GIS - General Mills, Inc.

Operator: Hello and welcome to the General Mills, Inc. Second Quarter Fiscal Year 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to turn the conference over to Jeff Siemon, Vice President, Relations and Corporate Finance. You may begin. Jeff Siemon: Thank you, Sarah, and hello to everyone. Thanks for joining us today for our Q&A session on our second quarter fiscal 2026 results. I hope everyone had time to review our press release, listen to our prepared remarks and view our presentation materials, which we made available this morning on our Investor Relations website. Please note that in our Q&A session, we may make forward-looking statements that are based on management's current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here today with Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Dana McNabb, Group President of North America Retail and North America Pet. Now let me turn it over to Jeff for some opening remarks. Jeffrey Harmening: Thanks, Jeff, and good morning, everybody. When we started this year, our primary goal was to increase organic sales, and to do that in conjunction with continuing to outperform on holistic margin management (HMM) and our transformation initiatives. And those are all reflected in our 3 priorities for the year. And as you look at our Q2 results, I'm pleased to say that we're really executing well against all of those. We continue to see improvement in our organic sales and continue to do that very efficiently through our HMM efforts and our transformation efforts. Jeffrey Harmening: In particular, I look at North America Retail (NAR). We said we would improve our North America Retail volumes through the remarkability framework, and that's exactly what we've done. And part of that is pricing. We set strategic base price adjustments on base pricing and to get under price cliffs. And 90-plus percent of what we've done in pricing that we started talking to you about a year ago has worked as well or better than what we had thought. So we're pleased with that. But Importantly, the remarkability framework doesn't just stop with pricing actions. Our new product innovation is better. We expect it to be up about 25% this year. We've got a good lineup in the second half. Our product news is really good. Our events have worked harder for us, and our media ROIs are up. And so as I think about our North America Retail business, it's not really an accident that we're growing pound share in 8 of our top 10 categories so far this year. And so I'm really pleased with the way North America has improved its momentum this year, in particular, how we've seen improved momentum in the second quarter. Jeffrey Harmening: Then on North America Pet, we said we had to do a couple of things. We need to improve our core business at the same time, incorporate Love Made Fresh. I know there's a lot of emphasis on Love Made Fresh and rightly so. But I'm pleased with our base business performance. As I look at our Life Protection Formula, we're back to share growth on that. Our Cat business is growing mid-single digits. We're up in pound share on our treats business. We have some more work to do on Wilderness. But otherwise, our Pet core business has gained a little momentum, too, and we're pleased with that. And so as we look at Love Made Fresh, I'm just exceptionally pleased with the way we've started. Jeffrey Harmening: We're executing very well. We said we'd be in about 5,000 coolers by the year-end. I heard yesterday morning that we're in 4,658. So we're well on our way to that 5,000, and we'll get there by the end of January. And our Love Made Fresh launch has reached about 5% market share and our earliest first wave customers. We prioritize having plenty of inventory across our business in Love Made Fresh, because we know the trial is so important for our business. 4.8 out of 5 star ratings on our products. We'll put on additional customers in distribution in the third quarter, as well as launch a new format of the standup resealable pouch. And then as we talk about HMM, we're tracking another 5% of HMM this year. Jeffrey Harmening: And so as we look to the second half, the job to do really is to keep the momentum on the top line, and we plan to do that as well as then turn the corner on profitability. And as we look ahead, we expect top line improvement in the second half and then profit growth in the fourth quarter, thanks in part to favorable trade timing and the 53rd week. So with that, I'll open it up to questions that you all have. Jeff Siemon: Great. Sarah, so let's go ahead, and you can start the Q&A. Operator: [Operator Instructions] Your first question comes from Peter Galbo with Bank of America. Peter Galbo: Jeff, I just wanted to pick up on maybe some of your commentary just now in terms of the sustainability of the volume growth in North America Retail. I think there was mention of a bit of maybe some shipment timing benefit in the quarter. But just want to get a sense as we start to look at the comps and looking in the back half of the year, how you're thinking about maybe the sustainability of that positive volume trajectory in North America Retail. Jeffrey Harmening: I've got Dana McNabb here next to me, so I'll have her talk about North America Retail specifically. Dana McNabb: All right. We're really encouraged by the progress that we've made in North America. As Jeff said, 8 of our 10 categories are growing pound share. Our pounds grew. But as you mentioned, we did have a little bit of shipment timing benefit. Our Nielsen pounds are about flat. And so we do expect that to unwind a little bit in the back half. So as we look to the second half of this year, we expect to continue to drive category improvement and competitiveness, which is really, I think, all we'll mention about back half to avoid giving any forward statements. Peter Galbo: Okay. No, helpful. And Jeff, I think the discussion around price cliff management and solving some of the price gaps has grown even louder in the past week with one of your largest peers also announcing some pretty dramatic price reductions. Just curious kind of how you're viewing the competitive environment, what you're expecting from some of your other peers? Just are we in a phase of the cycle where others are going to have to follow? Kind of what's been a first-mover advantage for General Mills? Jeffrey Harmening: Yes. I think it's a good question. What I would say is that we haven't really seen an increase thus far in the competitive levels within our category, which is to say that levels of discounting are about the same as they were a year ago, broadly speaking, across our categories. I think when you think about what we have done, there are a couple of things I would say. Going first is fine, but doing it well is even better. And our team has executed the pricing really well. If you think about being in 26 different categories across lots of different customers, it takes a lot to get the pricing reflected in a manner that is consistent with what you're looking for. And so we've done that really well. Jeffrey Harmening: But also, I mentioned the innovation and the marketing improvements and the product news, because those are really important too. The reason for the pricing is to make sure that the other elements of your marketing mix work as well as you want. And so as we look ahead, we feel great about the other elements of our marketing mix. And so we've got great product news coming in the second half. And as we think about it, we're not too concerned about the competitive environment based on what we've seen thus far. And importantly, on our pricing, we're not getting down to the levels of private label or something like that. We're just kind of getting under price cliffs and kind of getting within a certain range. And if you look at our price mix in North America Retail, it's down maybe about 3% or so far this year. That's after 30-plus percent increases over prior years where we had a lot of inflation. Operator: The next question comes from Andrew Lazar with Barclays. Andrew Lazar: Jeff, in your current quarter, so fiscal 3Q, General Mills starts to lap some of the pricing moves from last year. And I think you've talked about how you anticipate the sort of the gap between volume share, which has been improving, and value share, right, to begin to narrow, which is ultimately necessary to get to overall organic sales growth. So I guess my question is like what specifically should our expectations be in sort of fiscal 3Q and 4Q as to sort of how quickly this gap can narrow as we all kind of assess the scanner data moving forward? And like where would you hope to be on this score as General Mills enters fiscal '27? It sounds like you expect sustained year-over-year volume growth in the back half. How do we think about sort of price mix and particularly in light of your comments regarding the cost of volume rising a bit? Jeffrey Harmening: Yes, Andrew, I appreciate the question. I would start by saying, I mean, it's a pretty volatile environment. So I'm going to refrain from getting too specific only because there are a lot of things that can come our way. I didn't really see the government shutdown coming in the second quarter or SNAP being reduced. Having said that, we do expect improvement in the second half, and it will be based on price mix as we start to lap some of our initial pricing from last year, although it won't fully be reflected until fiscal '27. The other thing is just based on timing. I talked a little bit in my opening remarks about positive mix in the fourth quarter due to some trade phasing timing, and that will be positive in the fourth quarter. That will be a little bit negative in the third quarter. So there's a trade-off between those 2 quarters. As you look at entering the next fiscal year, I think we're going to see momentum on our core sales business. We feel good about where our pricing is and where the remarkability is kind of across our business, not only in North America Retail, but we grew in Pet this quarter, and Foodservice. But for index pricing, we would have grown 3% in our North America Foodservice business. We grew in international. Andrew Lazar: I know you're seeing some momentum, obviously, in progress in core Pet. I'm just curious what you're seeing in just the overall, let's call it, like dog feeding category. I know you've been probably hoping for that broader category to be a little bit stronger than it has been, but what are you seeing there in terms of consumer behavior? Dana McNabb: Andrew, this is Dana. I'll jump in and answer that question. If we look at the Pet category, what we'd say is the category was up about 1% in Q2. Pounds were down modestly. It continues to be cat feeding that is growing the fastest, and the treat segment has also gotten back to growth. What we're seeing in dog feeding is that it continues to lag a little bit on both pounds and dollars. And there's really 3 reasons for that. The first is that we do estimate that there's still a shift to unmeasured channels. That's about 50 basis points. We're seeing a shift towards smaller dogs, and that's weighing down pounds a bit as dogs that are smaller consume fewer pounds. And then also, we are seeing a little bit of pullback from consumers in discretionary segments such as wet dog food, which happens when the consumer is stretched. When we look to the long term, though, we still think that this is a segment that is going to continue to grow. The humanization trend will continue to accelerate that growth, and we think Blue is well positioned to win in the category. Operator: The next question comes from Max Gumport with BNP. Max Andrew Gumport: It's nice to see volumes turning positive in the quarter on the back of your investment in Retail and also to hear the continued confidence you have in this continuing in the back half. I guess what I'm trying to get a sense for is, one, if you have an update on your thinking on the ability for volumes to stay positive after you lap these price cuts? And then two, as you look at the investments you've got in the business through the first half, whether you think it's been enough, or you might go back to the well next year as well given that they are working. Dana McNabb: Well, as I think about the North America price investments, again, we are really pleased with the progress. We are seeing pounds improve. What we had said is that we are going to adjust prices on 2/3 of our portfolio, and that would be done by the end of Q2. And as we look at performance, almost 90% of where we've added that price investment is at or ahead of what we modeled. Of course, we'll continue to monitor the environment. If we think we need to add more, we'll consider it. But at this point, we believe that our price is at the right place where it needs to be. And again, it was about getting those prices at shelf to be at the right spot under key cliffs and manageable gaps to the competition. Dana McNabb: And now as we turn to the back half, it's about once your prices are in the right place, is the rest of your remarkability framework strong? And we really like our plans and how they're working when these prices are right. So as Jeff said, our new products are performing very well. We're on track to be up 25% versus last year. We have strong news. Our advertising content and ROIs are significantly improved, and they're up. And we have strong advanced plan to get good in-store and online support. So again, winning in the back half is not just about price, it is about remarkability, and I think we're well positioned to continue to improve. Max Andrew Gumport: Great. And then just one follow-up with regard to the over-delivery on profit in 2Q. So it sounds like you would say it's essentially going to unwind in 3Q given the timing benefits you laid out in the prepared remarks, versus consensus, you had about $0.08 of outperformance in the quarter. So would it be fair to say there could be $0.08 coming out of 3Q and EPS might be down, roughly speaking, 20% or so year-over-year? Kofi Bruce: Yes. I appreciate the question, and I will try to give you clarity. I think the underlying for us is that against our own internal expectations, we saw favorability due to the 3 factors I mentioned in my prepared remarks. North America saw supply chain favorability, primarily driven by inventory absorption in the quarter, stronger international performance on both top and the bottom line, a portion of which was timing related, and a modest, about 0.5 point of shipment timing benefit in NAR, which Dana covered earlier. We do expect all of those to reverse. So that favorability that we saw in the quarter against our expectations, we do expect to reverse in Q3. Operator: The next question comes from John Baumgartner with Mizuho. John Baumgartner: Maybe Jeff or Dana, in the prepared comments, you noted the inclination of consumers to buy more on promo. And I'm curious if you can elaborate on that. Just given the mention of the higher cost of volume, are you finding that you need to embed some wiggle room for larger promo to cater to that shopping dynamic? And I'm also curious, I guess, bigger picture, how you're seeing the balance between EDLP versus maybe a high-low strategy in this kind of an environment relative to past periods of economic weakness? Jeffrey Harmening: Let me start with that and then maybe turn it over to Dana for some commentary. But what I would say is that in general, we're seeing -- I mean, this is no surprise, I don't think, but continue to see consumer weakness, particularly for those making under $100,000 a year. Those in the kind of the middle and lower income range. We continue to see that consumer being stretched even as consumers in the higher end of the range are faring a lot better with the current stock market. And so that plays itself out in a few different ways. One is that people continue to eat at home quite a bit. So 86% or so of eating occasions are still at home and 14% away from home. We haven't really seen a change in that for a couple of quarters, but it's still at a very high level of eating at home. Jeffrey Harmening: We see people switching some categories. We see consumers switching where they purchase, switching channels and that kind of thing. But we also see it reflected in how much gets purchased on discount when we have it on display or what have you. And so we haven't really been displaying more. It's just that when -- what we see is that consumers, when there is a discount, we see them buying more because they're financially strained. Dana, anything you want to add to that? Dana McNabb: No, I would just reiterate that we continue to categorize the promo environment as being quite rational. As Jeff said, the frequency and the depth is similar to last quarter. It's similar to last year. We did see promo activity come up a little bit in November, but we think that's largely related to manufacturers reacting to some of the SNAP changes. Operator: The next question comes from Tom Palmer with JPMorgan. Thomas Palmer: First, just wanted to ask on inflation and tariff. Previously, 4% to 5% of COGS was the outlook. The bakery index pricing would suggest what costs are favorable and then maybe there was a small amount of tariff relief to consider. So just any update on that outlook and kind of maybe as we think about the back half of the year, if there's any sort of favorability. Kofi Bruce: Sure. So as a reminder, our original guidance included an expectation of about 1 to 2 points of additional headwind to base inflation of about 3%. Our base inflation forecast, despite puts and takes, remains roughly around that 3% mark. Tariffs certainly comfortably within that range. And as we look at kind of the phasing impact, I would just remind that our expectation was that we'd be able to mitigate some but not all of the tariffs with the tariff headwind within the year. And the tariff phasing was pretty minimal in Q1, stepped up in Q2, and we'd expect in the second half for that to step up a little further. So in aggregate, 3% base, we're still comfortable with the 1% to 2% guide on the tariff additional headwind. Jeff Siemon: Maybe, Tom, I'd just add, this is Jeff, that you also have to consider our coverage. And so we tend to be covered at least 6 to 9 months across some of our biggest inputs and wheat would be one of those. So while you see it play through in the sales line on our P&L, the cost line would be delayed. And so what you see from wheat prices being down in the short term is probably more going to impact '27 than it is '26 on the cost side. Thomas Palmer: Okay. And just a follow-up on international. I think in the first quarter, you called out a 3% timing benefit that you expected to unwind in the second quarter, and you kind of noted some timing headwinds in 2Q as well. I just wanted to confirm, were there incremental tailwinds? Kofi Bruce: Yes. Yes, certainly. And it is mostly the latter, to your question. Operator: The next question comes from Steve Powers with Deutsche Bank. Stephen Robert Powers: Jeff, pivoting back to Pet, you talked in your opening remarks about positive delivery against Love Made Fresh, but also progress on the base business. And I guess I'm curious as to what degree you think Love Made Fresh has, in some ways, contributed to that base business progress, even though it's still early. I guess any evidence as to whether you're seeing favorable interplay between the Fresh initiative and/or Blue Buffalo? Jeffrey Harmening: Yes. It's a good question and an important one. I would say we're still a little bit early to really know that, that's the case. I mean we're only 8 weeks into the launch and probably 5 weeks into advertising. So I think it's too early to see if the Love Made Fresh advertising, which, by the way, is really good, is going to rub off on the rest of the core. We may be able to tell you a little bit more after Q3 or Q4 once we get some more time in market. Jeffrey Harmening: So it wasn't really that. It was really kind of sharpening up our kind of go-to-market on Life Protection Formula and doing a really good job on the advertising on that and continuing to grow our Tiki Cat business, which we acquired 9 months ago, that's growing solidly. And then adding some more marketing to our Tastefuls line in Cat is doing really well and getting the price points right. It's really -- we probably use all the elements of the experience framework in Pet this quarter and saw a nice lift back to positive growth. Stephen Robert Powers: Fair enough. Kofi, if I could, just a little bit more in the back half. Just anything to call out in terms of how much HMM impact is yet to come? And any phasing considerations in terms of how that's likely to layer in 3Q versus 4Q? Kofi Bruce: Yes. Let me frame the comments just and kind of root them in our profit expectations for the back half, Q3, Q4. We do expect, as we've referenced earlier, continued organic sales improvement in the second half. And we, as a reminder, always expected our Q3 to be down just because of the overhang from our divestiture, the level of investment that we baked into the year behind the remarkability framework and in particular, getting value right in NAR, and then trade expense timing, which, as we've referenced before, is going to be a drag on the first 3 quarters of the year. Kofi Bruce: As you step into Q4, you have 2 big factors to keep in focus. We'll see about $100 million favorable tailwind from that trade expense timing due to the phasing impact of last year's investment and the 53rd week, which will also be a pretty significant tailwind. So together, those 2 items alone are about 30% profit growth in Q4. Operator: The next question comes from Megan Clapp with Morgan Stanley. Megan Christine Alexander: I wanted to ask about the higher cost of volume that you called out in the prepared remarks. And Kofi, I think in your prepared remarks, you talked about how you expect that to pressure margins in the third quarter. You obviously still reaffirm the full year guidance. So can you just help us understand how that's embedded into the full year outlook? Kofi Bruce: Sure. Let me answer it maybe in the context of where we left guidance. So you will probably note we left our annual guidance unchanged with effectively half of the year to go. That was a big part of the reason along with obviously the volatility that continues to hang about the sector, whether it's the tariffs, shutdown, SNAP benefits for challenges to the consumer environment and the consumer sentiment. So I think for us, as we look forward to the back half, the cost of volume and the pace of volume recovery are probably the 2 biggest determinant of where we land within that range. Megan Christine Alexander: Okay. That makes sense. And maybe just as a follow-up, last quarter, you talked about how your category pounds were lagging your full year expectations a bit driven by a few discrete categories. I was just curious if you could give us an update on how the category growth within the quarter trended? Jeff Siemon: So maybe I'll start. Just from a number standpoint, our category volumes in fiscal '25 for General Mills categories were flat. They were down about 1% in Q1. Cereal was one of those, which had seen a little bit more pressure. That improved to down about 0.5 point in Q2. So still not quite back to where they were in '25, but an improvement. Dana McNabb: Yes. I mean, as Jeff said, we did see categories improve, and we outperformed the categories. The one category that still lagged a little bit of our expectations was cereal. Cereal pounds are down about 3%. Typical historical, they're down in the down 1%, down 2% range. And the reason for the category being down is we're really seeing consumers move to more high-protein alternatives. So the good news for us is that as category leader, our plans are very focused on capturing those growth trends going into the back half. Dana McNabb: The 2 areas that we're probably the most excited about for the back half or if we look at our innovation, we are really leading there. Cheerios Protein is already a 0.9% share. That business is on track to be $100 million by the end of our fiscal year. And in Q2, Cheerios grew dollars and pounds for the first time in 3 years. And then if you look at the granola segment, which is what's driving growth in cereal right now, we have the biggest brand. We're the category leader, and it's growing double digits. But granola is only about 6% of our business. It's 12% of the category. So we're coming in January with 10 new granola SKUs, really great tasting products, really good nutrition benefits. Operator: The next question comes from Chris Carey with Wells Fargo Securities. Christopher Carey: Can you just expand a bit on the percentage of your portfolio where you've taken or initiated pricing investments? Just to get a sense of the percentage of portfolio where you haven't done it. And connected, say this cost to compete environment sustains or it gets worse. Can you just talk about visibility on savings initiatives that would give you an ability to respond? Dana McNabb: Well, that's a great question. If we think about our price investments, as we said, we were going to have 2/3 of our business have price investments and it would be completed with that investment by the end of Q2. And we're encouraged that in almost every case where we've made investments, we've seen the volume response that we are expecting. And those categories, to answer your question, were refrigerated dough, fruit snacks, salty snacks and soup. Dana McNabb: I'd also call out our snack bars, which pounds are down a little bit due to a key competitor comping a period of lower distribution, but the elasticities that we've seen on our snack bars are at or ahead of model. There is one business where we're still working on it, and that's Totino's Heart snacks, where you've seen our pound performance take a little bit of a step back. Now we are managing through a price pack architecture conversion from a bag to a box to improve our shelf visibility, and we're still working through that. Kofi Bruce: And then to your point about leverage and flexibility in the middle of the P&L, I would reiterate, we have really good visibility to HMM delivery at the 5% plus mark this year, and we are delivering every cent of the transformation savings we outlined at the beginning of the year. As we play forward, while I won't give you a specific guide on HMM for next year yet, we continue to remain confident in our ability to deliver at least above 4%. Christopher Carey: Okay. Just a quick follow-up is on Wilderness. Can you just expand on where we're at with Wilderness, the current strategy with Wilderness, and how you could envision potential tweaks? Dana McNabb: Yes, it's a really great question. If I look at our Q2 performance, it was similar to Q1, business is down, and we don't find that performance acceptable. What we know about Wilderness is the total product offering across all the levers of remarkability needs to be improved. So the team is really working on a new positioning. As we turn to the back half, we're going to be bringing protein new -- some strong protein first new products. We've got new comparative advertising that we'll be launching in the market, and we've got to improve our in-store execution. Operator: The next question comes from David Palmer with Evercore ISI. David Palmer: Down to one sort of big picture question. Fiscal '26, it's been about return to volume growth and understandable that would be step one. But I'm thinking about consensus expectations for some profit growth, particularly lapping the extra week as we look out in fiscal '27. I'm wondering maybe you could help us coach us how we should be reviewing your consumption data in North America Retail and Pet to really inform us about whether profit growth might be in the cards for fiscal '27? Kofi Bruce: Sure. I will start by just affirming we are pleased with the progress we've made on improving our growth trajectory. That work is not yet done. So it would be premature for me to get on record and start building too heavily for F '27. I think you're right to call out the 53rd week as a comparison factor that will definitely just be a built-in structural -- mathematical headwind next year. But beyond that and underlying, our expectations are to continue to build on momentum that we've started this year. We've got a touch point at CAGNY, and that's probably a better place for us to start having discussions about the road ahead. Operator: The next question comes from Matt Smith with Stifel. Matthew Smith: Dana, you talked about a high hit rate where you have the price adjustments and remarkability framework in place, I think, 90% or so. But there's obviously 10% that's still lagging your expectation. You talked about Totino's a bit, but is there a common thread that needs to be addressed around some of the areas where you've seen less effectiveness? Dana McNabb: I wouldn't say that there's a common thread. I mean it really is Totino's. Maybe a few SKUs in Old El Paso on our kits business. But for the most part, again, on the Totino's business, it's really about this conversion and price pack architecture. So the data isn't clean, and it's hard to see exactly how things are performing and diagnose it correctly. And I would say on that business, once we feel like we're through the conversion and we've got a better sense of the price investment, I really like the advertising that we've got going. We are talking about 10 rolls for $1. That's resonating really well. And we just launched our Ultimate Pizza line, which is this really great tasting pizza, probably the best we've launched maybe ever. Jeffrey Harmening: Yes. And I would just build on Dana's comments by just reinforcing the fact that 90-plus percent, as good or better than what we anticipated. I would take that kind of on any forecast, but particularly on something as important as these price adjustments that we have made. Accuracy on something this big and complicated and important over a period of time, I'm really thrilled with the work that the team has done. Matthew Smith: And as a follow-up question, as it relates to the channel shift you mentioned in Pet, it's been ongoing that consumers are moving towards unmeasured channels. But what channels are you currently seeing take share from traditional channels? Dana McNabb: It's a great question. The place that we're seeing the shift go to is definitely e-commerce. So Pet purchases over-index in the e-commerce channel, and that's the place where we're seeing the dollars go to. Operator: This concludes the question-and-answer session and we will conclude today's conference call. We thank you for joining. You may now disconnect.

