows:
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|
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Quarter Ended
|
|
|
|
|
|
|
|
Feb. 24,
2019
|
|
|
Feb. 24, 2019 vs
Feb. 25, 2018
|
|
|
Feb. 25,
2018
|
|
Net sales (in millions)
|
|
$
|
4,198.3
|
|
|
|
8 %
|
|
|
$
|
3,882.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from volume growth (a)
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|
|
|
|
|
|
5 pts
|
|
|
|
|
|
Net price realization and mix
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|
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|
|
5 pts
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|
|
|
|
Foreign currency exchange
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|
|
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|
(2)pts
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|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The 8 percent increase in net sales in the third quarter of fiscal 2019 reflects, favorable net price realization and mix and higher
contributions from volume growth including the impact of Blue Buffalo.
26
Organic net sales increased 1 percent in the third quarter of fiscal 2019 driven by
favorable organic net price realization and mix partially offset by declining contributions from organic volume growth.
Components of
organic net sales growth are shown in the following table:
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|
|
Quarter Ended Feb. 24, 2019 vs.
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|
|
|
Quarter Ended Feb. 25, 2018
|
|
|
|
Contributions from organic volume growth (a)
|
|
|
(2)pts
|
|
Organic net price realization and mix
|
|
|
3 pts
|
|
|
|
|
|
|
Organic net sales growth
|
|
|
1 pt
|
|
Foreign currency exchange
|
|
|
(2)pts
|
|
Acquisition and divestiture
|
|
|
9 pts
|
|
Net sales growth
|
|
|
8 pts
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Cost of sales
increased $130 million from the third quarter of fiscal 2018 to $2,755 million. The increase was primarily
driven by a $130 million increase due to higher volume and a $12 million increase attributable to product rate and mix. We recorded a $6 million net decrease in cost of sales related to the
mark-to-market
valuation of certain commodity positions and grain inventories in the third quarter of fiscal 2019 compared to a net increase of $3 million in the third quarter of fiscal 2018. In
addition, we recorded $3 million of restructuring initiative project-related costs in the third quarter of fiscal 2018 (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
increased $17 million to $697 million in the third quarter of fiscal
2019 compared to the same period in fiscal 2018. The increase in SG&A expenses primarily reflects the addition of Blue Buffalo. SG&A expenses as a percent of net sales in the third quarter of fiscal 2019 decreased 90 basis points compared
with the third quarter of fiscal 2018.
Divestiture loss
totaled $35 million from the sale of our
La Salteña
fresh pasta and refrigerated dough business in Argentina during the third quarter of fiscal 2019.
Restructuring, impairment, and
other exit costs
totaled $60 million in the third quarter of fiscal 2019 compared to $8 million in the same period last year. We recorded restructuring charges of $59 million in the third quarter of fiscal 2019 related to actions
to drive efficiencies in targeted areas of our global supply chain.
Benefit plan
non-service
income
totaled $21 million in the third quarter of fiscal 2019 compared to $23 million in the same period last year. Please refer to Note 17 to the Consolidated Financial Statements in Part I, Item 1 of this report for additional
information.
Interest, net
for the third quarter of fiscal 2019 totaled $131 million, up $42 million from the third
quarter of fiscal 2018, primarily driven by higher average debt balances due to financing for the Blue Buffalo acquisition.
The
effective tax rate
for the third quarter of fiscal 2019 was 17.7 percent compared to an 85.9 percent benefit for the third quarter of fiscal 2018. The 103.6 percentage point increase was primarily due to the
one-time
net benefit related to the Tax Cuts and Jobs Act (TCJA) in the third quarter of fiscal 2018. Our effective tax rate excluding certain items affecting comparability was 19.9 percent in the
third quarter of fiscal 2019 compared to 15.2 percent in the third quarter of fiscal 2018 (see the
Non-GAAP
Measures section below for a description of our use of measures not defined by
GAAP).
The TCJA includes provisions affecting our fiscal 2019 effective tax rate, including but not limited to: a reduction in the U.S.
corporate tax rate on domestic operations to 21 percent; a provision that taxes U.S. allocated expenses and certain income from foreign operations (GILTI); a limitation on deductible interest expense; the repeal of the domestic manufacturing
deduction; and a limitation on the deductibility of certain executive compensation. In the third quarter of fiscal 2019, we completed our accounting for the tax effects of the TCJA and recorded a benefit of $7 million which included adjustments
to the transition tax and the measurement of our net U.S. deferred tax liability.
27
After-tax
earnings from joint ventures
for the
third quarter of fiscal 2019
decreased 29 percent to $12 million compared to $17 million in the same period in fiscal 2018, primarily driven by our $4 million
after-tax
share of
restructuring charges at Cereal Partners Worldwide (CPW), and lower net sales and higher input costs for
Häagen-Dazs
Japan, Inc. (HDJ). On a constant-currency basis,
after-tax
earnings from joint ventures decreased 32 percent, including the CPW restructuring charge (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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|
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|
|
Quarter Ended Feb. 24, 2019 vs.
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|
|
|
|
|
|
|
Quarter Ended Feb. 25, 2018
|
|
CPW
|
|
|
HDJ
|
|
|
Total
|
|
Contributions from volume growth (a)
|
|
|
(1)pt
|
|
|
|
(5)pts
|
|
|
|
|
|
Net price realization and mix
|
|
|
3 pts
|
|
|
|
Flat
|
|
|
|
|
|
Net sales growth in constant currency
|
|
|
2 pts
|
|
|
|
(5)pts
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|
|
Flat
|
|
Foreign currency exchange
|
|
|
(8)pts
|
|
|
|
(1)pt
|
|
|
|
(6)pts
|
|
Net sales growth
|
|
|
(6)pts
|
|
|
|
(6)pts
|
|
|
|
(6)pts
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Average diluted shares outstanding
increased by 22 million in the third quarter of fiscal 2019 from the same period a year ago due
to the impact of the share issuance to partially fund the acquisition of Blue Buffalo and option exercises.
Nine-Month Results
In the nine-month period ended February 24, 2019, net sales increased 7 percent compared to the same period last year, primarily
reflecting the addition of Blue Buffalo. Organic net sales were flat in the nine-month period ended February 24, 2019. Operating profit margin of 14.2 percent decreased 170 basis points from
year-ago
levels primarily driven by impairment charges recorded for certain intangible and manufacturing assets, the purchase accounting inventory adjustment related to our acquisition of Blue Buffalo, increased restructuring expense, and a divestiture loss.
Adjusted operating profit margin increased 60 basis points to 16.8 percent, primarily driven by favorable net price realization and mix and a decrease in SG&A expenses in our North America Retail segment. Diluted earnings per share of $1.96
decreased 36 percent in the nine-month period ended February 24, 2019, and adjusted diluted earnings per share of $2.39, which excludes certain items affecting comparability, on a constant-currency basis increased 3 percent compared
to the same period 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 nine-month period ended February 24, 2019, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period Ended Feb. 24, 2019
|
|
In millions, except
per share
|
|
|
Nine-Month
Period Ended
Feb. 24, 2019 vs.
