Foodservice

COVID-19 demand boosts General Mills in Q4

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July 1, 2020

General Mills Inc. said fiscal fourth-quarter sales and earnings surpassed estimates as consumer demand for food at home was driven by COVID-19.

"Amid significant challenge and change in the world around us, General Mills adapted and executed in fiscal 2020 to deliver outstanding financial results while fulfilling our purpose of making food the world loves," General Mills Chairman and Chief Executive Officer Jeff Harmening said in the press release. "We've demonstrated extraordinary agility to meet the unprecedented increase in demand for food at home and to win across our categories.

Net earnings for the quarter totaled $626 million, up 10% from a year ago. Diluted EPS of $1.02 increased 9%. Adjusted diluted EPS of $1.10 were up 33% percent from the prior year in constant currency, primarily reflecting higher adjusted operating profit, higher after-tax earnings from joint ventures, and a lower adjusted effective tax rate, partially offset by higher average diluted shares outstanding.

Net sales of $5.0 billion increased 21% versus last year, including 7 points of growth from an extra week of results in this year's fourth quarter and a 2-point headwind from unfavorable foreign currency exchange. Organic net sales increased 16% percent, including double-digit growth in organic pound volume and 3 points of favorable organic net price realization and mix. Fourth-quarter net sales growth includes the impact of elevated consumer demand driven by the COVID-19 pandemic.

Net earnings for the full year totaled $2.2 billion, up 24% from the prior year. Diluted EPS of $3.56 for the full year increased 23%, while adjusted diluted EPS of $3.61 was up 12% in constant currency, primarily reflecting higher adjusted operating profit, lower net interest expense, a lower adjusted effective tax rate, higher non-service benefit plan income, and higher after-tax earnings from joint ventures, partially offset by higher average diluted shares outstanding.

The COVID-19 pandemic has had a profound impact on consumer demand across the company's major markets, including driving an unprecedented increase in demand for food at home and a corresponding decrease in away-from-home food demand resulting from efforts to reduce virus transmission, the company noted.

The company estimated that at-home food represented approximately 85% of its pre-pandemic worldwide net sales and away-from-home food represented the remaining 15 percent.

In the quarter, elevated at-home food demand accelerated net sales growth in the North America Retail segment, where a significant share of net sales comes from categories that were most impacted by at-home eating, including meals, baking and cereal.

The impact of elevated at-home demand was less pronounced in the Europe and Australia segment, reflecting its lower proportion of net sales in those categories.

The company has implemented employee safety measures, based on guidance from the CDC and WHO, across all its supply chain facilities, including proper hygiene, social distancing, mask use and temperature screenings. To date, all General Mills manufacturing and distribution facilities have continued to operate without significant disruption related to COVID-19.

The company has partnered with its customers to prioritize production of its most important products to increase capacity and maintain strong service levels and has adapted content on its food websites to encourage cooking education and drive stronger e-commerce sales. Additionally, the company has taken actions to reinforce its healthy liquidity position by refinancing short-term debt, and it has maintained its strong capital discipline, which helped contribute to a significant increase in free cash flow generation in fiscal 2020.

Net sales for the full year increased 5% to $17.6 billion, including 2 points of growth from an extra week of results in this year's fourth quarter and a 1-point headwind from unfavorable foreign currency exchange. Organic net sales increased 4%, reflecting positive organic pound volume and favorable organic net price realization and mix. The company estimated that changes in consumer behavior resulting from COVID-19 increased full-year net sales growth by approximately 3 percentage points.

Gross margin for the year increased70 basis points to 34.8% of net sales. Adjusted gross margin increased 80 basis points to 35.2% of net sales, driven primarily by HMM cost savings, favorable net price realization and mix, and last year's one-time purchase accounting inventory adjustment related to the Blue Buffalo acquisition, partially offset by input cost inflation and increased supply chain costs related to COVID-19.

Operating profit of $3.0 billion increased 17% from the prior year. Adjusted operating profit of $3.0 billion increased 7% in constant currency, primarily driven by higher net sales, partially offset by higher SG&A expenses, including higher administrative and media expenses. Adjusted operating profit margin increased 40 basis points to 17.3 percent.

For an update on how the coronavirus pandemic is affecting convenience services, click here.