General Mills Inc. (NYSE:GIS)

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General Mills Inc., Profitability Ratios: Reported vs. Adjusted

Based on: 10-K (reporting date: 2019-05-26), 10-K (reporting date: 2018-05-27), 10-K (reporting date: 2017-05-28), 10-K (reporting date: 2016-05-29), 10-K (reporting date: 2015-05-31), 10-K (reporting date: 2014-05-25).

General Mills Inc., adjusted profitability ratios

	May 26, 2019	May 27, 2018	May 28, 2017	May 29, 2016	May 31, 2015	May 25, 2014
Net Profit Margin
Reported net profit margin	10.39%	13.54%	10.61%	10.25%	6.93%	10.19%
Adjusted net profit margin	10.38%	13.51%	10.62%	10.25%	6.93%	10.19%
Return on Equity (ROE)
Reported ROE	24.85%	34.70%	38.30%	34.43%	24.44%	27.92%
Adjusted ROE	24.82%	34.64%	38.32%	34.43%	24.46%	27.92%
Return on Assets (ROA)
Reported ROA	5.82%	6.96%	7.60%	7.82%	5.56%	7.88%
Adjusted ROA	5.81%	6.95%	7.60%	7.82%	5.56%	7.88%

The financial performance between May 2014 and May 2019 is characterized by fluctuations in profitability and efficiency ratios. A primary observation is the negligible variance between reported and adjusted figures across all analyzed metrics. This indicates that mark-to-market adjustments for available-for-sale securities had no material impact on the company's net profit margin, return on equity, or return on assets during this five-year period.

Net Profit Margin: The adjusted net profit margin experienced a significant contraction in 2015, falling to 6.93%. A subsequent recovery trend is observed through 2018, where the margin reached a peak of 13.51%. By May 2019, the margin normalized to 10.38%, returning to levels similar to those seen in 2014 and 2016.
Return on Equity (ROE): Return on equity demonstrated strong growth following a dip in 2015, peaking at an adjusted 38.32% in May 2017. This period reflects a high efficiency in generating profits from shareholders' equity. However, a downward trajectory followed this peak, with ROE declining to 24.82% by May 2019.
Return on Assets (ROA): Return on assets exhibited a volatility pattern similar to the profit margin in the early years, with a low of 5.56% in 2015 followed by a recovery to 7.82% in 2016. From 2016 onward, a steady decline is observed, with the adjusted ROA falling to 5.81% by May 2019, suggesting a decrease in the efficiency of asset utilization over the latter half of the period.

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Based on: 10-K (reporting date: 2019-05-26), 10-K (reporting date: 2018-05-27), 10-K (reporting date: 2017-05-28), 10-K (reporting date: 2016-05-29), 10-K (reporting date: 2015-05-31), 10-K (reporting date: 2014-05-25).

	May 26, 2019	May 27, 2018	May 28, 2017	May 29, 2016	May 31, 2015	May 25, 2014
As Reported
Selected Financial Data (US$ in thousands)
Net earnings attributable to General Mills	1,752,700)	2,131,000)	1,657,500)	1,697,400)	1,221,300)	1,824,400)
Net sales	16,865,200)	15,740,400)	15,619,800)	16,563,100)	17,630,300)	17,909,600)
Profitability Ratio
Net profit margin¹	10.39%	13.54%	10.61%	10.25%	6.93%	10.19%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in thousands)
Adjusted net earnings attributable to General Mills	1,750,700)	2,127,100)	1,658,300)	1,697,500)	1,222,100)	1,824,700)
Net sales	16,865,200)	15,740,400)	15,619,800)	16,563,100)	17,630,300)	17,909,600)
Profitability Ratio
Adjusted net profit margin²	10.38%	13.51%	10.62%	10.25%	6.93%	10.19%

2019 Calculations

¹ Net profit margin = 100 × Net earnings attributable to General Mills ÷ Net sales
= 100 × 1,752,700 ÷ 16,865,200 = 10.39%

² Adjusted net profit margin = 100 × Adjusted net earnings attributable to General Mills ÷ Net sales
= 100 × 1,750,700 ÷ 16,865,200 = 10.38%

The adjusted net profit margin exhibited significant volatility over the six-year period from 2014 to 2019, characterized by a sharp contraction in 2015 followed by a sustained period of expansion that peaked in 2018.

Adjusted Net Earnings Performance: Adjusted net earnings demonstrated a fluctuating trend, starting at US$ 1,824,700 thousand in 2014 and dropping to a period low of US$ 1,222,100 thousand in 2015. A recovery phase ensued, with earnings climbing to a peak of US$ 2,127,100 thousand in 2018, before declining to US$ 1,750,700 thousand in 2019.
Adjusted Net Profit Margin Trends: The adjusted net profit margin followed a similar trajectory to earnings, falling from 10.19% in 2014 to 6.93% in 2015. Following this trough, the margin increased steadily to 10.25% in 2016 and 10.62% in 2017, reaching a maximum of 13.51% in 2018. By May 2019, the margin moderated to 10.38%, reflecting a return to the baseline levels observed in 2014 and 2016.
Relationship Between Reported and Adjusted Metrics: A high degree of convergence is observed between reported and adjusted financial metrics. The variance between reported net profit margins and adjusted net profit margins remained minimal throughout the entire period, suggesting that non-recurring items and special adjustments had a negligible impact on the core profitability of the operations.

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Based on: 10-K (reporting date: 2019-05-26), 10-K (reporting date: 2018-05-27), 10-K (reporting date: 2017-05-28), 10-K (reporting date: 2016-05-29), 10-K (reporting date: 2015-05-31), 10-K (reporting date: 2014-05-25).