Feb. 25, 2018
|
|
|
Percent of Net
Sales
|
|
|
Constant-
Currency
Growth (a)
|
|
Net sales
|
|
$
|
12,703.5
|
|
|
|
7 %
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
1,799.8
|
|
|
|
(4) %
|
|
|
|
14.2
|
%
|
|
|
|
|
Net earnings attributable to General Mills
|
|
|
1,182.5
|
|
|
|
(33) %
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.96
|
|
|
|
(36) %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant-currency net sales growth rate (a)
|
|
|
|
|
|
|
|
|
|
|
|
9
|
%
|
Organic net sales growth rate (a)
|
|
|
|
|
|
|
Flat
|
|
|
|
|
|
|
|
|
|
Total segment operating profit (a)
|
|
|
2,342.2
|
|
|
|
13 %
|
|
|
|
|
|
|
|
13
|
%
|
Adjusted operating profit (a)
|
|
|
2,136.2
|
|
|
|
11 %
|
|
|
|
16.8
|
%
|
|
|
11
|
%
|
Diluted earnings per share,
excluding certain items affecting comparability (a)
|
|
$
|
2.39
|
|
|
|
3 %
|
|
|
|
|
|
|
|
3
|
%
|
(a) See the
Non-GAAP
Measures section
below for our use of measures not defined by GAAP.
28
Consolidated
net sales
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period Ended
|
|
|
|
Feb. 24,
2019
|
|
|
Feb. 24, 2019 vs
Feb. 25, 2018
|
|
|
Feb. 25,
2018
|
|
Net sales (in millions)
|
|
$
|
12,703.5
|
|
|
|
7 %
|
|
|
$
|
11,850.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
4 pts
|
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
5 pts
|
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
|
(2)pts
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
The 7 percent increase in net sales for the nine-month period ended February 24, 2019, reflects favorable net price realization and
mix and higher contributions from volume growth including the impact of Blue Buffalo.
Organic net sales were flat in the nine-month
period ended February 24, 2019, driven by favorable organic net price realization and mix offset by declining contributions from organic volume growth.
Components of organic net sales growth are shown in the following table:
|
|
|
Nine-Month Period Ended Feb. 24, 2019 vs.
|
|
|
Nine-Month Period Ended Feb. 25, 2018
|
|
|
Contributions from organic volume growth (a)
|
|
(2)pts
|
Organic net price realization and mix
|
|
2 pts
|
|
|
|
Organic net sales growth
|
|
Flat
|
Foreign currency exchange
|
|
(2)pts
|
Acquisition and divestiture
|
|
9 pts
|
Net sales growth
|
|
7 pts
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Cost of sales
increased $574 million from the nine-month period ended February 25, 2018, to $8,408 million. The increase
was driven by a $350 million increase due to higher volume and a $151 million increase attributable to product rate and mix. We recorded a $53 million charge in the nine-month period ended February 24, 2019, related to the fair
value adjustment of inventory acquired in the Blue Buffalo acquisition. We recorded a $36 million net increase in cost of sales related to the
mark-to-market
valuation of certain commodity positions and grain inventories in the nine-month period ended February 24, 2019, compared to a net decrease of $4 million in the nine-month period ended February 25, 2018. We recorded $13 million
of restructuring charges in the nine-month period ended February 25, 2018. We also recorded $1 million of restructuring initiative project-related costs in the nine-month period ended February 24, 2019, compared to $8 million of
restructuring initiative project-related costs in the nine-month period ended February 25, 2018 (please refer to Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report).
SG&A expenses
increased $75 million to $2,193 million in the nine-month period ended February 24, 2019, compared to
the same period in fiscal 2018. The increase in SG&A expenses primarily reflects the addition of Blue Buffalo. SG&A expenses as a percent of net sales in the nine-month period ended February 24, 2019, decreased 60 basis points compared
with the same period of fiscal 2018.
Divestiture loss
totaled $35 million from the sale of our
La Salteña
fresh
pasta and refrigerated dough business in Argentina during the third quarter of fiscal 2019.
Restructuring, impairment, and other exit
costs
totaled $268 million in the nine-month period ended February 24, 2019, compared to $14 million in the same period last year. We recorded restructuring charges of $59 million in the nine-month period ended
February 24, 2019 related to actions to drive efficiencies in targeted areas of our global supply chain. We also recorded impairment charges of $193 million in fiscal 2019 related to the
Progresso
,
Food Should Taste Good
, and
Mountain High
brand intangible assets driven by lower future sales projections in our long-range plans for the businesses supporting these brand intangible assets. In addition, we recorded $14 million of charges related to the impairment
of certain manufacturing assets within the North America Retail segment in the nine-month period ended February 24, 2019.
Benefit
plan
non-service
income
totaled $63 million in the nine-month period ended February 24, 2019, compared to $64 million in the same period last year. Please refer to Note 17 to the
Consolidated Financial Statements in Part I, Item 1 of this report for additional information.
29
Interest, net
for the nine-month period ended February 24, 2019, increased
$160 million to $397 million compared to the same period of fiscal 2018, primarily driven by higher average debt balances due to financing for the Blue Buffalo acquisition.
The
effective tax rate
for the nine-month period ended February 24, 2019, was 21.4 percent compared to a 1.7 percent
benefit for the same period last year. The 23.1 percentage point increase was primarily due to the net benefit related to the TCJA in fiscal 2018. Our effective tax rate excluding certain items affecting comparability was 22.2 percent in the
nine-month period ended February 24, 2019, compared to 25.4 percent in the same period of fiscal 2018. See the
Non-GAAP
Measures section below for a description of our use of measures not
defined by GAAP.
The TCJA includes provisions affecting our fiscal 2019 effective tax rate, including but not limited to: a reduction in
the U.S. corporate tax rate on domestic operations to 21 percent; a provision that taxes U.S. allocated expenses and certain income from foreign operations (GILTI); a limitation on deductible interest expense; the repeal of the domestic
manufacturing deduction; and a limitation on the deductibility of certain executive compensation. In the third quarter of fiscal 2019, we completed our accounting for the tax effects of the TCJA and recorded a benefit of $7 million which
included adjustments to the transition tax and the measurement of our net U.S. deferred tax liability.
After-tax
earnings from joint ventures
decreased 19 percent to $52 million for the
nine-month period ended February 24, 2019, compared to $64 million in the same period in fiscal 2018, primarily driven by our $9 million
after-tax
share of restructuring charges at CPW and lower
net sales and higher input costs for HDJ. On a constant-currency basis,
after-tax
earnings from joint ventures decreased 19 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period Ended Feb. 24, 2019 vs.
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period Ended Feb. 25, 2018
|
|
CPW
|
|
|
HDJ
|
|
|
Total
|
|
Contributions from volume growth (a)
|
|
|
(1)pt
|
|
|
|
(1)pt
|
|
|
|
|
|
Net price realization and mix
|
|
|
1 pt
|
|
|
|
(5)pts
|
|
|
|
|
|
Net sales growth in constant currency
|
|
|
Flat
|
|
|
|
(6)pts
|
|
|
|
(1)pt
|
|
Foreign currency exchange
|
|
|
(4)pts
|
|
|
|
Flat
|
|
|
|
(4)pts
|
|
Net sales growth
|
|
|
(4)pts
|
|
|
|
(6)pts
|
|
|
|
(5)pts
|
|
(a) Measured in tons based on the stated weight of
our product shipments.
|
|
|
|
|
|
Average diluted shares outstanding
increased by 21 million in the nine-month period ended
February 24, 2019, compared to the same period a year ago due to the impact of the share issuance to partially fund the acquisition of Blue Buffalo and option exercises.
