General Mills Fiscal 2016 Second Quarter Results A Reminder on - - PowerPoint PPT Presentation

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General Mills Fiscal 2016 Second Quarter Results A Reminder on - - PowerPoint PPT Presentation

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General Mills Fiscal 2016 Second Quarter Results A Reminder on Forward-looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on

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SLIDE 1

General Mills

Fiscal 2016 Second Quarter Results

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SLIDE 2

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A Reminder on Forward-looking Statements

This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management’s current expectations and

  • assumptions. These forward-looking statements are subject to certain risks and uncertainties that

could cause actual results to differ materially from the potential results discussed in the forward- looking statements. In particular, our predictions about future net sales and earnings could be affected by a variety of factors, including: competitive dynamics in the consumer foods industry and the markets for our products, including new product introductions, advertising activities, pricing actions and promotional activities of our competitors; economic conditions, including changes in inflation rates, interest rates, tax rates, or the availability of capital; product development and innovation; consumer acceptance of new products and product improvements; consumer reaction to pricing actions and changes in promotion levels; acquisitions or dispositions of businesses

  • r 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,

  • ther 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 savings initiatives; volatility in the market value of derivatives used to manage price risk for certain commodities; benefit plan expenses due to changes in plan asset values and discount rates used to determine plan liabilities; failure or breach of our information technology systems; foreign economic conditions, including currency rate fluctuations; and political unrest in foreign markets and economic uncertainty due to terrorism or war. The company undertakes no obligation to publicly revise any forward-looking statements to reflect any future events or circumstances.

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SLIDE 3

Don Mulligan

Executive Vice President; Chief Financial Officer

Second Quarter 2016 Financial Review

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SLIDE 4

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Second Quarter Fiscal 2016 Summary

*Constant-currency growth rate. Non-GAAP measure.

  • Net Sales Declined LSD*
  • Margin Expansion Drove MSD Growth in Adjusted

Diluted EPS*

  • Increasing Cost Savings Target to $500MM by Fiscal

2018

  • Updating Fiscal 2016 Guidance for Green Giant

Divestiture ▬ On Track to Deliver Original 2016 Growth Goals Excluding Green Giant Impact

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SLIDE 5

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Net Sales $4,425

  • 6%
  • 2%

Segment Operating Profit* 839

  • 1

+2 Net Earnings Attributable to General Mills 530 +53 Diluted EPS $0.87 +55 Certain Items Affecting Comparability 0.05 Adjusted Diluted EPS* $0.82 +2% +5%

Second Quarter Fiscal 2016 Financial Summary

($ in Millions, Except per Share)

*Non-GAAP measures. See appendix for reconciliation.

$ % Change Constant- currency % Change*

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SLIDE 6

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Second Quarter Fiscal 2016 Components of Net Sales Growth

(As Reported)

  • 3pts
  • 4pts
  • 6pts

Volume Price & Mix Total Net Sales Foreign Exchange

+1pt

Acquisition & Divestiture: -2 Points of Volume Growth, -1 Point of Net Sales Growth

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SLIDE 7

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Snacks

  • 1%

+1% Baking Products

  • 1
  • 1

Cereal

  • 5

+1 Meals

  • 5
  • 1

Yogurt

  • 6
  • 1

Total U.S. Retail

  • 4%

Flat Net Sales Growth Q2 1H

Second Quarter Fiscal 2016 U.S. Retail Segment

Acquisition & Divestiture: -1 Point of Net Sales Growth in Q2, +1 Point in 1H

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6 Focus Platforms +3% +5% Other

  • 12
  • 9

Total CS&F

  • 4%
  • 2%

Net Sales Growth Q2 1H

Second Quarter Fiscal 2016 Convenience Stores & Foodservice Segment

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SLIDE 9

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Latin America +17% +9% Canada +3 +4 Asia / Pacific +2 +2 Europe

  • 2

+2 Total International +3% +4%

Second Quarter Fiscal 2016 International Segment

Constant-currency Net Sales Growth*

*Non-GAAP measure. See appendix for reconciliation.

Q2 1H

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*Non-GAAP measure. See appendix for reconciliation.

Adjusted Gross Margin* Results

  • Cost Savings Offsetting Low

Input Cost Inflation

  • Expect 2% Inflation for Full

Year

Q2

F15 F16

34.9% 35.5%

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SLIDE 11

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*Non-GAAP measure. See appendix for reconciliation.

Second Quarter Fiscal 2016 Segment Operating Profit

($ in Millions) Total Segment Operating Profit* $839

  • 1%

+2% U.S. Retail 600

  • 3

International 136 +1 +19 Convenience Stores & Foodservice 103 +7

$ % Change Constant- currency % Change*

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Second Quarter Fiscal 2016 Joint Venture Results

Cereal Partners Worldwide Net Sales +1%** Häagen-Dazs Japan Net Sales -10%**

*Non-GAAP measure. See appendix for reconciliation. **Growth rates in constant currency.

