{"url_path":"/sec/gis/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-07-01","source_url":"https://www.sec.gov/Archives/edgar/data/40704/0001628280-26-046466-index.html","accession_number":"0001628280-26-046466","cik":"0000040704","ticker":"GIS","issuer_name":"GENERAL MILLS INC","edgar_url":"https://www.sec.gov/Archives/edgar/data/40704/0001628280-26-046466-index.html","primary_entity_key":"0000040704","primary_entity_name":"GENERAL MILLS INC"},"word_count":3504,"has_tables":true,"body_markdown":"ITEM 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations\n\nEXECUTIVE OVERVIEW\n\nWe are a global packaged foods company. We develop distinctive value-added food products and market them under unique brand\n\nnames. We work continuously to improve our core products and to create new products that meet consumers’ evolving needs and\n\npreferences. In addition, we build the equity of our brands over time with strong consumer-directed marketing, innovative new\n\nproducts, and effective merchandising. We believe our brand-building approach is the key to winning and sustaining leading share\n\npositions in markets around the globe.\n\nOur fundamental financial goal is to generate competitively differentiated returns for our shareholders over the long term. We believe\n\nachieving that goal requires us to generate a consistent balance of net sales growth, margin expansion, cash conversion, and cash\n\nreturn to shareholders over time.\n\nOur long-term growth objectives are to deliver the following performance on average over time:\n\n•2 to 3 percent annual growth in organic net sales;\n\n•mid-single-digit annual growth in adjusted operating profit;\n\n•mid- to high-single-digit annual growth in adjusted diluted earnings per share (EPS);\n\n•free cash flow conversion of at least 95 percent of adjusted net earnings after tax; and\n\n•cash return to shareholders of 80 to 90 percent of free cash flow, including an attractive dividend yield.\n\nGuided by our purpose to make food the world loves, we are executing our Accelerate strategy to drive sustainable, profitable growth\n\nand top-tier shareholder returns over the long term. The strategy focuses on four pillars to create competitive advantages and win:\n\nboldly building brands, relentlessly innovating, unleashing our scale, and standing for good. We are prioritizing our core markets,\n\nglobal platforms, and local gem brands that have the best prospects for profitable growth and we are committed to reshaping our\n\nportfolio with strategic acquisitions and divestitures to further enhance our growth profile.\n\nOur consolidated net sales for fiscal 2026 decreased 5 percent to $18.4 billion. On an organic basis, net sales decreased 2 percent\n\ncompared to year-ago levels. Operating profit of $886 million decreased 73 percent. Adjusted operating profit of $2.8 billion\n\ndecreased 16 percent on a constant-currency basis. Diluted loss per share decreased 104 percent to $(0.16). Adjusted diluted EPS of\n\n$3.55 decreased 16 percent on a constant-currency basis (See the “Non-GAAP Measures” section below for a description of our use of\n\nmeasures not defined by generally accepted accounting principles (GAAP)).\n\nNet cash provided by operations totaled $2,166 million in fiscal 2026, with a conversion rate that was not meaningful as a percent of\n\nnet loss, including earnings attributable to noncontrolling interests. This cash generation supported capital investments totaling $540\n\nmillion, and our resulting free cash flow was $1,626 million at a conversion rate of 85 percent of adjusted net earnings, including\n\nearnings attributable to noncontrolling interests. We returned cash to shareholders through dividends totaling $1,315 million and net\n\nshare repurchases totaling $500 million (See the “Non-GAAP Measures” section below for a description of our use of measures not\n\ndefined by GAAP).