GENERAL MILLS INC (GIS) FY 2022 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
ITEM 7 - Management’s Discussion and Analysis of
Financial Condition and Results of Operations
EXECUTIVE OVERVIEW
We
are
a
global packaged
foods company.
We
develop
distinctive
value-added
food
products
and
market
them under
unique
brand
names.
We
work
continuously
to
improve
our
core
products
and
to
create
new
products
that
meet
consumers’
evolving
needs
and
preferences.
In
addition,
we
build
the
equity
of
our
brands
over
time
with
strong
consumer-directed
marketing,
innovative
new
products,
and
effective
merchandising.
We
believe
our
brand-building
approach
is
the
key
to
winning
and
sustaining
leading
share
positions in markets around the globe.
Our fundamental
financial goal is
to generate competitively
differentiated returns
for our shareholders
over the long
term. We
believe
achieving
that
goal
requires
us
to
generate
a
consistent
balance
of
net
sales
growth,
margin
expansion,
cash
conversion,
and
cash
return to shareholders over time.
Our long-term growth objectives are to deliver the following performance
on average over time:
●
2 to 3 percent annual growth in organic net sales;
●
mid-single-digit annual growth in adjusted operating profit;
●
mid- to high-single-digit annual growth in adjusted diluted earnings per share
(EPS);
●
free cash flow conversion of at least 95 percent of adjusted net earnings after
tax; and
●
cash return to shareholders of 80 to 90 percent of free cash flow,
including an attractive dividend yield.
We
are executing
our Accelerate
strategy to
drive sustainable,
profitable gro
wth and
top-tier shareholder
returns over
the long
term.
The
strategy
focuses
on
four
pillars
to
create
competitive
advantages
and
win:
boldly
building
brands,
relentlessly
innovating,
unleashing
our scale,
and
being a
force for
good. We
are prioritizing
our core
markets, global
platforms,
and
local gem
brands
that
have
the
best
prospects
for
profitable
growth
and
we
are
committed
to
reshaping
our
portfolio
with
strategic
acquisitions
and
divestitures to further enhance our growth profile.
We
expect that
changes in
consumer behaviors
driven by
the COVID-19
pandemic will
result in
ongoing elevated
consumer demand
for food at home, relative to pre-pandemic levels. These
changes include more time spent working
from home and increased consumer
appreciation
for cooking
and baking.
We
plan to
capitalize on
these opportunities,
addressing evolving
consumer
needs through
our
leading brands, innovation, and advantaged capabilities to generate profitable
growth.
In fiscal 2022,
we successfully adapted
to the volatile operating
environment, responding quickly
to significant increases in
input cost
inflation and supply chain disruptions and keeping
our brands available for our customers and consumers.
As a result, we were able to
grow organic
net sales, adjusted
operating profit,
and adjusted diluted
EPS ahead of
our initial targets.
We
achieved each
of the
three
priorities we established at the beginning of the year:
We
continued
to
compete
effectively,
including
holding
or
growing
market
share
in
70
percent
of
our
global
priority
businesses.
We
generated organic
net sales
growth across
each of
our four
operating segments,
fueled by
compelling brand
building
and
innovation
across our
leading
brands,
and
supported
with
strong
levels
of
net price
realization
in
response
to
significant input cost inflation.
We
successfully navigated
the dynamic supply
chain environment, which
was characterized by
steadily increasing input
cost
inflation,
reaching
8
percent
for
the
full
year,
and
record
levels
of
supply
chain
disruptions
affecting
our
sourcing,
manufacturing,
and logistics
operations.
We
leveraged
our Strategic
Revenue
Management
(SRM) capability
to accelerate
pricing actions in
the face of increasing
inflation, generating 7
points of positive
organic net price
realization and mix
for the
year.
And
we
moved
quickly
to
address
supply
chain
disruptions
and
outpace
our
competition
in
terms
of
on-shelf
availability for our brands.
We
executed
our
portfolio
and
organizational
reshaping
actions
without
disrupting
our
base
business.
We
announced
or
closed
seven
different
acquisitions
and
divestitures
during
the
year,
helping
further
upgrade
the
growth
profile
of
our
portfolio.
And we
successfully implemented
significant changes
to our
organizational
structure, including
streamlining our
North
America
Retail
operating
unit
structure,
realigning
our
North
America
Foodservice
segment
and
shifting
our
U.S.
convenience stores
business into North
America Retail, creating
a new International
segment and adjusting
our go-to-market
model
across
many
global
markets,
and
establishing
a
new
Strategy
&
Growth
organization
tasked
with
advancing
many
aspects of our Accelerate strategy.
Our consolidated net
sales for fiscal
2022 rose 5
percent to $19.0 billion.
On an organic
basis, net sales
increased 6 percent
compared
to year-ago
levels. Operating
profit of
$3.5 billion increased
11 percent.
Adjusted operating
profit of
$3.2 billion increased
2 percent
on a constant-currency
basis.
Diluted EPS of $4.42
was up 17 percent
compared to fiscal 2021
results. Adjusted diluted EPS
of $3.94
18
increased
4
percent
on
a
constant-currency
basis
(See
the
“Non-GAAP
Measures”
section
below
for
a
description
of
our
use
of
measures not defined by generally accepted accounting principles (GAAP)).
Net
cash
provided
by
operations
totaled
$3.3 billion
in
fiscal
2022
representing
a
conversion
rate
of
121
percent
of
net
earnings,
including earnings attributable
to redeemable and noncontrolling
interests. This cash generation
supported capital investments
totaling
$569 million, and
our resulting
free cash flow
was $2.7 billion
at a conversion
rate of 113
percent of
adjusted net
earnings, including
earnings
attributable
to
redeemable
and
noncontrolling
interests.
We
returned
cash
to
shareholders
through
dividends
totaling
$1.2
billion and net share repurchases
totaling $715 million. Our ratio
of net debt-to-operating cash flow
was 3.3 in fiscal 2022, and our
net
debt-to-adjusted earnings before net interest, income taxes, depreciation
and amortization (net debt-to-adjusted EBITDA) ratio was 2.8
(See the “Non-GAAP Measures” section below for a description of our use of
measures not defined by GAAP).
A
detailed
review
of
our
fiscal
2022
performance
compared
to
fiscal
2021
appears
below
in
the
section
titled
“Fiscal
2022
Consolidated Results of Operations.” A detailed review
of our fiscal 2021 performance compared to our fiscal 2020
performance is set
forth
in Part
II, Item
7 of
our Form
10-K for
the fiscal
year
ended
May 30, 2021
under the
caption
“Management’s
Discussion and
Analysis of
Financial Condition
and Results
of Operations
– Fiscal
2021 Results
of Consolidated
Operations,” which
is incorporated
herein by reference.
In fiscal 2023,
we expect to
build on our
positive momentum
and continue
to advance our
Accelerate strategy.
Our key priorities
are
to
continue
to
compete
effectively,
invest
in
our
brands
and
capabilities,
and
reshape
our
portfolio.
We
expect
the
largest
factors
impacting
our
performance
in
fiscal
2023
will
be
the
economic
health
of
consumers,
the
inflationary
cost
environment,
and
the
frequency and severity of disruptions
in the supply chain.
Total input
cost inflation is expected to
be approximately 14 percent
of cost
of goods
sold in
fiscal 2023.
We
are addressing
the inflationary
environment with
holistic margin
management (HMM)
cost savings
expected to
total approximately
3 to
4 percent
of cost
of goods
sold and
low-double-digit net
price realization
generated through
our
SRM capability.
We are planning
for volume elasticities to increase but remain below
historical levels and supply chain disruptions to
slowly moderate in fiscal 2023 compared to fiscal 2022 levels.
Based on these assumptions, our key full-year fiscal 2023 targets are
summarized below:
●
Organic net sales are expected to increase 4 to 5 percent.
●
Adjusted operating
profit is
expected to
range between
down 2
percent and
up 1
percent in
constant-currency from
the base
of
$3.2
billion
reported
in
fiscal
2022,
including
a
3-point
net
headwind
from
divestitures
and
acquisitions
announced
or
closed in fiscal 2022.
●
Adjusted diluted EPS are
expected to range between
flat and up 3 percent
in constant-currency from
the base of $3.94 earned
in fiscal 2022, including a 3-point net headwind from divestitures and
acquisitions announced or closed in fiscal 2022.
●
Free cash flow conversion is expected to be at least 90 percent of adjusted after-tax
earnings.
See the “Non-GAAP Measures” section below for a description of our use
of measures not defined by GAAP.
Certain terms used throughout this report are defined in a glossary in Item
8 of this report.
FISCAL 2022 CONSOLIDATED
RESULTS
OF OPERATIONS
In fiscal
2022, net
sales increased
5 percent
compared to
fiscal 2021
and organic
net sales increased
6 percent
compared to
last year.
Operating
profit
increased
11
percent
to
$3,476
million
primarily
driven
by
favorable
net
price
realization
and
mix,
gains
on
divestitures,
net
restructuring
recoveries,
and
a
decrease
in
certain
selling,
general,
and
administrative
(SG&A)
expenses,
partially
offset
by
higher
input
costs,
lower
net
corporate
investment
activity,
higher
transaction
and
integration
costs,
and
volume
declines.
Operating profit margin
of 18.3 percent increased
100 basis points.
Adjusted operating profit
of $3,213 million
increased 2 percent on
a constant-currency
basis, primarily
driven by
a decrease
in certain
SG&A expenses.
Adjusted operating
profit margin
decreased 50
basis
points
to
16.9
percent.