After-tax Earnings: $23MM; -6% vs. LY in Constant Currency*

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Second Quarter Fiscal 2016 Other Income Statement Items

  • Unallocated Corporate Expense Decreased

Excluding Certain Items

  • One-Time Gain on Sale of Green Giant = $199MM
  • Restructuring & Project-related Charges of $99MM Pretax

(Includes $38MM in Cost of Sales)

  • Net Interest Expense $4MM Below Last Year
  • Adjusted Effective Tax Rate* 32.3%, Compared to 33.5%

Last Year

  • Average Diluted Shares Outstanding Down 1%

*Non-GAAP measure. See appendix for reconciliation.

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Net Sales $8,633

  • 4%

+1% Segment Operating Profit* 1,666 +8 +12 Net Earnings Attributable to General Mills 956 +38 Diluted EPS $1.56 +40 Certain Items Affecting Comparability 0.05 Adjusted Diluted EPS* $1.61 +14% +18%

First Half Fiscal 2016 Financial Summary

($ in Millions, Except per Share)

*Non-GAAP measures. See appendix for reconciliation.

$ % Change Constant- currency % Change*

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($ in Millions)

F16 F15 Q2 Accounts Receivable $1,461 $1,706 Inventories 1,455 1,893 Accounts Payable 1,704 1,657 Total Core Working Capital $1,212 $1,942

  • 38%

% Change

Core Working Capital

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First Half Fiscal 2016 Cash Flow Highlights

  • Fixed Asset Investment =

$294MM

  • Dividends Paid = $531MM
  • Share Repurchases =

$549MM

1H Operating Cash Flow

($ in Millions)

F15 F16

$863 $1,156 Uses of Cash

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Update on Cost Savings Initiatives

  • Targeting $400MM in F16 COGS HMM Savings
  • Remain on Track to Deliver $285 - $310MM of Additional F16

Cost Savings − Includes Savings From Project Century, Project Catalyst, Project Compass, and Policies & Practices Update (ZBB)

  • Updated Cost Savings Targets Reflect Expanded Project

Century Activity − F17: $450MM − F18: $500MM

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Green Giant Impact on Financial Performance

*Non-GAAP measures.

Impact to Constant-currency Growth*

Fiscal 2016 Fiscal 2017

Net Sales

  • 2 pts
  • 1 pts

Segment Operating Profit

  • 2 pts
  • 1 pts

Adjusted Diluted EPS

  • 7 cents
  • 3 cents
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SLIDE 19

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Fiscal 2016 Guidance Updated for Divestiture of Green Giant

*Non-GAAP measures.

Net Sales Flat

  • 2 pts
  • LSD

Segment Operating Profit+LSD

  • 2 pts

Flat Adjusted Diluted EPS +MSD

  • 7 cents

+LSD

Constant-currency Growth (52 vs 53 wks)* Prior Guidance Updated Guidance Green Giant Divestiture

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SLIDE 20

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First Half 2016 International Update

Executive Vice President; Chief Operating Officer – International

Chris O’Leary

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Strong Growth Performance

$2.7 $5.1

F10 F11 F12 F13 F14 F15

International Segment Net Sales

$206 $523

F10 F11 F12 F13 F14 F15

International Segment Operating Profit

($ in Billions) ($ in Millions)

CGR = +14% CGR = +20%

Profit Margin : 7.7% 10.2%

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International Segment – Developed and Emerging Markets

Europe Canada Asia/Pacific Latin America Emerging Markets 37% Developed Markets 63%

F15 Net Sales: $5.1 Billion

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Net Sales $2,356

  • 12%

+4% Segment Operating Profit 253

  • 10%

+8%

International Segment First Half Fiscal 2016 Financial Summary

($ in Millions)

*Non-GAAP measures. See appendix for reconciliation.

$ % Change Constant- currency % Change*

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SLIDE 24

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Renovation and Innovation Driving Growth in Canada

Cereal 1H F16 Retail Sales: -1% Dollar Share: +0.3 pts. Snacks Yogurt 1H F16 Constant-currency Net Sales Growth: +4%* 1H F16 Retail Sales: +14% 1H F16 Retail Sales: Flat

*Non-GAAP measure. See appendix for reconciliation. Source: Nielsen FYTD through 11/21/15.

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Europe Highlights

Häagen-Dazs Old El Paso FYTD Retail Sales: +16% FYTD Retail Sales: Flat 1H F16 Constant-currency Net Sales Growth: +2%*

*Non-GAAP measure. See appendix for reconciliation. Source: Nielsen FYTD through October 2015.