Operator: Good morning, and welcome to General Mills' First Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Jeff Siemon, Vice President, Investor Relations and Corporate Finance. Thank you. Please go ahead. Jeff Siemon: Thank you, Julienne, and good morning, everyone. Thanks for joining us today for this Q&A session on our first quarter fiscal '26 results. I hope everyone had time to review our press release, listen to our prepared remarks and view our presentation materials, which we made available this morning on our Investor Relations website. It's important to note that in this Q&A session, we may make forward-looking statements that are based on management's current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements, and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here with Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Dana McNabb, Group President of North America Retail and North America Pet. Now let me turn it over to Jeff for some opening remarks. Jeff, go ahead. Jeffrey Harmening: Yes. Thanks, and good morning, everybody. Before we start the call today for questions, I'd just like to share a few thoughts summarizing some of our key messages. And I think it's pretty evident. There's a lot of change in the world, a lot of uncertainty. I mean the same could be said of the food category. And there's been a lot of change within our business as you unpack the first quarter results and the Yoplait divestiture, which we're executing well, as well our Whitebridge acquisition, which we're also executing well. So there's a lot of change. But what I want you to hear from me is that amidst all of this we are staying laser focused and clear on our strategy, which is returning to profitable organic growth as the best way to create value for our shareholders. And importantly, we are increasingly confident that our approach is working. And I'll take you back as a reminder to Q3 of last year, when we told you we're going to make some significant investments to address price cliffs and gaps. And we said we're going to do that on Pillsbury and Totino's, and we saw really good results. And that gave us more confidence. So that in Q3 of last year, we told you that we would expand that to the cereal category, as well as soup and fruit snacks. And again, we saw a pound share growth on that in line, or ahead of, what we expected. And so coming into this year, we had a heightened degree of confidence that our approach is working. And -- at the same time, while addressing price is important, I mean, especially in this environment where consumers are looking for value, it's not sufficient to generate long-term growth. And so coming this year, we also said we're going to invest significantly in innovation and new product news, new brand campaigns and renovation across all of our top categories. And then we're going to support this with industry-leading HMM cost savings and transformational benefits. And so the other question is, how is that playing out? And the reason we're increasingly confident is playing out the way we thought that it was. So, so far, so good. We strengthened our pound share in 8 of our top 10 categories and now we're holding pound share in Pet. And we're continuing strong competitiveness in foodservices. As you probably saw, we've increased our growth and competitiveness in international at the same time. On the P&L, we expect our profit results in Q1 will be pressured significantly by our increased investment profile, but also by the impact from the yogurt divestiture and a few phasing comparisons. And we think that will continue into Q2, but importantly, it will improve in the back half of this year, certainly in Q4, but throughout the back half of the year. So I want you to know, from my perspective, just stepping back, just a little bit, we're really encouraged by the early signs of improvements we're seeing. And we have great initiatives for Q2. I'm sure we'll talk about fresh pet food. But that's not the only thing. I mean, our new product volumes are already up 25%. We have some other good new products coming in the second quarter, also backed up by really strong plans in baking and soup, and the fall and winter are key seasons for that. And we plan to improve -- continue our positive momentum in foodservice and international. And so again, with Q1 now in the rearview mirror and in line with what we expected, and increased confidence, we reaffirmed our fiscal '26 guidance. So with that, Jeff, let's open it up for Q&A. Jeff Siemon: Great. Thanks, Julienne. I think we can go ahead with the first question. Thank you. Operator: [Operator Instructions] Our first question comes from Andrew Lazar from Barclays. Andrew Lazar: Jeff, maybe picking up on your comments. The ongoing debate in the food space, right, continues to be whether or not the current sort of challenging volume environment is more structural this time around than it has been in the past, or whether more of it is just a result of the significant pricing the industry was required to take combined with sort of a consumer that's under pressure? And I realize it's super early in your efforts. But as you've gotten some of the key price points in the right place and the other marketing levers can kind of start to work, as you said, you're starting to see some volume share improvement in a bunch of categories more recently. Yet I guess, if we look at NAR, right, volume did not yet improve sequentially from fiscal 4Q. So I guess what I'm wondering is, do you think recent results sort of support the thesis that while there are some external factors for the industry, maybe some of them are a little bit structural. There's still a lot more that in the industry's control and your control in terms of getting sort of volume back to bright? Jeffrey Harmening: Yes, Andrew, I think it's a really good question, a really fair question. And we believe it's largely in our control. I mean if you look at -- if you look at the last year or so, volumes in our category are about flat, which is about 50 basis points below what we've seen historically, but not too far behind. And -- and we -- there are a number of factors for that. Probably the most important, we believe, is that we saw in decades worth of inflation in a couple of years. And so consumers are still recovering that as wages have not yet caught up with all that inflation. And so we think that's the biggest driver. I mean GLP-1s has a -- we think, has had a small impact so far. And consumers seeking value and it stressed consumer may be a little bit. But again, it's a 50-point gap versus what we have seen historically. The bigger gap is actually on price/mix. And historically, we see some price and mix. But in this environment, we -- where the consumers are feeling the way they are, that's actually the more difficult piece rather than the volume piece. So volumes are pretty stable. And as we look at our year, we don't -- we need to be able to hold share in our categories to achieve the results we suggested for the year. But we don't need to gain massive amounts of share to hit the guidance that we already said and get back to flat, or a little bit of growth. And so we think it's mostly up to our control. Look, consumers their habits change over time, and we've been really good at changing with them. I'll give you an example, like I mentioned GLP-1s was a little bit of a headwind. But as a result of consumers looking for that, they want more protein. And there's a reason why Cheerios Protein is off to such a great start. Or Progresso Pitmaster, which is high-end protein is off to a really good start. We introduced Nature Valley creamy protein, and we like what we've seen with that so far. Or that our granola business is doing well. And so even though you can see something in a structure -- you can -- may say, is that a structural headwind, there are companies who are focused on the consumer, we are right now have means to seek opportunities in that, and that's what we're doing. Operator: Our next question comes from Robert Moskow from TD Cowen. Robert Moskow: So a couple of questions. One is, I just want to make sure I understand the path back to volume growth. Are you still expecting that to happen by fourth quarter of this year? And I'm trying to reconcile. So if your category volume is flat, but you're holding or gaining share in 8 out of 10 categories, why is your volume reported down negative one? It would seem just optically that you would be a little bit above category volume growth, not a little bit below? That's my question. Jeffrey Harmening: Yes. So let me -- let me have Dana McNabb take that math question from you, which is probably an important one. Dana McNabb: All right. Well, Rob, thanks for the question. It is true what you're saying in terms of our volume. But if you look at our top 10 categories, the volume improved by about 1 point in Q1 versus Q4. The total didn't, and that is because flower and desserts were down, and they significantly over-indexed on pounds, not on dollars. What's important, I think, is that where we're putting the price investments, we're encouraged in almost every case that we're getting the volume response we expected. And this is particularly on categories in Q1 like refrigerated dough, on fruit snacks, on salty snacks. And I'd also call out our snack bars. Even though we're comping in a period where our competitor lost distribution, the elasticities we've seen on the investments are at, or ahead, of model. So we, again, are feeling very confident that these investments are working. Now there's a few places where we still have work to do. Our Totino's business, volume was down a little bit in Q1, but we are in the middle of a price pack architecture change right now, where we're moving from a bag to a box. And so we need a little time to sort through that. And then, of course, our Cereal business, we did see an improvement, second consecutive quarter of pound share growth. Really good momentum behind Cheerios protein, our granola business up double digits. Our Cinnamon Toast Crunch business, when you get remarkability right, and have great advertising and great product news, it works. But the pounds in that category were down. Our performance was still down, and we have a little more work to do. But again, what we're encouraged is that in our top 10 categories, pounds have improved. And we believe our plans get better each quarter through the year. Jeff Siemon: Maybe, Rob, I'd just add one more point. If you get beyond North America Retail, we did see a shipment timing headwind in Pets to the tune of about 4 points. That's worth a little bit -- almost a full point to the company, about a little bit more than 0.5 point to the company. So that also weighed on total company pounds in the quarter. Operator: Our next question comes from Leah Jordan from Goldman Sachs. Leah Jordan: Just if you could provide more detail on your trends in dog food. I guess what can you attribute the slowdown in wilderness to? And how are you thinking about your ability to drive an improvement there? And then I was just also curious, on trends on pet treats, just excluding Whitebridge acquisition there, just given the discretionary nature? Dana McNabb: Yes. So if I think about -- thanks for the question, our BLUE Pet business, our core pet business, our results in Q1 were generally in line with where we were last year. We held our pound share in Q1. Our dollar share is down just a little bit, about 15 basis points. In terms of what is working, we're really encouraged by our BLUE Life Protection Formula business. This is our biggest business. It grew dollars and pounds. We have the value right. We have really good comparative advertising and strong in-store execution. Our cat feeding business is actually doing really well. So BLUE Tasteful, mid-single-digit growth. Again, we have a really good taste preference claim, and the kibble and gravy new product. That's working well for us. And then our Tiki Cat retail sales, they were up double digits. We've got good nutrition, a science formula that's launched on across different cat life stages, really good omnichannel excellence. So these big businesses are working really well for us. And then our Treats business, that has been a challenge, that inflected to some positive volume growth in Q1. So there are some things that we're really encouraged are working well on our BLUE business. The two areas that you rightly referenced that we need to see improvement on our Wilderness business. In this business, we have to improve our total product proposition. So we're coming with protein news and new products, comparative advertising, stronger in-store execution, we have to get better there, and we believe our plans are much stronger this year, but again, more work to do. And then our pet specialty channel continued to be a challenge. And this year, we're bringing Edgard & Cooper. So that's the super premium business that we had in Europe. We're launching an exclusive partnership with PetSmart, and that's already in market in Q1, and our turns are in line, or a little bit ahead of expectations. So there's a lot that we like about our pet business that's working. And two areas that we know we need to get better, and we're encouraged by the plans that we have in place. Leah Jordan: That's very helpful. And then I just wanted to step back and I have a higher-level question. There just seems to be a bigger debate around the industry scale versus complexity, and what's the right balance? I mean -- and you guys, you sound confident in the plan that you're putting forward today, but you've been battling a number of fronts over the last few quarters. So just maybe how do you think about what's the right balance? And as you go through driving better remarkability across your portfolio, what have been advantages, or disadvantages, with your portfolio mix today? Jeffrey Harmening: Yes, Thank you. The -- well, I'm going to turn the question a little on its side. So which is to say the most important thing is to focus on the consumers, and what they're looking for, and what they want, and then delivering that to them. And whether that's through better advertising, or product news, or new products, or whatever the case may be. That is the most important thing. Whether you're in one category or 15, that's the most important thing to do. Scale has some advantages for us. It's allowed us to invest in our capabilities like digital technology, digitizing our supply chain and SRM, and doing bundling consumer offerings across categories of stores, especially in the fall and back-to-school are really important for us. So we do see some scale advantages from that. Especially working across categories. When we kind of understand the consumer, I think more deeply than many others can, who are only in one category because we see the consumer from many different angles. Having said that, we've never been a believer in scale just for the sake of scale. And I don't think that just because you have scale it automatically accrues benefits. You have to be able to have to use the scale that you have to advantage and to make sure you're -- through all of the complexity that you have that you're staying focused on what the consumer wants in that particular occasion and that particular demand space, if you will. Operator: Our next question comes from David Palmer from Evercore ISI. David Palmer: Thanks for the great commentary in the prepared remarks. It looks like you continue to expect very strong growth from innovation and contribution to growth from innovation, but it also looks like there's a little bit more of an elongated timetable of the price promotion investments stretching into the second half of fiscal '26, perhaps more than you might have thought a few months ago. Perhaps where are the biggest changes in your reality when it comes to certain categories where the price promotions or investments are sticking around a little longer? And perhaps what are the categories where you're, perhaps, seeing what you would hope to see where you can, perhaps, get a little bit more balanced with price versus volume? And I have a quick follow-up. Dana McNabb: Thank you for the question. I think I'll start first with the price investment. And I think it's important to understand that initially, as Jeff said in his opening remarks, last year when we knew we had to improve value for the consumer, we had to move fast. And so the way we did that was we adjusted depth and frequency of promotion. And we are encouraged by the positive response that we saw. And as we shifted to this fiscal year, our focus has been on adjusting our base shelf price. Trying to get below key cliffs, or to make sure that we have a gap that's manageable to the competition. We need to do this across 2/3 of our portfolio, and we got the majority of that done in Q1, and again, results are ahead of what we expected. And we saw really good results on bars, on fruit snack, on salty snacks. We will complete the remainder of the base price adjustments in Q2, and that's going to make sure that we have the right market leading execution on our baking and on our soup season. And all of this gives us a guidance that we're on the right track. But as you pointed out, when you started the question, price is just one element of remarkability. Once we get the price rate, we're really focused on elevating our work on new products. We're moving from about 3.5% of net sales on new products to 5%. We feel really encouraged about the performance that we're seeing on things like Cheerios Protein, our Mott's bars. We have a lot of really good new products coming through the remainder of the year. And this just gives us confidence that this focus on remarkability and getting the total proposition right is the right thing to do. David Palmer: Great. And then just a follow-up on pet. You mentioned the 5,000 coolers going into initially some -- a big competitor out there, as well over 30,000. What -- how does that work where you get past this first step? I mean is it in the plans that this will continue to ramp? Or are you digesting this first sleeve of coolers, seeing how it goes, and will modulate the growth from there? And I'll pass it on. Dana McNabb: Well, we are excited to be moving from the planning phase of the fresh launch to the execution phase. And the plant production has started up really well. Our initial products are looking really strong. And as you mentioned, we're in the middle of installing coolers as we speak. So we'll have 1,000 coolers in place by the end of this month. 5,000 coolers by the end of our fiscal Q2. And our plan is to ramp up that distribution into the next calendar year in 2026. So again, so far, everything is going really well. We are encouraged by what we're feeling with cooler distribution. And I should remind you that we have over 50 years experience in the refrigerated channel. When you think about our Pillsbury business and our yogurt business, and so we feel like we have a very strong product and a measured plan for getting coolers that will increase. And again, we're feeling very good about this launch right now. Operator: Our next question comes from Matt Smith from Stifel. Matthew Smith: Kofi and Jeff. Kofi, I wanted to talk about the margin performance in the quarter, it was above your expectations. Can you provide a little more detail on the gross margin composition? I believe you called out the international timing benefit was about 3 points of that segment's net sales, or is that like 50 basis points to the overall company? And then how we should think about the phasing of inflation investment through the year from here? Kofi Bruce: Sure. Sure. I appreciate the question, Matt. So I think as you rightly pointed out, we did flag that our profit performance in the quarter was a little bit better than expected on operating profit and EPS. Some of that coming through gross margin. The first factor, probably in a slightly heavier measure, was that our inflation phasing was a little bit lighter than we expected in the quarter. Probably closer to 2%, a little bit below the annual run rate of 3% that's sitting in our annual guidance. So that factor first, followed by the trade expense timing benefit in international, which would put it at about $20 million on the top and the bottom line. We expect both of these to kind of unwind largely in Q2. So given that these are timing-related items, as we see them unwind in Q2, I'd expect our operating profit to be down more in Q2 than in Q1. And I expect that, that doesn't change our outlook for the sort of first half aggregate profit looking roughly in line with Q4 of fiscal '25. We do think, kind of just as we look at the Q2 profit decline, it's important to think the supply chain phasing costs on inflation. I'd expect Q2 to be a little bit higher, probably maybe even above the annual run rate as we step into some of the inflationary pressure plus some inflation, or some inventory absorption headwinds. It's important to note we won't have any contributions from yogurt in the quarter as well. This quarter, we had 1 month of sales and profit in our results from the recently divested U.S. yogurt business. We'll start to see normalization of our comp and incentive comp benefits in Q2. And obviously, the international trade expense timing benefits will unwind. So there is a bit of a transitory effect here, both on margin and profit growth as you think about how to digest this. Matthew Smith: And as a follow-up, you called out the trade expense phasing in North America retail was about a point of drag in the first quarter. Is that similar as we get into the second quarter, and then normalize as we get into the second half? Kofi Bruce: Yes. You have it largely right. I would expect it to be a big drag in Q1 -- in Q2 as we're comping last year where we had Q1 and Q2 was effectively no trade expense. So it was a benefit relative to the other quarters in last year. And modest headwind in Q3 last year, and a huge headwind in Q4. So we expect those comps to turn favorable as we step into Q3, modestly and then a pretty significant tailwind in Q4. Operator: Our next question comes from Michael Lavery from Piper Sandler. Michael Lavery: Can you touch on what categories or brands drove the household penetration gains? And maybe how broad that was? And how much you feel like was driven maybe by pricing adjustments versus innovation or other factors? Dana McNabb: Thanks for the question. As you stated, we did see our household penetration grow overall for NAR the first time since fiscal '22, really encouraged by that result. In terms of where we saw penetration improvement, we saw it on bars, on fruit snacks, on salty snacks, on our Cereal business. And we do believe that getting our price value, and again, this is about getting below key clicks on the shelf, making sure we have manageable gaps relative to the competition that was a driver of that penetration improvement. But also it's not a coincidence that where we had a great remarkability approach, where we had good advertising, really good new product innovation, or product quality, price pack architecture, that is where we saw the best results. We called out in the presentation, Cinnamon Toast Crunch is a really good example. Really good product news, great advertising. We have the price right on that business, and we gained pad dollar share and penetration. So again, we still have more work to do, but we believe that we are on the right track with these investments, and we're confident in what we're seeing so far. Michael Lavery: Okay. That's helpful. And I just wanted to follow up on some of the comments in the prepared remarks around demand planning. I think it can be maybe an underappreciated challenge. But it sounds like you've got improvement there. Can you maybe elaborate on kind of how that worked and what some of the benefits are? And it's maybe a little surprising the human touch seems unhelpful. Can you just kind of bring that to life a little bit? Jeffrey Harmening: So let me take that one a little bit, Michael. The -- I would start by saying, I mean, we have a phenomenal supply chain as you well know. I mean during COVID we showed that, we continue to show it. We showed it in the Q1 this year, whether it's productivity, or service, or low cost. I mean our supply chain is fantastic, and we've got a great marketing team, too. And over time, our forecasting has been pretty good. It's just taken us a lot to get to an accurate forecast. And so what you see us doing now is that we're having -- we were using AI and leveraging technology to get to good forecasting much more efficiently. And the importance of that then is it frees up our marketing team to do better demand generation. And I think that's why you're seeing some of these better ideas that we're talking about right now. Because our marketers are having more time doing marketing than forecasting. And then our supply chain