\n\nIn fiscal 2026, while we made meaningful progress in strengthening the remarkability of our brands to position the business for long-\n\nterm sustainable growth, this progress came amid a more challenging category and competitive backdrop than we initially expected.\n\nWeak consumer sentiment, heightened uncertainty, and significant volatility weighed on category growth and impacted consumer\n\npurchase patterns, resulting in a slower pace and higher cost of volume recovery than we originally anticipated. We delivered mixed\n\nperformance against the three priorities we established at the beginning of the year:\n\nOn our priority of returning North America Retail to volume growth, we did not achieve our objective. Organic pound\n\nvolume in North America Retail declined 1 percent for the year, driven in part by Nielsen-measured pound volume in our\n\ncategories slowing by 1 point versus fiscal 2025. Even so, we grew household penetration and we delivered improved pound\n\ncompetitiveness, with 65 percent of our U.S. categories holding or growing pound share.\n\nOn our priority of accelerating North America Pet growth, we partially achieved our objective. Our Nielsen-measured retail\n\nsales growth improved by 1 point versus our fiscal 2025 trend. However, our organic net sales growth slowed by 3 points,\n\ndriven largely by changes in retailer inventory.\n\nOn our priority of driving efficiencies to reinvest in growth, we successfully achieved our objectives to generate Holistic\n\nMargin Management (HMM) savings of 5 percent of cost of goods sold and deliver more than $100 million in additional\n\nsavings from our global transformation initiative and other efficiency efforts.\n\nA detailed review of our fiscal 2026 performance compared to fiscal 2025 appears below in the section titled “Fiscal 2026\n\nConsolidated Results of Operations.” A detailed review of our fiscal 2025 performance compared to our fiscal 2024 performance is set\n\nforth in Part II, Item 7 of our Form 10-K for the fiscal year ended May 25, 2025, under the caption “Management’s Discussion and\n\n17\n\nAnalysis of Financial Condition and Results of Operations – Fiscal 2025 Results of Consolidated Operations,” which is incorporated\n\nherein by reference.\n\nIn an effort to help address input cost inflation, fund growth investments, and deliver accelerated profit and cash flow growth, we\n\nexpect to generate $3 billion in cumulative cost savings in the four years through fiscal 2030. Roughly $2 billion of this target is\n\nexpected to be generated through our ongoing HMM productivity program, equating to annual savings of approximately 4 percent of\n\ncost of goods sold. The remaining $1 billion is expected to be generated by our global transformation initiative and other cost\n\nefficiency efforts, including redesigning the supply chain network, further streamlining business processes, and driving improvement\n\nacross other elements of its cost base. These efforts will create a more agile and efficient structure that is better fit for future growth.\n\nIn fiscal 2027, we plan to continue advancing our Accelerate strategy and improving the remarkability of our brands. Our key\n\npriorities are to strengthen our organic net sales growth, accelerate our enterprise transformation efforts, and drive disciplined capital\n\nallocation and returns. Amid a continued challenging macroeconomic backdrop for consumers, we expect category growth to be\n\nconsistent with recent trends and below our long-term growth projections. With our price investments completed in fiscal 2026, our\n\nplans in fiscal 2027 are focused on delivering product innovation and renovation news centered on the benefits that matter most to\n\ntoday’s consumers, including better-for-you benefits like protein and fiber, bold flavors, and fun and indulgence, all of which should\n\nhelp support stronger topline growth. We expect to generate at least $750 million in total savings toward the $3 billion target from\n\nHMM, our global transformation initiative, and other cost savings actions, which will help offset our forecast for 4 to 5 percent input\n\ncost inflation as well as our investments in brand remarkability. In addition to these factors, we expect headwinds of approximately 9\n\npoints on operating profit and 11 points on EPS in fiscal 2027 from lapping the 53rd week in fiscal 2026, normalizing corporate\n\nincentive expense, and the impact of fiscal 2026 divestitures.