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Latin America Highlights

Brazil:

  • Q2 Net Sales Up LSD
  • Continued Macro

Headwinds

Mexico:

  • 1H Net Sales Up DD

*Non-GAAP measure. See appendix for reconciliation.

1H F16 Constant-currency Net Sales Growth: +9%*

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Asia/Pacific Highlights

Häagen-Dazs in China Wanchai Ferry in China 1H F16 Net Sales -5%** 1H F16 Net Sales +2%**

*Non-GAAP measure. See appendix for reconciliation. **Actual net sales in local currency translated to USD at a fixed exchange rate

Asia/Pacific 1H F16 Constant-currency Net Sales Growth: +2%*

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Yoplait Off to a Good Start in China

Gaining Share in Shanghai

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Sweet Snacking Driving Growth in AMEA

Häagen-Dazs New Flavors Expanding Baked Goods New Products and Increasing Distribution in India 1H F16 Net Sales: +9%*

*Actual net sales in local currency translated to USD at a fixed exchange rate

1H F16 Net Sales: +21%* Ready-to-eat Baked Treats

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International Restructuring Update

Project Compass

  • Streamlining International Organizational

Structure

  • On Track for $45 - $50 Million Cost

Savings Project Century

  • UK and New Zealand Plant Closures

Actions subject to consultation where required.

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International Segment Summary

  • Good Growth in Developed Markets with

Consumer-first Renovation and Innovation

  • Emerging Markets Delivering Growth;

China and Brazil Remain Challenging

  • Funding our Future with Productivity;

Additional Margin Expansion Ahead

*In Constant Currency.

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SLIDE 32

Ken Powell

Chairman and CEO

First Half 2016 Operating Highlights

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U.S. Retail First-half Fiscal 2016 Financial Summary

($ in Millions)

$ % Change

Net Sales $5,293 Flat Segment Operating Profit 1,230 15% Acquisition and Divestiture: +1 Point of Net Sales Growth

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Our Categories Have Returned to Growth

0.6% Flat 1.0%

F14 F15 F16 YTD

Source: Nielsen XAOC, F16 YTD ended 11.21.15

Units:

  • 0.3%
  • 1.9%
  • 1.0%

Price: +0.8% +2.0% +2.1%

U.S. Retail Segment Categories Dollar Volume Growth

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First-half Fiscal 2016 Retail Sales Trends

  • Snacks and Cereal Renovation Working,

but Merchandising Lower than Expected

  • Yogurt Impacted by Significant

Competitive Activity

  • Improved Performance in Meals and

Baking

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U.S. Cereal First-half Highlights

Gluten Free Cheerios Varieties Base Dollar Growth

  • 5%
  • 3%

+2% +3% +3% F15 F16 Q1 Sep Oct Nov

1H F16 Retail Sales +7%

Source: Nielsen XAOC, FYTD ended 11.21.15 Source: Nielsen Total U.S. Food, November ended 11.21.15

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U.S. Cereal Second-half News

Expanding Nature Valley Cereal Franchise No Artificial Flavors and Colors News

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More U.S. Cereal Second-half News

Promotions Leveraging Top Movie Equities Increased Media Spending

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U.S. Grain Snacks Highlights

Renovation Innovation New Marketing Campaigns

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U.S. Yogurt Second-half News

2H F16 Innovation Merchandising and Consumer Support

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U.S. Natural and Organic Highlights

1H F16 Retail Sales: +18% 1H F16 Retail Sales: +8% Core Expansion Cascadian Farm Grain Snacks Cascadian Farm Cereals

Source: Nielsen XAOC FYTD ended 10.31.15, Natural Supermarkets FYTD ended 11.1.15, Whole Foods FYTD ended 11.1.15

1H F16 Annie’s Retail Sales Growing +8%

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Additional U.S. Retail Highlights

Soup Mexican Desserts Totino’s Hot Snacks

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Convenience Stores & Foodservice First-half Fiscal 2016 Financial Summary

($ in Millions)

$ % Change

Net Sales $984

  • 2%

Segment Operating Profit 183 Flat

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Convenience Stores & Foodservice First-half Highlights

Snacks Yogurt Frozen Meals Cereal

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Today’s General Mills Summary

  • First-half Growth in Constant-currency Net Sales, Segment

Operating Profit, and Adjusted Diluted EPS*

  • Taking Actions to Strengthen Retail Sales Performance in

the Second Half

  • Increasing Cost Savings Target to $500MM by Fiscal 2018
  • On Track to Deliver Fiscal 2016 Growth Goals Excluding

Impact of Green Giant Divestiture

*Non-GAAP measures.