Diluted
earnings
per
share
of
$4.42
increased
17
percent
compared
to
fiscal
2021.
Adjusted
diluted
earnings
per
share
of
$3.94
increased
4
percent
on
a
constant-currency
basis
(see
the
“Non-GAAP
Measures”
section
below
for
a
description of our use of measures not defined by GAAP).
19
A summary of our consolidated financial results for fiscal 2022 follows:
Fiscal 2022
In millions,
except per
share
Fiscal 2022 vs.
Fiscal 2021
Percent of Net
Sales
Constant-
Currency
Growth (a)
Net sales
$
18,992.8
5
%
Operating profit
3,475.8
11
%
18.3
%
Net earnings attributable to General Mills
2,707.3
16
%
Diluted earnings per share
$
4.42
17
%
Organic net sales growth rate (a)
6
%
Adjusted operating profit (a)
3,213.3
2
%
16.9
%
2
%
Adjusted diluted earnings per share (a)
$
3.94
4
%
4
%
(a)
See the "Non-GAAP Measures" section below for our use of measures not defined by
GAAP.
Consolidated
net sales
were as follows:
Fiscal 2022
Fiscal 2022 vs.
Fiscal 2021
Fiscal 2021
Net sales (in millions)
$
18,992.8
5
%
$
18,127.0
Contributions from volume growth (a)
(5)
pts
Net price realization and mix
10
pts
Foreign currency exchange
Flat
Note: Table may
not foot due to rounding
(a) Measured in tons based on the stated weight of our product shipments.
The
5
percent
increase
in
net
sales
in
fiscal
2022
reflects
favorable
net
price
realization
and
mix,
partially
offset
by
a
decrease
in
contributions from volume growth.
Components of organic net sales growth are shown in the following
table:
Fiscal 2022 vs. Fiscal 2021
Contributions from organic volume growth (a)
(1)
pt
Organic net price realization and mix
7
pts
Organic net sales growth
6
pts
Foreign currency exchange
Flat
Acquisition and divestitures
(1)
pt
Net sales growth
5
pts
Note: Table may
not foot due to rounding
(a) Measured in tons based on the stated weight of our product shipments.
Organic net sales in fiscal 2022 increased 6 percent
compared to fiscal 2021,
driven by favorable organic net price realization and
mix,
partially offset by a decrease in contributions from
organic volume growth.
Cost of sales
increased $912 million in fiscal 2022
to $12,591 million. The increase was
primarily driven by a $1,514 million
increase
attributable to
product rate and
mix, partially offset
by a $608
million decrease due
to lower volume.
We
recorded a
$133 million net
decrease
in
cost
of
sales
related
to
mark-to-market
valuation
of
certain
commodity
positions
and
grain
inventories
in
fiscal
2022,
compared to a net decrease of $139
million in fiscal 2021
(please see Note 8 to the Consolidated
Financial Statements in Item 8 of this
report for additional information).
Gross margin
decreased 1 percent in
fiscal 2022 versus fiscal 2021.
Gross margin as a percent
of net sales decreased
190 basis points
to 33.7 percent compared to fiscal 2021.
SG&A
expenses
increased
$67 million
to
$3,147 million
in
fiscal
2022
compared
to
fiscal
2021.
The
increase
in
SG&A
expenses
primarily reflects
lower net corporate
investment activity
and higher transaction
costs, partially offset
by lower media
and advertising
expenses and other administrative costs. SG&A expenses as a percent
of net sales in fiscal 2022 decreased 40 basis points compared to
fiscal 2021.
20
Divestitures
gain
totaled
$194
million
in
fiscal
2022
due
to
the
sale
of
our
interests
in
Yoplait
SAS,
Yoplait
Marques
SNC,
and
Liberté Marques
Sàrl and
our European
dough businesses
(please refer
to Note
3 to
the Consolidated
Financial Statements
in Part
I,
Item 1 of this report). Divestiture loss totaled $54 million in fiscal 2021 due
to the sale of our Laticínios Carolina business in Brazil.
Restructuring, impairment,
and other exit
costs (recoveries)
totaled $26 million
of net recoveries
in fiscal 2022
compared to $170
million of charges in
fiscal 2021. In fiscal 2022,
we approved restructuring actions
in the International segment
to drive efficiencies in
manufacturing and logistics operations
,
and as a result, we
recorded $12 million of
charges in fiscal 2022.
We recorded
a net recovery
of
$38
million
in
fiscal
2022,
which
includes
a
$34
million
reduction
to
our
restructuring
reserves
primarily
related
to
severance
charges.
In
fiscal
2021,
we
approved
restructuring
actions
designed
to
better
align
our
organizational
structure
and
resources
with
strategic
initiatives
and
actions
related
to
route-to-market
and
supply
chain
optimization.
Please
see
Note
4
to
the
Consolidated
Financial Statements in Item 8 of this report for additional information.
Benefit
plan
non-service
income
totaled
$113 million
in
fiscal
2022
compared
to
$133 million
in
fiscal
2021,
primarily
reflecting
higher
amortization
of
losses
(please
see
Note
2
to
the
Consolidated
Financial
Statements
in
Item
8
of
this
report
for
additional
information).
Interest, net
for fiscal 2022 totaled $380 million, $40 million lower than fiscal 2021,
primarily driven by lower average debt balances.
Our
effective
tax rate
for fiscal
2022
was 18.3
percent
compared to
22.0 percent
in fiscal
2021.
The 3.7
percentage point
decrease
was primarily
driven by a
change in the
valuation allowance on
our capital loss
carryforwards, certain non
-taxable components of
the
divestiture gains, and favorable changes
in earnings mix by jurisdiction.
Our adjusted effective tax rate
was 20.9 percent in fiscal 2022
compared to
21.1 percent
in fiscal
2021 (see
the “Non-GAAP
Measures” section
below for
a description
of our
use of
measures not
defined by GAAP).
After-tax earnings from
joint ventures
decreased 5 percent
to $112 million
in fiscal 2022 compared
to fiscal 2021,
primarily driven
by higher input costs and
lower net sales at CPW,
partially offset by
lower SG&A expenses at CPW and
higher net sales at HDJ. On
a
constant-currency basis,
after-tax earnings
from joint ventures
decreased 3 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:
Fiscal 2022 vs. Fiscal 2021
CPW
HDJ
Total
Contributions from volume growth (a)
(3)
pts
8
pts
Net price realization and mix
2
pts
1
pt
Net sales growth in constant currency
(1)
pt
9
pts
1
pt
Foreign currency exchange
(2)
pts
(8)
pts
(3)
pts
Net sales growth
(3)
pts
1
pt
(2)
pts
Note: Table may
not foot due to rounding
(a) Measured in tons based on the stated weight of our product shipments
Net
earnings
attributable
to
redeemable
and
noncontrolling
interests
increased
to
$28
million
in
fiscal
2022
compared
to
$6
million in
fiscal 2021,
primarily due
to the loss
on sale
of the Laticínios
Carolina business
in Brazil
in fiscal 2021,
partially offset
by
the sale of our interests in Yoplait
SAS, Yoplait
Marques SNC, and Liberté Marques Sàrl in fiscal 2022.
Average
diluted
shares
outstanding
decreased
by
6 million
in
fiscal
2022
from
fiscal
2021
primarily
due
to
share
repurchase
activity.
RESULTS
OF SEGMENT OPERATIONS
Our businesses are organized into four operating segments: North
America Retail; International; Pet, and North America Foodservice.
In
fiscal
2022,
we
announced
a
new
organization
structure
to
streamline
our
global
operations.
As
a
result
of
this
global
reorganization,
beginning
in
the
third
quarter
of
fiscal
2022,
we
reported
results
for
our
four
operating
segments
as
follows:
North
America Retail; International;
Pet; and North America
Foodservice. We
have restated our
net sales by segment
and segment operating
profit amounts
to reflect
our new
operating segments.
These segment
changes had
no effect
on previously
reported consolidated
net
sales, operating
profit, net
earnings attributable
to General
Mills, or
earnings
per share.
Please refer
to Note
17 of
the Consolidated
Financial Statements in Part 8 of this report for a description of our operating
segments.
Our
North
America
Retail
operating
segment
includes
convenience
store
businesses
from
our
former
Convenience
Stores
&
Foodservice
segment.
Within
our
North
America
Retail
operating
segment,
our
former
U.S.
Cereal
operating
unit
and
U.S.
Yogurt
operating
unit
have
been
combined
into
the
U.S.
Morning
Foods
operating
unit.
Additionally,
the
U.S.
Meals
&
Baking
Solutions
21
operating unit
combines the
former U.S.
Meals &
Baking operating
unit with
certain businesses
from the
U.S. Snacks
operating unit.
The
Canada
operating
unit
excludes
Canada
foodservice
businesses
which
are
now
included
in
our
North
America
Foodservice
operating segment.
The resulting North
America Foodservice operating
segment exclusively includes
our foodservice businesses.
Our
International
operating
segment
combines
our
former
Europe
&
Australia
and
Asia
&
Latin
America
operating
segments.
Our
Pet
operating segment is unchanged.