\n\nBased on these assumptions, our key full-year fiscal 2027 targets are summarized below:\n\n•Organic net sales are expected to range between down 1.5 percent and up 0.5 percent.\n\n•Adjusted operating profit is expected to be down 8 to 13 percent in constant-currency from the base of $2.8 billion reported in\n\nfiscal 2026.\n\n•Adjusted diluted EPS is expected to be between $3.00 and $3.20 per share, including an immaterial impact from foreign\n\ncurrency exchange.\n\n•Free cash flow conversion is expected to be approximately 95 percent of adjusted after-tax earnings.\n\nSee the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP.\n\nCertain terms used throughout this report are defined in a glossary in Item 8 of this report.\n\nFISCAL 2026 CONSOLIDATED RESULTS OF OPERATIONS\n\nFiscal 2026 had 53 weeks compared to 52 weeks in fiscal 2025.\n\nIn fiscal 2026, net sales decreased 5 percent compared to fiscal 2025, including the net impact of the divestitures of our North\n\nAmerican yogurt businesses (Divestitures) and the acquisition of Whitebridge Pet Brands (Acquisition). Organic net sales decreased 2\n\npercent compared to fiscal 2025. Operating profit of $886 million decreased 73 percent compared to fiscal 2025, primarily driven by\n\nimpairments of goodwill and other brand intangible assets, a valuation loss related to our held for sale business in Brazil, higher input\n\ncosts, and a decrease in contributions from volume growth, partially offset by a divestiture gain related to the sale of our United States\n\nyogurt business and favorable net price realization and mix. Operating profit margin of 4.8 percent decreased 1,220 basis points.\n\nAdjusted operating profit of $2,812 million decreased 16 percent on a constant-currency basis, including the net impact of the\n\nDivestitures and Acquisition, primarily driven by higher input costs and a decrease in contributions from volume growth, partially\n\noffset by favorable net price realization and mix and lower selling, general & administrative (SG&A) expenses. Adjusted operating\n\nprofit margin decreased 190 basis points to 15.3 percent. Diluted loss per share of $(0.16) decreased 104 percent compared to diluted\n\nearnings per share in fiscal 2025. Adjusted diluted earnings per share of $3.55 decreased 16 percent on a constant-currency basis (see\n\nthe “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP).\n\n18\n\nA summary of our consolidated financial results for fiscal 2026 follows:\n\nFiscal 2026\n\nIn millions,\n\nexcept per\n\nshare\n\nFiscal 2026 vs.\n\nFiscal 2025\n\nPercent of Net\n\nSales\n\nConstant-\n\nCurrency\n\nGrowth (a)\n\nNet sales\n\n$18,424.6\n\n(5)\n\n%\n\nOperating profit\n\n885.8\n\n(73)\n\n%\n\n4.8%\n\nNet loss attributable to General Mills\n\n(87.6)\n\n(104)\n\n%\n\nDiluted loss per share\n\n$(0.16)\n\n(104)\n\n%\n\nOrganic net sales growth rate (a)\n\n(2)\n\n%\n\nAdjusted operating profit (a)\n\n2,811.5\n\n(16)\n\n%\n\n15.3%\n\n(16)%\n\nAdjusted diluted earnings per share (a)\n\n$3.55\n\n(16)\n\n%\n\n(16)%\n\n(a)See the “Non-GAAP Measures” section below for our use of measures not defined by GAAP.\n\nConsolidated net sales were as follows:\n\nFiscal 2026\n\nFiscal 2026 vs.\n\nFiscal 2025\n\nFiscal 2025\n\nNet sales (in millions)\n\n$18,424.6\n\n(5)\n\n%\n\n$19,486.6\n\nContributions from volume growth (a)\n\n(8)\n\npts\n\nNet price realization and mix\n\n2\n\npts\n\nForeign currency exchange\n\n1\n\npt\n\nNote: Table may not foot due to rounding.\n\n(a) Measured in tons based on the stated weight of our product shipments.