SEGMENT OPERATING RESULTS
Our
businesses are organized into five operating segments: North America Retail; Convenience Stores & Foodservice; Europe & Australia; Asia & Latin America; and Pet. We are reporting the Pet operating segment results on a
one-month
lag and accordingly, our fiscal 2018 results do not include Pet segment operating results. Please refer to Note 16 of the Consolidated Financial Statements in Part I, Item 1 of this report for a
description of our operating segments.
North America Retail Segment Results
North America Retail net sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month Period Ended
|
|
|
|
|
|
|
|
|
|
|
Feb. 24,
2019
|
|
|
Feb. 24, 2019 vs
Feb. 25, 2018
|
|
|
Feb. 25,
2018
|
|
|
Feb. 24,
2019
|
|
|
Feb. 24, 2019 vs
Feb. 25, 2018
|
|
|
Feb. 25,
2018
|
|
Net sales (in millions)
|
|
$
|
2,518.6
|
|
|
|
Flat
|
|
|
$
|
2,517.4
|
|
|
$
|
7,583.5
|
|
|
|
(2)%
|
|
|
$
|
7,727.4
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
(2
|
)pts
|
|
|
|
|
|
|
|
|
|
|
(3)pts
|
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
2
|
pts
|
|
|
|
|
|
|
|
|
|
|
2 pts
|
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
|
Flat
|
|
|
|
|
|
|
|
|
|
|
|
(1)pt
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
North America Retail net sales were flat in the third quarter of fiscal 2019 compared to the same period in fiscal 2018, driven by favorable
net price realization and mix offset by a decrease in contributions from volume growth.
30
North America Retail net sales decreased 2 percent in the nine-month period ended
February 24, 2019, compared to the same period in fiscal 2018, primarily driven by a decrease in contributions from volume growth and unfavorable foreign currency exchange partially offset by favorable net price realization and mix.
The components of North America Retail organic net sales growth are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
Nine-Month
Period Ended
|
|
|
|
Feb. 24, 2019
|
|
|
|
|
|
Feb. 24, 2019
|
|
Contributions from organic volume growth (a)
|
|
|
(2
|
)pts
|
|
|
|
|
|
|
(3
|
)pts
|
Organic net price realization and mix
|
|
|
2
|
pts
|
|
|
|
|
|
|
2
|
pts
|
Organic net sales growth
|
|
|
Flat
|
|
|
|
|
|
|
|
(1
|
)pt
|
Foreign currency exchange
|
|
|
Flat
|
|
|
|
|
|
|
|
(1
|
)pt
|
Divestiture (b)
|
|
|
Flat
|
|
|
|
|
|
|
|
Flat
|
|
Net sales growth
|
|
|
Flat
|
|
|
|
|
|
|
|
(2
|
)pts
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
(b)
|
Related to the divestiture of North American Green Giant product lines.
|
North America Retail organic net sales were flat in the third quarter of fiscal 2019 compared to the same period in fiscal 2018, driven by
favorable organic net price realization and mix offset by a decrease in contributions from organic volume growth.
North America Retail
organic net sales decreased 1 percent in the nine-month period ended February 24, 2019, compared to the same period in fiscal 2018, driven by a decrease in contributions from organic volume growth partially offset by favorable organic net
price realization and mix.
North America Retail net sales percentage change by operating unit are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Nine-Month
Period Ended
|
|
|
Feb. 24, 2019
|
|
Feb. 24, 2019
|
U.S. Snacks
|
|
|
|
(1
|
)%
|
|
|
|
(3
|
)%
|
Canada (a)
|
|
|
|
(11
|
)
|
|
|
|
(7
|
)
|
U.S. Meals & Baking
|
|
|
|
2
|
|
|
|
|
(1
|
)
|
U.S. Yogurt and Other
|
|
|
|
(2
|
)
|
|
|
|
(3
|
)
|
U.S. Cereal
|
|
|
|
4
|
|
|
|
|
Flat
|
|
Total
|
|
|
|
Flat
|
|
|
|
|
(2
|
)%
|
(a)
|
On a constant-currency basis, Canada net sales decreased 6 percent for the third quarter of fiscal 2019
and 4 percent for the nine-month period ended February 24, 2019. See the
Non-GAAP
Measures section below for our use of this measure not defined by GAAP.
|
Segment operating profit increased 12 percent to $582 million in the third quarter of fiscal 2019 compared to $518 million in
the same period last year, driven by lower SG&A expenses and positive net price realization and mix. Segment operating profit increased 12 percent on a constant-currency basis in the third quarter of fiscal 2019, compared to the same period
in fiscal 2018 (see the
Non-GAAP
Measures section below for our use of this measure not defined by GAAP).
Segment operating profit increased 4 percent to $1,750 million in the nine-month period ended February 24, 2019, compared to
$1,674 million in the same period last year, primarily driven by lower SG&A expenses and positive net price realization and mix, partially offset by lower net sales. Segment operating profit increased 5 percent on a constant-currency
basis in the nine-month period ended February 24, 2019, compared to the same period in fiscal 2018 (see the
Non-GAAP
Measures section below for our use of this measure not defined by GAAP).
31
Convenience Stores & Foodservice Segment Results
Convenience Stores & Foodservice net sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month
Period Ended
|
|
|
|
Feb. 24,
2019
|
|
|
Feb. 24, 2019 vs
Feb. 25, 2018
|
|
|
Feb. 25,
2018
|
|
|
Feb. 24,
2019
|
|
|
Feb. 24, 2019 vs
Feb. 25, 2018
|
|
|
Feb. 25,
2018
|
|
Net sales (in millions)
|
|
$
|
472.5
|
|
|
|
3 %
|
|
|
$
|
460.3
|
|
|
$
|
1,450.1
|
|
|
|
2 %
|
|
|
$
|
1,419.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
(2)pts
|
|
|
|
|
|
|
|
|
|
|
|
(2)pts
|
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
5 pts
|
|
|
|
|
|
|
|
|
|
|
|
4 pts
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Convenience Stores & Foodservice net sales increased 3 percent in the third quarter of fiscal 2019 compared to the same period
in fiscal 2018, driven by favorable net price realization and mix partially offset by a decrease in contributions from volume growth.
Convenience Stores & Foodservice net sales increased 2 percent in the nine-month period ended February 24, 2019, compared
to the same period in fiscal 2018, driven by favorable net price realization and mix partially offset by a decrease in contributions from volume growth.
The components of Convenience Stores & Foodservice organic net sales growth are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month
Period Ended
|
|
|
|
Feb. 24,
2019
|
|
|
Feb. 24,
2019
|
|
Contributions from organic volume growth (a)
|
|
|
(2)pts
|
|
|
|
(2)pts
|
|
Organic net price realization and mix
|
|
|
5 pts
|
|
|
|
4 pts
|
|
Organic net sales growth
|
|
|
3 pts
|
|
|
|
2 pts
|
|
Net sales growth
|
|
|
3 pts
|
|
|
|
2 pts
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Segment operating profit increased 15 percent to $97 million in the third quarter of fiscal 2019 compared to $84 million in the
same period last year, primarily driven by positive net price realization and mix.
