General Mills Inc. (NYSE:GIS)

The financial data reveals several noteworthy trends over the six-year period from 2014 to 2019.

Net Operating Profit After Taxes (NOPAT)

The NOPAT exhibited fluctuations through the years, starting at approximately $2.22 billion in 2014, then declining to around $1.62 billion in 2015. It rebounded in 2016 and 2017 to values slightly above $2 billion, before dropping again in 2018 to approximately $1.92 billion. The metric increased substantially in 2019, reaching its highest value of roughly $2.27 billion within the examined period. This indicates variability in operational profitability with an overall recovery trend towards the end of the period.

Cost of Capital

The cost of capital demonstrated a gradual downward trend from 10.40% in 2014 to a low of 8.83% in 2018, followed by a slight uptick to 9.45% in 2019. This reduction over the majority of the period suggests improving financing conditions or lower perceived risk associated with the invested capital, potentially benefiting the firm’s economic value creation.

Invested Capital

Invested capital remained relatively stable between 2014 and 2017, fluctuating around the $18.4 to $19.4 billion range. From 2017 onward, there was a pronounced increase, with capital rising sharply to approximately $27.6 billion in 2018 and maintaining a similar level in 2019 at about $27.4 billion. This significant growth may indicate increased investment activities, acquisitions, or expansion initiatives during the later years.

Economic Profit

Economic profit displayed considerable volatility throughout the period. It was positive and relatively strong in 2014 at around $205.5 million, but dropped sharply into negative territory in 2015 (-$375.2 million). It returned to marginal positive values in 2016 and 2017 ($24.2 million and $156.3 million, respectively), before experiencing another steep decline into negative values in 2018 (-$516.5 million) and 2019 (-$314.0 million). Given that economic profit accounts for the cost of capital, these fluctuations suggest periods where the company’s returns did not exceed its capital costs, especially notable during 2015, 2018, and 2019, despite increases in NOPAT in some of those years.

In summary, the company’s operational profitability (NOPAT) showed recovery towards the end of the period, while the cost of capital generally decreased, which is favorable. However, the substantial increase in invested capital combined with persistent negative economic profit in later years indicates that the additional investment did not consistently translate into value creation above the cost of capital, representing a potential concern regarding capital efficiency during that timeframe.

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 demonstrates considerable volatility over the examined periods. It started positively at 205,536 thousand US dollars in 2014, then experienced a significant decline reaching a negative value of -375,237 thousand US dollars in 2015. This was followed by a recovery to a positive but modest profit of 24,156 thousand US dollars in 2016 and a further increase to 156,349 thousand US dollars in 2017. However, the economic profit again fell sharply into negative territory in 2018 and 2019, with values of -516,491 and -314,016 thousand US dollars respectively. This pattern suggests intermittent profitability with considerable challenges in sustaining positive economic earnings.

Invested Capital

The invested capital remained relatively stable from 2014 through 2017, fluctuating within a narrow range between approximately 18.4 billion and 19.3 billion US dollars. A notable increase occurred in 2018, where invested capital rose sharply to over 27.6 billion US dollars. This elevated level of capital investment was maintained into 2019, with a slight reduction to approximately 27.4 billion US dollars. These changes indicate a substantial expansion in capital employed by the company starting in 2018.

Economic Spread Ratio

The economic spread ratio, which reflects the difference between the return on invested capital and the cost of capital, follows a pattern similar to economic profit. It begins at a positive 1.06% in 2014, drops to a negative -1.95% in 2015, then marginally improves to 0.13% in 2016 and increases further to 0.82% in 2017. In 2018 and 2019, the ratio declines again into negative territory with values of -1.87% and -1.15% respectively. This negative spread in recent years could indicate that the company has been generating returns below the cost of its capital, leading to value destruction.

Summary

The financial data reveal a cyclical trend in profitability and efficiency of capital use from 2014 to 2019. After initial positive economic profit and spread, the company faced downturns in 2015 and again in 2018 and 2019, accompanied by negative returns on invested capital relative to its cost. Despite these challenges, invested capital was significantly increased in 2018, suggesting strategic investment or expansion initiatives. However, the negative economic profit and spread ratios in the last two years may signal difficulties in achieving adequate returns from these investments. Overall, the data suggest volatility in financial performance with recent concerns regarding value creation.

Economic Profit

The economic profit figures exhibit significant volatility throughout the analyzed periods. Starting with a positive value of 205,536 thousand US dollars in 2014, there is a sharp decline to a negative figure of -375,237 thousand in 2015. This is followed by a recovery to a marginally positive value of 24,156 thousand in 2016 and a further increase to 156,349 thousand in 2017. However, the economic profit declines sharply again in the subsequent years, reaching negative values of -516,491 thousand in 2018 and -314,016 thousand in 2019. This cyclical pattern indicates instability in generating economic profit over the observed periods.

Net Sales

Net sales demonstrate a generally downward trend from 2014 to 2017, decreasing from 17,909,600 thousand US dollars in 2014 to 15,619,800 thousand in 2017. There is a slight increase in 2018 to 15,740,400 thousand and a more pronounced rise in 2019, reaching 16,865,200 thousand. Despite the overall decline in the middle years, the recovery in sales towards the end of the period suggests some improvement or growth in sales volumes or pricing.

Economic Profit Margin

The economic profit margin follows a pattern consistent with the economic profit values, showing significant fluctuation and instability. It begins at 1.15% in 2014, drops to -2.13% in 2015, then recovers somewhat to 0.15% in 2016 and 1.00% in 2017. The margin decreases again to negative values of -3.28% in 2018 and -1.86% in 2019. These fluctuations underscore the challenges in maintaining a positive return on sales after accounting for the cost of capital.