The following tables provide
the dollar amount and percentage
of net sales and operating
profit from each segment for
fiscal 2022 and
fiscal 2021:
Fiscal Year
2022
2021
In Millions
Dollars
Percent of Total
Dollars
Percent of Total
Net Sales
North America Retail
$
11,572.0
61
%
$
11,250.0
62
%
International
3,315.7
17
3,656.8
20
Pet
2,259.4
12
1,732.4
10
North America Foodservice
1,845.7
10
1,487.8
8
Total
$
18,992.8
100
%
$
18,127.0
100
%
Segment Operating Profit
North America Retail
$
2,699.7
74
%
$
2,725.9
75
%
International
232.0
6
236.6
7
Pet
470.6
13
415.0
12
North America Foodservice
255.5
7
203.3
6
Total
$
3,657.8
100
%
$
3,580.8
100
%
Segment
operating
profit
as
reviewed
by
our
executive
management
excludes
unallocated
corporate
items,
net
gain
or
loss
on
divestitures, and restructuring, impairment, and other exit costs that are centrally
managed.
NORTH AMERICA RETAIL
SEGMENT
Our North America Retail
operating segment reflects business
with a wide variety of
grocery stores, mass merchandisers, membership
stores,
natural
food
chains,
drug,
dollar
and
discount
chains,
convenience
stores,
and
e-commerce
grocery
providers.
Our
product
categories
in
this
business
segment
are
ready-to-eat
cereals,
refrigerated
yogurt,
soup,
meal
kits,
refrigerated
and
frozen
dough
products,
dessert
and
baking
mixes,
frozen
pizza
and
pizza
snacks,
snack
bars,
fruit
snacks,
savory
snacks,
and
a
wide
variety
of
organic products
including ready-to-eat
cereal, frozen
and shelf-stable vegetables,
meal kits, fruit
snacks, snack
bars, and
refrigerated
yogurt.
North America Retail net sales were as follows:
Fiscal 2022
Fiscal 2022 vs. 2021
Percentage Change
Fiscal 2021
Net sales (in millions)
$
11,572.0
3
%
$
11,250.0
Contributions from volume growth (a)
(6)
pts
Net price realization and mix
9
pts
Foreign currency exchange
Flat
Note: Table may
not foot due to rounding.
(a)
Measured in tons based on the stated weight of our product shipments.
The
3
percent
increase
in
North
America
Retail
net
sales
for
fiscal
2022
was
driven
by
favorable
net
price
realization
and
mix,
partially offset by a decrease in contributions from volume growth.
22
The components of North America Retail organic net
sales growth are shown in the following table:
Fiscal 2022 vs. 2021
Percentage Change
Contributions from organic volume growth (a)
(6)
pts
Organic net price realization and mix
9
pts
Organic net sales growth
3
pts
Foreign currency exchange
Flat
Net sales growth
3
pts
Note: Table may
not foot due to rounding.
(a)
Measured in tons based on the stated weight of our product shipments.
North
America
Retail organic
net
sales increased
3 percent
in fiscal
2022
compared
to fiscal
2021,
driven
by favorable
organic
net
price realization and mix, partially offset by a decrease in
contributions from organic volume growth.
Net sales for our North America Retail operating units are shown in the following table:
In Millions
Fiscal 2022
Fiscal 2022 vs. 2021
Percentage Change
Fiscal 2021
U.S. Meals & Baking Solutions
$
4,023.8
Flat
$
4,042.2
U.S. Morning Foods
3,370.9
2
%
3,314.0
U.S. Snacks
3,191.4
9
%
2,940.5
Canada (a)
985.9
3
%
953.3
Total
$
11,572.0
3
%
$
11,250.0
(a)
On a constant
currency basis, Canada
operating unit net
sales increased 1
percent in fiscal
2022. See the
“Non-GAAP Measures”
section below for our use of this measure not defined by GAAP.
Segment
operating
profit
decreased
1
percent
to $2,700
million
in
fiscal
2022
compared
to
$2,726
million
in
fiscal
2021,
primarily
driven by higher input costs and
a decrease in contributions from volume
growth,
partially offset by favorable net
price realization and
mix
and
a
decrease
in certain
SG&A
expenses.
Segment
operating
profit
decreased
1 percent
on a
constant-currency
basis in
fiscal
2022 compared to fiscal 2021 (see the “Non-GAAP Measures” section below
for our use of this measure not defined by GAAP).
INTERNATIONAL SEGMENT
Our International
operating segment
reflects retail
and foodservice
businesses outside
of the
United States
and Canada.
Our product
categories
include
super-premium
ice
cream
and frozen
desserts, meal
kits,
salty
snacks,
snack
bars,
dessert
and
baking
mixes,
and
shelf stable vegetables.
International net sales were as follows:
Fiscal 2022
Fiscal 2022 vs. 2021
Percentage Change
Fiscal 2021
Net sales (in millions)
$
3,315.7
(9)
%
$
3,656.8
Contributions from volume growth (a)
(19)
pts
Net price realization and mix
9
pts
Foreign currency exchange
1
pt
Note: Table may
not foot due to rounding.
(a)
Measured in tons based on the stated weight of our product shipments.
The
9
percent
decrease
in
International
net
sales
in
fiscal
2022
was
driven
by
a
decrease
in
contributions
from
volume
growth,
including
the
impact
of
volume declines
from
divestitures,
partially
offset
by
favorable
net
price
realization
and
mix
and
favorable
foreign currency exchange.
23
The components of International organic net sales growth
are shown in the following table:
Fiscal 2022 vs. 2021
Percentage Change
Contributions from organic volume growth (a)
Flat
Organic net price realization and mix
2
pts
Organic net sales growth
2
pts
Foreign currency exchange
1
pt
Divestitures (b)
(12)
pts
Net sales growth
(9)
pts
Note: Table may
not foot due to rounding
(a)
Measured in tons based on the stated weight of our product shipments.
(b)
Divestitures include
the impact
of the
sale of our
interests in
Yoplait
SAS, Yoplait
Marques SNC,
and Liberté
Marques Sàrl
and
our European
dough businesses in
fiscal 2022
and the sale
of the Laticínios
Carolina business in
Brazil in fiscal
2021. Please see
Note 3 to the Consolidated Financial Statements in Part II, Item 8 of this report.
The 2
percent increase
in International
organic
net sales
growth in
fiscal 2022
was driven
by favorable
organic
net price
realization
and mix.
Segment
operating
profit decreased
2 percent
to $232 million
in fiscal
2022 compared
to $237
million
in 2021,
primarily
driven by
higher
input
costs
and
a
decrease
in
contributions
from
volume
growth,
including
the
impact
of volume
declines
from
divestitures,
partially
offset
by favorable
net price
realization
and mix
and
a decrease
in SG&A
expenses. Segment
operating
profit decreased
4
percent on a constant-currency
basis in fiscal 2022 compared to fiscal
2021 (see the “Non-GAAP Measures”
section below for our use
of this measure not defined by GAAP).
PET SEGMENT
Our Pet operating segment includes
pet food products sold primarily in
the United States and Canada in national
pet superstore chains,
e-commerce retailers,
grocery stores,
regional pet
store chains,
mass merchandisers,
and veterinary
clinics and
hospitals. Our
product
categories include
dog and
cat food
(dry foods,
wet foods,
and treats)
made with
whole meats,
fruits, and
vegetables and
other high-
quality natural ingredients.
Our tailored pet product offerings
address specific dietary,
lifestyle, and life-stage needs
and span different
product types, diet types, breed sizes for dogs, lifestages, flavors, product
functions,
and textures and cuts for wet foods.
Pet net sales were as follows:
Fiscal 2022
Fiscal 2022 vs. 2021
Percentage Change
Fiscal 2021
Net sales (in millions)
$
2,259.4
30
%
$
1,732.4
Contributions from volume growth (a)
11
pts
Net price realization and mix
19
pts
Foreign currency exchange
Flat
Note: Table may
not foot due to rounding.
(a)
Measured in tons based on the stated weight of our product shipments.
Pet net
sales increased
30
percent
in
fiscal
2022
compared to
fiscal
2021,
driven
by favorable
net
price
realization
and mix
and
an
increase in contributions from volume growth,
including incremental volume from the acquisition of Tyson
Foods’ pet treats business.
24
The components of Pet organic net sales growth are shown in the following
table:
Fiscal 2022 vs. 2021
Percentage Change
Contributions from organic volume growth (a)
8
pts
Organic net price realization and mix
10
pts
Organic net sales growth
18
pts
Foreign currency exchange
Flat
Acquisition (b)
13
pts
Net sales growth
30
pts
Note: Table may
not foot due to rounding.
(a)
Measured in tons based on the stated weight of our product shipments.
(b)
Acquisition of Tyson
Foods’ pet treats business
in fiscal 2022. Please
see Note 3 to
the Consolidated Financial
Statements in Part
II, Item 8 of this report.
The 18
percent increase
in Pet
organic
net sales
growth
in fiscal
2022 was
driven by
favorable organic
net price
realization and
mix
and an increase in contributions from organic volume
growth.
Pet operating
profit increased
13 percent
to $471 million
in fiscal 2022,
compared to
$415 million in
fiscal 2021, primarily
driven by
favorable net
price realization
and mix
and an increase
in contributions
from volume
growth, including
incremental volume
from the
acquisition
of
Tyson
Foods’
pet
treats
business,
partially
offset
by
higher
input
costs and
an
increase
in
SG&A
expenses.
Segment
operating
profit
increased
13
percent
on
a
constant-currency
basis
in
fiscal
2022
compared
to
fiscal
2021
(see
the
“Non-GAAP
Measures” section below for our use of this measure not defined by GAAP).
NORTH AMERICA FOODSERVICE SEGMENT
Our
major
product
categories
in
our
North
America
Foodservice
operating
segment
are
ready-to-eat
cereals,
snacks,
refrigerated
yogurt,
frozen
meals,
unbaked
and
fully
baked
frozen
dough
products,
baking
mixes,
and
bakery
flour.