\n\nNet sales in fiscal 2026 decreased 5 percent compared to fiscal 2025, driven by a decrease in contributions from volume growth,\n\npartially offset by favorable net price realization and mix and favorable foreign currency exchange impacts, and includes the net\n\nimpact of the Divestitures and Acquisition.\n\nComponents of organic net sales growth are shown in the following table:\n\nFiscal 2026 vs. Fiscal 2025\n\nContributions from organic volume growth (a)\n\n(1)\n\npt\n\nOrganic net price realization and mix\n\n(1)\n\npt\n\nOrganic net sales growth\n\n(2)\n\npts\n\nForeign currency exchange\n\n1\n\npt\n\nDivestitures and acquisition\n\n(6)\n\npts\n\n53rd week\n\n2\n\npts\n\nNet sales growth\n\n(5)\n\npts\n\nNote: Table may not foot due to rounding.\n\n(a)Measured in tons based on the stated weight of our product shipments.\n\nOrganic net sales in fiscal 2026 decreased 2 percent compared to fiscal 2025, driven by a decrease in contributions from organic\n\nvolume growth and unfavorable organic net price realization and mix.\n\nCost of sales decreased $525 million in fiscal 2026 to $12,229 million. The decrease was primarily driven by a $1,009 million\n\ndecrease due to lower volume, partially offset by a $506 million increase attributable to product rate and mix. We recorded a $48\n\nmillion net decrease in cost of sales related to mark-to-market valuation of certain commodity positions and grain inventories in fiscal\n\n2026, compared to a net decrease of $16 million in fiscal 2025 (please refer to Note 8 to the Consolidated Financial Statements in Item\n\n8 of this report for additional information). We also recorded $19 million of restructuring charges in fiscal 2026 compared to $9\n\nmillion of restructuring charges in cost of sales in fiscal 2025 (please refer to Note 4 to the Consolidated Financial Statements in Item\n\n8 of this report for additional information).\n\nGross margin decreased 8 percent in fiscal 2026 compared to fiscal 2025. Gross margin as a percent of net sales of 33.6 percent\n\ndecreased 100 basis points compared to fiscal 2025.\n\nSG&A expenses decreased $57 million to $3,388 million in fiscal 2026 compared to fiscal 2025, primarily driven by lower other\n\nadministrative costs, including the net impact of the Divestitures and Acquisition, partially offset by increased media and advertising\n\nexpenses. SG&A expenses as a percent of net sales in fiscal 2026 increased 70 basis points compared to fiscal 2025.\n\n19\n\nDivestitures gain, net totaled $1,049 million in fiscal 2026 primarily related to the sale of our United States yogurt business. In fiscal\n\n2025, we recorded a $96 million divestiture gain related to the sale of our Canada yogurt business (please refer to Note 3 to the\n\nConsolidated Financial Statements in Item 8 of this report).\n\nRestructuring, transformation, impairment, and other exit costs totaled $2,971 million in fiscal 2026 compared to $78 million in\n\nfiscal 2025. In fiscal 2026, we recorded a $1,500 million non-cash goodwill impairment charge related to our North America Pet\n\nreporting unit and $303 million of non-cash impairment charges related to our Nudges, Uncle Toby’s, and True Chews brand\n\nintangible assets (please refer to Note 6 to the Consolidated Financial Statements in Item 8 of this report for additional information).\n\nWe recorded a $1,032 million non-cash pre-tax valuation loss related to the planned divestiture of our Brazil business (please refer to\n\nNote 3 to the Consolidated Financial Statements in Item 8 of this report for additional information). Additionally, we recorded $95\n\nmillion of restructuring charges related to the multi-year organizational initiative to increase the competitiveness of our supply chain\n\nand $60 million of restructuring and transformation charges related to actions previously announced. In fiscal 2025, we approved a\n\nmulti-year global transformation initiative to drive increased productivity by enhancing end-to-end business processes, enabled by\n\ntargeted organizational actions, and as a result, we recorded $70 million of charges in fiscal 2025. Please refer to Note 4 to the\n\nConsolidated Financial Statements in Item 8 of this report for additional information.