General Mills Inc. (NYSE:GIS)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes demonstrated variability across the analyzed periods. After an initial decline from approximately 2.22 billion in 2014 to 1.62 billion in 2015, the figure rebounded in the subsequent years, reaching over 2.27 billion by 2019. This fluctuation suggests some instability in operational profitability, with a notable dip in 2015 followed by recovery and growth towards the end of the period.

Cost of Capital

The cost of capital showed a modest downward trend over the period, starting at around 10.47% in 2014 and decreasing to 9.51% in 2019. The percentage fluctuated slightly each year but generally trended lower, with a marked decline from 10.19% in 2017 to 8.88% in 2018 before a slight rise in 2019. This trend could indicate improved capital efficiency or changes in market conditions favoring lower capital costs.

Invested Capital

Invested capital remained relatively stable initially but experienced a significant increase starting in 2018, jumping from approximately 18.98 billion in 2017 to over 27.6 billion in 2018, with a slight decrease to 27.39 billion in 2019. This sharp rise suggests considerable additional investment or acquisitions during the latter part of the period, substantially increasing the capital base.

Economic Profit

Economic profit exhibited pronounced volatility throughout the period. It started positively at about 193 million in 2014, then plunged to a negative figure exceeding 388 million in 2015. Subsequently, it briefly recovered to near breakeven in 2016 and showed improvement in 2017. However, it again turned deeply negative in 2018 and 2019, with losses surpassing 531 million and 330 million respectively. These fluctuations indicate challenges in generating returns above the cost of capital, particularly in the latest years analyzed.

Overall Insights

The data reveals a dynamic financial profile marked by fluctuating operational profitability and large shifts in invested capital. While NOPAT recovered after early declines, economic profit's negative swings highlight difficulty in achieving economic value add consistently. The significant increase in invested capital from 2018 onwards alongside worsening economic profit suggests that new investments have yet to translate into sufficient returns above the cost of capital, potentially signaling efficiency or integration challenges. The gradual decline in the cost of capital could provide some financial leverage if operational improvements accompany capital deployment.

The financial data shows the annual performance of the company over a six-year period from 2014 to 2019. Two key metrics are presented: net earnings attributable to the company and net operating profit after taxes (NOPAT).

Net Earnings Attributable to the Company

The net earnings exhibit fluctuations throughout the period. Starting from $1,824,400 thousand in 2014, there is a notable decline to $1,221,300 thousand in 2015. This is followed by a recovery phase where net earnings increase to $1,697,400 thousand in 2016 but then slightly dip to $1,657,500 thousand in 2017. The peak is observed in 2018 at $2,131,000 thousand, representing the highest net earnings in this timeframe. However, the following year, 2019, shows a decline to $1,752,700 thousand, reflecting a decrease of approximately 17.8% from the previous year’s peak.

Net Operating Profit After Taxes (NOPAT)

NOPAT also shows variability but with a generally increasing trend. It begins at $2,219,325 thousand in 2014 and declines in 2015 to $1,616,844 thousand, mirroring the net earnings pattern. Thereafter, NOPAT steadily recovers and increases, reaching $2,029,941 thousand in 2016 and continuing its ascent with minor fluctuation to $2,079,159 thousand in 2017 and $1,920,512 thousand in 2018. The highest value is recorded in 2019 at $2,274,308 thousand, representing a strong recovery and the highest operational efficiency in terms of post-tax profits over the period.

Overall, both net earnings and NOPAT show an initial decline from 2014 to 2015, likely indicating a challenging year or adverse conditions. Despite this, the company demonstrates resilience with a recovery phase from 2016 onward. Net earnings reach their peak in 2018 but experience a downturn in 2019. Conversely, NOPAT recovers more robustly, peaking in 2019 and displaying stronger operational profitability relative to net earnings. This divergence in the final year may suggest changes in non-operating items, tax impacts, or other factors affecting net earnings differently than operating profit.

The financial data reveals a fluctuating trend in the income taxes and cash operating taxes over the six-year period.

Income Taxes

Income taxes decreased significantly from 883,300 thousand US dollars in May 2014 to 586,800 thousand US dollars in May 2015, representing a notable reduction.

Subsequently, there was an increase to 755,200 thousand US dollars in May 2016, followed by a decline to 655,200 thousand US dollars in May 2017.

In May 2018, income taxes declined sharply to 57,300 thousand US dollars, marking the lowest point in the period analyzed, before rising to 367,800 thousand US dollars in May 2019.

Cash Operating Taxes

Cash operating taxes exhibited a more stable but variable trend, starting at 821,360 thousand US dollars in May 2014 and decreasing to 676,323 thousand US dollars in May 2015.

There was a slight increase to 745,707 thousand US dollars in May 2016, followed by a decrease to 579,670 thousand US dollars in May 2017.

The value rose again to 674,791 thousand US dollars in May 2018 before declining sharply to 383,900 thousand US dollars in May 2019.

Overall, both income taxes and cash operating taxes show substantial volatility over the years. Income taxes show a steep decline around 2018, while cash operating taxes, although variable, remain generally higher than income taxes except for 2018. The trends suggest potential changes in tax obligations or tax planning strategies impacting these financial items during the examined period.