Many
products
we
sell
are
branded to the consumer
and nearly all are
branded to our customers.
We
sell to distributors and
operators in many customer
channels
including foodservice, vending, and supermarket bakeries.
North America Foodservice net sales were as follows:
Fiscal 2022
Fiscal 2022 vs. 2021
Percentage Change
Fiscal 2021
Net sales (in millions)
$
1,845.7
24
%
$
1,487.8
Contributions from volume growth (a)
5
pts
Net price realization and mix
19
pts
Foreign currency exchange
Flat
Note: Table may
not foot due to rounding.
(a)
Measured in tons based on the stated weight of our product shipments.
North
America
Foodservice
net
sales
increased
24
percent
in
fiscal
2022,
driven
by
favorable
price
realization
and
mix,
including
market index pricing on bakery flour, and an
increase in contributions from volume growth.
The components of North America Foodservice organic
net sales growth are shown in the following table:
Fiscal 2022 vs. 2021
Percentage Change
Contributions from organic volume growth (a)
5
pts
Organic net price realization and mix
19
pts
Organic net sales growth
24
pts
Foreign currency exchange
Flat
Net sales growth
24
pts
Note: Table may
not foot due to rounding
(a)
Measured in tons based on the standard weight of our product shipments.
25
The 24
percent increase
in North
America
Foodservice
organic
net sales
growth
in fiscal
2022
was driven
by favorable
organic
net
price
realization
and
mix,
including
market
index
pricing
on
bakery
flour,
and
an
increase
in
contributions
from
organic
volume
growth.
Segment
operating
profit
increased
26
percent
to
$256 million
in
fiscal
2022,
compared
to
$203 million
in
fiscal
2021,
primarily
driven by favorable net price
realization and mix and
an increase in contributions from
volume growth,
partially offset by higher
input
costs.
Segment
operating
profit
increased
26
percent
on
a
constant-currency
basis
in
fiscal
2022
compared
to
fiscal
2021
(see
the
“Non-GAAP Measures” section below for our use of this measure not
defined by GAAP).
UNALLOCATED CORPORATE
ITEMS
Unallocated
corporate
items
include
corporate
overhead
expenses,
variances
to
planned
domestic
employee
benefits
and
incentives,
certain
charitable
contributions,
restructuring
initiative
project-related
costs,
gains
and
losses
on
corporate
investments,
and
other
items
that
are
not
part
of
our
measurement
of
segment
operating
performance.
These
include
gains
and
losses
arising
from
the
revaluation
of
certain
grain
inventories
and
gains
and
losses
from
mark-to-market
valuation
of
certain
commodity
positions
until
passed
back
to
our
operating
segments.
These
items
affecting
operating
profit
are
centrally
managed
at
the
corporate
level
and
are
excluded
from
the
measure
of
segment
profitability
reviewed
by
executive
management.
Under
our
supply
chain
organization,
our
manufacturing, warehouse, and distribution
activities are substantially integrated across
our operations in order to maximize
efficiency
and
productivity.
As
a
result,
fixed
assets
and
depreciation
and
amortization
expenses
are
neither
maintained
nor
available
by
operating segment.
In
fiscal
2022,
unallocated
corporate
expense
increased
$191
million
to
$403
million
compared
to
$212 million
last
year.
In
fiscal
2022,
we
recorded
a
$133
million
net
decrease
in
expense
related
to
mark-to-market
valuation
of
certain
commodity
positions
and
grain inventories,
compared to a $139
million net decrease in
expense in the
prior year.
In fiscal 2022,
we recorded $15
million of net
losses related to
the sale of
corporate investments
and valuation adjustments,
compared to $76
million of net
gains in fiscal
2021. We
recorded $22
million of integration
costs related to
our acquisition
of Tyson
Foods’ pet
treats business and
$73 million
of transaction
costs primarily
related
to the
sale of
our interests
in
Yoplait
SAS, Yoplait
Marques
SNC, and
Liberté
Marques
Sàrl,
the sale
of our
European dough businesses,
the definitive agreements
to sell our Helper
main meals and Suddenly
Salad side dishes business,
and the
definitive agreement
to acquire TNT
Crust in fiscal
2022, compared
to $10 million
of transaction costs
in fiscal 2021.
In addition, we
recorded a
$22 million
recovery related
to a
Brazil indirect
tax item
in fiscal
2022 compared
to a
$9 million
recovery in
fiscal 2021.
We
recorded a $13
million insurance recovery
in fiscal 2022. In
fiscal 2021, we
recorded a $4
million favorable adjustment
related to
a product recall in fiscal 2020 in our international Green Giant business.
IMPACT OF INFLATION
We
experienced broad
based global input
cost inflation
of 8 percent
in fiscal 2022
and 4 percent
in fiscal 202
1. We
expect input
cost
inflation of
approximately 14
percent in
fiscal 2023.
We
attempt to
minimize the
effects of
inflation through
HMM, SRM,
planning,
and operating practices. Our risk management practices are discussed in Item
7A of this report.
LIQUIDITY AND CAPITAL
RESOURCES
The primary source of our
liquidity is cash flow from
operations. Over the most recent
two-year period, our operations have
generated
$6.3 billion
in cash.
A substantial
portion of
this operating
cash flow
has been
returned to
shareholders through
dividends and
share
repurchases.
We
also
use
cash
from
operations
to
fund
our
capital
expenditures,
acquisitions,
and
debt
service.
We
typically
use
a
combination
of
cash,
notes
payable,
and
long-term
debt,
and
occasionally
issue
shares
of
common
stock,
to
finance
significant
acquisitions.
As of
May
29,
2022,
we
had
$523 million
of
cash
and
cash
equivalents
held
in
foreign
jurisdictions.
In
anticipation
of
repatriating
funds
from
foreign
jurisdictions,
we
record
local
country
withholding
taxes
on
our
international
earnings,
as
applicable.
We
may
repatriate our
cash and
cash equivalents
held by
our foreign
subsidiaries without
such funds
being subject
to further
U.S. income
tax
liability. Earnings
prior to fiscal 2018 from our foreign subsidiaries remain permanently reinvested
in those jurisdictions.
26
Cash Flows from Operations
Fiscal Year
In Millions
2022
2021
Net earnings, including earnings attributable to redeemable and noncontrolling
interests
$
2,735.0
$
2,346.0
Depreciation and amortization
570.3
601.3
After-tax earnings from joint ventures
(111.7)
(117.7)
Distributions of earnings from joint ventures
107.5
95.2
Stock-based compensation
98.7
89.9
Deferred income taxes
62.2
118.8
Pension and other postretirement benefit plan contributions
(31.3)
(33.4)
Pension and other postretirement benefit plan costs
(30.1)
(33.6)
Divestitures (gain) loss
(194.1)
53.5
Restructuring, impairment, and other exit (recoveries) costs
(117.1)
150.9
Changes in current assets and liabilities, excluding the effects of
acquisition and divestitures
277.4
(155.9)
Other, net
(50.7)
(131.8)
Net cash provided by operating activities
$
3,316.1
$
2,983.2
During
fiscal
2022,
cash
provided
by
operations
was
$3,316 million
compared
to
$2,983 million
in
the
same
period
last
year.
The
$333 million increase was primarily
driven by a $433 million change in
current assets and liabilities and a
$389 million increase in net
earnings,
partially
offset
by
a
$268
million
change
in
restructuring
costs and
a
$248
million
change
in
divestitures
gain.
The
$433
million change in current assets and liabilities was primarily
driven by a $269 million change in inventories
and a $238 million change
in other
current liabilities, primarily
driven by changes
in income taxes
payable and the
fair value of
certain currency
and commodity
derivatives. These were partially offset by a $194
million change in receivables.
We
strive to grow core
working capital at or below
the rate of growth in
our net sales. For
fiscal 2022, core working
capital decreased
117 percent,
compared to a net sales
increase of 5 percent.
As of May 29, 2022,
our core working capital
balance was a net liability of
$423 million
compared to
a net liability
of $194
million in
fiscal 2021.
The $229
million change
was primarily
due to an
increase in
accounts payable in fiscal 2022 primarily due to input cost inflation.
Cash Flows from Investing Activities
Fiscal Year
In Millions
2022
2021
Purchases of land, buildings, and equipment
$
(568.7)
$
(530.8)
Acquisitions, net of cash acquired
(1,201.3)
-
Investments in affiliates, net
15.4
15.5
Proceeds from disposal of land, buildings, and equipment
3.3
2.7
Proceeds from divestitures, net of cash divested
74.1
2.9
Other, net
(13.5)
(3.1)
Net cash used by investing activities
$
(1,690.7)
$
(512.8)
In
fiscal
2022,
we
used
$1,691 million
of
cash
through
investing
activities
compared
to
$513 million
in
fiscal
2021.
We
invested
$569 million in land, buildings, and equipment in fiscal 2022, an
increase of $38 million from fiscal 2021.
During fiscal 2022, we acquired Tyson
Foods’ pet treats business for an aggregate purchase price of $1.2 billion.
During fiscal
2022, we
sold our
interests in
Yoplait
SAS, Yoplait
Marques SNC,
and Liberté
Marques Sàrl
for cash
proceeds of
$32
million, net
of cash divested
as part of
the sale. We
also completed
the sale of
our European dough
businesses in fiscal
2022 for
cash
proceeds of $42 million.
We
expect
capital
expenditures
to
be
approximately
4.0
percent
of
reported
net
sales
in
fiscal
2023.