	May 26, 2019	May 27, 2018	May 28, 2017	May 29, 2016	May 31, 2015	May 25, 2014
As Reported
Selected Financial Data (US$ in thousands)
Net earnings attributable to General Mills	1,752,700)	2,131,000)	1,657,500)	1,697,400)	1,221,300)	1,824,400)
Stockholders’ equity	7,054,500)	6,141,100)	4,327,900)	4,930,200)	4,996,700)	6,534,800)
Profitability Ratio
ROE¹	24.85%	34.70%	38.30%	34.43%	24.44%	27.92%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in thousands)
Adjusted net earnings attributable to General Mills	1,750,700)	2,127,100)	1,658,300)	1,697,500)	1,222,100)	1,824,700)
Stockholders’ equity	7,054,500)	6,141,100)	4,327,900)	4,930,200)	4,996,700)	6,534,800)
Profitability Ratio
Adjusted ROE²	24.82%	34.64%	38.32%	34.43%	24.46%	27.92%

2019 Calculations

¹ ROE = 100 × Net earnings attributable to General Mills ÷ Stockholders’ equity
= 100 × 1,752,700 ÷ 7,054,500 = 24.85%

² Adjusted ROE = 100 × Adjusted net earnings attributable to General Mills ÷ Stockholders’ equity
= 100 × 1,750,700 ÷ 7,054,500 = 24.82%

The financial performance between May 2014 and May 2019 is characterized by volatility in both profitability and equity efficiency. The relationship between net earnings and return on equity reveals a cyclical trend, with a notable peak in efficiency occurring midway through the period.

Adjusted Net Earnings Trend: Adjusted net earnings exhibited significant fluctuations, starting at 1.82 billion USD in 2014 and dropping to a period low of 1.22 billion USD in 2015. A recovery followed, leading to a peak of 2.13 billion USD in 2018, before contracting again to 1.75 billion USD in 2019.
Adjusted Return on Equity (ROE) Analysis: The adjusted ROE mirrored early earnings volatility, declining to 24.46% in 2015. A strong upward trajectory was observed thereafter, reaching a maximum of 38.32% in 2017. A divergence is noted in 2018; while adjusted net earnings reached their highest level, the adjusted ROE declined to 34.64%, suggesting an increase in the equity base that outpaced the growth in earnings. By 2019, the ROE experienced a sharp decline to 24.82%.
Reported versus Adjusted Metrics: A comparison between reported and adjusted figures shows negligible variance across all years. The proximity of reported ROE to adjusted ROE indicates that non-recurring items and one-time adjustments had a minimal impact on the overall assessment of the company's return on equity.

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Based on: 10-K (reporting date: 2019-05-26), 10-K (reporting date: 2018-05-27), 10-K (reporting date: 2017-05-28), 10-K (reporting date: 2016-05-29), 10-K (reporting date: 2015-05-31), 10-K (reporting date: 2014-05-25).

	May 26, 2019	May 27, 2018	May 28, 2017	May 29, 2016	May 31, 2015	May 25, 2014
As Reported
Selected Financial Data (US$ in thousands)
Net earnings attributable to General Mills	1,752,700)	2,131,000)	1,657,500)	1,697,400)	1,221,300)	1,824,400)
Total assets	30,111,200)	30,624,000)	21,812,600)	21,712,300)	21,964,500)	23,145,700)
Profitability Ratio
ROA¹	5.82%	6.96%	7.60%	7.82%	5.56%	7.88%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in thousands)
Adjusted net earnings attributable to General Mills	1,750,700)	2,127,100)	1,658,300)	1,697,500)	1,222,100)	1,824,700)
Total assets	30,111,200)	30,624,000)	21,812,600)	21,712,300)	21,964,500)	23,145,700)
Profitability Ratio
Adjusted ROA²	5.81%	6.95%	7.60%	7.82%	5.56%	7.88%

2019 Calculations

¹ ROA = 100 × Net earnings attributable to General Mills ÷ Total assets
= 100 × 1,752,700 ÷ 30,111,200 = 5.82%

² Adjusted ROA = 100 × Adjusted net earnings attributable to General Mills ÷ Total assets
= 100 × 1,750,700 ÷ 30,111,200 = 5.81%

Analysis of the financial performance from May 2014 to May 2019 reveals a general decline in asset utilization efficiency, characterized by a fluctuating earnings profile and a downward trend in return on assets.

Adjusted Net Earnings Performance: Adjusted net earnings exhibited significant volatility over the six-year period. A sharp decrease occurred in 2015, where earnings fell to 1,222,100 thousand US$ from 1,824,700 thousand US$ in 2014. A recovery followed in 2016 and 2017, culminating in a period peak of 2,127,100 thousand US$ in 2018, before contracting again to 1,750,700 thousand US$ in 2019.
Adjusted Return on Assets (ROA) Trends: The Adjusted ROA demonstrates a long-term downward trajectory, moving from 7.88% in 2014 to 5.81% in 2019. Although there was a temporary recovery to 7.82% in 2016, the metric experienced a consistent decline over the subsequent three fiscal years.
Correlation Between Earnings and Asset Efficiency: A notable divergence between net earnings and asset efficiency is observed in 2018. During this year, adjusted net earnings reached their maximum value of 2,127,100 thousand US$, yet the Adjusted ROA continued its descent to 6.95%. This indicates that the expansion of the asset base outpaced the growth in net earnings, resulting in a reduction of the return generated per unit of asset.
Comparison of Reported and Adjusted Metrics: The variance between reported and adjusted figures for both net earnings and ROA is marginal across the entire period. This suggests that non-recurring or adjusting items had a minimal impact on the overall interpretation of the company's asset productivity and profitability trends.

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