Segment operating profit increased 10 percent to
$303 million in the nine-month period ended February 24, 2019, compared to $276 million in the same period last year, primarily driven by positive net price realization and mix.
Europe & Australia Segment Results
Europe & Australia net sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month
Period Ended
|
|
|
|
Feb. 24,
2019
|
|
|
Feb. 24, 2019 vs.
Feb. 25, 2018
|
|
|
Feb. 25,
2018
|
|
|
Feb. 24,
2019
|
|
|
Feb. 24, 2019 vs.
Feb. 25, 2018
|
|
|
Feb. 25,
2018
|
|
Net sales (in millions)
|
|
$
|
432.7
|
|
|
|
(8)%
|
|
|
$
|
469.8
|
|
|
$
|
1,387.2
|
|
|
|
(3)%
|
|
|
$
|
1,428.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
(4)pts
|
|
|
|
|
|
|
|
|
|
|
|
(2)pts
|
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
2 pts
|
|
|
|
|
|
|
|
|
|
|
|
2 pts
|
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
|
(6)pts
|
|
|
|
|
|
|
|
|
|
|
|
(3)pts
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Europe & Australia net sales decreased 8 percent in the third quarter of fiscal 2019 compared to the same period in fiscal 2018,
driven primarily by unfavorable foreign currency exchange and a decrease in contributions from volume growth partially offset by favorable net price realization and mix.
32
Europe & Australia net sales decreased by 3 percent in the nine-month period ended
February 24, 2019, compared to the same period in fiscal 2018, driven by unfavorable foreign currency exchange and a decrease in contributions from volume growth partially offset by favorable net price realization and mix.
The components of Europe & Australia organic net sales growth are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month
Period Ended
|
|
|
|
Feb. 24, 2019
|
|
|
Feb. 24, 2019
|
|
Contributions from organic volume growth (a)
|
|
|
(4
|
)pts
|
|
|
(2
|
)pts
|
Organic net price realization and mix
|
|
|
2
|
pts
|
|
|
2
|
pts
|
Organic net sales growth
|
|
|
(2
|
)pts
|
|
|
|
Flat
|
Foreign currency exchange
|
|
|
(6
|
)pts
|
|
|
(3
|
)pts
|
Net sales growth
|
|
|
(8
|
)pts
|
|
|
(3
|
)pts
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Europe & Australia organic net sales decreased 2 percent in the third quarter of fiscal 2019 compared to the same period in
fiscal 2018, driven by a decrease in contributions from organic volume growth partially offset by favorable organic net price realization and mix.
Europe & Australia organic net sales were flat in the nine-month period ended February 24, 2019, compared to the same period in
fiscal 2018, driven by favorable organic net price realization and mix offset by a decrease in contributions from organic volume growth.
Segment operating profit decreased 11 percent to $24 million in the third quarter of fiscal 2019 compared to $27 million in the
third quarter of fiscal 2018 primarily driven by lower net sales and higher input costs, including currency-driven inflation on imported products in certain markets, partially offset by lower SG&A expenses. Segment operating profit decreased
1 percent on a constant-currency basis in the third quarter of fiscal 2019 compared to the same period in fiscal 2018 (see the
Non-GAAP
Measures section below for our use of this measure not
defined by GAAP).
Segment operating profit decreased 4 percent to $81 million in the nine-month period ended February 24,
2019, compared to $85 million in the same period of fiscal 2018 primarily driven by higher input costs, including currency-driven inflation on imported products in certain markets, partially offset by lower SG&A expenses. Segment operating
profit in the nine-month period ended February 24, 2019, was flat on a constant-currency basis compared to the same period in fiscal 2018 (see the
Non-GAAP
Measures section below for our use
of this measure not defined by GAAP).
Asia & Latin America Segment Results
Asia & Latin America net sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month
Period Ended
|
|
|
|
Feb. 24,
2019
|
|
|
Feb. 24, 2019 vs.
Feb. 25, 2018
|
|
|
Feb. 25,
2018
|
|
|
Feb. 24,
2019
|
|
|
Feb. 24, 2019 vs.
Feb. 25, 2018
|
|
|
Feb. 25,
2018
|
|
Net sales (in millions)
|
|
$
|
427.7
|
|
|
|
(2)%
|
|
|
$
|
434.8
|
|
|
$
|
1,257.4
|
|
|
|
(1)%
|
|
|
$
|
1,274.8
|
|
Contributions from volume growth (a)
|
|
|
|
|
|
|
2 pts
|
|
|
|
|
|
|
|
|
|
|
|
3 pts
|
|
|
|
|
|
Net price realization and mix
|
|
|
|
|
|
|
4 pts
|
|
|
|
|
|
|
|
|
|
|
|
4 pts
|
|
|
|
|
|
Foreign currency exchange
|
|
|
|
|
|
|
(8)pts
|
|
|
|
|
|
|
|
|
|
|
|
(8)pts
|
|
|
|
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Asia & Latin America net sales decreased 2 percent in the third quarter of fiscal 2019 compared to the same period last year,
driven primarily by unfavorable foreign currency exchange partially offset by favorable net price realization and mix and an increase in contributions from volume growth.
33
Asia & Latin America net sales decreased 1 percent in the nine-month period ended
February 24, 2019, compared to the same period last year, driven primarily by unfavorable foreign currency exchange partially offset by favorable net price realization and mix and an increase in contributions from volume growth.
The components of Asia & Latin America organic net sales growth are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine-Month
Period Ended
|
|
|
|
Feb. 24,
2019
|
|
|
Feb. 24,
2019
|
|
Contributions from organic volume growth (a)
|
|
|
3 pts
|
|
|
|
3 pts
|
|
Organic net price realization and mix
|
|
|
4 pts
|
|
|
|
4 pts
|
|
Organic net sales growth
|
|
|
7 pts
|
|
|
|
7 pts
|
|
Foreign currency exchange
|
|
|
(8)pts
|
|
|
|
(8)pts
|
|
Divestiture
|
|
|
(1)pt
|
|
|
|
Flat
|
|
Net sales growth
|
|
|
(2)pts
|
|
|
|
(1)pt
|
|
(a)
|
Measured in tons based on the stated weight of our product shipments.
|
Asia & Latin America organic net sales increased 7 percent in the third quarter of fiscal 2019 compared to the same period in
fiscal 2018, primarily driven by favorable organic net price realization and mix and an increase in contributions from organic volume growth.
Asia & Latin America organic net sales increased 7 percent in the nine-month period ended February 24, 2019, compared to
the same period last year, driven by favorable organic net price realization and mix and an increase in contributions from organic volume growth.
Segment operating profit increased to $20 million in the third quarter of fiscal 2019 compared to a $2 million loss in the third
quarter of fiscal 2018 primarily driven by favorable net price realization and mix and lower SG&A expenses partially offset by higher input costs.
Segment operating profit increased 65 percent to $50 million in the nine-month period ended February 24, 2019, compared to
$30 million in the same period last year primarily driven by favorable net price realization and mix and lower SG&A expenses partially offset by higher input costs. Segment operating profit increased 42 percent on a constant-currency
basis in the nine-month period ended February 24, 2019, compared to the same period in fiscal 2018 (see the
Non-GAAP
Measures section below for our use of this measure not defined by GAAP).