\n\nBenefit plan non-service income totaled $58 million in fiscal 2026 compared to $54 million in fiscal 2025, primarily reflecting lower\n\ninterest costs, partially offset by lower expected return on plan assets (please refer to Note 14 to the Consolidated Financial Statements\n\nin Item 8 of this report for additional information).\n\nInterest, net for fiscal 2026 totaled $539 million, $14 million higher than fiscal 2025, primarily driven by a 53rd week of interest\n\nexpense.\n\nOur effective tax rate for fiscal 2026 was 102.2 percent compared to 20.2 percent in fiscal 2025. The 82.0 percentage point increase\n\nwas primarily driven by a non-deductible goodwill impairment charge and unfavorable earnings mix by jurisdiction in fiscal 2026,\n\npartially offset by certain nonrecurring tax benefits in fiscal 2026. Our adjusted effective tax rate was 21.1 percent in fiscal 2026\n\ncompared to 20.6 percent in fiscal 2025 (see the “Non-GAAP Measures” section below for a description of our use of measures not\n\ndefined by GAAP). The 0.5 percentage point increase was primarily due to unfavorable earnings mix by jurisdiction in fiscal 2026,\n\npartially offset by certain nonrecurring tax benefits in fiscal 2026.\n\nThe impacts of the One Big Beautiful Bill Act (OBBBA) are reflected in our results for the fiscal year ended May 31, 2026, and there\n\nwas no material impact to our income tax expense. As of the fiscal year ended May 31, 2026, certain provisions of the OBBBA have\n\nimpacted the timing of cash tax payments (please refer to Note 15 to the Consolidated Financial Statements in Item 8 of this report for\n\nadditional information).\n\nAfter-tax (loss) earnings from joint ventures was a $76 million after-tax loss in fiscal 2026 compared to $58 million of after-tax\n\nearnings in fiscal 2025. The change primarily reflected our $85 million pre-tax share of a non-cash goodwill impairment charge related\n\nto CPW, driven by downward revisions of future sales and profitability estimates in the Australian market, as well as our share of\n\nlosses on the sale of certain assets, also related to CPW. On a constant-currency basis, after-tax loss from joint ventures decreased 231\n\npercent (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). The\n\ncomponents of our joint ventures’ net sales growth are shown in the following table:\n\nFiscal 2026 vs. Fiscal 2025\n\nCPW\n\nHDJ\n\nTotal\n\nContributions from volume growth (a)\n\n(5)\n\npts\n\nFlat\n\nNet price realization and mix\n\n3\n\npts\n\n4\n\npts\n\nNet sales growth in constant currency\n\n(3)\n\npts\n\n5\n\npts\n\n(1)\n\npt\n\nForeign currency exchange\n\n5\n\npts\n\n(1)\n\npt\n\n4\n\npts\n\nNet sales growth\n\n2\n\npts\n\n4\n\npts\n\n2\n\npts\n\nNote: Table may not foot due to rounding.\n\n(a)Measured in tons based on the stated weight of our product shipments.\n\nNet earnings attributable to noncontrolling interests decreased to $2 million in fiscal 2026 compared to $24 million in fiscal 2025.\n\nAverage diluted shares outstanding decreased by 20 million in fiscal 2026 from fiscal 2025 primarily due to share repurchases.\n\n20\n\nRESULTS OF SEGMENT OPERATIONS\n\nOur businesses are organized into four operating segments: North America Retail, International, North America Pet, and North\n\nAmerica Foodservice.