people, they're not double checking numbers that people give and spending all their times and meetings looking at forecast. They're just trying to figure out, okay, making the right stuff, at the right time, in the right place. And you see our waste elimination improve. And so really what we wanted to highlight that it seems small, but it's actually quite large, and it's a great way for technology to enable a little bit better accuracy, but a lot more efficiency. And that frees up the talented people we have. We have a really talented team, really talented people to do what they do best. And that's what we wanted to highlight in this particular case. Operator: Our next question comes from Alexia Howard from Bernstein. Alexia Howard: Can I ask about your efforts on reformulation? You're obviously ahead of the game on the elimination of the artificial dyes, getting rid of those by next summer. But there are other state-level legislations that have been approved, for example, in Texas, I think there's something that's already been ratified by the governor. It's gone through, that's about 44 additive. So it's a broader list. First of all, I guess, as you've gone through your remarkable efforts with some of these brands, are the ingredient list and additives coming up as concerns for some group of consumers? And is that something that you're working through the portfolio to actively drive out, not just the dyes, but maybe other additives that people are concerned about? Or are you going to wait until the regulations and the legislation settles, which could be a year or 2 down the line, and then you'll do it once everything is very, very clear? Just trying to get a sense for how aggressively you're going after that, or whether it's really not something beyond the artificial dyes that you're focused on at the moment? Jeffrey Harmening: Yes, Alexia, I would start by saying we're always -- we always do our best when we follow what the consumers are looking for. And that's kind of our North Star and why we have this remarkability framework. And as you know, 10 years ago, we took some certified colors out of tricks and that didn't work so well here in the U.S. By the way, it worked really well in Canada. And Canadian's moms loved it. It didn't work as well here. And that's because consumers in the U.S. weren't quite ready for it yet. 10 years later, the reason why we made the commitments we have is that consumers are more ready for this. An increasing number of consumers don't want to certify colors in some of their food. And so that's why we look to remove those. And we have better technology now than we did 10 years ago. And we can get customers what they want. Whether it's the colors they want, or the shapes they want it, the texture, or what have you. And so that's why we're undertaking our efforts. When it comes to the regulatory environment, I'll start with a couple of things. One is that, I mean, we've been around for 160 years, and now getting global federal and state regulation for more than a century. And so I have high confidence we can do that now. When it comes to things like colors, I mean, 98% of our K-12 school offerings don't have certified colors now, and 85% of our retail doesn't. So we're talking about a relatively small sample. What I will say without commenting on any particular state is that there are a lot of state regulations being brought up now. And I think there's a challenge in that. And it's a challenge really for consumers because there's a cost associated with trying to do something state by state, rather than a federal level. And ultimately, consumers will pay the cost for that. As well as confusion, how can something be good in one state and not good in another state? And so the -- we've always been a believer working at a federal level, working with health and human services as we have been, working with the FDA and the USDA to work on federal legislation and regulation that really makes sense for consumers. And we believe that's the best approach that we have right now. And so we're confident we can navigate this environment. We're making really good changes, really good progress. And -- but I think there's a challenge for the whole industry with a state-by-state approach. And it's certainly not just our challenge. And ultimately, I think it's better if we can get to something that's consistent on a federal level. Alexia Howard: Great. As a quick follow-up, you mentioned that the pace of innovation is stepping up, I think, 25%, I believe that was in North America Retail. Are you able to say what percentage of sales are now coming from new products introduced over the last year, or over the last 3 years? Where are you at in absolute terms on that front? Jeffrey Harmening: Yes, I'm glad you asked. Really, I'm really proud of the way our entire team is innovating. And we're at about -- we're roughly 5% of new products coming from new product innovation where we were at 3.5% a year ago. But I think there are a couple of important things that lie beyond that, which I want you to know. First, it's not that we're introducing more things. Its that really that what we're introducing, we think, has our bigger and better ideas with more staying power, which is not only good for this year, but in years to come. And that's true in North America retail. When you look at Cheerios Protein, for example, some of the granolas that we are bringing to market. Some of the Mott's fruit snacks that we're bringing to market, really good new product innovation. It's true in our pet food business, bringing fresh pet food to the market and investing behind that. It's true in international, where I mean, look, we grew Haagen-Dazs retail double digits in China in the first quarter. And the reason we did that was because we introduced stick bars. And so now we're taking that all over China, and it's really working well. And in foodservice. We have -- we -- again, we picked up share in foodservice have continued great momentum there behind some biscuit innovation. And so what I'm pleased with is not just one part of the company that's innovating better. We have all of the segments innovating better and by better, I mean I think bigger more on consumer trend ideas, and we're supporting those with investment. And so that's what's exciting to me. Operator: Our next question comes from Megan Clapps from Morgan Stanley. Megan Christine Alexander: I have a quick follow-up and then another question for Kofi, if that's okay. So the first is just following up on some of the earlier line of questioning. Jeff, I think you mentioned you don't need massive share gains to hit the guide. But based on some of the things I think Dana mentioned later, it sounds to me like maybe some category trends are softer than you expected. So could you just clarify how category performance has evolved thus far year-to-date relative to your initial expectations? And whether we need to see improvement in areas like cereal, for instance, to deliver on the guide? And just related as well, since you brought it up, Jeff, can you maybe just expand a little bit on the GLP-1 comment in terms of what you're seeing in the data that you track? Jeffrey Harmening: Okay. I'm going to try to get to all your questions. You have a lot of good ones.If I miss one, that's because I just forgot. But I would say that the year so far has played out as we thought it would and the consumer environment is what we thought it would be. In terms of how our progress looks in Nielsen, our top 10 -- our top 10 categories in North America retail are about a point better than what we expected. And so -- it's when you get beyond that like Flower and Betty Crocker desserts and things like that, where you see a little bit softer. And look for those key baking season starts in September. So we'll see when the weather gets colder. But the -- but our top 10 are performing at or a little bit better, actually a little bit better than what we anticipated. So I would say broadly, consumer sentiment is what we anticipated. The growth in our categories is about what we anticipated. And certainly, our performance within those categories, growing share in our and foodservice and international are holding. That is kind of what we anticipated. So I would say so far so good as kind of as we expected. With the GLP-1s, there's been some impact on our categories but not significant yet. I would expect GLP-1 usage will continue to grow. Everything I read says that it will continue to grow. And -- and with that comes to reduced calories, clearly for those who are using GLP-1s. But also there's opportunity because we know that people taking those medications. We know a couple of things. One is that they are looking for more protein because people tend to lose muscle mass when they they're reducing their calories and they need more macro nutrients, things like fiber. And things like breakfast cereal are high-end. That's why Cheerios Protein, I think, is doing so well. It's good in protein. It's high-end fiber. By the way oats is also high in fiber. And so even though a macro trend that GLP-1 usage that we think will continue, and we'll put some macro pressure on some categories over time. There's also a lot of opportunity in that. And I want you to make sure that you hear that for us as well. And -- and one of the things we're introducing a lot of new products that we think will meet this demand. So we feel good about that. Megan Christine Alexander: Great. That's super helpful. And then just a follow-up for Kofi as we think about pet phasing into the second quarter just because there seems to be a lot of puts and takes. Can you just help us understand a little bit what these -- how to frame these puts and takes? Just to keep in mind, there was lumpiness in 2Q last year. Wildernesses may be a bit softer. You also have the fresh pet launch. I also think maybe the shipment headwind was a bit bigger in the first quarter than you had talked about last quarter. So just with all those things in mind, if you could just help us think about how to frame phasing in 2Q, that would be helpful. Kofi Bruce: Sure. I think it's fair to say we expected the shipment timing issue at Q4. It might be modestly larger than we expected. We're not expecting a change to the overall outlook for the year, and I'm not going to get in the business of making quarterly predictions on pet just because I've failed at that multiple times. There is some volatility quarter-to-quarter in that business just inherently in shipment timing. I think broadly, you have the contours right. We will start to see a modest contribution in revenue as we ramp up behind shipments on fresh pet. I think we're expecting some modest improvement as we step into Q2 and then into the back half of the year. Operator: Our last question will come from Peter Galbo from Bank of America. Peter Galbo: Kofi, maybe just one clarification. I think you said based on the puts and takes on Q2 operating profit in the first half of this year would be down kind of similar to Q4. I think that lands Q2 operating profit down like 25-ish percent, but I just wanted to make sure that my math on that was correct? Kofi Bruce: Yes. I think your math largely works. Peter Galbo: Okay. Super. And Jeff, maybe just a broader question, and this probably goes back to Andrew's first question. Dana spent a lot of time talking about getting below certain price cliffs, driving value. And I guess what we haven't really talked about is your competition, not so much on the shelf at retail, but the away-from-home channel is getting a lot sharper in terms of price points, in terms of trying to drive value in their messaging and even in the pricing that they're charging. Whether it's $5 boxes, $8 boxes. Just -- is the industry, or is the retail packaged food industry, adapting fast enough in your mind to be able to compete effectively against away from home that, again, seems to be much more focused on driving a value price point? And whether you've noticed just any share shift there that's become more pronounced as we've gotten just a plethora of kind of these offerings? Jeffrey Harmening: Yes. The -- as far as speaking for the -- I probably won't speak for the whole packaged food industry, but I would like us to go faster rather than slower. But I would say that the -- if I look at away-from-home eating, just the traffic has been pretty -- has been quite stable and despite all the efforts of quick-serve restaurants and all. The traffic has been stable over time. And if you look at it, what the trends that we see here that low- and middle-income consumers are -- traffic is declining, in what we call the commercial channel or restaurants, and high-income consumers, call it, $200,000 or more a year is growing. And so it nets out to flat. And the challenge that, that particular portion of the business has with the value meals is that the inflation is growing faster than food at home. And quite a bit faster than food at home, driven by labor. And so even though you may see a lot of advertising about value deals and so forth, just note the traffic in commercial remains very flat. There is growth in the noncommercial channel, which is where General Mills over indexes in its food service business. And so we're very well positioned to capture the growth there. In the noncommercial, I mean, things like K-12 schools, and hospitality, and business, and industry where people are going back to work. And those channels are growing about 2% or so, and we're gaining share. And so any growth you would see would really be in that place, and we're very well positioned through our foodservice business to take advantage of that growth. And we are. And that's one of the reasons why you see our food service business continue to perform well. Jeff Siemon: Okay, Julienne, I think we'll have to wrap it up there. Thanks, everyone, for the good questions and the good engagement. And the IR team is available all day for follow-ups. We look forward to talking to you next quarter. Thanks. Operator: Ladies and gentlemen, this concludes today's conference call. 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Operator: Good morning, and welcome to General Mills' Fourth Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Jeff Siemon, Vice President of Investor Relations and Corporate Finance. Please go ahead. Jeff Siemon: Thank you, Julienne, and good morning to everyone. Thanks for joining us today for our Q&A session on our fourth quarter fiscal '25 results. I hope everyone had time to review our press release, listen to our prepared remarks and view our presentation materials, which we made available this morning on our Investor Relations website. Please note that in this morning's Q&A session, we may make forward-looking statements that are based on management's current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here today with Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Dana McNabb, Group President of North America Retail and North America Pet. Before we open for questions, I'm going to hand it over to Jeff Harmening for a few opening remarks. Jeffrey Harmening: Yes. Thanks, Jeff. And I thought I'd start this morning, there's a lot going on up and down our P&L within our business and then certainly a lot going on in the broader world. So I thought I'd just take a couple of minutes to summarize what we're trying to accomplish. The first and most important thing is really returning to volume growth, specifically in NAR, and we're really encouraged by what we've seen. We started to invest in value in Q3 of last year with Pillsbury and Totino's topped by really good advertising. And we like the results of that so much that we decided that we'd expand the value of investments we made in soup and cereal and fruit snacks in the fourth quarter. And we saw the results there that we expected. And so as we go into this year, we're kind of just continuing the formula that we had in the fourth quarter, which is we said to expand some of the value investments on targeted businesses that we saw, but also, really importantly, backing that up by a significant consumer news. In fact, I think our new product news and our core renovation news is the best that I have seen since I've been a CEO. And we use our remarkable experience framework. We talked a lot about these in our prepared remarks. Certainly, our launch into fresh pet food, all the protein innovation we've seen the NAR portfolio, renovating Häagen-Dazs stick bars and so forth gives us confidence that we can get our business back to the kind of growth we're looking for. Importantly, as we're doing all this work in NAR, we did see share growth in our international businesses this past year as well as foodservice and health care and pet. And so that gives us a lot of confidence. We're backing up all of this investment with record levels of holistic margin management and also productivity initiatives. So we're not sitting still on that front. But we know that it's an investment year, but we're very confident that these investments will pay off given what we've seen over the last couple of quarters. So with that, let's open the floor to questions. Jeff Siemon: Great. Julienne, you can go ahead. Operator: [Operator Instructions] Our first question comes from Ken Goldman from JPMorgan. Kenneth Goldman: It's certainly exciting to see Blue go national from a refrigerated standpoint. One of the things you had talked about previously in the past, to paraphrase is you were always, I think, confident in the revenue opportunity. It was a little more on the margin and cash story that was less tested. So I'm trying to get a better sense, if possible, if something has changed or you've learned a little bit more about the margin potential there. And then as the corollary to that, just trying to get a little bit of sense for your merchandising strategy for that, just given the obviously limited shelf space for that particular category. Jeffrey Harmening: Yes. So let me talk a little bit about this is, Jeff. Let me talk a little bit about the past. And Dana, if you have any follow-on comments to follow on a little bit about our marketing plans. But the -- we're very excited about this launch, this big national launch. We learned a couple of important things within our last test market. One was that the Blue Buffalo brand really resonated. The second, we can make great products. So our repeat rates were really good. I mean, we had dogs standing in front of refrigerators because they were so excited to eat this stuff. So we know that, that works. What we didn't -- because we launched regionally, we really didn't have the scale to market the way we need it to, to generate trial. And so as we go into this national launch, this gives us the opportunity to launch at scale. You asked about the financials. We have learned a lot, and it's been many years since we tried that test. And we've actually been studying the market ever since. And one of the things we've grown quite a bit more comfortable with is that, over time, I mean, this investment will take a couple of years in generating trial. That's the most important job to do. But having done that and achieve this scale, we are confident that we can build a profitable and growing business. If we weren't, we wouldn't get involved in this endeavor. But it will take a little bit of investment, but we believe that we have the right activities to do it. Dana, do you want to give any insights into that? Dana McNabb: Yes. Well, as you said, the learning really helped us to build a stronger consumer proposition, and we really think that we have a path to an attractive financial model for a fresh business at scale. What we are coming with is launching Love Made Fresh nationally. It will be in all 50 states. We have a wide variety of formats and flavors to drive appeal, and these formats have been designed for maximum flexibility. And why that's important is we know that 80% of pet parents who fresh, they use it with other food formats. So they'll top it, they'll mix it. They'll sometimes use it on its our own. And then 55% of those users, they want to use kibble and fresh from the same brand. So we're really confident that Blue Buffalo has the right to win here, that we've got a unique proposition. As Jeff said, we have improved our go-to-market approach, and we're committed to investing in building quality trial and awareness. We have had really strong reception from retailers. And as we come to market, we're going to be the biggest pet brand that's across dry, across wet, treats and fresh. So we're still early days, but we're excited to share more about this launch as we get closer to the date. Operator: Our next question comes from Andrew Lazar from Barclays. Andrew Lazar: Great. Jeff, I think the level of reinvestment plan for fiscal '26 is certainly deeper, right, than most than anticipated. And I understand the organic top line growth priority and the investment behind fresh. My question is, how do you ensure that the margin profile that comes with this reinvestment is being done in a sort of responsible way, rather than giving up too much margin that may be tougher to ultimately rebuild? I guess, are there certain aspects of the reinvestment that maybe you see as one-off or temporary in nature that give you confidence that you can rebuild this margin in a reasonable time frame versus being maybe at a structurally lower level sort of going forward, if you will? Kofi Bruce: Sure. Andrew, this is Kofi, and thanks for the question. Let me give you just a few thoughts. I think we see a few of the factors. There's certainly a lot going on underneath the hood, and we provided -- firm on that detail in the prepared remarks. But underneath the hood, there are a couple of factors that we would see as maybe more temporary in nature. First is, as Jeff alluded to, the fresh investment, while a multiyear investment, we would expect that once we build scale and we'll be at a point of profitability and return on that investment. Second, as we think about the nature of tariffs, we expect to be able to mitigate some of the effects of tariffs, but not all within the year. So that will put a little bit of drag from a timing perspective. But again, not something that we see as structural necessarily long term. And then third, just a reminder that on the divestiture of Yoplait, we expect there to be a little bit of a stranded cost drag as we are getting at some of the costs and eliminating some of those costs this year, but we'll have a tail end in fiscal '27. So those are the factors that I think are important to take in, even as you measure what is an important and significant investment behind getting growth restarted. Operator: Our next question comes from Q - Peter Galbo from Bank of America. Peter Galbo: Maybe just a quick clarification and then a question. Kofi, I think on Pet specifically in Q4, you talked about the inventory build at retail that you're expecting to reverse. So is that a full reversal in Q1? I just want to kind of understand the magnitude there. And then, Jeff, like, there's been obviously a lot of lumpiness, I think, in the reported figures on Pet. So maybe you can just give us a broader sense from your prepared remarks on just the state of underlying Pet and how you're thinking about the different verticals within that just, again, given some of the lumpiness that we've seen quarter-to-quarter. Jeffrey Harmening: Yes. Thanks for the question. You asked Kofi the first one and me the second, but I'm going to take one for the team here and answer both of those. The -- as we look at inventory levels, first, our inventory levels in Pet are in good place, kind of broadly speaking. As we look throughout all of last year, there was relatively any -- very little movement as you look across here in our levels of inventory at retail for our Pet Food business. Our Pet Food business since we bought it has really had a lot more lumpiness, as your term, and the levels of retail inventory, and that's really largely due to the fact that it has a high proportion of e-commerce sales, which tend to be more volatile than to things going through grocery stores and mass merchants and so forth. And so I would expect that the lumpiness quarter-to-quarter will continue. And to the extent we will reverse in the next quarter or not, maybe. And we just want to be transparent about last quarter and that we saw 3 points of inventory build last quarter as we head into this quarter. And whether that will dissipate at the end of this quarter or not, we'll see. One thing I have decided to do is to not predict what's going to happen with Pet inventory from quarter-to-quarter, having been fooled a couple of times. So it's a fair question, but I want you to know there's -- our inventory is in a good place, both on our Retail business, our Human Food business and our Pet Food business. And there's always going to be some level of variability as we go quarter-to-quarter. Peter