Pet Segment Results
Pet net sales
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
Nine-Month Period Ended
|
|
|
|
Feb. 24,
2019
|
|
|
Feb. 25,
2018
|
|
|
|
|
|
Feb. 24,
2019
|
|
|
Feb. 25,
2018
|
|
Net sales (in millions)
|
|
$
|
346.8
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
1,025.3
|
|
|
$
|
-
|
|
Pet net sales and operating profit in the third quarter of fiscal 2019 totaled $347 million and
$73 million respectively. Pet operating profit includes $3 million of amortization of the customer list intangible asset.
Pet
net sales and operating profit in the nine-month period ended February 24, 2019 were $1,025 million and $158 million respectively. The nine-month period ended February 24, 2019 includes results for 7 days of the month of
acquisition. Segment operating profit in the nine-month period ended February 24, 2019 includes a $53 million purchase accounting adjustment related to inventory acquired and $10 million of amortization of the customer list intangible
asset.
34
UNALLOCATED CORPORATE ITEMS
Unallocated corporate expense totaled $49 million in the third quarter of fiscal 2019 compared to $51 million in the same period in
fiscal 2018. During the third quarter of fiscal 2019, we recorded a $16 million legal recovery related to our Yoplait SAS subsidiary. We also recorded $6 million of integration costs in the third quarter of fiscal 2019 and
$4 million of acquisition transaction costs in the same period last year related to the acquisition of Blue Buffalo. We recorded a $6 million net decrease in expense related to the
mark-to-market
valuation of certain commodity positions and grain inventories in the third quarter of fiscal 2019 compared to a $3 million net increase in expense in the same period last year. In
addition, we recorded $3 million of restructuring initiative project-related costs in cost of sales during the third quarter of 2018.
Unallocated corporate expense totaled $239 million in the nine-month period ended February 24, 2019, compared to $167 million
in the same period last year. We recorded a $36 million net increase in expense related to the
mark-to-market
valuation of certain commodity positions and grain
inventories in the nine-month period ended February 24, 2019, compared to a $4 million net decrease in expense in the same period last year. We also recorded $21 million of integration costs in the nine-month period ended
February 24, 2019, and $4 million of acquisition transaction costs in the same period last year related to the acquisition of Blue Buffalo. In the nine-month period ended February 24, 2019, we recorded a $16 million gain from a
legal recovery related to our Yoplait SAS subsidiary and $13 million of gains related to certain investment valuation adjustments. In the nine-month period ended February 25, 2018, we recorded $13 million of restructuring charges and
$8 million of restructuring initiative project related costs in cost of sales. In addition, in the nine-month period ended February 24, 2019, we recorded a $3 million loss related to the impact of hyperinflationary accounting for our
Argentina subsidiary.
LIQUIDITY
During the nine-month period ended February 24, 2019, cash provided by operations was $2,028 million compared to $2,135 million
in the same period last year. The $107 million decrease was primarily driven by a $358 million change in current assets and liabilities, partially offset by a $240 million change in
non-cash
restructuring, impairment, and other exit costs. The $358 million change in current assets and liabilities was primarily driven by a $336 million change in the timing of accounts payable.
Cash used by investing activities during the nine-month period ended February 24, 2019, was $408 million, compared to
$425 million for the same period in fiscal 2018. Investments of $368 million in land, buildings and equipment in the nine-month period ended February 24, 2019, decreased $30 million compared to the same period a year ago. In
addition, we made $49 million of other investments, primarily by our venture capital fund during the nine-month period ended February 24, 2019.
Cash used by financing activities during the nine-month period ended February 24, 2019, was $1,458 million compared to
$1,570 million in the same period in fiscal 2018. We had $724 million of net debt repayments in the nine-month period ended February 24, 2019, compared to $137 million of net debt repayments in the same period a year ago. Sodiaal
International (Sodiaal) made an additional investment of $56 million in our Yoplait SAS subsidiary during the nine-month period ended February 24, 2019. We paid $884 million of dividends in the first nine months of fiscal
2019 compared to $846 million in the same period last year. In addition, we paid $601 million in cash to repurchase common stock during the nine-month period ended February 25, 2018.
As of February 24, 2019, we had $481 million of cash and cash equivalents held in foreign jurisdictions. Historically, we have not
provided deferred taxes on a significant portion of our unremitted earnings. In connection with the TCJA, we have
re-evaluated
our assertion and have concluded that although earnings prior to fiscal 2018
will remain permanently reinvested, we will no longer make a permanent reinvestment assertion beginning with our fiscal 2018 earnings. In fiscal 2018 we recorded a provisional estimate for local country withholding taxes related to certain
entities from which we began repatriating undistributed earnings and will continue to record local country withholding taxes on all future earnings.
35
CAPITAL RESOURCES
Our capital structure was as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
Feb. 24,
2019
|
|
|
May 27,
2018
|
|
Notes payable
|
|
$
|
1,971.3
|
|
|
$
|
1,549.8
|
|
Current portion of long-term debt
|
|
|
1,407.2
|
|
|
|
1,600.1
|
|
Long-term debt
|
|
|
11,642.6
|
|
|
|
12,668.7
|
|
Total debt
|
|
|
15,021.1
|
|
|
|
15,818.6
|
|
Redeemable interest
|
|
|
548.9
|
|
|
|
776.2
|
|
Noncontrolling interests
|
|
|
319.0
|
|
|
|
351.3
|
|
Stockholders equity
|
|
|
6,930.4
|
|
|
|
6,141.1
|
|
Total capital
|
|
$
|
22,819.4
|
|
|
$
|
23,087.2
|
|
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 February 24, 2019:
|
|
|
|
|
|
|
|
|
In Billions
|
|
Facility
Amount
|
|
|
Borrowed
Amount
|
|
Credit facility expiring:
|
|
|
|
|
|
|
|
|
May 2022
|
|
$
|
2.7
|
|
|
$
|
-
|
|
June 2019
|
|
|
0.2
|
|
|
|
-
|
|
Total committed credit facilities
|
|
|
2.9
|
|
|
|
-
|
|
Uncommitted credit facilities
|
|
|
0.7
|
|
|
|
0.2
|
|
Total committed and uncommitted credit
facilities
|
|
$
|
3.6
|
|
|
$
|
0.2
|
|
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, 2018, the floating preferred return rate on GMCs Class A Interests was reset to the sum of three-month LIBOR plus 142.5 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.
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
February 24, 2019, 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 February 24, 2019, the redemption value of the redeemable interest was $549 million, which approximates its fair value.
During the second quarter of fiscal 2019, Sodiaal made an additional investment of $56 million in Yoplait SAS.
Certain of our long-term debt agreements, our credit facilities, and our noncontrolling interests contain restrictive covenants. As of
February 24, 2019, we were in compliance with all of these covenants.
We have $1,407 million of long-term debt maturing in the
next 12 months that is classified as current, including 300.0 million euro-denominated floating-rate notes due March 2019, $500 million of 2.2 percent notes due October 2019, and 500.0 million
euro-
36
denominated floating-rate notes due January 2020. 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.