These
expenditures
will
fund
initiatives that are expected to fuel growth, support innovative products,
and continue HMM initiatives throughout the supply chain.
27
Cash Flows from Financing Activities
Fiscal Year
In Millions
2022
2021
Change in notes payable
$
551.4
$
71.7
Issuance of long-term debt
2,203.7
1,576.5
Payment of long-term debt
(3,140.9)
(2,609.0)
Debt exchange participation incentive cash payment
-
(201.4)
Proceeds from common stock issued on exercised options
161.7
74.3
Purchases of common stock for treasury
(876.8)
(301.4)
Dividends paid
(1,244.5)
(1,246.4)
Distributions to redeemable and noncontrolling interest holders
(129.8)
(48.9)
Other, net
(28.0)
(30.9)
Net cash used by financing activities
$
(2,503.2)
$
(2,715.5)
Financing activities
used $2.5 billion
of cash
in fiscal
2022 compared
to $2.7 billion
in fiscal
2021. We
had $386 million
of net
debt
repayments
in
fiscal
2022
compared
to
$961 million
of
net
debt
repayments
in
fiscal
2021.
In
addition,
we
paid
a
participation
incentive of
$201 million related
to a debt
exchange in fiscal
2021. For more
information on our
debt issuances and
payments, please
refer to Note 9 to the Consolidated Financial Statements in Item 8 of this report.
During
fiscal
2022,
we
received
$162 million
of
net
proceeds
from
common
stock
issued
on
exercised
options
compared
to
$74 million in fiscal 2021.
During fiscal
2022, we
repurchased 14
million shares
of our
common
stock for
$877 million.
During fiscal
2021, we
repurchased 5
million shares of our common stock for $301 million.
Dividends paid in fiscal 2022 totaled
$1,244 million, or $2.04 per share. Dividends
paid in fiscal 2021
totaled $1,246 million, or $2.02
per share.
Selected Cash Flows from Joint Ventures
Selected cash flows from our joint ventures are set forth in the following table:
Fiscal Year
Inflow (Outflow), in Millions
2022
2021
Investments in affiliates, net
$
15.4
$
15.5
Dividends received
107.5
95.2
The following table details the fee-paid committed and uncommitted credit
lines we had available as of May 29, 2022:
In Billions
Facility Amount
Borrowed Amount
Credit facility expiring:
April 2026
$
2.7
$
-
Total committed
credit facilities
2.7
-
Uncommitted credit facilities
0.6
0.1
Total committed
and uncommitted credit facilities
$
3.3
$
0.1
To ensure
availability of funds, we maintain bank credit lines and have commercial paper programs
available to us in the United States
and Europe. We also
have uncommitted and asset-backed credit lines that support our
foreign operations.
We
have material
contractual obligations
that arise
in the
normal course
of business
and we
believe that
cash flows
from operations
will be adequate to meet our liquidity and capital needs for at least the next
12 months.
Certain
of
our
long-term
debt
agreements,
our
credit
facilities,
and
our
noncontrolling
interests
contain
restrictive
covenants.
As
of
May 29, 2022, we were in compliance with all of these covenants.
28
We
have $1,674
million of long-term
debt maturing in
the next 12
months that is
classified as current,
including $500 million
of 2.60
percent
fixed-rate notes
due October
12, 2022,
$100 million
of 7.47
percent fixed-rate
notes due
October 15,
2022, €250
million
of
0.00
percent
fixed-rate
notes
due
November
11,
2022,
€500
million
of
1.00
percent
fixed-rate
notes
due
April
27,
2023,
and
€250
million of
floating rate
notes due May
16, 2023. 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.
As of May
29, 2022,
our total debt,
including the
impact of derivative
instruments designated
as hedges, was
77 percent
in fixed-rate
and 23
percent in
floating-rate instruments,
compared to
88 percent
in fixed-rate
and 12
percent in
floating-rate instruments
on May
30, 2021.
Our net
debt
to operating
cash flow
ratio decreased
to 3.3
in fiscal
2022 from
3.7 in
fiscal 2021,
primarily
driven by
an increase
in
cash
provided
by operations.
Our
net debt
-to-adjusted
EBITDA ratio
declined
to 2.8
in fiscal
2022
from 2.9
in fiscal
2021 (see
the
“Non-GAAP Measures” section below for our use of this measure not
defined by GAAP).
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
holder’s capital
account balance
established in
the most recent mark-to-market valuation
(currently $252 million). On June 1, 2021,
the floating preferred return rate on GMC’s
Class
A Interests
was reset
to the
sum of
three-month LIBOR
plus 160
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 holder’s
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.
CRITICAL ACCOUNTING ESTIMATES
For a complete description of our
significant accounting policies, please see Note
2 to the Consolidated Financial
Statements in Item 8
of this report. Our critical accounting
estimates are those that have
a meaningful impact on the reporting of our
financial condition and
results of operations.
These estimates include
our accounting for
revenue recognition, valuation
of long-lived assets,
intangible assets,
stock-based compensation, income taxes, and defined benefit pension,
other postretirement benefit, and postemployment benefit plans
.
Considerations related to the COVID-19 pandemic
The continuing
impact that
the recent
COVID-19 pandemic
will have
on our
consolidated results
of operations
is uncertain.
We
saw
increased
orders from
retail customers
across all
geographies in
response to
increased consumer
demand for
food at
home. We
also
experienced
a
COVID-19-related
decrease
in
consumer
traffic
in
away-from-home
food
outlets.
In
fiscal
2023,
we
expect
at-home
food demand
will decline year
over year across
most of our
core markets
though will remain
above pre-pandemic
levels. Conversely,
we expect away-from home food demand
to continue to recover,
though not fully to pre-pandemic levels.
We expect one of
the largest
factors
impacting
our
performance
will
be
relative
balance
of
at-home
versus
away-from-home
consumer
food
demand,
primarily
driven by
the level
of virus
control in
markets around
the world,
which remains
uncertain. We
have considered
the potential
impacts
of the
COVID-19 pandemic
in our
significant accounting
estimates as
of May
29, 2022,
and will
continue to
evaluate the
nature and
extent of the impact to our business and consolidated results of operations.
Revenue Recognition
Our
revenues
are
reported
net
of
variable
consideration
and
consideration
payable
to
our
customers,
including
trade
promotion,
consumer
coupon
redemption,
and
other
reductions
to
the
transaction
price,
including
estimated
allowances
for
returns,
unsalable
product,
and
prompt
pay
discounts.
Trade
promotions
are
recorded
using
significant
judgment
of
estimated
participation
and
performance levels
for offered
programs at the
time of sale.
Differences between
the estimated and
actual reduction to
the transaction
price
are
recognized
as
a
change
in
estimate
in
a
subsequent
period.
Our
accrued
trade
and
coupon
promotion
liabilities
were
$420 million
as of
May 29,
2022, and
$508 million
as of
May 30,
2021. Because
these amounts
are significant,
if our
estimates are
inaccurate we would have to make adjustments in subsequent periods that could have
a significant effect on our results of operations.
Valuation
of Long-Lived Assets
We
estimate
the useful
lives
of long
-lived
assets and
make
estimates concerning
undiscounted
cash flows
to review
for impairment
whenever
events or
changes in
circumstances indicate
that the
carrying
amount of
an asset
(or asset
group)
may not
be recoverable.
Fair value is measured using discounted cash flows or independent appraisals,
as appropriate.
Intangible Assets
Goodwill
and
other
indefinite-lived
intangible
assets
are
not
subject
to
amortization
and
are
tested
for
impairment
annually
and
whenever
events or
changes in
circumstances
indicate
that impairment
may have
occurred. Our
estimates of
fair value
for
goodwill
impairment
testing
are determined
based on
a
discounted
cash
flow
model.
We
use
inputs from
our
long-range
planning
process to
29
determine
growth
rates
for
sales
and
profits.
We
also
make
estimates
of
discount
rates,
perpetuity
growth
assumptions,
market
comparables, and other factors.
We evaluate the
useful lives of our other intangible assets, mainly brands, to
determine if they are finite or indefinite-lived.
Reaching a
determination
on
useful
life
requires
significant
judgments
and
assumptions
regarding
the
future
effects
of
obsolescence,
demand,
competition, other economic
factors (such as the
stability of the industry,
known technological advances,
legislative action that
results
in an uncertain or
changing regulatory environment,
and expected changes in
distribution channels), the level
of required maintenance
expenditures,
and
the
expected
lives
of
other
related
groups
of
assets.
Intangible
assets
that
are
deemed
to
have
finite
lives
are
amortized
on a
straight-line basis
over their
useful lives,
generally
ranging from
4 to
30 years.
Our estimate
of the
fair value
of our
brand
assets
is
based
on
a
discounted
cash
flow
model
using
inputs
which
include
projected
revenues
from
our
long-range
plan,
assumed royalty rates that could be payable if we did not own the brands, and a discount
rate.
As of
May
29,
2022,
we
had
$21 billion
of
goodwill
and
indefinite-lived
intangible
assets. While
we
currently
believe
that
the
fair
value of
each intangible
exceeds its carrying
value and
that those intangibles
will contribute indefinitely
to our cash
flows, materially
different
assumptions
regarding
future performance
of our
businesses
or
a different
weighted-average
cost
of capital
could
result
in
material impairment losses
and amortization expense.
We
performed our fiscal
2022
assessment of our
intangible assets as of
the first
day
of
the
second
quarter
of
fiscal
2022,
and
we
determined
there
was
no
impairment
of
our
intangible
assets
as
their
related
fair
values were substantially in excess of the carrying values.