Galbo: Great. Jeff, and just anything on the underlying Pet kind of performance, how you're... Jeffrey Harmening: Yes, sorry. I get so excited about that answer, yes. The -- what -- I'm really encouraged that we got our Pet business back to stability. And we grew it a little bit this past year, and our share held. And some of the things we've done have really worked well. Like, the advertising on Life Protection Formula has worked well. Our Cat business is back to mid-single-digit growth. And the cat population is growing, so that's important. We've integrated Tiki Cat effectively, and that's growing well. Edgard & Cooper is growing well in Europe. We're bringing back that to the U.S. So we have a lot of things that are working really well. I think, pointed in the right direction, our marketing is quite good in the Pet Food business now. There's some things we still have to work on. Wilderness improved, but it's not all the way back to bright. And certainly, our Treats business would be the same. But I like the direction of travel of our Pet Food business, even without this launch of Fresh Pet Food. And it's important because our goal this year is to grow the core of our Blue Buffalo business and add this new fresh launch on top of that. And we're encouraged by what we see. There's still more work to do. But we've gone from a business that had declined the prior year to one that we grew a little bit. And now we're looking to build on the successes and continue to work on the things that aren't working exactly the way that we had thought. Operator: Our next question comes from Q - Peter Grom from UBS. Peter Grom: I was just hoping to get an understanding on just kind of the organic revenue phasing for the year, just in the context of the down 1% to plus 1% and kind of starting off, I think, in kind of this down 3% range. So just curious how you're thinking about the phasing of growth as we move through the year. And I guess, specifically, do you expect to see a return to growth at some point in time? And then just related in the prepared remarks, you outlined an expectation for category growth to be similar. And not to get too specific, are you simply assuming what we're seeing today continues? Or do you expect to see some sequential improvement, but where you win for the year ultimately is similar to what we saw in '25? Kofi Bruce: Yes. So I think it's important to note that as we exit this year, we had about 2 points of trade expense phasing in our organic sales number as we exit the quarter. So as you think about kind of the setup for next year, we will have trade expense phasing comps as we work our way through the first half of the year. And obviously, as we've made investments in the second half of this year, those comps will ease. So I would expect that to be reflected in the progression of our top line. So I think that's a critical point. And then the second is, as we think about categories, we are laser-focused on what we can control, which is our competitiveness. So we're not counting on a significant rebound in categories as we work our way through the year. Operator: Our next question comes from Chris Carey from Wells Fargo. Christopher Carey: I think kind of a holistic question and more of a quantitative follow-up. From a more holistic side, you're probably the most intentional when it comes to pricing reinvestments in the space. And I think it's really a couple of questions related to that. First, what are you seeing from a competitive response to some of these early actions? And then secondly, how do you ensure that this isn't a race to the bottom with branded competitors or private label? And then the more quantitative question is, in the context of really strong HMM, 5%, you've got the incremental $100 million of savings, but obviously, like substantial pricing reinvestments. Can you just frame kind of like gross margins versus SG&A, how you see those line up -- stacking up through the year? Jeffrey Harmening: Let me take the first part of that question. And then when it comes to margin versus SG&A, I'll pass it on to Kofi, and he can tackle that. On the pricing, it's a really good question, and I appreciate it. The things -- I think there are a couple of things to keep in mind is that the first is that even in the fourth quarter, as we looked at our price/mix, it was down 3% in North America Retail and down 1% as an enterprise. And we talk about pricing actions. And was it going to be race to the bottom? It's not going to be a race to the bottom. And the order of magnitude is about that much. We're also investing a lot in advertising this coming year on new products and all the rest. So it's not just about pricing. It's about investment and making sure that we get trial on all of our good marketing initiatives. The other is that in every category, it is not as if we are leading pricing actions down across the board. We're taking targeting actions in specific categories. I've talked about this before, but just to really give another example. For example, in Pet Food, we were over a price cliff on our wet pet food, and we got under that price cliff back in line with competition. And -- but we didn't have any pricing action on Life Protection Formula because that was in a good place. The -- and the same with our Cat Food business. And so as you -- as we look across our categories, the axis really are targeted to specific items, specific areas and specific categories and, really, just to get us back in the zone of where our marketing is going to be effective. And so our brands are generally premium brands, and they should be because we've got great brands. But the marketing works really well when the price is kind of in the zone. And kind of getting that in the zone is the first step. But even more important than that really is that once having done that, how good is our marketing, how good are our new products, how good is our core news, and that's what we're really excited about because it's that combination of getting the pricing in, but then also making sure that your marketing is great on top of that, that's going to lead to better outcome. And we saw that with Pillsbury. We saw that with Totino's. We're confident we'll see that with many of our other businesses as we head into this year. In fact, we already have. I mean, if you look at North America Retail, it's just -- we're just 3 weeks into the year, but I think about 80% of our North America Retail business is gaining pound share already in this quarter. Kofi Bruce: And then on your question on SG&A, we would expect SG&A to grow a little faster than our top line as a result of reinvestment, a portion of the reinvestment going back into increased media behind our fresh pet launch and certainly behind our brands and innovation in North America Retail. In addition, just as a reminder, the incentive reset will be a big drag as you look at the corporate unallocated line in SG&A. So those factors will be the primary drivers of the increase. Jeff Siemon: I'll just add. This is A - Jeff Siemon. I had one clarification. As Jeff said, our price/mix in the quarter North America Retail and Nielsen was down about 3 points. And for the quarter at the company level, excluding the trade timing, price/mix was down 1%. So I think that was the point, down 3% in total, 2% of that was trade timing. So excluding trade timing, price/mix was down about 1% in the quarter. Operator: Our next question comes from Q - Robert Moskow from TD Cowen. Robert Moskow: Jeff, I wanted to know if you think pricing can get back into positive territory at some point during the course of the year. It's hard to get the algorithm to work without having some pricing power to some degree. So maybe you could talk about your philosophy in that regard. And then secondly, I wanted to ask about the assumptions on how big the Fresh business can get in Pet. When you started working on this, the category was probably growing at around 25%, but our channel checks indicate that it's more like 12% to 13% now, including DTC. So does that have any impact on your expectations for how big this business can get longer term? Jeffrey Harmening: Yes. So Rob, a couple of answers to those really, really important questions. Look, I'm about to tell you things I know that you already know because you've been doing this a long time as I have, but over the long term, to get an algorithm to work in the food space, what you need is about half your growth from volume and half your growth from pricing. I mean, you get pricing and mix and all that. So you need both of those things over time. There's a period of time when we saw record in -- there's a dog in the background. I'm sure thing he's being fed Blue Buffalo. He is probably asking for Blue Buffalo. The -- but if you look over time, you need a mix of price/mix and volume. We saw when we had record inflation for a period of about 3 years, all we had was pricing, and there was no volume. Now we're a little bit of a period where there's a lot more volume than there is price/mix given the consumer sentiment kind of where we are. But over time, those things seem to level out. So you're right. Over the course of time, to get the P&L to really work the way you want it to, you need a mix of pricing and you need a mix of price/mix and a little bit of volume as well. But this is a period where we're going to lean more on volume just as we did more on price/mix when we had record inflation a few years ago. And so you're right, but we're in a period of time where we know what we need to do. In terms of what comes next and tariffs and inflation, I mean, your guess is kind of as good as mine. I mean, what's going to happen without -- we're not really sure. I mean, all of our options are still open as to how we deal with the inflation we see in front of us. If inflation continues to pick up, then, yes, we go to productivity, HMM and all those things, but we have a great strategic revenue management toolkit. And so we'll be very willing to work with that as well to the extent that we need to. And so -- but it's a pretty unpredictable environment right now. So we're not really sure how that's going to play out. But know that we're agile enough with enough of the capabilities to make that work. Your second question about Fresh Pet Food, you talked about the growth rates and how they've slowed to 12%, I might add, and how we think about that. The first, I would say, vis-a-vis where we started looking at Fresh Pet Food a few years ago, the category is like twice the size. So the pool of the -- or the pond in which we'll be fishing in will be about twice the size as it was a few years ago. So that would be the starting point, which gives us reason to believe that our fresh offering has a chance to be a really big offering. And growing 12% is nothing to sneeze at. And the continuation of humanization of pets is an ongoing trend. It's a 20-year trend. And it manifests itself in a lot of different ways versus how treating works, to wanting natural pet food, which Blue Buffalo serves, wanting fresh offerings, which we're about to get into. And so we're confident that this humanization of pet food is going to continue, especially because it's particularly relevant among Gen Z and millennial consumers. And so as they form households more and more and they buy pets, we're confident that this trend will continue. Dana McNabb: And the only thing I'd add to that is that the Fresh segment is a $3 billion segment now. And our data indicates it will be $10 billion in 10 years. And so there's still significant growth in this segment to get. We believe Blue Buffalo has a right to win here, and it can help spur on that category growth. Operator: Our next question comes from Q - David Palmer from Evercore ISI. David Palmer: First, a quick one and a clarification off of a line in Slide #38. You said category growth below long-term expectations and similar to fiscal '25, reflecting lower price/mix. What was your category growth all in for fiscal '25? And I asked that because it looks like, lately, the category growth on a weighted basis for mills would be over 2% lately, just looking at the MULO+ data, which would be in line with your algo. So it looks like the -- hearteningly, the categories that you're in are doing pretty well. So just curious about what sort of category growth assumptions you are seeing. Jeff Siemon: Dave, it's A - Jeff Siemon. Yes, that references our global growth exposure, kind of take our categories and geographies combined. And yes, in the U.S. human food, I'd say our categories are a little bit shy of maybe where we would expect our long-term growth to be, with volume in line and price/mix not quite maybe to the level that we would have expected normally based on our go-forward category mix. Pet category-wise is growing, but modestly less than what we would expect long term. Maybe it's about 1% today. We'd expect 3-plus percent long term. And then some of our international categories, China, in particular, and even Europe growing a bit less, China down, and Europe maybe a bit less than long term. So when you take that in aggregate, that was the remark about overall category growth across our enterprise being a bit below where we would expect long term, that 2% to 3% growth rate. David Palmer: So if we were to kind of keep it simple and thinking about your business in terms of getting your sales trends in line or better than your categories, '26 versus '25, for all of us look -- trying to think about whether -- how you're thinking about the must get rights for this year, what categories and brands perhaps will get the most improved awards? What are going to be those? It looks like from your slides, you have a lot in snacks, Totino's, maybe even cereal. You mentioned Pets on firmer footing. But what are really going to be the must get rights from a total sales perspective that you're looking for improvement into '26? Jeffrey Harmening: Yes. So let me take that. I'm kind of looking for improvement across the board, to be honest with you. The -- and I think we can get there because our marketing is better. Our new products are better. Our value is going to be in the right place. And I mean, we win when our biggest, most important categories get better. And so as you look across our global brands and our local gems, that's where we would expect to see the improvement. I mean, you can't really get the growth you're kind of looking at by growing your small businesses really well. You really need to grow your biggest, most important business as well. That's where I would expect to see improvement, but I would also expect it to see it broad-based. And I think we have the initiatives to back that up. And we're -- we feel good about the start of the year, and we'll see how it progresses. But so far, I would say that, importantly, what we have to do is grow in line with our categories. We think if we do our job right, we can hopefully get our categories to grow a little faster, but we're not counting on that. What we're counting on is just being more competitive within our categories. But because we're the leader in so many categories, to the extent that our marketing efforts really stick well, hopefully, we can drive a little bit more improvement in category growth as well, but we're not counting on that. Operator: Our next question comes from Q - Scott Marks from Jefferies. Scott Marks: I have 2 quick ones. The first, I guess, on the innovation front. I guess, we saw a lot of products that are putting protein front and center. So just wondering how those are performing thus far in kind of initial launches and markets where you're getting into. And then secondly, on the price investment front. We've heard some of your competitors speak to investing around key events and key seasons as opposed to more kind of steady-state investment. So just wondering how you're thinking about that and whether you see different consumer responses throughout the year at different points in time. Dana McNabb: Yes. So I think from a new product standpoint or a news standpoint, you're absolutely right. Protein is a trend that people are really looking for right now. We see mid-single-digit growth across the grocery store from protein items. And while I'm biased, we make protein taste incredibly good. So what you're going to see in the plan coming this year is almost $100 million worth of ideas. We have really strong protein across most of our big categories. I'll use Cheerios Protein as an example. That's only been in the marketplace for 6 months and has far exceeded our expectations. So we are bringing new SKUs into the marketplace starting now. So we really believe that this is a trend that is here to stay and that we are well positioned to win with this trend. So that is how we're thinking about new products. Scott Marks: And then price, steady state versus kind of seasonal. Dana McNabb: Right. I mean, as Jeff has said, the plan for this year is really to make sure that we have really the right price value and a very strong news, innovation and advertising across the entire year. But we also know that when the consumer is struggling, parents won't sacrifice spending in the season. They want their families to have a good Halloween or a good Valentine. And so we will make sure that we are leveraging seasons where appropriate. We have about 50% more seasonal innovation in our plan this year. And I think that will be important to complement the innovation and news that we have throughout the entire 52 weeks. Operator: Our next question comes from Max Gumport from BNP Paribas. Max Andrew Gumport: You're clearly stepping up your investment posture as you're prioritizing turning volumes positive. And it's nice to see that in the platforms that you started investing earlier like refrigerated dough and Totino's and dog food. You're seeing that improved volume performance. The question is, though, taking refrigerated dough as an example, the improved volume, it is not outpacing the price decline. So even though refrigerated dough is a great example of the place where you've turned volumes positive, dollar sales really are still struggling at least in the Nielsen data we're looking at. And given the midpoint of your guidance calls for flat organic sales growth, I'm trying to get a sense for what's giving you the confidence that in these -- as you roll out these investments more fully, you'll see a more favorable relationship between volume and price. Jeffrey Harmening: Yes. So you're right, Max. The fact that our volumes have increased ahead and our volume shares have increased ahead of our dollar share is certainly true, and it's something that we expected and something that we had modeled. In fact, the modeling that we did has turned out to be very, very accurate to what has actually transpired. But the modeling doesn't always -- didn't just end with how you invest in price. The -- what we would expect is that over the course of the first half of this coming year that our volume shares will outpace our dollar shares for the very reasons that you talked about. That's why, though, it's so important that as we get into the second half of the year, particularly the fourth quarter, but starting in the second half of the year, that we keep our marketing investment up, that we've improved our new product profile. Our new products are up 25%. That would be our expectation in North America Retail and 30% overall as a company. And why we have more core news because once we lap the pricing, our assumption is that our dollar shares would then begin to grow. And that really happens when you get your investments in the right zone on value. But then when you add on top of that, really good marketing, which we have. And so the first half of the year, we would expect that our volume growth will outpace our value growth, our sales growth and -- but then, that will start to reverse as we continue to invest in new product marketing and great advertising and core business news. Max Andrew Gumport: Great. And your guidance, it is clearly embedding a pretty big step-up in investment spend in FY '26. And it feels like a portion of that is around the national expansion into Fresh Pet Food. Is there's any way you could quantify just how much investment is going behind that national expansion into Fresh Pet Food? And I'll leave it there. Jeffrey Harmening: It's a fair question, but we're going to pass on that for now. Just know that it's another test market. It's a national launch, and we fully intend to make pet parents aware of this launch with our marketing investment. We're going to spend the money required to get the trial because we know the repeat is going to be really good. And so we're not going to give a number on that, but just know that it's important to get the trial. And that really comes with good marketing, but significant levels of marketing investment. Operator: Our last question today will come from Q - Michael Lavery from Piper Sandler. Michael Lavery: Two quick ones. Maybe just following up on the launch spending comment. Can you give a sense of how you evaluate and balance organic innovation versus acquiring a Fresh Pet business? And obviously, the consideration set is extremely limited to acquire. But how do you just think about which is the better way to go? Or what drove you to come back after a test a couple of years ago to launch now? Jeffrey Harmening: Yes. The -- look, in general, the ways to grow your own brands organically, to buy -- and to grow through M&A, which we've also done successfully or use equities that other people have, to enter categories that we have with -- and cereal, for example, on the -- for protein. And we've done all 3 of those things effectively. And so as we think about what profile it will take, we ask ourselves, do we have the right to win to do this organically? And with Blue Buffalo, the answer is a resounding yes. We found that out during the first phase of the trial. The second is, do we have the capabilities in order to win? And we've been doing refrigerated products since like the beginning of time, I think since the '50s. And so this idea of getting refrigerated, we know how to run a refrigerated network. And so we certainly know how to do that. And then we look at the investment profile and do we think we have the investment profile to be able to enter a category successfully. And in this case, we think we do. And so we -- that's what we evaluate as we look at all of our growth opportunities. We'd like to be able to grow organically. That's the most important thing for us to do, but we're really pleased that we think we have an offering in this case that will be significant, that will be innovative, that ties really well with the Blue equity. But in other areas, you've seen us do M&A over time because we felt like we needed to enter a category like we did with Blue Buffalo originally and thrilled that we did that. Michael Lavery: That's helpful. And can I just come back to one other comment you said about hoping for improvement across the board? Where does salty snacks fit into that? It didn't really get much mentioned. I know it's a smaller piece of the portfolio, but is that just more challenged because of a discretionary component or some reason that it isn't maybe getting some of the same investments? Or how does that just fit into your thinking and strategy for the year? Dana McNabb: Yes. So thanks for the question. What I would say for snacks broadly overall in a tough economic environment, we see that it's a bit more of a discretionary spend. And so our categories and our businesses have had a tougher time this year. And the onus us is really to do what Jeff talked about, which is to get our value proposition right across all our snacks portfolio and then make sure that we have the best marketing new products and news to make sure that we're worth it for the consumers to buy. From a salty snack standpoint, it didn't have a great year this year because we just had undersized participation in some of the largest growth trends. So what's working in salty snacks right now is really bold flavors, having the right value sizes and then, of course, making sure that you use that news to ground merchandising and display. And I think we're all really excited about the salty plans that are coming this year. We renovated 3 of our top flavors, significantly increasing flavor intensity. We have spicy innovation coming, think spicy dill and Chex mix and hot-and-spicy Chex mix, and we've got a partnership with TABASCO and Bugles. We've got value coming in tubs for Chex. So we just got really good salty innovation. And I think you'll see our performance improve significantly in the upcoming fiscal year. Jeff Siemon: Okay. I think we're going to go ahead and wrap there. Appreciate the time and attention. And as always, we'll be available for follow-up calls today. Julienne, I'll pass it back to you. Operator: This concludes today's conference call. You may now disconnect.