In March 2019, subsequent to the end of our fiscal third quarter, we issued
300.0 million principal amount of 0.0 percent fixed-rate notes due January 15, 2020. We may redeem the notes if certain tax laws change and we would be obligated to pay additional amounts on the notes. These notes are senior
unsecured obligations that include a change of control repurchase provision. We intend to use the net proceeds, together with cash on hand, to repay our floating rate notes due March 2019.
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 third quarter of fiscal 2019.
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 27, 2018. The accounting policies used in preparing our interim fiscal 2019 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 2019 related to the presentation of net periodic benefit expense, net periodic postretirement benefit expense, and
net periodic postemployment benefit expense and to revenue recognition. Please see Note 17 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 February 24, 2019, are the same as those described in our Annual Report on Form
10-K
for the fiscal year ended May 27, 2018, with the exception of the new accounting requirements adopted in the first quarter of fiscal 2019 for presentation of net periodic defined benefit pension
expense, net periodic postretirement benefit expense and net periodic postemployment benefit expense, and revenue recognition. See Note 17 to the Consolidated Financial Statements in Part I, Item 1 of this report for additional information.
On December 22, 2017, the TCJA was signed into law. The TCJA results in significant revisions to the U.S. corporate income tax
system, including a reduction in the U.S. corporate income tax rate, implementation of a territorial system, and a
one-time
deemed repatriation tax on untaxed foreign earnings. The TCJA also resulted in a U.S.
federal statutory tax rate of 21 percent in fiscal 2019. Generally, the impacts of the new legislation would be required to be recorded in the period of enactment, which for us was the third quarter of fiscal 2018. However, Accounting Standards
Update
2018-05:
Income Taxes (Topic 740)
(ASU 2018-05)
was issued with guidance allowing for the recognition of provisional amounts in the event that
the accounting is not complete and a reasonable estimate can be made. The guidance allows for a measurement period of up to one year from the enactment date to finalize the accounting related to the TCJA. As of February 24, 2019, we have
completed our accounting for the tax effects of the TCJA. See Note 15 to the Consolidated Financial Statements in Part I, Item 1 of this report for additional information.
We performed our annual goodwill and indefinite-lived intangible assets impairment test as of the first day of the second quarter of fiscal
2019. As a result of lower sales projections in our long-range plans for the businesses supporting the
Progresso
,
Food Should Taste Good
, and
Mountain High
brand intangible assets, we recorded the following impairment charges:
|
|
|
|
|
|
|
|
|
In Millions
|
|
Impairment
Charge
|
|
|
Fair Value as
of Nov. 25,
2018
|
|
Progresso
|
|
$
|
132.1
|
|
|
$
|
330.0
|
|
Food Should Taste Good
|
|
|
45.1
|
|
|
|
-
|
|
Mountain High
|
|
|
15.4
|
|
|
|
-
|
|
Total
|
|
$
|
192.6
|
|
|
$
|
330.0
|
|
Significant assumptions used in that assessment included our long-range cash flow projections for the
businesses, royalty rates, weighted average cost of capital rates, and tax rates.
37
All other intangible asset fair values were substantially in excess of the carrying values,
except for the Latin America reporting unit and the
Yoki
brand intangible asset. The excess fair values as of the fiscal 2019 test date of the Latin America reporting unit and the
Yoki
brand intangible asset were as follows:
|
|
|
|
|
|
|
|
|
In Millions
|
|
Carrying Value
of Intangible
Asset
|
|
|
Excess Fair Value as of
Fiscal 2019 Test Date
|
|
Latin America
|
|
$
|
209.0
|
|
|
|
7
|
%
|
Yoki
|
|
$
|
49.1
|
|
|
|
10
|
%
|
While having significant coverage as of our fiscal 2019 assessment date, the
Pillsbury
brand intangible
asset and U.S. Yogurt reporting unit had risk of decreasing coverage. We will continue to monitor these businesses for potential impairment.
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
In August 2017, the Financial Accounting Standards Board (FASB) issued new hedge accounting
requirements. The new standard amends the hedge accounting recognition and presentation requirements to better align an entitys risk management activities and financial reporting. The new standard also simplifies the application of hedge
accounting guidance. 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. Early
adoption is permitted. 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 and subsequent amendments 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. The requirements of the new standard and subsequent amendments allow for either the modified retrospective transition approach, which requires application of the guidance in all comparative periods presented, or the cumulative effect
adjustment approach, which requires application of the guidance at the adoption date. We are currently analyzing the impact of this standard on our results of operations and financial position by performing a comprehensive review of our lease
portfolio. We are in the process of implementing lease accounting software, developing a centralized business process, and implementing corresponding controls. 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 reasonably estimate the expected financial impact at this time. We expect to adopt this guidance using the cumulative effect adjustment approach.
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.
38
Net Sales Growth Rates on Constant-Currency Basis
We believe that this measure of net sales provides useful information to investors because it provides transparency to the underlying
performance by excluding the effect that foreign currency exchange rate fluctuations have on
year-to-year
comparability given volatility in foreign currency exchange
markets.
Net sales growth rates 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 Feb. 24, 2019
|
|
|
8 %
|
|
|
|
(2) pts
|
|
|
|
10 %
|
|
Nine-Month Period Ended Feb. 24, 2019
|
|
|
7 %
|
|
|
|
(2) pts
|
|
|
|
9 %
|
|
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.