During the
third quarter of
fiscal 2022,
we changed our
organizational and
management structure
to streamline our
global operations.
As
a
result
of
these
changes,
we
reassessed
our
operating
segments
as
well
as
our
reporting
units.
Under
our
new
organizational
structure,
our
chief
operating
decision
maker
assesses
performance
and
makes
decisions
about
resources
to
be
allocated
to
our
segments at the
North America Retail, International,
Pet, and North America
Foodservice operating segment
level. Please see Note 17
to the Consolidated Financial Statements in Item 8 of this report for additional
information on our operating segments.
The organizational changes
also resulted in changes
in certain reporting units,
one level below the segment
level, and were considered
a
triggering
event
that
required
a
goodwill
impairment
test
during
the
third
quarter
of
fiscal
2022.
We
determined
there
was
no
impairment
of
the
goodwill
of
the
impacted
reporting
units
as
their
related
fair
values
were
substantially
in
excess
of
the
carrying
values.
Stock-based Compensation
The valuation of
stock options is a
significant accounting estimate
that requires us to
use judgments and
assumptions that are
likely to
have a material
impact on
our financial statements.
Annually,
we make predictive
assumptions regarding
future stock price
volatility,
employee exercise behavior,
dividend yield, and
the forfeiture rate. For
more information on
these assumptions, please
see Note 12
to
the Consolidated Financial Statements in Item 8 of this report.
The
estimated
fair
values
of
stock
options
granted
and
the
assumptions
used
for
the
Black-Scholes
option-pricing
model
were
as
follows:
Fiscal Year
2022
2021
2020
Estimated fair values of stock options granted
$
8.77
$
8.03
$
7.10
Assumptions:
Risk-free interest rate
1.5
%
0.7
%
2.0
%
Expected term
8.5
years
8.5
years
8.5
years
Expected volatility
20.2
%
19.5
%
17.4
%
Dividend yield
3.4
%
3.3
%
3.6
%
The risk-free interest rate
for periods during the
expected term of the options
is based on the U.S. Treasury
zero-coupon yield curve in
effect at the time of grant. An increase in the expected term by
1 year, leaving all other assumptions constant, would
decrease the grant
date
fair value
by less
than
1 percent.
If all
other
assumptions
are held
constant,
a one
percentage
point
increase
in our
fiscal
2022
volatility assumption would increase the grant date fair value of our fiscal 2022
option awards by 7 percent.
To
the extent
that actual
outcomes differ
from our
assumptions, we
are not
required to
true up
grant-date fair
value-based expense
to
final
intrinsic
values.
Historical
data
has
a
significant
bearing
on
our
forward-looking
assumptions.
Significant
variances
between
actual and predicted experience could lead to prospective revisions
in our assumptions, which could then significantly
impact the year-
over-year comparability of stock-based compensation expense.
Any corporate
income tax
benefit realized
upon exercise
or vesting
of an
award in
excess of
that previously
recognized
in earnings
(referred to as
a windfall tax benefit)
is presented in the
Consolidated Statements of
Cash Flows as an
operating cash flow.
The actual
30
impact on future years’
cash flows will depend,
in part, on the volume
of employee stock option
exercises during a particular
year and
the
relationship
between
the
exercise-date
market
value
of
the
underlying
stock
and
the
original
grant-date
fair
value
previously
determined for financial reporting purposes.
Realized windfall
tax benefits
and shortfall
tax deficiencies
related to the
exercise or
vesting of
stock-based awards
are recognized
in
the Consolidated Statement
of Earnings. Because
employee stock option
exercise behavior is not
within our control,
it is possible that
significantly different reported results could occur if different
assumptions or conditions were to prevail.
Income Taxes
We
apply a more-likely-than-not
threshold to the
recognition and derecognition
of uncertain tax
positions. Accordingly,
we recognize
the amount of
tax benefit that
has a greater
than 50 percent
likelihood of being
ultimately realized upon
settlement. Future changes
in
judgment related
to the
expected ultimate
resolution of
uncertain tax
positions will
affect earnings
in the
period of
such change.
For
more information on income taxes, please see Note 15 to the Consolidated Financial
Statements in Item 8 of this report.
Defined Benefit Pension, Other Postretirement Benefit, and Postemployment
Benefit Plans
We have
defined benefit pension plans covering
many employees in the United States,
Canada, Switzerland, and the
United Kingdom.
We also
sponsor plans that provide
health care benefits to
many of our retirees
in the United States, Canada,
and Brazil. Under certain
circumstances,
we
also
provide
accruable
benefits,
primarily
severance,
to
former
and
inactive
employees
in
the
United
States,
Canada,
and
Mexico.
Please see
Note
14
to
the
Consolidated
Financial
Statements
in
Item
8
of
this
report
for
a
description
of
our
defined benefit pension, other postretirement benefit, and postemployment
benefit plans.
We
recognize
benefits
provided
during
retirement
or
following
employment
over
the
plan
participants’
active
working
lives.
Accordingly,
we
make
various
assumptions
to
predict
and
measure
costs
and
obligations
many
years
prior
to
the
settlement
of
our
obligations.
Assumptions
that
require
significant
management
judgment
and
have
a material
impact
on
the
measurement
of
our
net
periodic
benefit
expense
or
income
and
accumulated
benefit
obligations
include
the
long-term
rates
of
return
on
plan
assets,
the
interest rates used to discount the obligations for our benefit plans, and health
care cost trend rates.
Expected Rate of Return on Plan Assets
Our expected
rate of return
on plan assets
is determined
by our asset
allocation, our
historical long-term
investment performance,
our
estimate of future long-term returns
by asset class (using input from our
actuaries, investment services, and investment
managers), and
long-term inflation
assumptions. We
review this assumption
annually for
each plan; however,
our annual
investment performance
for
one particular year does not, by itself, significantly influence our evaluation.
Our
historical
investment
returns
(compound
annual
growth
rates)
for
our
United
States
defined
benefit
pension
and
other
postretirement
benefit
plan
assets were
an 8.4
percent
loss in
the 1
year
period ended
May 29,
2022 and
returns of
6.4 percent,
8.2
percent, 6.2 percent, and 8.0 percent for the 5, 10, 15, and 20 year periods
ended May 29, 2022.
On a weighted-average basis, the
expected rate of return for all
defined benefit plans was 5.85
percent for fiscal 2022, 5.72
percent for
fiscal 2021, and 6.95 percent for fiscal 2020.
For fiscal 2023, we increased our weighted-average
expected rate of return on plan assets
for our principal
defined benefit pension
and other postretirement
plans in the
United States to
6.75 percent due
to higher prospective
long-term asset returns primarily on fixed income investments.
Lowering
the
expected
long-term
rate
of
return
on
assets
by
100
basis
points
would
increase
our
net
pension
and
postretirement
expense by $66 million for
fiscal 2023. A market-related
valuation basis is used to reduce
year-to-year expense volatility.
The market-
related valuation
recognizes certain
investment gains
or losses over
a five-year
period from
the year
in which
they occur.
Investment
gains or
losses for
this purpose
are the difference
between the
expected return
calculated using
the market-related
value of
assets and
the
actual
return
based
on
the
market-related
value
of
assets.
Our
outside
actuaries
perform
these
calculations
as
part
of
our
determination of annual expense or income.
Discount Rates
We
estimate
the
service
and
interest
cost
components
of
the
net
periodic
benefit
expense
for
our
United
States
and
most
of
our
international
defined
benefit
pension,
other
postretirement
benefit,
and
postemployment
benefit
plans
utilizing
a
full
yield
curve
approach
by applying
the specific
spot rates
along
the yield
curve used
to determine
the benefit
obligation
to the
relevant projected
cash flows. Our
discount rate assumptions
are determined annually
as of May 31
for our defined
benefit pension, other
postretirement
benefit,
and
postemployment
benefit
plan
obligations.
We
work
with
our
outside
actuaries
to
determine
the
timing
and
amount
of
expected future cash outflows to plan
participants and, using the Aa Above Median
corporate bond yield, to develop a forward
interest
rate curve, including
a margin to
that index based
on our credit
risk. This forward
interest rate curve
is applied to
our expected
future
cash outflows to determine our discount rate assumptions.
31
Our weighted-average discount rates were as follows:
Defined Benefit
Pension Plans
Other
Postretirement
Benefit Plans
Postemployment
Benefit Plans
Effective rate for fiscal 2023 service costs
4.53
%
4.41
%
3.67
%
Effective rate for fiscal 2023 interest costs
4.01
%
3.80
%
3.34
%
Obligations as of May 31, 2022
4.39
%
4.36
%
3.62
%
Effective rate for fiscal 2022 service costs
3.53
%
3.34
%
2.46
%
Effective rate for fiscal 2022 interest costs
2.42
%
2.08
%
1.48
%
Obligations as of May 31, 2021
3.17
%
3.03
%
2.04
%
Effective rate for fiscal 2021 service costs
3.59
%
3.44
%
2.54
%
Effective rate for fiscal 2021 interest costs
2.54
%
2.32
%
1.41
%
Lowering
the
discount
rates
by
100
basis
points
would
increase
our
net
defined
benefit
pension,
other
postretirement
benefit,
and
postemployment benefit plan expense
for fiscal 2023 by approximately
$49 million. All obligation-related
experience gains and losses
are amortized
using
a straight-line
method over
the average
remaining
service period
of active
plan participants
or over
the average
remaining lifetime of the remaining plan participants if the plan is viewed as “all or
almost all” inactive participants.