Total Reported Debt & Leases

The total reported debt and leases showed a fluctuating trend over the six-year period. Initially, there was a moderate increase from approximately $9.13 billion in 2014 to $9.58 billion in 2015, followed by a decline to about $8.79 billion in 2016. In 2017, the debt level rose again to roughly $9.93 billion. A significant increase occurred in 2018, reaching approximately $16.32 billion, the highest level in the period analyzed. This peak was followed by a slight reduction to $14.93 billion in 2019, indicating a partial deleveraging but maintaining a relatively high debt position compared to earlier years.

Stockholders’ Equity

Stockholders’ equity experienced a downward trajectory between 2014 and 2017, decreasing from approximately $6.53 billion to around $4.33 billion. This decline suggests a reduction in the net value attributable to shareholders during this period. However, equity started to recover in 2018, increasing notably to $6.14 billion, and continued to grow in 2019, reaching about $7.05 billion. The recovery indicates a strengthening of the company’s equity base in the latter years analyzed.

Invested Capital

Invested capital exhibited relative stability from 2014 to 2017, ranging between approximately $18.4 billion and $19.4 billion. In 2018 there was a marked increase to roughly $27.61 billion, which was sustained in 2019 with a slight decrease to $27.38 billion. This sharp increase in invested capital parallels the rise in total reported debt and leases during the same period, suggesting significant capital allocation or asset acquisition financed largely through debt.

Overall Analysis

The financial data indicates that the company increased its leverage significantly in 2018 and maintained a higher debt load in 2019 relative to the earlier years. This period also coincides with a substantial jump in invested capital, signaling possibly intensified investment activity or expansion. Meanwhile, stockholders’ equity contracted from 2014 through 2017 but recovered afterward, possibly reflecting improved profitability or capital injections. The trends suggest a strategic phase of investment funded by increased debt, with signs of balance sheet strengthening towards the end of the period.

Economic Profit

The economic profit exhibited considerable volatility over the observed period. It started positively in 2014 with a value of approximately $192.5 million. However, it dropped to a significant negative value in 2015, reaching about -$388.2 million. The figure slightly recovered in 2016 and 2017, registering positive values of roughly $11.0 million and $143.9 million, respectively. Following this recovery, the economic profit decreased again in 2018 and 2019, with negative values of approximately -$531.4 million and -$330.1 million, respectively. This pattern indicates periods of both profitability and substantial losses, highlighting challenges in maintaining consistent economic earnings.

Invested Capital

The invested capital showed a relatively stable trend initially, with values around $19.3 billion in 2014 and $19.2 billion in 2015. This was followed by a decline to approximately $18.4 billion in 2016. Subsequently, invested capital gradually increased to about $19.0 billion in 2017 before a significant rise occurred in 2018, reaching $27.6 billion. In 2019, the invested capital remained at a similar elevated level of approximately $27.4 billion. This increase in invested capital towards the latter years suggests potential expansion, acquisition, or reinvestment activities during the period.

Economic Spread Ratio

The economic spread ratio mirrored the economic profit’s volatility, beginning at a positive 0.99% in 2014 but declining sharply to -2.02% in 2015. It slightly recovered to 0.06% in 2016 and further to 0.76% in 2017, indicating some improvement in capital efficiency or return on invested capital during this interval. The ratio then decreased again over the final two years, recording negative spreads of -1.92% in 2018 and -1.21% in 2019, consistent with the negative economic profits observed. This pattern suggests fluctuating returns relative to the cost of capital, with periods of both positive and negative economic value created.

Net Sales

Net sales demonstrated a declining trend from 2014 through 2017, decreasing from approximately 17.91 billion USD in 2014 to 15.62 billion USD in 2017. This declining trajectory was interrupted in 2018, with a slight increase to 15.74 billion USD, followed by a more notable rebound in 2019, reaching 16.87 billion USD. The overall pattern indicates initial contraction in sales, followed by partial recovery in the final years.

Economic Profit

Economic profit showed significant volatility during the analyzed period. From a positive 192.5 million USD in 2014, it dropped sharply to a negative 388.2 million USD in 2015. There was a modest recovery to a positive economic profit of nearly 11.0 million USD in 2016, increasing further to 143.9 million USD in 2017. However, the trend reversed markedly in 2018 and 2019, with economic profit turning negative again, recording losses of 531.4 million USD and 330.1 million USD, respectively. This indicates fluctuating profitability with periods of substantial economic losses.

Economic Profit Margin

The economic profit margin aligns with the economic profit trends, reflecting considerable fluctuations. Starting at a positive margin of 1.08% in 2014, it dropped into negative territory at -2.2% in 2015. A recovery is visible between 2016 and 2017, with margins moving back into positive figures, peaking at 0.92% in 2017. This was followed by a decline to negative margins in 2018 (-3.38%) and 2019 (-1.96%), reaffirming challenges in sustaining profitable margins in the latter years.

Summary Insight

The data reveal a challenging period characterized by fluctuating sales and unstable profitability. While net sales experienced a contraction followed by partial recovery, economic profit and its margin exhibited greater volatility, including significant losses in multiple years. The negative economic profit margins in both 2018 and 2019 suggest operational or market difficulties impacting sustainable profitability despite some recovery in sales volume. Focus on improving operational efficiency and cost management may be critical to restoring consistent positive economic returns.