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 16 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 Feb. 24, 2019
|
|
|
27 %
|
|
|
|
Flat
|
|
|
|
27 %
|
|
Nine-Month Period Ended Feb. 24, 2019
|
|
|
13 %
|
|
|
|
Flat
|
|
|
|
13 %
|
|
39
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
|
|
|
|
Feb. 24, 2019
|
|
|
Feb. 25, 2018
|
|
In Millions
|
|
Value
|
|
|
Percent of Net
Sales
|
|
|
Value
|
|
|
Percent of
Net Sales
|
|
Operating profit as reported
|
|
$
|
651.3
|
|
|
|
15.5 %
|
|
|
$
|
569.5
|
|
|
|
14.7 %
|
|
Mark-to-market
effects (a)
|
|
|
(6.5)
|
|
|
|
(0.1)%
|
|
|
|
2.8
|
|
|
|
0.1 %
|
|
Restructuring charges (b)
|
|
|
58.6
|
|
|
|
1.4 %
|
|
|
|
7.6
|
|
|
|
0.1 %
|
|
Project-related costs (b)
|
|
|
0.1
|
|
|
|
- %
|
|
|
|
3.0
|
|
|
|
0.1 %
|
|
Asset impairments (b)
|
|
|
1.2
|
|
|
|
- %
|
|
|
|
-
|
|
|
|
- %
|
|
Acquisition transaction and integration costs (c)
|
|
|
5.8
|
|
|
|
0.1 %
|
|
|
|
3.5
|
|
|
|
0.1 %
|
|
Divestiture loss (c)
|
|
|
35.4
|
|
|
|
0.9 %
|
|
|
|
-
|
|
|
|
- %
|
|
Legal recovery (f)
|
|
|
(16.2)
|
|
|
|
(0.4)%
|
|
|
|
-
|
|
|
|
- %
|
|
Adjusted operating profit
|
|
$
|
729.7
|
|
|
|
17.4 %
|
|
|
$
|
586.4
|
|
|
|
15.1 %
|
|
|
|
|
|
Nine-Month Period Ended
|
|
|
|
Feb. 24, 2019
|
|
|
Feb. 25, 2018
|
|
In Millions
|
|
Value
|
|
|
Percent of
Net Sales
|
|
|
Value
|
|
|
Percent of
Net Sales
|
|
Operating profit as reported
|
|
$
|
1,799.8
|
|
|
|
14.2 %
|
|
|
$
|
1,883.8
|
|
|
|
15.9 %
|
|
Mark-to-market
effects (a)
|
|
|
36.4
|
|
|
|
0.3 %
|
|
|
|
(3.5)
|
|
|
|
- %
|
|
Restructuring charges (b)
|
|
|
61.0
|
|
|
|
0.5 %
|
|
|
|
27.3
|
|
|
|
0.2 %
|
|
Project-related costs (b)
|
|
|
1.3
|
|
|
|
- %
|
|
|
|
8.4
|
|
|
|
0.1 %
|
|
Asset impairments (b)
|
|
|
207.0
|
|
|
|
1.6 %
|
|
|
|
-
|
|
|
|
- %
|
|
Acquisition transaction and integration costs (c)
|
|
|
21.3
|
|
|
|
0.1 %
|
|
|
|
3.5
|
|
|
|
- %
|
|
Divestiture loss (c)
|
|
|
35.4
|
|
|
|
0.3 %
|
|
|
|
-
|
|
|
|
- %
|
|
Hyperinflationary accounting (d)
|
|
|
3.2
|
|
|
|
- %
|
|
|
|
-
|
|
|
|
- %
|
|
Investment valuation adjustments (e)
|
|
|
(13.0)
|
|
|
|
(0.1)%
|
|
|
|
-
|
|
|
|
- %
|
|
Legal recovery (f)
|
|
|
(16.2)
|
|
|
|
(0.1)%
|
|
|
|
-
|
|
|
|
- %
|
|
Adjusted operating profit
|
|
$
|
2,136.2
|
|
|
|
16.8 %
|
|
|
$
|
1,919.5
|
|
|
|
16.2 %
|
|
(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.
|
(c)
|
See Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(d)
|
Represents the impact of hyperinflationary accounting for our Argentina subsidiary, which was sold in the
third quarter of fiscal 2019.
|
(e)
|
Represents valuation gains on certain corporate investments.
|
(f)
|
Represents a legal recovery related to our Yoplait SAS subsidiary.
|
Adjusted Operating Profit Growth Excluding Certain Items Affecting Comparability on a Constant-Currency Basis
We believe that this measure provides useful information to investors because it is the operating profit measure we use to evaluate operating
profit performance on a comparable year-over-year basis. The adjustments are either items resulting from infrequently occurring events or items that, in managements judgement, significantly affect the year-over-year assessment of operating
results. Additionally, the adjustments are evaluated on a constant-currency basis by excluding the effect that foreign currency exchange rate fluctuations have on
year-to-year
comparability given the volatility in foreign currency exchange rates.
40
Our adjusted operating profit growth excluding certain items affecting comparability on a
constant-currency basis is calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Nine-Month
Period Ended
|
|
|
|
|
Feb. 24, 2019 vs.
|
|
Feb. 24, 2019 vs.
|
|
|
|
|
Feb. 25, 2018
|
|
Feb. 25, 2018
|
|
|
Operating profit growth as reported
|
|
14 pts
|
|
(4)pts
|
|
|
|
|
|
Mark-to-market
effects (a)
|
|
(2)pts
|
|
2 pts
|
|
|
|
|
|
Restructuring charges (b)
|
|
9 pts
|
|
2 pts
|
|
|
|
|
|
Project-related costs (b)
|
|
Flat
|
|
(1)pt
|
|
|
|
|
|
Asset impairments (b)
|
|
Flat
|
|
11 pts
|
|
|
|
|
|
Acquisition transaction and integration costs (c)
|
|
Flat
|
|
1 pt
|
|
|
|
|
|
Divestiture loss (c)
|
|
6 pts
|
|
2 pts
|
|
|
|
|
|
Investment valuation adjustments (d)
|
|
Flat
|
|
(1)pt
|
|
|
|
|
|
Legal recovery (e)
|
|
(3)pts
|
|
(1)pt
|
|
|
|
|
|
Adjusted operating profit growth excluding items affecting comparability
|
|
24 pts
|
|
11 pts
|
|
|
|
|
|
Foreign currency exchange impact
|
|
(1)pt
|
|
Flat
|
|
|
|
|
|
Adjusted operating profit growth, excluding items
affecting comparability, on a constant-currency basis
|
|
25 pts
|
|
11 pts
|
|
|
|
|
|
(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.
|
(c)
|
See Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(d)
|
Represents valuation gains on certain corporate investments.
|
(e)
|
Represents a legal recovery related to our Yoplait SAS subsidiary.
|
41
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
|
|
Nine-Month
Period Ended
|
Per Share Data
|
|
Feb. 24,
2019
|
|
|
Feb. 25,
2018
|
|
|
Change
|
|
|
|
|
Feb. 24,
2019
|
|
|
Feb. 25,
2018
|
|
|
Change
|
|
|
|
Diluted earnings per share, as reported
|
|
$
|
0.74
|
|
|
$
|
1.62
|
|
|
|
(54
|
)
|
|
%
|
|
$
|
1.96
|
|
|
$
|
3.05
|
|
|
|
(36
|
)
|
|
%
|
|
|
|
|
|
|
|
|
|
Net tax benefit (a)
|
|
|
(0.01
|
)
|
|
|
(0.86
|
)
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(0.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax adjustment (b)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark-to-market
effects (c)
|
|
|
(0.01
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
0.05
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition transaction and integration costs (d)
|
|
|
0.01
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
0.03
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divestiture loss (d)
|
|
|
0.03
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
0.03
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CPW restructuring charges (e)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges (f)
|
|
|
0.08
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
0.08
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project-related costs (f)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairments (f)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
0.26
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment valuation adjustments (g)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal recovery (h)
|
|
|
(0.01
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share, excluding certain items affecting comparability
|
|
$
|
0.83
|
|
|
$
|
0.79
|
|
|
|
5
|
|
|
%
|
|
$
|
2.39
|
|
|
$
|
2.32
|
|
|
|
3
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange impact
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
pt
|
|
|
|
|
|
|
|
|
|
|
Flat
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share growth, excluding certain
items affecting comparability, on a constant-currency basis
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
%
|
(a)
|
See Note 15 to the Consolidated Financial Statements in Part I, item 1 of this report.
|
(b)
|
Represents a prior period adjustment recorded in the second quarter of fiscal 2018.
|
(c)
|
See Note 6 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(d)
|
See Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(e)
|
The CPW restructuring charges are related to initiatives designed to improve profitability and growth that
were approved in fiscal 2018 and 2019.
|
(f)
|
See Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(g)
|
Represents valuation gains on certain corporate investments.
|
(h)
|
Represents a legal recovery related to our Yoplait SAS subsidiary.
|
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.