Health Care Cost Trend
Rates
We
review our
health care
cost trend
rates annually.
Our review
is based
on data
we collect
about our
health care
claims experience
and information
provided by our
actuaries. This information
includes recent
plan experience,
plan design, overall
industry experience
and projections, and
assumptions used by other
similar organizations.
Our initial health
care cost trend
rate is adjusted
as necessary to
remain consistent
with this
review,
recent experiences,
and short-term
expectations. Our
initial health
care cost
trend rate
assumption
is 6.0
percent for
retirees age
65 and
over and
5.9 percent
for retirees
under age
65 at
the end
of fiscal
2022. Rates
are graded
down
annually until
the ultimate
trend rate
of 4.5
percent is
reached in
2031 for
all retirees.
The trend
rates are
applicable for
calculations
only if
the retirees’
benefits increase
as a
result of
health care
inflation. The
ultimate trend
rate is
adjusted annually,
as necessary,
to
approximate
the
current
economic
view
on
the
rate
of
long-term
inflation
plus
an
appropriate
health
care
cost
premium.
Assumed
trend rates for health care costs have an important effect on the
amounts reported for the other postretirement benefit plans.
Any
arising
health
care
claims cost-related
experience
gain
or
loss is
recognized
in the
calculation
of expected
future claims.
Once
recognized, experience gains and
losses are amortized using a straight-line
method over the average remaining
service period of active
plan participants
or over
the average
remaining lifetime
of the
remaining plan
participants if
the plan
is viewed
as “all
or almost
all”
inactive participants.
Financial Statement Impact
In
fiscal
2022,
we
recorded
net
defined
benefit
pension,
other
postretirement
benefit,
and
postemployment
benefit
plan
income
of
$26 million compared
to $4 million
of expense
in fiscal
2021 and
$2 million of
income in
fiscal 2020.
As of
May 29,
2022, we
had
cumulative unrecognized
actuarial net losses of
$2 billion on our
defined benefit pension plans
and cumulative unrecognized
actuarial
net
gains
of
$207 million
on
our
postretirement
and
postemployment
benefit
plans,
mainly
as
the
result
of
liability
increases
from
lower
interest
rates,
partially
offset
by
increases
in
the
values
of
plan
assets
in
prior
fiscal
years.
These
unrecognized
actuarial
net
losses will
result in
increases
in our
future pension
and postretirement
benefit
expenses
because
they
currently
exceed the
corridors
defined by GAAP.
Actual
future
net
defined
benefit
pension,
other
postretirement
benefit,
and
postemployment
benefit
plan
income
or
expense
will
depend on
investment performance,
changes in
future discount
rates, changes
in health care
cost trend
rates, and
other factors
related
to the populations participating in these plans.
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
In March 2020, the Financial
Accounting Standards Board (FASB)
issued optional accounting guidance
for a limited period of time
to
ease
the
potential
burden
in
accounting
for
reference
rate reform.
The new
standard
provides
expedients
and
exceptions to
existing
accounting
requirements
for
contract
modifications
and
hedge accounting
related
to
transitioning
from discontinued
reference
rates,
such as
LIBOR,
to alternative
reference
rates, if
certain
criteria are
met. The
new accounting
requirements
can be
applied as
of the
beginning of
the interim
period including
March 12, 2020,
or any
date thereafter,
through December 31,
2022. We
are in
the process
of reviewing our contracts
and arrangements that
will be affected by
a discontinued reference rate
and are analyzing the
impact of this
guidance on our results of operations and financial position.
32
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
material purposes
for which
our management
or Board
of Directors
uses the
non-GAAP
measure. These non-GAAP measures should be viewed in addition to, and not
in lieu of, the comparable GAAP measure.
Significant Items Impacting Comparability
Several
measures
below
are
presented
on
an
adjusted
basis.
The
adjustments
are
either
items
resulting
from
infrequently
occurring
events or items that, in management’s
judgment, significantly affect the year-to-year
assessment of operating results.
The following are descriptions of significant items impacting comparability
of our results.
Divestitures (gain) loss
Divestitures gain
related to
the sale
of our
interests in
Yoplait
SAS, Yoplait
Marques SNC,
and Liberté
Marques Sàrl
and the
sale of
our European dough businesses
in fiscal 2022. Divestiture
loss related to the sale
of our Laticínios Carolina business
in Brazil in fiscal
2021.
Please see Note 3 to the Consolidated Financial Statements in Item 8 of this report.
Transaction costs
Fiscal 2022
transaction costs
relate primarily
to the sale
of our
interests in
Yoplait
SAS, Yoplait
Marques SNC,
and Liberté
Marques
Sàrl,
the
sale
of
our
European
dough
businesses,
the
definitive
agreements
to
sell
our
Helper
main
meals
and
Suddenly
Salad
side
dishes business, and
the definitive agreement
to acquire TNT Crust.
Fiscal 2021 transaction
costs related to
the sale of our
interests in
Yoplait
SAS,
Yoplait
Marques
SNC,
and
Liberté
Marques
Sàrl
and
the
acquisition
of
Tyson
Foods’
pet
treats
business. Please
see
Note 3 to the Consolidated Financial Statements in Item 8 of this report.
Non-income tax recovery
Recovery related to a Brazil indirect tax item recorded in fiscal 2022 and fiscal 2021
.
Acquisition integration costs
Integration
costs resulting
from the
acquisition of
Tyson
Foods’ pet
treats business.
Please see
Note 3
to the
Consolidated Financial
Statements in Item 8 of this report.
Investment activity, net
Valuation
adjustments and the gain on sale of certain corporate investments in fiscal 2022 and fiscal 2021.
Mark-to-market effects
Net
mark-to-market
valuation
of
certain
commodity
positions
recognized
in
unallocated
corporate
items.
Please
see
Note
8
to
the
Consolidated Financial Statements in Item 8 of this report.
Restructuring (recoveries) charges
Restructuring
charges
for
International
supply
chain
optimization
actions
and
net
restructuring
recoveries
for
previously
announced
restructuring
actions
in
fiscal
2022.
Restructuring
charges
for
previously
announced
restructuring
actions
in
fiscal
2021.
Please
see
Note 4 to the Consolidated Financial Statements in Item 8 of this report.
Product recall
Net product recall adjustment recorded in fiscal 2021 related to our international
Green Giant business.
Tax items
Discrete
tax
benefit
recognized
in
fiscal
2022
related
to
a
release
of
a
valuation
allowance
associated
with
our
capital
loss
carryforwards expected
to be used
against future divestiture
gains. Discrete
tax item related
to amendments to
reorganize certain
U.S.
retiree health and welfare benefits plans in fiscal 2021.
CPW restructuring charges
CPW restructuring charges related to previously announced restructuring
actions.
33
Organic Net Sales Growth Rates
We
provide organic
net sales
growth rates
for our
consolidated net
sales and
segment net
sales. This
measure is
used in
reporting to
our
Board
of
Directors
and
executive
management
and
as
a
component
of
the
measurement
of
our
performance
for
incentive
compensation purposes.
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
Results of Segment Operations discussions in the MD&A above.
Adjusted Operating Profit Growth on a Constant-currency Basis
This measure is used in reporting
to our Board of Directors and
executive management and as a
component of the measurement of
our
performance for
incentive compensation purposes.
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-to-year
basis.
Additionally,
the
measure
is
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.
Our adjusted operating profit growth on a constant-currency basis is calculated
as follows:
Fiscal Year
2022
2021
Change
Operating profit as reported
$
3,475.8
$
3,144.8
11
%
Divestitures (gain) loss
(194.1)
53.5
Mark-to-market effects
(133.1)
(138.8)
Transaction costs
72.8
9.5
Restructuring (recoveries) charges
(23.2)
172.7
Acquisition integration costs
22.4
-
Non-income tax recovery
(22.0)
(8.8)
Investment activity, net
14.7
(76.4)
Product recall adjustment, net
-
(3.5)
Adjusted operating profit
$
3,213.3
$
3,153.2
2
%
Foreign currency exchange impact
Flat
Adjusted operating profit growth, on a constant-currency basis
2
%
Note: Table may not foot due to rounding.
For more information on the reconciling items, please refer to the Significant Items Impacting Comparability section above.
34
Adjusted Diluted EPS and Related Constant-currency Growth Rate
This measure
is used in
reporting to
our Board of
Directors and executive
management. We
believe that
this measure provides
useful
information to
investors because it
is the profitabil
ity measure we
use to evaluate
earnings performance on
a comparable year-to-year
basis.
The reconciliation of our GAAP measure, diluted EPS, to adjusted diluted
EPS and the related constant-currency growth rate follows:
Fiscal Year
Per Share Data
2022
2021
2022 vs.
2021 Change
Diluted earnings per share, as reported
$
4.42
$
3.78
17
%
Divestitures (gain) loss
(0.31)
0.04
Mark-to-market effects
(0.17)
(0.17)
Transaction costs
0.09
0.01
Restructuring (recoveries) charges
(0.03)
0.22
Acquisition integration costs
0.03
-
Non-income tax recovery
(0.02)
(0.01)
Investment activity, net
0.01
(0.10)
Tax items
(0.08)
0.02
Adjusted diluted earnings per share
$
3.94
$
3.79
4
%
Foreign currency exchange impact
Flat
Adjusted diluted earnings per share growth, on a constant-currency basis
4
%
Note: Table may not foot due to rounding.
For more information on the reconciling items, please refer to the Significant Items Impacting Comparability section above.