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Reconciliation of Total Segment Operating Profit

U.S. Retail $600 $616 International 136 134 Convenience Stores & Foodservice 103 96 Total Segment Operating Profit $839 $847 Unallocated Corporate Items 71 73 Gain on Divestiture

  • 199
  • Restructuring, Impairment, and

Other Exit Costs 61 215 Operating Profit $906 $559 (Fiscal Years, $ in Millions)

Table does not foot due to rounding.

2016 2015 Q2

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

Diluted EPS $0.87 $0.56 55% Mark-to-market Effects (0.01)

  • Divestiture (gain)

(0.14)

  • Restructuring

0.08 0.24 Project-related costs 0.02

  • Adjusted Diluted EPS

$0.82 $0.80 2% Impact of Foreign Currency Exchange

  • 3 pts

Adjusted Diluted EPS on a Constant-currency Basis 5% (Fiscal Years)

2016 2015 Q2 Change

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

Diluted EPS $1.56 $1.11 40% Mark-to-market Effects (0.01) 0.05 Divestiture (gain) (0.14)

  • Restructuring

0.17 0.25 Project-related costs 0.03

  • Adjusted Diluted EPS

$1.61 $1.41 14% Impact of Foreign Currency Exchange

  • 4 pts

Adjusted Diluted EPS on a Constant-currency Basis 18% (Fiscal Years)

2016 2015 Change First Half 2016

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Europe

  • 13%
  • 11 pts
  • 2%

Canada

  • 13
  • 16

3 Asia/Pacific

  • 3
  • 5

2 Latin America

  • 21
  • 38

17 Total International

  • 12%
  • 15 pts

3% Total Net Sales

  • 6%
  • 4 pts
  • 2%

% Change in Net Sales

  • n a Constant-

currency Basis Impact of Foreign Currency Exchange % Change in Net Sales as Reported

Q2 2016

(Fiscal Year)

Reconciliation of Second Quarter International Constant-currency Net Sales Growth

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Europe

  • 12%
  • 14 pts

2% Canada

  • 12
  • 16

4 Asia/Pacific

  • 1
  • 3

2 Latin America

  • 23
  • 32

9 Total International

  • 12%
  • 16 pts

4% Total Net Sales

  • 4%
  • 5 pts

1%

% Change in Net Sales

  • n a Constant-

currency Basis Impact of Foreign Currency Exchange % Change in Net Sales as Reported

First Half 2016

(Fiscal Year)

Reconciliation of First Half International Constant-currency Net Sales Growth

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Reconciliation of Adjusted Gross Margin

Net Sales $4,425 $4,712 Gross Margin as Reported 1,541 34.8% 1,619 34.4% Mark-to-market Effects (8) 5 Restructuring 22 19 Project-related costs 16 1 Adjusted Gross Margin $1,571 35.5% $1,643 34.9%

Q2 2016

$ % of Net Sales

Q2 2015

$ % of Net Sales (Fiscal Years, $ in Millions)

Table does not foot due to rounding.

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Q2 1%

  • 18 pts

19% 1H

  • 10%
  • 18 pts

8%

% Change in Segment Operating Profit

  • n a Constant-

currency Basis Impact of Foreign Currency Exchange % Change in Segment Operating Profit as Reported

International Segment Operating Profit (Fiscal 2016)

Reconciliation of Constant-currency International Segment Operating Profit Growth

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(Fiscal 2016) Q2

  • 15%
  • 9 pts
  • 6%

1H

  • 8
  • 13 pts

5

% Change in After-tax JV Earnings

  • n a Constant-

currency Basis Impact of Foreign Currency Exchange % Change in After-tax JV Earnings as Reported

Total After-tax Earnings from Joint Ventures

Reconciliation of Constant-currency After-tax JV Earnings

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As Reported $832 $312 $482 $153 Mark-to-market effects (8) (3) 5 2 Restructuring 83 30 233 86 Project-related costs 16 6 1

  • Divestiture (gain)

(199) (111)

  • Acquisition Integration Costs
  • 4

1 As Adjusted $724 $234 $724 $243 Effective Tax Rate: As Reported 37.4% 31.8% As Adjusted 32.3% 33.5% Pre-tax Earnings* Income Taxes Q2 2015

Reconciliation of Tax Rate Excluding Items

(Fiscal Years, $ in Millions) Pre-tax Earnings* Income Taxes

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

Q2 2016

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Q2

  • 1%
  • 3 pts

2% 1H 8

  • 4 pts

12

% Change in Total Segment Operating Profit

  • n a Constant-

currency Basis Impact of Foreign Currency Exchange % Change in Total Segment Operating Profit as Reported

Total Segment Operating Profit

Reconciliation of Constant-currency Total Segment Operating Profit Growth

(Fiscal 2016)