42
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 rates 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 Feb. 24, 2019
|
|
|
(29)%
|
|
|
|
3 pts
|
|
|
|
(32)%
|
|
Nine-Month Period Ended Feb. 24, 2019
|
|
|
(19)%
|
|
|
|
Flat
|
|
|
|
(19)%
|
|
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.
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 Feb. 24, 2019
|
|
|
(11)%
|
|
|
|
(5) pts
|
|
|
|
(6)%
|
|
Nine-Month Period Ended Feb. 24, 2019
|
|
|
(7)%
|
|
|
|
(3) pts
|
|
|
|
(4)%
|
|
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 Feb. 24, 2019
|
|
|
|
|
|
|
|
Percentage Change in
Operating Profit
as
Reported
|
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in Operating
Profit on Constant-Currency
Basis
|
|
North America Retail
|
|
|
12 %
|
|
|
|
Flat
|
|
|
|
12 %
|
|
Europe & Australia
|
|
|
(11)%
|
|
|
|
(10)pts
|
|
|
|
(1)%
|
|
|
|
|
|
Nine-Month Period Ended Feb. 24, 2019
|
|
|
|
|
|
|
|
Percentage Change in
Operating Profit
as Reported
|
|
|
Impact of Foreign
Currency
Exchange
|
|
|
Percentage Change in Operating
Profit on Constant-Currency
Basis
|
|
North America Retail
|
|
|
4 %
|
|
|
|
(1)pt
|
|
|
|
5 %
|
|
Europe & Australia
|
|
|
(4)%
|
|
|
|
(4)pts
|
|
|
|
Flat
|
|
Asia & Latin America
|
|
|
65 %
|
|
|
|
23 pts
|
|
|
|
42 %
|
|
43
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
|
|
|
Nine-Month Period Ended
|
|
|
|
Feb. 24, 2019
|
|
|
Feb. 25, 2018
|
|
|
Feb. 24, 2019
|
|
|
Feb. 25, 2018
|
|
In Millions (Except Per Share Data)
|
|
Pretax
Earnings
(a)
|
|
|
Income
Taxes
|
|
|
Pretax
Earnings
(a)
|
|
|
Income
Taxes
|
|
|
Pretax
Earnings
(a)
|
|
|
Income
Taxes
|
|
|
Pretax
Earnings
(a)
|
|
|
Income
Taxes
|
|
As reported
|
|
|
$541.9
|
|
|
|
$95.8
|
|
|
|
$503.4
|
|
|
|
$(432.5)
|
|
|
|
$1,466.1
|
|
|
|
$313.1
|
|
|
|
$1,711.7
|
|
|
|
$(29.1)
|
|
Net tax benefit (b)
|
|
|
-
|
|
|
|
7.2
|
|
|
|
-
|
|
|
|
503.8
|
|
|
|
-
|
|
|
|
7.2
|
|
|
|
-
|
|
|
|
503.8
|
|
Mark-to-market
effects (c)
|
|
|
(6.5)
|
|
|
|
(1.5)
|
|
|
|
2.8
|
|
|
|
1.2
|
|
|
|
36.4
|
|
|
|
8.4
|
|
|
|
(3.5)
|
|
|
|
(1.1)
|
|
Restructuring charges (d)
|
|
|
58.6
|
|
|
|
12.3
|
|
|
|
7.6
|
|
|
|
0.8
|
|
|
|
61.0
|
|
|
|
12.5
|
|
|
|
27.3
|
|
|
|
6.7
|
|
Project-related costs (d)
|
|
|
0.1
|
|
|
|
-
|
|
|
|
3.0
|
|
|
|
0.7
|
|
|
|
1.3
|
|
|
|
0.3
|
|
|
|
8.4
|
|
|
|
2.5
|
|
Asset impairments (d)
|
|
|
1.2
|
|
|
|
0.3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
207.0
|
|
|
|
47.7
|
|
|
|
-
|
|
|
|
-
|
|
Acquisition transaction and integration costs (e)
|
|
|
5.8
|
|
|
|
1.3
|
|
|
|
19.4
|
|
|
|
5.6
|
|
|
|
21.3
|
|
|
|
4.9
|
|
|
|
19.4
|
|
|
|
5.6
|
|
Divestiture loss (e)
|
|
|
35.4
|
|
|
|
13.6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35.4
|
|
|
|
13.6
|
|
|
|
-
|
|
|
|
-
|
|
Tax adjustment (f)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(40.5)
|
|
Hyperinflationary accounting (g)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3.2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Investment valuation adjustments (h)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13.0)
|
|
|
|
(3.0)
|
|
|
|
-
|
|
|
|
-
|
|
Legal recovery (i)
|
|
|
(16.2)
|
|
|
|
(5.4)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(16.2)
|
|
|
|
(5.4)
|
|
|
|
-
|
|
|
|
-
|
|
As adjusted
|
|
|
$620.3
|
|
|
|
$123.6
|
|
|
|
$536.2
|
|
|
|
$81.3
|
|
|
|
$1,802.5
|
|
|
|
$399.3
|
|
|
|
$1,763.3
|
|
|
|
$447.9
|
|
Effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
17.7%
|
|
|
|
|
|
|
|
(85.9%)
|
|
|
|
|
|
|
|
21.4%
|
|
|
|
|
|
|
|
(1.7%)
|
|
As adjusted
|
|
|
|
|
|
|
19.9%
|
|
|
|
|
|
|
|
15.2%
|
|
|
|
|
|
|
|
22.2%
|
|
|
|
|
|
|
|
25.4%
|
|
Sum of adjustment to income taxes
|
|
|
|
|
|
$
|
27.8
|
|
|
|
|
|
|
$
|
513.8
|
|
|
|
|
|
|
$
|
86.2
|
|
|
|
|
|
|
$
|
477.0
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares - diluted EPS
|
|
|
|
|
|
|
604.5
|
|
|
|
|
|
|
|
582.7
|
|
|
|
|
|
|
|
604.0
|
|
|
|
|
|
|
|
583.2
|
|
|
|
|
|
|
|
|
|
|
Impact of income tax adjustments on diluted EPS
excluding certain items affecting comparability
|
|
|
|
|
|
|
$0.04
|
|
|
|
|
|
|
|
$0.88
|
|
|
|
|
|
|
|
$0.14
|
|
|
|
|
|
|
|
$0.82
|
|
(a)
|
Earnings before income taxes and
after-tax
earnings from joint
ventures.
|
(b)
|
See Note 15 to the Consolidated Financial Statements in Part 1, Item 1 of this report.
|
(c)
|
See Note 6 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(d)
|
See Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(e)
|
See Note 2 to the Consolidated Financial Statements in Part I, Item 1 of this report.
|
(f)
|
Represents a prior period adjustment recorded in the second quarter of fiscal 2018.
|
(g)
|
Represents the impact of hyperinflationary accounting for our Argentina subsidiary, which was sold in the
third quarter of fiscal 2019.
|
(h)
|
Represents valuation gains on certain corporate investments.
|
(i)
|
Represents a legal recovery related to our Yoplait SAS subsidiary.
|
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
44
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.
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.
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.
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.
45
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.
TCJA.
U.S. Tax Cuts and Jobs Act
which was signed into law on December 22, 2017.
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.
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, 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.
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 27, 2018, 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.