See our reconciliation
below of the effective
income tax rate as
reported to the adjusted
effective income tax
rate for the tax
impact of
each item affecting comparability.
35
Free Cash Flow Conversion Rate
We
believe
this
measure
provides
useful
information
to
investors
because
it
is
important
for
assessing
our
efficiency
in
converting
earnings
to
cash
and
returning
cash
to
shareholders.
The
calculation
of
free
cash
flow
conversion
rate
and
net
cash
provided
by
operating activities conversion rate, its equivalent GAAP measure, follows:
In Millions
Fiscal 2022
Net earnings, including earnings attributable to redeemable and noncontrolling
interests, as reported
$
2,735.0
Divestitures gain, net of tax
(189.0)
Mark-to-market effects, net of tax
(102.5)
Transaction costs, net of tax
56.4
Restructuring (recoveries) charges, net of tax
(16.7)
Acquisition integration costs, net of tax
17.2
Non-income tax recovery,
net of tax
(14.5)
Investment activity, net,
net of tax
6.2
CPW restructuring charges, net of tax
(0.9)
Tax item
(50.7)
Adjusted net earnings, including earnings attributable to redeemable and
noncontrolling interests
$
2,440.5
Net cash provided by operating activities
3,316.1
Purchases of land, buildings, and equipment
(568.7)
Free cash flow
$
2,747.4
Net cash provided by operating activities conversion rate
121%
Free cash flow conversion rate
113%
Note: Table may not foot due rounding.
For more information on the reconciling items, please refer to the Significant Items Impacting Comparability section above.
See our reconciliation
below of the effective
income tax rate as
reported to the
adjusted effective income
tax rate for the
tax impact of
each item affecting comparability.
36
Net Debt-to-Adjusted Earnings before Net Interest, Income Taxes,
Depreciation and Amortization (EBITDA) Ratio
We
believe that
this measure
provides useful
information to
investors because
it is an
indicator of
our ability
to incur
additional debt
and to service our existing debt.
The reconciliation of
adjusted EBITDA to
net earnings, including
earnings attributable
to redeemable
and noncontrolling interests,
its
GAAP equivalent, as well as the calculation of the net debt-to-adjusted EBITDA
ratio are as follows:
Fiscal Year
In Millions
2022
2021
Total debt (a)
$
11,620.4
$
12,612.0
Cash
569.4
1,505.2
Net debt
$
11,051.0
$
11,106.8
Net earnings, including earnings attributable to
redeemable and noncontrolling interests, as reported
$
2,735.0
$
2,346.0
Income taxes
586.3
629.1
Interest, net
379.6
420.3
Depreciation and amortization
570.3
601.3
EBITDA
4,271.2
3,996.8
After-tax earnings from joint ventures
(111.7)
(117.7)
Divestitures (gain) loss
(194.1)
53.5
Mark-to-market effects
(133.1)
(138.8)
Transaction costs
72.8
9.5
Restructuring (recoveries) charges
(23.2)
172.7
Acquisition integration costs
22.4
-
Non-income tax recovery
(22.0)
(8.8)
Investment activity, net
14.7
(76.4)
Product recall adjustment, net
-
(3.5)
Adjusted EBITDA
$
3,897.0
$
3,887.4
Net debt-to-adjusted EBITDA ratio
2.8
2.9
Note: Table may not foot due to rounding.
(a)
Notes payable and long-term debt, including current portion.
For more information on the reconciling items, please refer to the Significant Items Impacting Comparability section above.
37
Adjusted Operating Profit as a Percent of Net Sales (Adjusted Operating Profit
Margin)
We believe
this measure provides useful information
to investors because it is important
for assessing our operating profit margin
on a
comparable year-to-year basis.
Our adjusted operating profit margins are calculated as follows:
Fiscal Year
Percent of Net Sales
2022
2021
Operating profit as reported
$
3,475.8
18.3
%
$
3,144.8
17.3
%
Divestitures (gain) loss
(194.1)
(1.0)
%
53.5
0.3
%
Mark-to-market effects
(133.1)
(0.7)
%
(138.8)
(0.8)
%
Transaction costs
72.8
0.4
%
9.5
0.1
%
Restructuring (recoveries) charges
(23.2)
(0.1)
%
172.7
1.0
%
Acquisition integration costs
22.4
0.1
%
-
-
%
Non-income tax recovery
(22.0)
(0.1)
%
(8.8)
-
%
Investment activity, net
14.7
0.1
%
(76.4)
(0.4)
%
Product recall adjustment, net
-
-
%
(3.5)
-
%
Adjusted operating profit
$
3,213.3
16.9
%
$
3,153.2
17.4
%
Note: Table may not foot due to rounding.
For more information on the reconciling items, please refer to the Significant Items Impacting Comparability section above.
38
Adjusted Effective Income Tax
Rates
We
believe
this
measure
provides
useful
information
to
investors
because
it
presents
the
adjusted
effective
income
tax
rate
on
a
comparable year-to-year basis.
Adjusted effective income tax rates are calculated as follows:
Fiscal Year
Ended
2022
2021
In Millions
(Except Per Share Data)
Pretax
Earnings (a)
Income
Taxes
Pretax
Earnings (a)
Income
Taxes
As reported
$3,209.6
$586.3
$2,857.4
$629.1
Divestitures (gain) loss
(194.1)
(5.1)
53.5
0.4
Mark-to-market effects
(133.1)
(30.6)
(138.8)
(31.9)
Transaction costs
72.8
16.4
9.5
2.3
Restructuring (recoveries) charges
(23.2)
(6.4)
172.7
35.5
Acquisition integration costs
22.4
5.1
-
-
Non-income tax recovery
(22.0)
(7.5)
(8.8)
(3.0)
Investment activity, net
14.7
8.5
(76.4)
(15.6)
Tax items
-
50.7
-
(11.2)
Product recall adjustment, net
-
-
(3.5)
(0.4)
As adjusted
$2,947.1
$617.4
$2,865.7
$605.2
Effective tax rate:
As reported
18.3%
22.0%
As adjusted
20.9%
21.1%
Sum of adjustments to income taxes
$31.1
($24.0)
Average number
of common shares - diluted EPS
612.6
619.1
Impact of income tax adjustments on adjusted diluted EPS
$(0.05)
$0.04
Note: Table may not foot due to rounding.
For more information on the reconciling items, please refer to the Significant Items Impacting Comparability section above.
39
Constant-currency After-Tax
Earnings from Joint Ventures
Growth Rate
We
believe that
this measure
provides useful
information to
investors because
it provides
transparency to
underlying performance
of
our joint
ventures by
excluding the
effect
that foreign
currency exchange
rate fluctuations
have on
year-to-year
comparability given
volatility in foreign currency exchange markets.
After-tax earnings from joint ventures growth rate on
a constant-currency basis are calculated as follows:
Fiscal 2022
Percentage change in after-tax earnings from joint ventures as reported
(5)
%
Impact of foreign currency exchange
(3)
pts
Percentage change in after-tax earnings from joint ventures on
a constant-currency basis
(3)
%
Note: Table may not foot due to rounding.
Net Sales Growth Rate for Canada Operating Unit on a Constant-currency
Basis
We
believe
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 rate for our Canada operating unit on a constant-currency
basis is calculated as follows:
Fiscal 2022
Percentage change in net sales as reported
3
%
Impact of foreign currency exchange
3
pts
Percentage change in net sales on a constant-currency basis
1
%
Note: Table may not foot due to rounding.
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:
Fiscal 2022
Percentage Change
in Operating Profit
as Reported
Impact of Foreign
Currency Exchange
Percentage Change
in Operating Profit
on Constant-
Currency Basis
North America Retail
(1)
%
Flat
(1)
%
International
(2)
%
2
pts
(4)
%
Pet
13
%
Flat
13
%
North America Foodservice
26
%
Flat
26
%
Note: Table may not foot due to rounding.
Forward-Looking Financial Measures
Our fiscal 2023
outlook for organic
net sales growth,
constant-currency adjusted
operating profit,
adjusted diluted
EPS, and free
cash
flow are
non-GAAP financial
measures
that exclude,
or have
otherwise
been adjusted
for,
items impacting
comparability,
including
the
effect
of foreign
currency exchange
rate
fluctuations,
restructuring
charges
and project-related
costs,
acquisition
transaction
and
integration
costs,
acquisitions,
divestitures,
and
mark-to-market
effects.
We
are
not
able
to
reconcile
these
forward-looking
non-
GAAP financial
measures to
their most
directly comparable
forward-looking
GAAP financial
measures without
unreasonable efforts
because we are unable to
predict with a reasonable degree
of certainty the actual impact
of changes in foreign currency
exchange rates
and
commodity
prices
or
the
timing
or
impact
of
acquisitions,
divestitures,
and
restructuring
actions
throughout
fiscal
2023.
The
unavailable information could have a significant impact on our fiscal 2023 GAAP financial
results.
40
For
fiscal
2023,
we
currently expect:
foreign
currency
exchange
rates
(based
on
a blend
of
forward
and
forecasted
rates and
hedge
positions)
and
acquisitions
and
divestitures
completed
prior
to
fiscal
2023
and
those
closed
or
expected
to
close
in
fiscal
2023
to
reduce net
sales growth by
approximately 3
percent; foreign
currency exchange
rates to reduce
adjusted operating
profit and adjusted
diluted
EPS growth
by
approximately
1
percent;
and
restructuring
charges
and
project-related
costs and
transaction
and
acquisition
integration costs related to actions previously announced to total approximately
$15 million to $25 million.