\n\nThe following tables provide the dollar amount and percentage of net sales and operating profit from each segment for fiscal 2026 and\n\nfiscal 2025:\n\nFiscal Year\n\n2026\n\n2025\n\nIn Millions\n\nDollars\n\nPercent of Total\n\nDollars\n\nPercent of Total\n\nNet Sales\n\nNorth America Retail\n\n$10,571.8\n\n57%\n\n$11,907.0\n\n61%\n\nInternational\n\n3,043.8\n\n17\n\n2,797.8\n\n14\n\nNorth America Pet\n\n2,613.3\n\n14\n\n2,470.8\n\n13\n\nNorth America Foodservice\n\n2,169.5\n\n12\n\n2,300.9\n\n12\n\nTotal\n\n$18,398.4\n\n100%\n\n$19,476.5\n\n100%\n\nSegment Operating Profit\n\nNorth America Retail\n\n$2,189.0\n\n68%\n\n$2,729.9\n\n73%\n\nInternational\n\n188.7\n\n6\n\n96.4\n\n3\n\nNorth America Pet\n\n498.8\n\n16\n\n501.0\n\n14\n\nNorth America Foodservice\n\n333.0\n\n10\n\n355.4\n\n10\n\nTotal\n\n$3,209.5\n\n100%\n\n$3,682.7\n\n100%\n\nNet sales of $26 million in fiscal 2026 and $10 million in fiscal 2025 related to businesses managed by our Strategic Growth Office\n\nare included within corporate and other net sales, which is reported separately from segment net sales.\n\nSegment operating profit as reviewed by our executive management excludes unallocated corporate items, net gain or loss on\n\ndivestitures, and restructuring, transformation, impairment, and other exit costs that are centrally managed.\n\nNORTH AMERICA RETAIL SEGMENT\n\nOur North America Retail operating segment reflects business with a wide variety of grocery stores, mass merchandisers, membership\n\nstores, natural food chains, drug, dollar and discount chains, convenience stores, and e-commerce grocery providers. Our product\n\ncategories in this business segment include ready-to-eat cereals, soup, meal kits, refrigerated and frozen dough products, dessert and\n\nbaking mixes, frozen pizza and pizza snacks, snack bars, fruit snacks, savory snacks, and a wide variety of organic products including\n\nready-to-eat cereal, frozen vegetables, meal kits, fruit snacks and snack bars.\n\nNorth America Retail net sales were as follows:\n\nFiscal 2026\n\nFiscal 2026 vs. 2025\n\nPercentage Change\n\nFiscal 2025\n\nNet sales (in millions)\n\n$10,571.8\n\n(11)\n\n%\n\n$11,907.0\n\nContributions from volume growth (a)\n\n(16)\n\npts\n\nNet price realization and mix\n\n5\n\npts\n\nForeign currency exchange\n\nFlat\n\nNote: Table may not foot due to rounding.\n\n(a)Measured in tons based on the stated weight of our product shipments.\n\nNorth America Retail net sales decreased 11 percent in fiscal 2026 compared to fiscal 2025, driven by a decrease in contributions from\n\nvolume growth, partially offset by favorable net price realization and mix, both of which include the impact from the Divestitures.\n\n21\n\nThe components of North America Retail organic net sales growth are shown in the following table:\n\nFiscal 2026 vs. 2025\n\nPercentage Change\n\nContributions from organic volume growth (a)\n\n(1)\n\npt\n\nOrganic net price realization and mix\n\n(2)\n\npts\n\nOrganic net sales growth\n\n(3)\n\npts\n\nForeign currency exchange\n\nFlat\n\nDivestitures (b)\n\n(9)\n\npts\n\n53rd week\n\n1\n\npt\n\nNet sales growth\n\n(11)\n\npts\n\nNote: Table may not foot due to rounding.\n\n(a)Measured in tons based on the stated weight of our product shipments.\n\n(b)Divestiture of the United States yogurt business in the first quarter of fiscal 2026 and the Canada yogurt business in the third quarter of fiscal\n\n2025. Please refer to Note 3 to the Consolidated Financial Statements in Part II, Item 8 of this report.\n\nNorth America Retail organic net sales decreased 3 percent in fiscal 2026 compared to fiscal 2025, driven by unfavorable organic net\n\nprice realization and mix and a decrease in contributions from organic volume growth.\n\nNet sales for our North America Retail operating units are shown in the following table:\n\nIn Millions\n\nFiscal 2026\n\nFiscal 2026 vs. 2025\n\nPercentage Change\n\nFiscal 2025\n\nBig G Cereal & Canada (a)\n\n$3,153.4\n\n(27)%\n\n$4,311.8\n\nU.S. Snacks\n\n3,212.6\n\n(4)%\n\n3,356.3\n\nU.S. Meals & Baking Solutions\n\n4,205.8\n\n(1)%\n\n4,238.9\n\nTotal\n\n$10,571.8\n\n(11)%\n\n$11,907.0\n\n(a)Upon completion of the United States yogurt business divestiture in fiscal 2026, the former U.S. Morning Foods and Canada operating units\n\nwere combined into a new Big G Cereal & Canada operating unit. Please refer to Note 17 to the Consolidated Financial Statements in Part II,"}