Operator: Good morning, and welcome to General Mills' Third Quarter Fiscal 2025 Earnings Conference Call. All participants are in a listen-only mode. After the speakers' remarks, we will conduct a question-and-answer session [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the call over to Jeff Siemon, Vice President of Investor Relations and Corporate Finance. Please go ahead. Jeff Siemon : Thank you, Julianne, and good morning. Thanks to everyone for joining us today for our Q&A session on our third quarter fiscal '25 results. I hope you all had time to review our press release, listen to our prepared remarks and view our presentation materials, which were made available this morning on our Investor Relations website. Please note that in our Q&A session, we may make forward-looking statements that are based on management's current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here with Jeff Harmening, our Chairman and CEO and Kofi Bruce, our CFO. So let's go ahead and get to the first question. Julianne, can you please get us started? Operator: [Operator Instructions] Our first question comes from Andrew Lazar from Barclays. Andrew Lazar: Great. Thanks so much. Good morning, everybody. Jeff, you mentioned in the prepared remarks the sharp focus right on accelerating organic growth as you move into fiscal '26. And you highlight the at least 5% HMM savings, the additional $100 million in cost saves on top of this. And I think you've said previously you plan to reinvest the 53rd week as well. So I guess my question is, with the sizable step up in investment planned for fiscal 4Q, how do we think about the incremental investment that you think is needed for fiscal '26 beyond what you're already doing in the fourth quarter this year? And in thinking about those investments, I guess, what does the balance of spend look like or the mix between work that still needs to be done on price points specifically versus, let's say, innovation, in-store activity and media expense? Jeff Harmening: Yes. Thank you, Andrew. Really, really fair question. Let me give you a couple of pieces of context and then answer your question more because I think the context is important. The first is that coming into this year, we thought the consumer environment would improve as the year got on and that hasn't really been the case. And consumers are still seeking value as much or more than they had when our fiscal year began. And if you look at the most recent confidence indices, it would indicate the consumer confidence is actually below where it was three months ago and about where it was in 2008. And so the situation we find ourselves in is different than we thought the one coming into the year. And so consumers are seeking value. You see that in the categories they're pursuing in many, many ways. The other thing I would tell you as we think about our investment going forward, we've kind of looked at what's worked for us over the last year. And when you look at Blue Buffalo, we were having a similar conversation a year ago and we sharpened our price points. We got really focused on the things that mattered. We improved our marketing, our new products and we've gotten a place where we're competing effectively on Blue Buffalo. The same would be the case on Pillsbury. So we talked about last quarter what we need to do. And yes, we sharpened our focus there on value, but also we have good new products there and our marketing is really good. And the focus on value actually allowed our marketing to work better. The same would be true of Totino's. Again, we've got the value in line and our marketing is really good on Totino's. And so as we look at those things or how we're competing with Haagen-Dazs globally, we know that getting the value in the right zone and that adding on top of that really good innovation and more improved marketing is the way to go. So that's the context. As you look at our fiscal fourth quarter, obviously, we're stepping up investment. We're investing some more in pricing, particularly in the fruit snacks area where consumers are really looking for value. That's very clear. But also we're stepping up our marketing double digits. And we're doing that on some of our biggest brands. We think our marketing is really good. You'll see that on Blue Buffalo, you'll see that on Pillsbury, you'll see that in Cereal. And so as we - so that as we look at next year, it'll be a year of reinvestment for us and it'll be a combination of getting our value right. The place where you'll see that the most is in snacking, particularly fruit snacks and no need to wait until fiscal '26. So we started in the fourth quarter. The same with - so that's where the - as we look at pricing for next year. The other is that on pricing is we're lapping a lot of pricing we've done in the back half of this year into the first half of next year. But in terms of kind of incremental activity, we need to take on value that fruits snacks is the incremental value. Beyond that though, we're going to improve our marketing on our core as we've done in some of the categories I've told you more broadly. We're going to increase our marketing spend and we have some really good new products coming in the first half of next year. In fact, part of the investment we're making in the fourth quarter is the R&D resources to the admin necessary to get those products to market as well as the supply chain. And so what we're looking at next year is to reinvest our HMM savings, to reinvest in the 53rd week as well as these efficiencies to get back to growth. That is the job to do. The rest of our P&L looks great and it will look even better once we get back to growth. And my expectation is that our competitiveness will improve starting in the fourth quarter with the actions we've taken and we'll look to carry that over into the first quarter, second quarter, third and fourth of next year. Operator: Our next question comes from Ken Goldman from JPMorgan. Ken Goldman: Hi, thank you. Just to build on Andrew's question, I was hoping we could run through a quick very broad exercise of kind of the tailwinds and headwinds into next year, just on a general basis, not looking at any numbers. And I'm wondering if I'm missing anything here. So as I think about the tailwinds, you've talked about a little more trade, better marketing in general that should help volume. Innovation, your tone is great there. Maybe you have some easier laps from some of the trade destocks. Obviously, you have a little more HMM maybe and you have those new cost efficiencies you talked about. And then as I think about the headwind side, excuse me, obviously a little more trade than what you initially expected, although you talked about some easier laps there, some investments in brand communication, maybe a bit more slotting than you have tariffs, stock-based comp, Yoplait dilution. I'm running through these very quickly obviously and I'm putting you on the spot, but is there anything obvious that I'm missing there? Because honestly you talked about how your job is to get back to growth. It seems that those headwinds are a little stronger than the tailwinds and that's kind of what we're hearing from the buy-side today. So I really wanted to push a little bit on that if I could. Kofi Bruce: Okay. And I think broadly you've actually got almost elements, we want you to be tracking. I think Yoplait, obviously, we don't know exactly when that's going to close. That will be a significant probably about 5-point headwind that we want to make sure you have visibility to. We flagged that at CAGNY. It's starting 5-point headwind on profit. I think you've got kind of the texture of the rest of this. There'll be some annualization impact from the investments we've made this year that are important to factor in. And we are building flexibility just in terms of our posture for next year for additional investment. I think, we're very committed to getting the job done on improving growth trends both in the categories and our own competitiveness. So, to the extent that we go into next year, we want to make sure we have flexibility to do that. So I think we'll obviously give you a little bit more perspective on where the commercial investments are going, as we step into our Q4 and give guidance. I think you have the fence post about right though. Operator: Our next question comes from David Palmer from Evercore ISI. David Palmer : Thanks and thanks for those comments on innovation. I wanted to follow-up on that. I've seen some data that in general in the food space there's been less innovation that the innovation in the category in general packaged food has not really recovered to pre COVID levels. It's been slow to essentially ramp back up. You're certainly ramping up innovation heading into fiscal 2026. I wonder if you could sort of characterize for us the level of innovation activity into 2026 and how it will compare to 2025 and maybe you sound optimistic about it like what are the ways you're changing the types of innovation, the messages that you think will work perhaps better per activity and marketing dollar next year? Jeff Harmening: Yes, David, good questions. I will give you as much context as I can without giving away exactly what we're going to be doing. First, you're right in that new product innovation kind of as a percentage of sales is still lagging where it was pre-pandemic. That's also true for us, although we're up significantly in our new product innovation as a percentage of sales this year than we were last year. So we are up, but still below where we were pre-pandemic. I hope that's clear. It's clear in my mind when I say it. I hope it's clear to those listening on the line. As we look at next year, I think there are two things that we need to do. The first is that the types of innovation we have, we probably need to support more robustly. And so we've had some good new product innovation like Cheerios Protein. We just talked about Pitmaster and what we've done with Old El Paso and soup. And we've got stick bars coming in Asia and in Europe that are really good. Nature Valley Granola protein is off to an amazing start. So we need to - we've got some good new product innovation. I think we can probably do a better job even just supporting those a little bit more, which we intend to do. And then I think the theme for next year is probably going to be fewer, but bigger. And we have a few big innovations that we'll talk about in June that I would love to talk about now, but we're not going to, that are going to come in the first half of next year, in addition to kind of some of the things we already talked about. And so fewer and bigger, I guess, would be and then making sure we support well the good ideas that we have and we have some good ideas. Operator: Our next question comes from Michael Lavery from Piper Sandler. Michael Lavery: Thank you. Good morning. Just looking at you called out value and price gaps quite a bit and obviously that's a focus. Looking at Dough and Totino's where you kind of had the test cases already, it's maybe a little harder on Totino's to see how much it's coming through because it looks like it picked up kind of later in the quarter or into 4Q. But Dough had sales growth up, I think, around 4% with volumes up around 8%. I guess maybe in those categories, how do you -- how did you or do you understand or figure out what the right price adjustments are? And then really how does that translate more broadly? I guess the kind of endpoint of the question is, how do you know that as you've got your - it sounds like your '26 plans are broadly set, How do you know the price investments you're anticipating are enough? And how do you think about just you said maybe you can be nimble there. Is that part of how you plan for it as well? Jeff Harmening: Yes. So you mentioned – talked about the call, which were refrigerated Dough and Totino's. You also have Blue Buffalo into that mix of things that we have executed well and open some price points and but also improved our marketing. And that's the other piece of it is getting the marketing right, whether it's new product innovation and marketing behind that or marketing behind the core, which is also important. And so as we look at that, the new piece, we're looking at the same price, but we've got great brands. And so when we talk about that value piece, really it's kind of getting in the zone of and price differentials and that sort of thing. So it doesn't mean we have to price equally to everybody else. We just have to get into a zone in which our pricing is going to work. And then we have to consider all the elements of our marketing mix, and we use the remarkable experience framework to do that. And we kind of go category by category to say, what are the thing where are we good? Where are we missing elements? And then we go by that and we use that throughout the entire company. And so I'm confident as we head into the fourth quarter and then the fiscal '26, we have a much better handle category by category what jobs need to be done. And in some cases that's value, in some cases that's marketing on the core, in some cases that's innovation and fruits snacks is probably all three of those things. And so that's the way we look at it and we have confidence, because we've done it several times now, some big businesses, Blue Buffalo, Totino's and Pillsbury, they're all $1 billion-plus brands and we've done it effectively there. We just need to make sure -- we the job to do now is expand that to the rest of our portfolio, which we have been working on, which will start to manifest itself in Q4. In fact, I would expect our Cereal business to come back in Q4 and I would expect our soup business as well to show improvement in Q4 as we get the marketing in a good place and as we the value is also in a good place. Michael Lavery: That's great color. Would it be fair to assume that that evaluation exercise that you talked about, have you completed that across the company or is there still some brands or categories that maybe under review, so to speak? Jeff Harmening: We have completed that across the company and which has led to some of the improvements that you've seen so far. Some things take longer than others, and that's the work won't begin has already begun, and you'll see that in the fourth quarter and we'll bleed into next year. So you'll see that in next year as well. But also, I would also say it's an always on kind of capability because context changes and the environment around those changes. And so one of the things -- yes, I feel good that we kind of understand brand by brand and what we need to do. But I also know that the context changes, and we have to be agile enough to change with the world around us. And so I also know that. Operator: Next question comes from Alexia Howard from Bernstein. Alexia Howard: Can I start with -- come back to snacks. As I think about previous economic slowdowns like the financial crisis and so on, that seem to do okay as a sort of feel good treat at a low ticket price. And they didn't seem to be behaving in previous cycles with this value seeking discretionary problem that we seem to have today. So what's different this time around? And could this accelerated uptake of GLP-1 drugs, for example, or increasing consumer concerns about the healthiness of indulgent snacks, be another part of the issue here. I'm just wondering what data you're looking at to really get at the root of what's driving the category weakness? Jeff Harmening: Let me give you a couple of thoughts. And as we look across kind of salty snacks, grain snacks and fruit snacks kind of quarter-on-quarter, there's about a negative gap on the category between what was happening before and what is happening now. And our view is that a lot of that has to do with consumer confidence. I mean, yes, GLP-1 use is increasing. It's about 10% of the adult population now about 5% or so used for weight loss, which is up significantly from the year before, but it didn't change that much quarter-to-quarter. And we've also seen the same kind of activity in dog treats. And to my knowledge, there is not GLP-1s for dog treats. And so I don't think that -- even though we take the GLP-1 kind of trend seriously, and as you see, we have a lot of protein coming in our new products and macro nutrients and fiber are going to be important and portion size and lower sugar and all that, that's really not what we see in this environment. As to why we see the slowdown, you're right, in past recession like in 2008, we didn't see this. Our view would be is that food at home is now elevated vis-a-vis what it was in 2008. And so it's elevated vis-a-vis what it was in pre-pandemic. And so pre-pandemic food-at-home consumption was about 83% of occasions, is now 87% and has been 87% for a long time. And so what has changed is that in price increase like we're experiencing now with consumer confidence, we had a lower percentage of people eating at home, and that increased as they got more anxious. That level is already increased. And so that really hasn't changed much. And so our belief is that consumers have become much more value conscious not only determines what happens in category, but also have what happens in the rest of the stores. So if you look at the rest of the grocery store, you would see that things that are staples are the ones that are growing faster than things that are more discretionary. And so staples like baking staples, for example. And some of the items on the perimeter. Those are growing faster because they produce more value. And the same would be true of why restaurant occasions are down slightly. We think it's much more about value now, and that's the biggest is the aging indication versus of what we saw in the past recession. Operator: Our next question comes from Peter Galbo from Bank of America. Peter Galbo: Jeff, just a couple of questions. If we can dig in a little bit more on the snacks business. The first would just be around fruit snacks. I'm assuming when you're talking about kind of the value piece of it, you're talking more math relative to Gushers. I think you had like actually expanded Gutters capacity about a year ago. So I just wanted to clarify on that. And then the second piece is just if you can expand a bit more on the remediation plans, I guess, in snack bars, you have a competitor who was off shelf and is now back on shelf. And maybe salty as well, just maybe in the same level detail that you provided around fruit snacks would be super helpful. Jeff Harmening: Yes. So let me start with fruit snacks a little bit. You're right. I mean Gushers capacity came back up in Q2, and we feel good about the trajectory of that business. When we look at the category, the fruit snacks category is down. And part of that is part of that discretionary which we talked about, but we haven't distinguished ourselves on the share front either. And there are a couple of big players -- a couple of our big retailers introduced private label during that period. And so there's no question that the job to do on fruit snacks is one of making sure our values in the range, but also then getting back to innovation. We talked a little bit about Harry Potter fruit snacks and what we're doing there as well as marketing on the core. And so I would like what we have to do with fruit snacks a little bit to what we have a deal with a couple of items on Blue Buffalo where on Blue Buffalo a year ago, we -- our pricing was good on life protection formulas. It probably is on Gusher, but all we have to market it better and we started doing that, and that was the job to do. That's probably Gushers. When you come to some other items, it's probably like wet pet food and treats where we had to improve the marketing, which we did, and we had to improve the price points, which we did, and it took a little bit longer, but we eventually got back to where we needed to go. And so that's kind of I think that's the corollary to fruit snacks, if you would. On bars, bars was a tough quarter because better competitor was off shelf a year ago. But I feel good about our bars business, I mean the innovation we have coming on bars. We didn't mention cereals, protein, bars, I don't think on this call, but it's coming up. And so we feel good about that. Nature Valley, the marketing is good on a Nature Valley our bars business I would look to rebound you probably more quickly even than fruit snacks, but fundamentally, we're in a decent place on that. Peter Galbo: And just salty, if anything there? Jeff Harmening: Yes. On salty snacks, there really probably is a value play, although salty is a relatively small part of our portfolio relative to fruit snacks and Nature Valley. But I think that one, value is certainly true. But I would also say, it's very clear that consumers are looking for bold flavors and so our ability to introduce some new products with some bolder flavors results going to be part of our success in the salty snacks. Operator: Our next question comes from John Baumgartner from Mizuho Securities. John Baumgartner: To the consumer and this interaction between value-seeking and Mills as mentioned a functional ingredients and functional innovation set against the broader focus on RFK and ingredients more broadly. How do you assess, Jeff, the willingness and ability for consumers to pay up for healthier ingredients and better quality? I think in the past, the ability to extract premium pricing for premium ingredients, that compact being just sort of take to remain competitive. Do you see it changing on that front in terms of pricing power and premium mix at this point? Jeff Harmening: Consumers are still going -- value comes in a lot of different ways. Part of that is pricing. But obviously, the benefit part is also important. We see that playing out in proteins. We highlighted a lot of protein innovation we have coming now, whether that's Cheerios Protein or Progresso Protein which is doing very well. And so you'll see that. And the key for us is really we're seeing a lot of value players, but we're seeing some things at the high end as well. So it was kind of bifurcating. And for us, value doesn't -- as I mentioned earlier, I'm going to repeat myself, but value doesn't mean getting a race to the bottom on pricing or getting to the same place to private-label just making sure we have the gaps correct. And after a period of kind of record inflation for 3 years, those things can take a toll. And so it really is about getting the value right. And beyond that, it really is about talking about the benefits of our products. In some cases, that's functional benefits like protein and other places like Pillsbury biscuits. It's about how flaky they are. When it comes to Betty Crocker, maybe how chocolate they are. So it really depends brand by brand, the benefits are looking for it. Yes, some functional health, but it's food. People really like stuff that tastes good. And to the extent, like in Cheerios Protein, we can make it taste good and it has a functional benefit, that's an even bigger win. Operator: Our next question comes from Chris Carey from Wells Fargo. Chris Carey: So 1 slight clarification and then a bigger picture question. Just on the clarification, with the savings targets for next year, is there a message today that the savings targets between HMM and the incremental $100 million are there to be fully reinvested back into the business? Or is the message today simply we're putting forth strong savings such to give us the ability to invest as we see it, but the plans are still developing or something of the sort. So that's just a kind of clarification. And then, the bigger picture question is, if I look at your category growth rates, the categories in which you compete, they are actually growing, which is really positive, right, because that means that you can close category gaps, you're back to growth. When you assess why your portfolio is not growing in line with category, what are the major diagnosis? Is it value, the innovation, agenda, the marketing, messaging because I think we all value is the key here, invest in price and trade and that will drive the improvement but when you set the portfolio about why there's that relative under performance, what are the buckets that are standing out the most to you? Jeff Harmening: Yes, let me take the second part of your question first, and then I'll pass it over to Kofi to take the first part of your question second. The -- on the category growth we make really important point, which is that our categories are growing, and they're growing about 1%. And that's below the kind of 2% to 3%, we think will happen as we look into the future. And the biggest delta really the delta is price mix and so as we look at volumes, they're roughly in line with what we'd expect and what we could expect for a 2% to 3% top line growth, except that there's not a lot of -- there's not much price mix in this environment, which given what we said about the consumer, I think kind of lines up. So our categories are growing. Because of that the most important job we have to do is to get back to being competitive, which is what we will look to largely do in the fourth quarter. We have lots of areas or competitive now. If I look at Foodservice, if I look at Haagen-Dazs internationally, if I look at Blue Buffalo or what we've done with Pillsbury, or Totino's, there are places where our market shares are increasingly good. And the job for us to do is to get back to that more broadly. Probably starting with volume share first ultimately, the ultimate arbiter is dollar share, but volume share first as we're getting our value realigned. So that's the job to do. And then to get back to algorithm, then it takes a little bit of price mix on top of that, which we're not expecting in the near term, which we're pretty confident eventually. And then so that is the -- that's the most important thing that we need to do. I'll probably turn it over to Kofi to talk a little bit more about the reinvestment profile and what we're expecting there. Kofi Bruce: Just kind of picking up on Jeff left off. I think to the extent that we see the path ahead next year, really focused on driving improved growth and competitiveness. The purpose of the $100 million plus additional cost savings, the net HMM above inflation, is to free up resources to reinvest for growth, right? So the efficiency is there to drive growth. We're not trying to drive specific improvements in margin. Obviously, to the extent we have additional flexibility above that $100 million, you can expect our dial to be tilted probably towards reinvestment back into the business. We'll talk more about specifically where and the nature of that investment a little bit more detail, obviously, as we go into Q4 and give guidance for the next year. Jeff Harmening: Kofi, let me come back to the second part of Chris' question, which I think I forgot the first time around. But the -- being competitive is not only about price. I mean, we need to get the pricing back in the zone, but it's value holistically. And as a CPG company, the recipe for success is relatively simple, even if it's difficult to execute, which is you need good marketing on your core, you need good new product innovation and you need the value to kind of be in the zone whether your marketing can work. And we know this has been true for decades. And we've proven it again on the categories that I've talked about earlier, and we're going to start to prove it on some other areas as well. And I think you'll see that in Cereal in the fourth quarter, where we've got good value, but we also have a double-digit increase in media. You'll see it on soup, where we have good new products that we're going to market. And so yes, we need to get the pricing roughly in line, but it is not only about that, and it can't only be about that. We've got the best brands in our categories. And so it really is about marketing them effectively, which is marketing the core as well as new product innovation, and we'll look to dial-up both as we look at the year ahead, starting in Q4. Operator: Our next question comes from Leah Jordan from Goldman Sachs. Leah Jordan: I just wanted to go back to cereal. I know that's been a big area of concern for investors recently. And with the mid-single-digit decline in U.S. retail in the quarter. Just curious if you could provide more detail on that, how it compared to your internal expectations? And then going back to what gives you the confidence to driving the improvement in the fourth quarter? And really just how are you thinking about the durability of the category longer term? Jeff Harmening: Yes. As we look at the third quarter, we'll see how deep you go on this. As we look at the third quarter in Cereal, I mean, it was pretty close to what our expectations were in terms of what our reported net sales were we knew we had a little bit of inventory built-up from the second quarter. We talked about timing and that related to a few categories in our second quarter earnings call. Cereal is certainly 1 of those. And besides that, we did have a competitor who was off shelf in the third quarter of the year, and we had a little bit less media and merchandising. So cereal look, our cereal performance wasn't great in the third quarter, but it was about what we expected. The reason why I'm confident that it will get better in the fourth quarter is that we have an increase in media. We don't have the overhang from the inventory. And our merchandising is good. We've got a really good promotion in the fourth quarter. And so we have all the things lined up. Kind of like we did in the second quarter. We had a pretty good second quarter last year. We think we'll have a good fourth quarter on cereal. And the key to longer term as honestly, is giving consumers more of what they want. And so as we look at Cheerios Protein, clearly, that we launched Go Cereal which has done well. Our Nature Valley Granola Protein has also done well. And so it really is giving consumers what they want. All those things happen to be protein, but lucky term, you're still magically delicious and people want that as well. And Cinnamon Toast Crunch is still a best tasting cereal in the category, and people want that as well. And so the key to our growth as it always has been, is giving consumers what they wanted some cases that’s functional benefits like protein other time just great taste and [indiscernible] together. That's when we used the most. Operator: Next question will come from Max Gumport from BNP Paribas. Max Gumport: With regard to the unexpected portion of the retailer inventory headwinds in North America Retail and Pet. Can you provide a bit more color on what drove it? Is this an industry-wide phenomenon? Or is it specific to some of the categories you compete in or your product specifically? And then what's informing the view that there won't be any material changes in retailer inventory levels in the fourth quarter? Jeff Harmening: Well, first of all, in Pet, it was across some of our biggest retailers. And Pet inventory through the 6 years or so that we've owned this business, has always been more volatile than the rest of our business, actually, I think because of the e-commerce nature of the business. And so there's a 5-point drag on Pet this quarter from retail inventory. A lot of that was dry pet food, which is why you saw the results in dry pet food, especially in dry dog food the way that you did. Our inventory levels weren't high before. They're even lower now. For the year, our inventory is about -- retailer is about flat to where it was at the beginning of the year. And so that's what gives us the confidence that we won't have another drawdown in inventory in the rest of the year. As whether that's an inventory trend-- an industry trend or just us, I'll let everybody else talk about what their trends are. I just know what ours are. Jeff Siemon : Julianne thank you -- we’re going -- given that we can hit the pass the time allotted here. I think we’ll go ahead and wrap up. Thanks everyone for the attention and time this morning. We're available all day for follow-ups as usual. And so I look forward to connecting here in the next few days, and we'll be back to discuss Q4 when we get to June. Thanks so much. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Jeff Siemon: Good morning. This is Jeff Siemon, Vice President of Investor Relations and Corporate Finance. Thank you for listening to General Mills’ prepared remarks for our Fiscal 2025 Second Quarter Earnings. Later this morning we will hold a separate, live question-and-answer session on today’s results, which you can hear via webcast on our investor relations website. Joining me for this morning’s presentation are Jeff Harmening, our Chairman and CEO, and Kofi Bruce, our CFO. Before I hand things over to them, let me first touch on a few housekeeping items. First, on our website, you will find our press release that posted this morning, along with a copy of the presentation and a transcript of these remarks. Please note that today’s remarks include forward-looking statements that are based on management’s current views and assumptions. The second slide in today’s presentation lists several factors that could cause our future results to be different than our current estimates. And with that, I will turn it over to Jeff. Jeff Harmening: Thank you, Jeff, and good morning, everyone. Entering fiscal 2025, our top priority was to accelerate our organic net sales growth, and specifically our volume growth, by delivering remarkable experiences to consumers across our leading food brands. As we look at the first half of the year, we made encouraging progress accelerating our volume growth and market share trends, including returning our North America Pet business to growth. General Mills’ first-half organic volume growth was 4 points better than our fiscal 2024 result, and we drove a significant increase in the proportion of our business growing share. Our pound share has improved most notably, with dollar share improving at a slower rate, as we expected, given our investments to increase value for consumers. These results are due to our continued focus on delivering Remarkable Experiences to consumers across the total product offering. We are investing to bring consumers superior products and benefits, at the right value, supported with remarkable brand building and omnichannel visibility. This work drove improved performance on many important businesses such as pet food, cereal, fruit snacks, and our Foodservice product lines. At the same time, we have more work to do in other places, with Refrigerated Dough offering the biggest opportunity for improvement, and challenging consumer trends in China continuing to present a headwind in that market. To achieve and build on our broad-based improvements in volume and share, we’ve stepped up our investment to bring greater value to consumers, which results in a lower outlook on operating profit and EPS in fiscal 2025. Amidst a dynamic and uncertain macroeconomic backdrop for consumers, we believe this is the right choice to further strengthen the remarkability of our offerings, which will better position General Mills for sustainable growth in fiscal 2026 and beyond. Our Q2 results are summarized on Slide 5. Organic net sales were up 1%, adjusted operating profit was up 7% in constant currency, and adjusted diluted EPS was up 12% in constant currency. These results were ahead of our expectations, especially on the bottom line, even as our outlook on the year has come down. The key reason for this unusual difference is that our Q2 results benefited from timing-related items that drove a 1.5 point benefit to net sales and a 6 point benefit to operating profit and EPS, all of which are expected to reverse in the second half. Kofi will provide more context on these items and our back-half expectations later in the presentation. Slide 6 outlines our three key priorities for fiscal 2025. As I mentioned up front, our number one priority is to accelerate our organic sales growth by delivering remarkable consumer experiences across our leading food brands, resulting in a stronger volume and improved market share performance. Second, we will create fuel for investment by generating strong levels of HMM cost savings to offset inflation and reinvest back into our brands. And third, we will continue to drive strong cash generation while maintaining our disciplined approach to capital allocation. Slide 7 shows our pound and dollar share performance through the first half of fiscal 2025. We strengthened our competitiveness in Q2, with 56% of our priority businesses growing or holding pound share and 38% growing or holding dollar share, both of which were significant improvements from Q1 and fiscal 2024 levels. Importantly, all four segments drove improved pound and dollar share trends in Q2, and we saw our U.S. pet food business return to pound share growth and held dollar share for the first time in more than two years. We’ll look to build on this positive share momentum as we move through the second half of fiscal 2025. We’re seeing encouraging, broad-based improvement in our competitiveness across North America Retail as well. North America Retail’s pound and dollar trends strengthened in Q2 in seven of our top ten U.S. retail categories. Nearly 60% of our U.S. retail priority businesses grew or held pound share in Q2. And our results on dollar share moved up to 50% growing or holding share over the past month as we returned our U.S. cereal business to dollar share growth behind great consumer news, advertising, and merchandising execution, including successful campaigns with the Kelce Brothers and Chex Holiday Season. These share improvements have translated into strengthened retail sales growth across most of our U.S. portfolio from Q1 to Q2. Those gains have been largely offset, however, by a step back on refrigerated dough, which has had a disappointing start to the key baking season. As we move to the second half, we’ll build on our improving momentum on businesses like cereal, fruit snacks, Mexican food, and soup, and we’ll step up our plans and reinvest to improve our trends on refrigerated dough. Our plan for refrigerated dough this year included product renovation news, stronger marketing behind the Pillsbury Doughboy, and targeted investments in value. As we moved through the second quarter, it became clear that our product news and media support were not breaking through because we didn’t have the right value for consumers at the shelf. We’ve taken a number of actions recently to reverse the trends on refrigerated dough. We’ve already brought more value to consumers in December by adding investment to narrow price gaps across a broader range of items. We’re stepping up our taste renovation news in the second half across 30% of our portfolio, with new “more cinnamon” news on Pillsbury cinnamon rolls and continued support behind our “more flaky layers” news on biscuits. We’re launching new Cookie varieties, including Monster Cookie and Double Chocolate flavors as well as Grinch holiday shapes, to accelerate the strong growth we’ve been delivering since we unlocked new capacity earlier this year. And we’re significantly increasing our media support in the third quarter to ensure Pillsbury has greater visibility through the remainder of key baking season. The return of the Doughboy in our new campaign is working, and we expect media investment to be up more than 40% on our canned dough line in Q3. Stepping back, we’ve driven tremendous growth on Pillsbury refrigerated dough over the past five years. Getting this business back on track will be key to improving our North America Retail growth prospects. We’re confident that the actions we’re taking to increase remarkability will improve our momentum going forward. Turning to North America Pet, I’m proud of the continued progress we’ve made to restore this business to growth by focusing on Blue Buffalo’s ingredient superiority and executing our improvement plans across the portfolio. While we’re not all the way to where we want to be, we’ve continued to drive sequential improvement in our market share, with our pound share growing and dollar share flat in the U.S. in Q2. And we like the positive momentum we’re seeing across our key product lines. We drove high-single digit retail sales growth on our Life Protection Formula dry dog food business in Q2, leveraging compelling advertising focused on ingredient superiority. We’ve dramatically reduced the retail sales declines on our Wilderness dry dog food line by addressing a few key challenges. We launched new comparison advertising highlighting Wilderness’s higher protein content versus a key competitor, we introduced smaller bag sizes to provide lower absolute price points for pet parents, and we reintroduced grain-free varieties that are driving incremental household penetration gains. On wet food, we adjusted our price points on targeted offerings to get below key price cliffs, and we’re seeing positive returns. Our treats portfolio is where we have the most work still to do, but even here we’re seeing green shoots, with better shelf visibility and good merchandising execution driving improved turns at key customers. And we continued to strengthen our pet portfolio earlier this quarter with the announcement of our proposed acquisition of Whitebridge Pet Brands’ North American premium cat feeding and pet treating business, which includes the Tiki Pet and Cloud Star portfolio of brands. The jewel of this acquisition is the Tiki Cat brand, which has a strong presence in wet cat food, the fastest-growing segment within the U.S. pet food category and an area where Blue Buffalo is underdeveloped. Retail sales for Tiki Cat were up more than 20% over the past year, and with household penetration still below 2%, we see tremendous runway for future growth. We expect the transaction to close shortly, and we’re looking forward to welcoming the Whitebridge team to General Mills and working with them to expand our mission of loving and feeding more pets like family. In North America Foodservice, we continue to deliver strong market share growth across the segment, with more than 70% of our priority businesses growing or holding share in Q2. Our world-class R&D team is providing category-leading renovations in service of our operators, leveraging the Remarkable Experience Framework. In Q2, we launched a product renovation on our Baked Biscuit line, delivering improved product quality while also doubling the hold time, which helps operators better manage labor shortages and minimize product waste. We’re already seeing strong excitement and sell-in with key distributor partners on the back of this news. We also continued to drive strong share results in non-commercial channels, including continued share growth in K-12 schools. We’ve built on our leading position in cereal, thanks to our ongoing commitment to nutritional leadership, leveraging our two Equivalent Grain packaging innovation and our reduced sugar offerings. In International, we made progress stepping up our market share performance on our global platforms, while continuing to navigate challenging macro headwinds in China. We grew or maintained share on 45% of our priority businesses in Q2, driven by improving share performance in our distributor markets and Europe & Australia regions. This included strong performance on Häagen-Dazs, which delivered share growth in retail outlets in Q2, fueled by increased distribution on core flavors like Belgian Chocolate and Strawberry. Our China business continued to see double-digit traffic declines in our Häagen-Dazs shops in Q2, but we’re working to mitigate those headwinds by expanding distribution in retail, foodservice, and E-commerce channels. Our second enterprise priority for fiscal 2025 is to create fuel for reinvestment back into our business through industry-leading HMM cost savings. Even as we have added incremental investment to support stronger volume and share growth, the midpoint of our updated guidance ranges still translates into an adjusted operating profit margin profile in fiscal 2025 that is higher than our pre-pandemic margin. We’ve done that by delivering record levels of HMM, including a forecast for 5% savings in our cost of goods sold this year, which is ahead of our long-term trend. This elevated HMM delivery continues to provide fuel to invest into our brands and capabilities for the long term. For our third priority, continuing to drive strong cash generation, we expect to deliver at least 95% free cash flow conversion in fiscal 2025, consistent with the guidance we provided at the start of the year. We remain committed to our long-standing record of deploying our cash in a disciplined and shareholder-friendly manner through capital investments, dividend growth, M&A, and share repurchases. On M&A, we continue to advance our portfolio reshaping ambitions and improve the growth profile of our business. Once our North American Yogurt divestitures and Whitebridge Pet acquisition are closed, General Mills will have turned over approximately 30% of our net sales base since fiscal 2018. In terms of future M&A, our near-term focus is on ensuring our organization is set up to deliver seamless transitions for each of those three transactions. As we look further out, we remain focused on bolt-on acquisitions as our most likely opportunities for M&A. Before transitioning to Kofi, I’ll highlight our updated fiscal 2025 guidance on Slide 17. We reaffirmed our organic net sales guidance, with our current expectations toward the lower end of the range. Adjusted operating profit and adjusted diluted EPS growth are each expected to be 2 points below our prior ranges, reflecting the incremental investments we’re making to support our volume and market share gains. And we remain on track to deliver free cash flow conversion in line with our previous expectation. With that, let me turn it over to Kofi to go into more details on our second-quarter results and the assumptions behind our updated outlook for the year. Kofi Bruce: Thanks, Jeff. And hello everyone. Our second-quarter financial results are summarized on Slide 19. Reported net sales of $5.2 billion were up 2%, and organic net sales were up 1%. Adjusted operating profit of $1.1 billion was up 7% in constant currency, driven by HMM cost savings and higher volume, partially offset by input cost inflation, unfavorable price/mix, and higher SG&A expenses. Adjusted diluted earnings per share totaled $1.40 in the quarter and were up 12% in constant currency, driven by higher adjusted operating profit and a lower share count. As Jeff mentioned, our Q2 results were impacted by certain favorable timing items, including an increase in retailer inventory in NAR due in part to the Thanksgiving holiday shifting from the final week of Q2 last year to the first week of Q3 this year, as well as favorable trade and other expense timing. These items represented approximately a 1.5 point benefit to net sales and a 6 point benefit to operating profit and EPS in the quarter. We expect these timing items to reverse in the second half, with most of the impact in Q3. Slide 20 summarizes the components of total company net sales growth. Organic net sales increased 1% in the quarter, driven by higher organic pound volume, partially offset by lower price/mix. Foreign exchange and the net impact of acquisitions and divestitures were not material to net sales in Q2. Shifting to segment results, second-quarter organic net sales for North America Retail were up 1%. Our organic net sales outpaced Nielsen-measured U.S. retail sales by roughly two points, driven by an increase in retailer inventory due in part to the impact of the later Thanksgiving timing. We expect this retailer inventory build to reverse in the third quarter. Organic net sales in Q2 also benefitted from faster growth in non-measured channels. At the operating unit level, net sales for U.S. Morning Foods increased 4% and U.S. Snacks were up 1%. Net sales for U.S. Meals & Baking Solutions were down 1% and Canada net sales declined 4% in constant currency. As Jeff noted, we strengthened our competitiveness in NAR, with our pound and dollar trends improving in seven of our top ten U.S. categories from Q1 to Q2. On the bottom line, constant-currency segment operating profit in NAR essentially matched year-ago results, driven by HMM cost savings and favorable price/mix, offset by input cost inflation, higher other supply chain costs, and lower volume. Moving on to Slide 22, second-quarter organic net sales for our North America Pet segment were up 5%. This result outpaced our Nielsen-measured retail sales performance by roughly four points. The difference reflected a rebuild of retailer inventory after significant reductions in the second quarters of fiscal 2023 and fiscal 2024. We do not expect to see a material change in retailer inventory in the second half. Net sales were up high-single digits for dry food, up mid-single digits for wet food, and up low-single digits for treats. Q2 represented our fifth consecutive quarter of sequential market share improvement for our U.S. pet food business, with our pound share growing and our dollar share flat in the quarter. On the bottom line, second-quarter North America Pet segment operating profit was up 36% in constant currency, driven by HMM cost savings, higher volume, and lower other supply chain costs, partially offset by unfavorable price/mix and higher SG&A expenses, including an increase in media investment. North America Foodservice organic net sales were up 8% in the quarter, driven by a mid-single digit increase in organic pound volume and positive price/mix. Net sales results were led by strong growth on breads, cereal, and frozen meals. We continued to drive strong market share gains year to date across key channels including K-12 schools, healthcare, and colleges and universities. On the bottom line, second-quarter North America Foodservice segment operating profit was up 24% in constant currency, driven by favorable price/mix. Moving to Slide 24, second-quarter organic net sales for our International segment were down 3%, driven by declines in China and Brazil, partially offset by continued growth in our distributor markets as well as Europe and Australia. As Jeff mentioned, continued macroeconomic consumer headwinds in China drove double-digit declines for our Häagen-Dazs shops traffic in the market, and we are working to mitigate those headwinds by expanding Häagen-Dazs distribution across retail, foodservice, and E-commerce channels. Within our retail outlets, we’ve continued to drive sequential improvement in market share on Häagen-Dazs, reaching share growth in Q2. Second-quarter segment operating profit totaled $24 million compared to $35 million a year ago, driven by unfavorable price/mix and higher SG&A expenses, partially offset by HMM cost savings. Slide 25 summarizes our joint ventures results. In Q2, Cereal Partners Worldwide net sales were up 2% in constant currency, with growth in Latin America partially offset by declines in France and the UK. Häagen-Dazs Japan net sales were up 1% in constant currency, reflecting growth on our handheld formats, partially offset by lower contributions from the timing of new product launches in cup formats. Second-quarter combined after-tax earnings from joint ventures of $30 million were up 23% in constant currency, driven by lower input costs and favorable price/mix at CPW, partially offset by higher SG&A expenses and a decrease in volume at CPW, and higher input costs at Häagen-Dazs Japan. Turning to margin results, our second-quarter adjusted gross margin increased 130 basis points to 36.3% of net sales, driven by HMM cost savings, partially offset by input cost inflation and unfavorable price/mix. Our second-quarter adjusted operating profit margin increased 100 basis points to 20.3%, with benefits from higher adjusted gross margin partially offset by higher SG&A expenses as a percent of net sales. The timing benefit I referenced earlier added roughly 100 basis points to our Q2 adjusted operating profit margin, and we expect that to reverse largely in Q3. Moving on to other noteworthy Q2 income-statement items. Adjusted unallocated corporate expenses decreased $23 million in the quarter, driven by certain favorable one-time items. Second-quarter net interest expense was up $7 million, driven by higher average long-term debt balances. The adjusted effective tax rate of 20.1% compared to 20.8% a year ago, driven by favorable earnings mix by jurisdiction compared to last year. Finally, average diluted shares outstanding in the quarter were down 4% to 560 million, reflecting our continued net share repurchase activity. Our first-half financial results are summarized on Slide 28. Net sales of $10.1 billion essentially matched year-ago results on an organic basis. Adjusted operating profit of $1.9 billion was up 2% in constant currency, while adjusted diluted earnings per share totaled $2.47 and were up 6% in constant currency. Turning to the balance sheet and cash flow on Slide 29, first-half operating cash flow increased 19% to $1.8 billion, driven primarily by a change in accounts payable, partially offset by changes in inventory and other current assets. Capital investments in the first half totaled $301 million. And we returned $1.2 billion in cash to shareholders in the first six months of the year through dividends and net share repurchases. On Slide 30, we’ve provided a few updates to our key financial assumptions for fiscal 2025. As Jeff stated earlier, our improvement in volume and market share is requiring higher promotional investment than we initially planned. A portion of that incremental investment fell in the first half, and we expect a greater portion to hit in the second half. Within cost of goods sold, we continue to expect HMM cost savings to outpace input cost inflation for the full year. We now expect to generate HMM savings of 5% of COGS, and input cost inflation is now expected to be 4% of COGS in fiscal 2025. As we look to the second half of fiscal 2025, the midpoint of our revised guidance implies adjusted operating profit would be down roughly 8% in constant currency. This reflects a 3 point headwind from the reversal of favorable timing items in the first half, a 3 point headwind from incremental growth investments, and a 2 point headwind from a partial reset of incentive compensation. With these assumptions in mind, our updated annual Fiscal 2025 Financial Outlook can be seen on Slide 31. Organic net sales are still expected to range between flat and up 1%, with our current outlook targeting the lower end of that range. Adjusted operating profit is now expected to be down 4% to down 2% in constant currency. Adjusted diluted Earnings Per Share are now expected to be down 3% to down 1% in constant currency. And we continue to expect free cash flow conversion to be at least 95% of adjusted after-tax earnings. Note that our outlook does not include the impact of the North American Yogurt divestitures nor the Whitebridge Pet Brands acquisition, as those transactions have yet to close. With that, let me turn it back to Jeff for some closing remarks. Jeff Harmening: Thanks, Kofi. I’ll close out with a few thoughts. We’re encouraged by the progress we’ve made to accelerate our volume growth and improve our market share trends, driven by our continued focus on delivering remarkable experiences to consumers across the total product offering. To deliver those gains and build on them going forward, we’ve made incremental investments to bring consumers greater value amid a challenging macroeconomic backdrop. I’m confident in our teams, who are operating with agility and doing what’s right for our consumers. And I’m confident that the actions we’re taking will better position General Mills for sustained growth in fiscal 2026 and beyond. End of Q&A:

Operator: Good morning and welcome to General Mills' First Quarter Fiscal 2025 Earnings Conference Call. All participants are in a listen-only mode. After the speakers’ remarks, we will have a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Jeff Siemon, Vice President of Investor Relations and Treasurer. Thank you. Please go ahead. Jeff Siemon: Hi, thank you, Julianne, and good morning to everyone. We appreciate you joining us today for our Q&A session on our first quarter fiscal ‘25 results. I hope you had time to review our press release, listen to our prepared remarks, and view the presentation materials which we made available this morning on our investor relations website. Please do note that in our Q&A session we may make forward-looking statements that are based on our current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here this morning with Jeffrey Harmening, our Chairman and CEO; and Kofi Bruce, our CFO. So, Julianne, we can go ahead and get to the first question. Will you please open it up? Operator: [Operator Instructions] Our first question comes from Matt Smith from Stifel. Please go ahead. Your line is open. Matt Smith: Hi, good morning. I believe when you initially provided fiscal ‘25 guidance, you weren't assuming much improvement in your categories with more emphasis on your competitiveness. Does the shift in more at-home food consumption give you more confidence in the organic sales outlook or are you seeing that benefit muted by continued value-seeking behavior? Jeffrey Harmening: Good morning and thanks for the question. First, I would say that the quarter played out from a macro environment kind of as we had anticipated and we thought we'd see gradual improvement in our categories throughout the year and we saw an improvement in our categories. In fact, if you look at our North America retail categories, they're up a couple percent, a mix of a little bit of volume and a little bit of pricing in the categories. And so it's played out kind of as we expected. And for us, as we said in the fourth quarter, the key for us is to keep improving our competitiveness. And we made a step in the right direction in that in the first quarter and we have some more work to do across our portfolio. And so the job for us to do for the rest of the year really is to keep improving. We did see a slight uptick in food consumption at home in the quarter. We did anticipate that might be the case as we see consumers seeking value. And the fact is that now food at home is four times less expensive than food eating out on average. And so eating at home is a great value for consumers and consumers still economically stress. So that played out the way we thought. And as we look at the rest of the year, I wouldn't say that our guidance is predicated on our category's continued improvement. What it's predicated on is our continued improvement in competitiveness, which we're confident we can do, even got a continuing momentum into the second quarter here because we've got really great news on all of our billion-dollar brands. Matt Smith: Thanks, Jeff. And as a follow-up, I appreciate that your investments span both innovation and some couponing and promotional activity. But on the couponing and promotional investments, can you talk about the receptivity from consumers to your investment spending? Are you seeing incremental purchasing behavior from those consumers and is the return on those investments in line with what you had expected? Jeffrey Harmening: Yeah, I think this kind of gets back to this question of value. I would -- first I would tell you that, consumers see value in a lot of different ways. And we did couponing, we increased our couponing, we saw good returns on those in line with what we would expect. But consumers also look for brands and products they trust. Life Protection Formula continues to grow. It's up mid-single digits for Blue Buffalo because we talk about ingredient superiority and what that brings. We launched advertising on Wilderness and that business has kind of halved the losses on that business in a quarter and sees some continued momentum. And in cereal, we launched Fruity Cheerios. It's the top turning new cereal in the category because consumers trust Cheerios and they want something a little bit different. And so whether it's couponing, whether it's new products, or whether it's advertising, messaging, or pack sizes and getting those in the right place, there are a lot of ways to create value for consumers. I would say especially, I think probably underappreciated, when consumers feel a little bit economically stressed. The one thing they can't afford to do is throw away food. And so they have to bring something home that their family is going to love and that's where our brands come in and making sure that we have relevant messages in the right package in the right place. But to your point, I feel good so far. What I feel even better about is the majority of the news that we have on our brands actually takes place in the second quarter because it kind of starts in the second quarter because if you think about our portfolio, we have a lot of baking items, a lot of seasonal items, even treating for pets is a little bit seasonal in the second quarter. And so you combine that with some improvements we're seeing on Blue Buffalo and some receptivity from our pet specialty channel on Wilderness, we feel like we'll see a step-up in the second quarter because we've got more good news coming. Matt Smith: Thanks, Jeff. I'll pass it on. Operator: Our next question comes from Andrew Lazar from Barclays. Please go ahead. Your line is open. Andrew Lazar: Great. Thanks. Good morning. Jeffrey Harmening: Good morning. Kofi Bruce: Good morning. Andrew Lazar: Jeff, you talked a bit about obviously the expectation of continued sort of progress around market share and competitiveness as you go through the year. I guess would you anticipate being in a position to sort of hold share across your NAR segment for the year or maybe does the more gradual start make this sort of outcome perhaps still a bit overly optimistic? And then, Kofi, I think last quarter you mentioned expectation for an equal contribution from volume and price/mix for the year. Is that still how you sort of see things playing out at this stage? Thanks so much. Jeffrey Harmening: Yeah, thanks, Andrew. I mean, I think the theme of the day is probably progress and continued work to do, which we intend to do to improve our competitiveness throughout the year. That is certainly true for NAR, it's also true for Blue Buffalo. I would say the first quarter kind of played out as we anticipated for both of those segments. We improved our competitiveness in NAR, but there's still market share gains to get. And we fully expected that, especially as our first quarter sales comp was probably the toughest of the year and Q2 gets quite a bit easier from a sales standpoint. And we talked a lot about our great news on our biggest brands, but most of that starts to hit in the second quarter. So, Andrew, I would say I'm not going to predict where we end up at the end of the year. It's a long year. My belief is that we'll keep getting better as the year progresses starting in Q2 with our competitiveness and that's what I would expect given the first quarter played out as we thought and the news that we have introduced seems to be landing the way we want it to. Kofi Bruce: And I would -- second question. We continue to be focused on and expect gradual improvement as we move through the year and total sales -- and to the point of our expectations for the full year, there's nothing that tells us we're broadly off mark in expecting equal contributions from volume and price/mix as we work our way through the year towards our guidance. Andrew Lazar: Thanks so much. Kofi Bruce: You bet. Operator: Our next question comes from Michael Lavery from Piper Sandler. Please go ahead. Your line is open. Michael Lavery: Thank you. Good morning. When you talked about some of the continued market share improvement, you cited one of the drivers as improved customer service levels. Can you call out maybe where that still has been an issue and what the kind of roadmap is or timing for improvement there? Kofi Bruce: So we have seen improved customer service gradually across most of the portfolio, acutely so in our Foodservice business, our pet business, in particular those who have been aided by, I would say, bigger changes in the service levels. But in aggregate, service levels are moving close to where they were pre-pandemic. Michael Lavery: So, it's not any one particular category, it's just broad improvement for that. Kofi Bruce: Say, specifically with our Foodservice portfolio and our refrigerated and obviously across our pet portfolio, both our internal and external supply chain reliability has improved service levels across all the formats. Michael Lavery: Okay. That's helpful. And on pet, you said that it's -- the quarter kind of you're seeing progression. It's as you had expected. Can you give a sense of a little bit more what's ahead and maybe specifically on Wilderness, even if the declines are moderating, do you have an idea of when actual growth is expected and how we should be -- what we should be looking for there? Jeffrey Harmening: Yeah, that's a good, very fair question. Yeah, I was pleased by our improvement in Q1 on pet, particularly the, on the sales front, I mean, we were down 1%. I think we lost 0.1% market share, I forget. And our dry pet food business, wilderness and Life Protection Formula and actually Tastefuls and cat actually gained shares. We kind of gained share on 60%. It's a good improvement but not one is clearly not the goal. And even if Wilderness improved, it did not improve all the way that we want. So I'm really pleased with the direction and the momentum and I think there's -- I think there’s more to come on Wilderness specifically. We just turned on the advertising at the end of the first quarter, this new advertising which shows the protein relative to our nearest competitor. We've seen the gains we've fought for, but those take a little while in the feeding cycle of pets. I would also say starting in the second quarter, so we're going to have to get up on advertising in the second quarter. But in addition, you're doing a couple of other things on wilderness that will help us. The first is that we're reintroducing some grain-free products. So we have some grain-free products adding back to the Wilderness portfolio as we had a few years ago. The other is that we're adjusting sizes, making some smaller sizes, again, in this current economic environment, smaller bags of dog food tend to do better. So we're reintroducing those. And we have commitments from a couple of our pet specialty customers to improve the way that they feature wilderness in store. And so we're working with our retail customers, all those things hit in the second quarter. So, my expectation is that we continue to see improvement on Wilderness and pet into the second quarter, and we'll see what that yields. So I'm not going to give a number for how much it's going to improve, but looking for improvement on our pet business in the second quarter and on Wilderness. Michael Lavery: Okay, great. Thanks so much. Operator: Our next question comes from Max Gumport from BNP Paribas. Please go ahead. Your line is open. Max Gumport: Hey, thanks for the question. Jeff, last quarter you discussed your intent to return excess cash to shareholders in the form of share repurchases if you couldn't find attractive acquisition candidates. So I think the initial read of the intent to use all the proceeds from the yogurt investiture suggested there might not be attractive M&A out there. It seems like in today's prepared remarks, you had a bit more pointed commentary about focusing on deals that are more bolt-on in nature, specifically in that $1 billion to $2 billion transaction size range. So I think that helps to provide more clarity on the reason for why you're returning the proceeds to shareholders. I'm curious what you're seeing in the current environment that has made you focus on finding the next Annie's or Tyson pet foods business rather than the next Blue Buffalo. Thanks. Jeffrey Harmening: Yeah, so thanks for the question. I appreciate that. And first I was kind of back up and say, in the last fiscal year, we did exactly what I said, which is we didn't find any acquisition candidates that we really liked. And so we returned money to the shareholders in the form of share repurchases. So, we actually did what we said we were going to do in the last fiscal year. When it comes to this year, our balance sheet is in a great place. And so with this divestiture of our American yogurt businesses, we felt it important to make sure that all of our investors know what we intend to do with those proceeds. And as we look at the environment, you're right, I got a little bit more specific in this release, and it really is kind of what we see in the near term as the kinds of things that might be available to us in terms of bolt-ons. And similar to what we had done in Annie's or similar to what we had done in Tyson. I mean, certainly if something bigger came along that we don't see now, we could entertain the notion. But for us, it seems like our focus right now and what we see in the marketplace really is probably more availability of smaller sized assets that we could bolt-on that would enhance our growth, so still enhancing our growth, but bolted on to businesses we already own. And importantly, I mean I know that you know this because you've been following this for a while but for those who haven't been maybe, we're able to do these bolt-on acquisitions and repurchase shares at the same time. We did it with Tyson, we did it with Annie's, we've done it for a long period of time. And so we got a little bit more specific on the near term only because that's the way it looks to us and looks to be our focus over the coming time. And we have the balance sheet to be able to do both of those things at the same time, add on bolt-on acquisitions and do this yogurt investiture as well as repurchase shares. Max Gumport: Thanks. And then with regard to improving your competitiveness, which is clearly a focus for this year, it is nice to see the progress in the first quarter. And I recognize you're far from declaring victory on that front just yet. But I'm wondering if you think investors will be making too much of a big deal out of the last month or so of data, which would suggest you took a step backwards. I realize it's just a quad week and there can be volatility, but looks like in cereal, refrigerated dough, snack bars, fruit snacks, there was a bit of a step backwards. It does sound like you have more product news coming later on in 2Q. So just curious how you think we should all be reading that latest quad week of data. Thanks. Jeffrey Harmening: Yeah, so your question says commentary on Q1 is right. I mean, we didn't make progress. There's no victory being declared, but I would say that we're confident in that, the first quarter played out the way we thought both in terms of the macro environment and our improved competitiveness. And we understand that there's a job left undone, which is to kind of get back all the way to share growth and absolute growth. I mean, down one is not the goal. But we're confident we can get there given what we see coming up on the horizon in terms of our initiatives. Over the last four-week period, I'm not sure the angst of investors flew over the last four week period, but I can tell you it's entirely due to a timing of merchandising shift from one period to another. So it's really a couple of big merchandising programs that shift in timing. So I am not worried about what you see in the scanner data for the last month. Max Gumport: Thank you very much. I’ll pass it on. Jeffrey Harmening: Thanks. Operator: Our next question comes from Rob Dickerson from Jefferies. Please go ahead. Your line is open. Rob Dickerson: Great. Thank you so much. I guess you touched on kind of price and couponing a little bit earlier, but I am just curious, as we think through, I guess Q2, and then by also, I guess back half of the year, like, is there a scenario that kind of plays out such that North America price/mix could actually be positive this year? I mean, clearly, there's a lot of discussion around promotional needs and what we're doing on pricing and the value-based consumer, et cetera. But at the same time, there's a comment in the prepared remarks that spoke to like selling the right pack size and the right channel at the right price, but then also maybe there is some price/mix benefit on some of those shifts. So just trying to get a sense of kind of the price/mix outlook for the year. Jeffrey Harmening: Yeah, I was -- let's look at kind of what's happened this year in our categories where you see kind of an equal contribution from rate and from mix or from rate and volume in our categories. And that's kind of what we see playing out for the year, kind of an equal contribution. And it's more or less what we saw in the first quarter. Then if you look at our business, you'll look at our price/mix was down 1%, it was entirely mix. In fact, more than entirely, more than entirely mix. And mix is a hard thing to really predict. As we look ahead, I mean, we don't comment on pricing or promotion plans as we look ahead, but I mean, I think it's important to note that our categories have remained very rational. And that what we see is input costs, inflation is certainly moderated. But it's still, still our forecast for us for the year is 3% to 4%. And so, as we look ahead, we see rational categories and we see a little bit of inflation. And what I'm pleased with is that we have the productivity savings that can offset -- that can really offset that. And so now our job is to drive growth. And so as we look at the coming quarters, we'll see what happens with price/mix, but it's played out exactly so far this year, kind of as we thought it would. Kofi Bruce: Yeah. We could see some modest improvement mix as we work our way forward. But to Jeff's point, it is hard to predict. Rob Dickerson: Fair enough. And then just on the M&A side, again, prepared remarks, you spoke to kind of bolt-on attraction, $1 billion to $2 billion transaction size on average. Simple question, kind of where you would like to go, right? Is this, kind of build up a little bit more international scale, maybe leading to pet some, just any color you could provide would be fabulous. Thank you. Jeffrey Harmening: I'll provide a little bit of color but maybe not as colorful as you're. Kofi Bruce: It's going to be things that kind of bolt-on to our existing categories. I would say specifically, our categories where you have a right to win, which, in a large degree are our global businesses. And so, you look at pet or you look at what we've done in acquisition in pet or snacking or what we've done in Foodservice. I would expect more of those both on the priority business, where we have a right to win and where we see growth. And it could be international, it could be domestic, so I'm not going to get into that level of detail, but really where we have a competitive advantage, where we see growth, maybe get a little synergies along the way, those are the places where we will continue to look. Rob Dickerson: Alright, super. Thanks guys. Jeffrey Harmening: Thanks. Operator: Our next question comes from Bryan Spillane from Bank of America. Please go ahead, your line is open. Bryan Spillane: Hey, thanks operator. Good morning everyone. So two for me. One, just I think we've talked a little bit about kind of progress and trends. So maybe Kofi, could you just tie together, I think at the start of the year, we were kind of looking at more of a back-half loaded plan to begin with. So just as we're looking at the second quarter, you know, Will it look somewhat similar to 1Q? I know we've got -- the comps are kind of wonky in pet, but any color you can give us in terms of phasing I think will be helpful. And then I've got a follow-up. Kofi Bruce: Sure. So we would expect to see continued improvement off of this trend as we step into Q2. I think it would be fair to characterize the year as expecting gradual improvement in the top line as we work our way Q2 into the back half of the year, and then obviously profit a little bit more phase to the back half. Bryan Spillane: Okay. Thank you. And then the follow-up, Kofi, just on the divestiture and the dilution, is there stranded overhead incorporated in that? I guess underneath my question is just, is it dilutive initially, but then you work through the overhead and over time it actually isn't as dilutive. Kofi Bruce: Yes, our expectation -- you're exactly right, our expectation is that there is stranded overhead that will take us a period of time. We would expect that period to be about two years or less for us to get that stranded overhead addressed and out of the cost structure. So that is part of the drag in the dilution math. Bryan Spillane: Okay. Are there any TSAs also we should be aware of? Kofi Bruce: Yeah, there will be TSAs as part of the terms of both of the sale agreements with Sodiaal and Lactalis. Bryan Spillane: Okay, but not very material? Kofi Bruce: Yeah, I would not consider them material to the dilution and accretion. Bryan Spillane: All right, cool. Thank you. Kofi Bruce: You bet. Operator: Our next question comes from Leah Jordan from Goldman Sachs. Please go ahead. Your line is open. Leah Jordan: Good morning. Thank you for taking my question. I just wanted to follow up to the discussion on the more food at home trends supporting the volume lift. Is that a widespread lift versus your expected baseline across categories or any notable surprises to call out there? And has that demand shift impacted your view on how you're promoting or messaging in this current environment, including any update on how you're thinking about the timing of the spin throughout the year? Jeffrey Harmening: Yeah, as we look at a little bit of a shift from away from home to at home, first, it's a little bit of a shift. I mean, it's from like 86% of food at home to 87%. So that just to make sure we highlight that and don't overplay it. The second, I would say within the trend, it is broad based. And what we see is that the traffic at restaurants is down a little bit, and the traffic at what we call non-commercial outlets, so places like K through 12 schools, or colleges and universities, or healthcare, places like that, we actually see growth, which is where we over-index. And importantly, we see growth versus the prior year but neither are actually at pre-pandemic level. So it's growth off a base that was much lower than it was before but growth in this non-commercial space which we over-index which is why we have confidence in the growth of our Foodservice business. In terms of the impact on our retail business, it's actually been quite broad based across food and beverage. So it hasn't really impacted one category or the other significantly, because again, it's a 1 point change versus what we saw a year ago. Kofi Bruce: And about time to spend, I mean, we have had, I think, pretty consistent plans for, to increase our investment behind media and brands this year. We saw that in Q1, that'll actually be up even more in Q2. Jeff talked about some of the big seasonal initiatives that we have, whether it's on Pillsbury or soup or others. And so making sure we're supporting our brands through that period of time is important. So you'll see even a bit more of an increase in brand support here in the second quarter, and that will continue in the back half. Leah Jordan: Okay, great. Thank you. And then for my follow-up, I don't think we've touched on international yet. Just seeing if you could provide more color on trends in that segment. I mean, it sounds like Brazil has improved from last quarter. What were the key drivers in that region? And then seeing if you could comment on China as well. I mean, that seems to still be challenged. How are things trending sequentially and any updated use on that region as we go throughout the year? Jeffrey Harmening: Sure. On our international business, I was really pleased, first of all, I was really pleased with our European results. You didn't mention that, but I'll tee up the question and answer it myself. We did see some growth in our European Australian business, which is good because it's a business that is a strong profit contributor. And so I like the way we're competing in Europe. In Brazil, you're right, we grew in the first quarter in Brazil on the top line and much improved from the year before. We -- it's one place, and we've talked about this before, it's one place where we saw lot -- quite a bit of inflation over the last few years and probably didn't fully utilize our strategic revenue management tools in the right way. And so we've adjusted pricing in Brazil. It's one of the places where we needed to adjust. We've made the adjustments. We're seeing the benefits of that. So pleased with how we performed in Brazil. The challenge for us really is China. And within China, we have two businesses, Wanchai Ferry dumplings and Haagen-Dazs, kind of equally split. Wanchai Ferry dumplings doing fine. And even Haagen-Dazs at retail stores and through e-commerce also doing pretty well. It's the Haagen-Dazs shops, the shop traffic is down. And much like you've seen, probably heard others in the market talk about the consumers pulling back and when they do, the shop traffic is down. And so as we look at the rest of the year, while we would like that trend to improve, we're not banking on that trend improving for us to hit our guidance for the year. And so as we look at international, I'm actually pretty pleased with most of it. And the one area that's challenging is China. It's not really an execution challenge on our part. It really is a more of a macroeconomic challenge with the shops. The margins on shops are low, but the fixed costs are high. So it has an impact on profitability. So that's what we're seeing a little bit in China. We're not counting on the economics to get better in the near term. So it's just -- it's something we'll continue to have to work with throughout the year. Leah Jordan: Thank you. Operator: Our next question comes from Robert Moskow from TD Cowen. Please go ahead. Your line is open. Robert Moskow: [Technical Difficulty] Jeffrey Harmening: Sorry, Rob. We can't hear you. We heard just a tiny little sound. Robert Moskow: How's this? I'm sorry. Jeffrey Harmening: That's good. Perfect. Robert Moskow: Okay. To what extent does Morning Foods currently operate with an integrated cross-category strategy across cereal and yogurt? And does the divestiture of yogurt require you to alter your approach to the retailer or your consumer insights and are there any implications regarding scale in that regard or is it just like there's different buyers? Is it, there's a cereal buyer, there's a refrigerated buyer and it's very separate? Jeffrey Harmening: The answer, Rob, is much more the latter. There's not a vast category of strategy when it comes to yogurt and cereal. I mean, they both participate in a lot in the morning occasion. So that's things they have in common as well as kind of a combination of taste good and good for you. So they have that in common as well. But there's not really a -- there's not broader implication with our retailers. There's not a broader implication on insights. We have insights embedded in that particular operating unit, but also we have insights in North America retail that kind of span. So there, it's a business from that standpoint and frankly from a manufacturing standpoint that's relatively easily separable and I wouldn't see an impact on cereal from that divestiture. Robert Moskow: Right. Okay, thanks. And a follow up, you said six of your 10 categories are flat or getting better. Can you comment on the other four? Like, is it snacks and dough? And what's the plan for accelerating the growth in those other four? Jeffrey Harmening: Yeah, I would say that rather than taking you to around the world of all four, I would say that the biggest one, the biggest one is dough and [Technical Difficulty] snacks. And so those are those are kind of the two biggest by far. And with refrigerated dough, I think we have some phenomenal advertising coming up in the second quarter using the Doughboy. We have lots of product news in that category, launching some new products. And so I would anticipate our dough business to get better in the second quarter. We'll see about share. Our market share in dough is already about 75% or so. So the key to dough, it really is to get to kind of grow it. And so I have a high degree of confidence in our plans as we look forward. We'll see what they yield, but our dough business I feel good about it. And then fruit snacks, a reminder -- you may not remember this, but we're bringing on additional capacity starting in the second quarter for our -- particularly for our Gushers business, which has been capacity constrained. We have some really good new products, especially on Gushers also coming in the second quarter. So that's a business where I would expect to see some improvement as we move throughout the year. It may not all happen in the second quarter, but as we move through the year, I would expect us to see improvement in our fruit snacks business. So those are those are the two biggest ones Rob of the one where we feel like, okay, we made a good progress on a lot of them, but those are two we need to continue to make progress. Robert Moskow: Got it. Thank you. Operator: Our last question today will come from John Baumgartner from Mizuho Securities. Please go ahead. Your line is open. John Baumgartner: Good morning. Thanks for the question. Jeffrey Harmening: Good morning. John Baumgartner: Good morning. Jeff, I wanted to come back to North America and the comments on competitiveness and the larger eating at home environment. Looking at recent innovation, it seems to appeal maybe a bit differently to the frequency of consumption, the Totino’s breakfast, the Taco Dessert Shells, the low sugar Betty Crocker. How do you assess your portfolio at this point in the frequency of consumption relative to its potential? Are there certain brands or categories where that gap is still significant? And in closing those gaps, what's the relative importance between even more innovation relative to making pack size changes or marketing differently against a business in its current state? Jeffrey Harmening: Yeah, when we think about innovation, we kind of think about it broadly. And it can happen in all the ways you identify, which is new product innovation. It can happen with -- through our marketing messaging. It can happen through pack sizes. It can happen through all those things. A lot of times people focus on just the new product innovation. And by the way, I think our new product innovation is good, but it's like 5% -- it'll be 5% of our business this year and the rest of the 95% is really what drives profitability and growth and household penetration. And so, I will -- so the key for us is to make sure we have innovation that's relevant category by category. And sometimes that's messaging, sometimes that's news, sometimes that's having the right pack sizes in place, and other times it's new product innovation. Fortunately, I've said it before, so I'm maybe at the risk of just repeating myself, but as we look broadly landing in the second quarter, I feel good that we have good new product innovation on our billion dollar brands. We also have stepped up levels of advertising. You'll see some, I think, some exciting advertising on Totino's coming here starting in the second quarter, as well as new products from Old El Paso and New Old El Paso soups that we've launched in the marketplace, as well as news on our [core like flakier] (ph) biscuit. So it really is, and I go category by category, but everything I just mentioned is innovation on a billion dollar brand. And I think that's the key when you have good ideas on big brands you tend to do better and I think we have differentially good ideas on big brands which by the way includes Blue Buffalo not just North America retail. John Baumgartner: Thanks, Jeff. Jeff Siemon: Okay, I think that's all the time we have this morning. Appreciate everyone's engagement and we look forward to catching up over the course of the coming months. Please reach out with any questions through today and look forward to speaking with you again next month. Take care. Thanks. Julianne, over to you. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: Good morning and welcome to General Mills Fourth Quarter Fiscal 2024 Earnings Conference Call. All participants are in a listen-only mode. After the speakers' remarks, we will have a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Jeff Siemon, Vice President of Investor Relations and Treasurer. Please go ahead. Jeff Siemon: Thank you, Julianne, and good morning, everyone. Thank you for joining us today for our Q&A session on our Fourth Quarter and Full Year Fiscal '24 Results. I hope everyone had time to review our press release, listen to our prepared remarks, and view our presentation materials, which we made available this morning on our Investor Relations website. It's important to note that in our Q&A session, we may make forward-looking statements that are based on management's current views and assumptions. So please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which we may be discussing on today's call. I'm here this morning with Jeff Harmening, our Chairman and CEO; and Kofi Bruce, our CFO. So I think we can go ahead and get to the first question. Julianne, can you please get us started? Operator: Certainly. [Operator Instructions] Our first question will come from Ken Goldman from JPMorgan. Please go ahead. Your line is open. Kenneth Goldman: Hi. Thank you very much. I appreciate it. I wanted to under -- make sure rather that I understood the dynamics in International, it's a bit of a specific question to start, but the commentary in the prepared remarks, about consumer challenges might indicate that volume would have been more pressured than price-mix, but it was the latter that was down by a greater degree. So I'm just curious if you can walk us through the dynamic there and if there were any unusual puts and takes this past quarter. And then I have a broader follow-up. Kofi Bruce: Ken, thanks for the question. This is Kofi. So as you know, our organic sales were down 10% in International in Q4. A bit more than half of that came from a reclassification from net sales to cost-of-goods-sold in Q4, an adjustment that was immaterial to the company's full year results, but obviously important in the quarter for the segment. The rest of the decline in International was really a function of the difficult market conditions in both Brazil and China. Our Brazil performance, specifically both the consumer environment and value challenges at the shelf as well as the customer environment where customers were reducing inventory levels pretty significantly versus last year. And then China, after a strong start to the year, we saw a real souring or downturn in consumer sentiment in the quarter that had a negative impact on our shop traffic for Haagen-Dazs and our premium dumpling business. So that's -- Kenneth Goldman: I'm sorry, Kofi. Kofi Bruce: Yeah, that's bulk of it. Yeah. Kenneth Goldman: Thank you. I'm stepping on your words, I apologize, but I appreciate that. The follow-up is, and thank you for all the detailed guidance you always provide from top-to-bottom in the P&L every year. I'm curious if you could break out for us a little bit of the cadence of the top-line and EPS growth this year and in particular if there's any considerations as we think about modeling the first quarter. Kofi Bruce: Yeah, I think, the -- we won't get too detailed, other than to just note that our Q1 results, we would expect to trend below the balance of the rest of the year, primarily driven by higher levels of investment as we step into the year with a focus on improved volume, and then obviously, the comparison against our strongest quarter performance in fiscal '24. Operator: Our next question comes from Andrew Lazar from Barclays. Please go ahead. Your line is open. Andrew Lazar: Great. Thanks. Good morning, everybody. Jeffrey Harmening: Good morning. Kofi Bruce: Good morning, Andrew. Andrew Lazar: Maybe, Jeff, to start off, I know in the prepared remarks you discussed sort of a clear mission to drive better volume results through reinvestment, which I know is contemplated in your outlook for '25. And you mentioned prominently the need to improve sort of the value equation for consumers, even mentioning optimizing price points in certain areas, a 20% increase in coupon spending sort of as examples. And I know the consumer measures value in lots of different ways, not just price, so I was hoping to get maybe a better sense of how the mix of incremental spending for '25 is sort of broken out across what would you consider higher-quality sort of brand equity building versus, let's say, more trade or price-oriented spend, particularly as this is such a sort of a hot button topic among investors right now. Jeffrey Harmening: Yeah, thank you, Andrew. That's right. I mean, improving value is really the number one mission we have to get competitiveness. If I take a step back and look at this past year, our categories in terms of volume performance and comp performance improved through the first half of the last year, which was -- they were down 2.4% in terms of volume or categories to up 0.5% in the fourth quarter. And I think that's important because as we had talked about previously, there were a few events in the back half of our fiscal year, which we thought would improve category performance and they did -- gradually they did, and that really is the lapping of pricing from a year-ago, lapping of SNAP benefits and the on-shelf availability of private-label and some other smaller brands. And so that indeed took place, and so the job for us to do now is to increase our level of competitiveness. And the fact is that inflation has been higher than longer, higher for longer than many people assumed it would be, not in food necessarily. Actually food inflation is actually coming down. But if you look at the broader macroeconomic environment, we're still seeing inflation of 3% to 4% in the broader environment. And so the job to do is create more value for our consumers. As you rightly point out, that value can take place in a variety of ways. And I guess I would start at the point of brand communication. And the fact of the matter is, we will have a meaningful increase in the amount of spending we have on consumer spending next year. You've probably done the math and seen that our productivity levels are higher than what we see for inflation, so our gross margin should be okay. And so the job to do then is to spend the money there wisely and we start with brand communication. And so we have a meaningful increase, but also again some really good news. I start with pet food and wilderness. We have some new advertising coming up next week. I just saw it yesterday, it's fantastic advertising. We've already gotten life protection formula back to Growth and Tasteful, so now wilderness is a job to do in Pet. If you look at what we're doing in cereal, another big global business for us, we've got great taste news coming in our cereal category. The Kelsey Brothers are highlighting that in the first quarter, but we've got more coming in the second and third quarter, bringing the Doughboy back after a few years, and private-label, they don't have a Doughboy, we do. And not only is it coming back, you've got all kinds of news to share about flakier crust and things like that. So we feel great about that. We've got -- we're sponsoring the Olympics in many countries. And then Totino's has some good marketing. So we feel good about our brand investment. But also, it comes down to the product themselves. We got really good product news, probably twice the taste news that we did a year ago when -- in our categories, taste is really king. And so whether that's flakier biscuits or cheesier Andy's Mac and Cheese, or fudgier Betty Crocker or brownies or reducing sugar in our kids cereals in K through 12. Those are all kinds of great taste news. And our new product should be up somewhere around the neighborhood of 40%, where we're investing in new product activity and really good ones on our big brand. So Fruity Cheerios in the cereal category, Mott's breakfast bars, which are off to a great start so far this year, as well as Nature Valley Lunchbox, which is allergy free that we know the moms really like, Totino's breakfast roll. So we've got really good innovation. And then there is -- there -- so those are a lot of ways that we can add value, variety packs, things like that. But also, we're increasing our couponing by about 20% or so in the beginning of the year. And we have found, because we have a lot of first-party data, which differentiates us from many other manufacturers. We can target effectively with good ROIs, and not every manufacturer can do that, but we have the ability to do that. So we are increasing our coupon spending and we have the research that tells us that it's highly effective when we do that. So we'll do that. Are there some price points we have to sharpen? There are, but there always are. We talked about in pet food, it's wet pet food. We had to get under a price clip, but we didn't have pricing options in other places. And so we feel good about the amount of value that we will create for consumers. And that really is job number one as we look at next year. Andrew Lazar: Okay. Thank you for that. And then just a quick one, Kofi, the commentary around HMM for fiscal '25 versus cost of goods inflation suggests, as Jeff highlighted, some gross margin flexibility to reinvest. Given the amount of reinvestment you're planning, not just at SG&A, but that reinvestment that goes against gross margin, can -- does your plan, I guess, anticipate that you can at least protect, if not expand, gross margins a little bit for the full year? Or could there still be some gross margin pressure for the full year, given kind of what you need to do across both sort of trade and consumer? Thank you. Kofi Bruce: Great question. Appreciate the question. Andrew. So I would say we've got enough flexibility that we would see a modest amount of gross margin expansion even with the levels of investment. And the key here is, as we look at the business, we're going to play flexibly with an eye towards investing in growth driving activity, some of which Jeff did an eloquent job of listing off. Andrew Lazar: Okay. Thank you. Kofi Bruce: You bet. Operator: Our next question comes from Bryan Spillane from Bank of America. Please go ahead. Your line is open. Bryan Spillane: Hi. Thanks, operator. Good morning, Kofi. Good morning, Jeff. I have just -- I have one question and I guess it's come in a couple of different angles to us this morning. And it really the starting point is just, have you guided low enough for fiscal '25? And I say that in the context of, there's some reinvestment, right, that or increased investment, I should say, that's implied in your plan for this year. If we look back over the last four quarters, it's -- we've been kind of waiting for the -- a term to come around the corner, not that's just General Mills, I think that's true across the whole group. And so it seems like there's just more uncertainty in planning the business this year versus most. And just given the opportunity, right, to give yourself, I guess, more cushion or actually more than that, just more potential money to spend back, why not take that opportunity now? Jeffrey Harmening: Yeah. So, Bryan, thanks for the question. The -- you talk about more volatility and uncertainty. I've said that for like you said the last five years, so I'm waiting for the year where we don't have volatility, and the market does continue to evolve, so there's no question about that. Obviously, we think we've given ourselves enough cushion here without being unduly conservative. And the market -- you're right, the market is -- it does continue to evolve. But as I said, we've got really good marketing support. New products are up. We've got really good news on our core brands. And so my expectation is that we would improve our volume performance this coming year, which was down 3% this current year. We would improve our volume performance across our different segments this year. So I know that each of our operating segments, whether it's North America, retail or foodservice or international or pet, are committed to improving our volume performance and our competitiveness. And I'm confident with the level of activity that we have and the news that we have that we can actually do that supported by gross margins that are already good, that are back to pre-pandemic levels already. And as you say, our productivity outstrips what we see as inflation. And so reinvesting some of that to make sure that we have the fuel we need to drive the growth. And we're not counting on a change in the environment necessarily to drive our growth. It really is a change in our competitiveness, and that's within our control. And so we feel good about our ability to do that. Bryan Spillane: Thanks, Jeff. Maybe just a quick follow on that is, as you've planned this year, what's your expectation on competitiveness? Meaning do you expect competitors to make similar moves? And just how are you anticipating how the competitive environment would set up this year again, given just how dynamic things are? Jeffrey Harmening: Yeah. The -- well, I certainly can't speak for my competitors, but we're all looking for more growth. And what's been interesting is that the environment has been exceptionally rational, and it's not -- it's hard for me to see that changing. And the reason I say that is because, I mean, we still have some level of inflation. I mean, we have 3% to 4% inflation. And so in that kind of environment, absent leading levels of productivity like we have, it really begs for an environment that continues to be rational. If you look at the last 12 months, promotional spending is up, frequency is up a little bit, depth of discount is up a little bit relative to the year before. But if you look before pandemic, it's kind of back to that level of promotional intensity. And as I started out, I think it was Andrew asked a question about value, there are a lot of ways to create value for consumers, and we see that I'm sure our competitors do, too. And so we'll be pulling all the levers we can to make sure that consumers know the value of our big brands. A lot of that gets back to the marketing and the product news and everything else. Bryan Spillane: Okay. Thank you. Operator: Our next question comes from Steve Powers from Deutsche Bank. Please go ahead. Your line is open. Stephen Powers: Yes. Hi. Good morning and apologies if you hear construction. There's someone who started drilling as this call started behind me. I guess the question I have to start is you talk about a roughly equal contribution from price and volume through the year at the company level, which I take to mean sort of flat to slightly positive in each case. I guess, is there any deviation from that as you think about the sequencing through the year or across the different business segments or do you expect that sort of roughly equal contribution to be representative kind of across the totality of the enterprise? Jeffrey Harmening: Yeah. The -- as we look at it -- by the way, I can't hear the drilling in the background, Steve. But as we look at it, first of all, we talk about price and volume relatively the same as price mix. And I think that mix piece is really important as we look at it. I wouldn't expect undue differential performance from any one of our segments. So it's not as to say we're looking for lots of one thing in one segment, lots of something in another segment. Really, the job to do is really volume growth across the different segments. And I think we have opportunities to improve even in foodservice, which did really well. We have opportunities to improve across the board. In terms of the sequencing. I guess my only comment would be, as you look at the first quarter of last fiscal year, which was the -- which, in terms of sales growth, was our highest sales growth quarter. You see a lot of pricing in that quarter. We're going up against that as we go into the year ahead. And so that probably has an impact on what we see on price mix in the first quarter, which, as Kofi said, along with some reinvestment, makes the comp in our first quarter the toughest of the four quarters in the year. I would expect gradual improvement as we look at our sales and profitability over the course of the year. And gradual doesn't mean it happens even every quarter, but gradually over the course of the year with Q1 being the toughest. I would say that's especially true in North America retail, where the comp from a year ago was quite good. We had a really nice Q1 in North America retail last year. Stephen Powers: Yeah. Okay. Great. Thanks. And thanks for the clarification as well. On the -- Kofi, maybe going back to where you started or Ken started the call on international, you talked about some of the challenges in Brazil and China in the moment, I guess. Any perspective on how you expect those regions, those countries, those markets to develop as the year progresses? Just kind of what you've embedded in terms of contribution in '25? Kofi Bruce: Yeah. We are -- to just pick up on kind of Jeff's last point, we are expecting volume improvement in all of our segments, but as we look at international, I think the critical thing for us is Brazil, we certainly see improvement off of this year's performance and are expecting that similarly so with China and then continued strength off of performance in EU, AU and our GEMS markets, which performed really well this past year. Stephen Powers: Thank you very much. Jeffrey Harmening: You bet. Operator: Our next question comes from Alexia Howard from Alliance Bernstein. Please go ahead. Your line is open. Connor Cerniglia: Hello. Good morning. This is Connor Cerniglia stepping in for Alexia Howard. Jeff, I'd like to ask about your ready-to-eat cereal segment. Measured channel data suggests you've experienced a bit more challenged market share dynamics at a time when promotional spend has increased at one of your competitors. Can you talk about how you think about this segment in 2025? And do you continue to see rational pricing behavior or is there a concern on this front? Thanks. And I'll pass it on. Jeffrey Harmening: Yeah, I would -- we've seen rational behavior in cereal and I would expect that to continue. Our focus is primarily on our game and our competitors' games. We -- honestly, we feel like we have the best brands in the category, and the key job for us to do in cereal is get back to playing our game. And we had -- we had good new product innovation last year. We had the top-five new products. Actually, I think some of our product innovation this year is better than we had a year ago. I referenced Fruity Cheerios in the first half. We have some good new product innovation coming in the second half, but even more important than that is a lot of the news we have coming on our core brands. And our messaging as I talked about with the Kelsey Brothers. But I also think some of our merchandising like in the back-to-school period, making sure we have a big program with Box Tops, which I'm excited about rolling out, and some taste news we have coming in the second half of the year on some big brands, which I promise the brand teams I wouldn't talk about on this call, but I'm excited about coming. And so our job really is to get back to the core growth on our big cereal brands with really good news and continue the innovation and as good as our innovation was this past year and I thought it was quite good. I think our innovation this coming year has the opportunity to be even better and early returns, would suggests that, that will be pretty good. Operator: Our next question comes from Tom Palmer from Citi. Please go ahead. Your line is open. Thomas Palmer: Good morning, and thanks for the question. I appreciate based on your earlier comments, you might not want to be overly specific here, but I guess I'll give it a try. If we exclude the inventory reductions and trade accrual, I think organic sales growth was down around 2%. Should we look at this as kind of a starting point as we enter the year? Or are there other considerations we should be thinking about as we move into the first quarter? Kofi Bruce: Yeah, I appreciate the question. So let me see if I can step back and just, if you will, give me a point of privilege here, I'll try to give you a little bit broader perspective starting at the enterprise and then drilling down to pet and North America Retail. So while we saw the slowdown in organic net sales, I think the critical thing here is we look at our measured retail sales, they're pretty consistent as we move from Q3 to Q4. So as you rightly noted, the big point on the front is three points of headwind from the comparison on the trade expense phasing from Q3 or Q4 of fiscal '23. At the enterprise level, we also saw a modest decline in retailer inventory in NAR and Pet in Q4 versus Q3, where we had a net tailwind. And then I think third and important, I'd reference again the point I made on International that, in Brazil, we had an adjustment to net sales that moved to COGS, which was worth about a point of drag on its own. So in aggregate, about five points of drag from those three factors as you peel it back. And then as you look at it on a segment basis at NAR, that trade expense comparison is about four points of drag. We also had -- we saw the retailer inventory adjustment impact NAR at about a point of tailwind flipping to or a point of tailwind in the quarter of Q4 versus a point of headwind in Q4. And then we also benefited in Q3 from some weather patterns in NAR. Then as we look at Pet, we had about two points of headwind from the trade expense comparison. We also saw retailer inventory reductions in Q4 versus Q3. And then we did have a modest amount of headwind as well from SKU losses in a few key places. So, in aggregate, that kind of gets you the picture. I think the critical thing here is the read through for you as you're thinking about how to look at the quarter. Nielsen's Q3 to Q4, roughly in line. Thomas Palmer: Got it. Okay. Thank you. And then in the presentation -- in the presentation, you listed M&A above share repo in terms of capital allocation priorities. I had kind of two pieces here. First, to what extent does the 3% share count decline in guidance assume that free cash flow in excess of the dividend is deployed for share repo versus other uses? And then second -- and look I know you've been asked plenty about this over the past year, but could you give us an update on your M&A criteria and appetite from a size standpoint? Thank you. Kofi Bruce: Sure, sure. So I think I'd first start by acknowledging that our capital allocation priorities have been pretty evergreen. So I think the first is, clearly, we want to make sure we have and allocate investment for capital spending internally for growth, that's roughly 4% is kind of the top number, and we average around 3.5% if you look at the last handful of years. Second, that we are allocating capital for increasing our dividend, roughly in line with our after tax earnings, and again we paid a dividend uninterrupted for 125-plus years. And then third, as you rightly pointed out, M&A. And again, M&A is both episodic and it's not something we built into the plan. But generally, as you look at our M&A patterns, unless we've done something big, which is pretty rare, last big acquisition was Blue Buffalo, most of the acquisitions we do are kind of in that $1 billion to $1.5 billion price range, which we can easily accommodate with a modest adjustment in our share repurchase patterns. So share repurchase remains the most discretionary element, and obviously, we will make changes to our share repurchase expectations as we identify and act on M&A opportunities. To your second point around criteria for M&A, obviously, the critical filter for us that we start first with our strategic priorities, which leads us to look at critical occasions, which would get us to priorities around breakfast and convenience -- convenient meals and snacking, as well as obviously pet food. And I think the criteria for us anchor around places where we can add value. Leverage points around our capabilities that will allow us to unlock faster growth, but also improve margins as we execute transactions. So we've been candidly working with our always on M&A capability throughout the cycle. We continue to look aggressively at opportunities. At the same time, we've remained very disciplined and have very strong filters in terms of both returns and value creation. Thomas Palmer: Right. Thank you. Operator: Our next question comes from Matt Smith from Stifel. Please go ahead. Your line is open. Matthew Smith: Hi. Good morning. I wanted to dive in a little bit on the profitability or the profit performance in the Pet segment. You were solidly in the mid-20s even with the volume decline in the quarter. I know you talked about some increased investment behind wilderness as you try to stabilize that business and get it back to growth, but is this a sustainable margin performance in the fourth quarter that we should look to as we look at fiscal 2025? Kofi Bruce: Sure. Yeah, let me start, I think we benefited this from both a more stable supply chain environment and our ability to drive higher-than-expected levels of HMM even in the face of the volume declines we saw. We continue to have and capitalize on opportunities both to internalize production that was previously external, but also to drive HMM that was frankly less available when we were struggling to supply in the supply chain disruption period. So we feel good about sort of the exit point, what I would, what I think is critical as we look at the business right now is we're very focused on driving improved volume trends. So I think profitability, very competitive, at the 20% plus level. I wouldn't expect that 24% is the level we would necessarily target. We continue to expect to be able to drive strong HMM and much like we're doing at the enterprise, I would say, our focus is going to be on reinvesting gross margin improvement back into the business to drive growth. Jeffrey Harmening: Yeah, to back up what Kofi said, I mean, a year ago, we were challenged both on our gross margin and with our sales growth and I'm really pleased with the Blue Buffalo team and the job they have done to restore the margin profile, and we've done a lot of work over the past -- over the past year to do that to get us back into a place where the margins over the last year are roughly 20% or so. And so now the job to do is to -- and that's without volume leverage, and so now the job to do is to really improve our top-line performance, and we feel good about what we've done on Life Protection Formula. We're going to double down on that. We feel good about our Tastefuls cat business, and in the last quarter, we put some more advertising on that. We've seen that business get back to growth. And so we're going to put more fuel on that. And now the job to do -- the next job to do is on wilderness. And we've been talking been talking about it for a little while, but we're putting on advertising on here in July and good levels of advertising behind really good messaging, and so that really is the job to do. And to the extent that we can get Blue Buffalo back to growth, I mean, I think the rest of it will flow quite nicely. We do have good productivity, but the real job to do is maintain these really good margins while accelerating our top-line performance. Matthew Smith: Thank you. And just a quick follow-up. You talked about some distribution losses in the Pet division, any more detail to add to that? Is that something that remains a drag as we look at fiscal '25 that perhaps keeps volume growth a little less -- a little tougher to achieve as we look into next year? Jeffrey Harmening: Yeah, we've had some distribution losses a little bit on trees and a little bit on Wet Pet Food and that was because during kind of the pandemic, there were some other competitors who couldn't supply as well that we couldn't, so we had some extra self-placement and that's rolling-off, but it's really not our big flavors or our big customers. And so even with that, we've seen improved performance on increasingly good performance on our Blue Buffalo business in aggregate if you look at movement. And so even with that, our expectation is for improved volume performance in the coming year for Blue. Matthew Smith: Thank you. I'll pass it on. Operator: Our next question comes from David Palmer from Evercore ISI. Please go ahead. Your line is open. David Palmer: Thanks. I'll just follow-up on Pet for a second. I know one of the big areas of focus was the Specialty Pet segment. Clearly, it was a drag into the fourth quarter. Do you -- you talked about in the prepared remarks about revenue growth for Pet in fiscal '25, do you also see that, that Pet Specialty segment also stabilizing and growing in fiscal '25? Jeffrey Harmening: Yeah. So I'm not going to get into specific channel by channel, but since you ask, I won't avoid it completely, David. The -- what I would say is that -- what I would see is an improvement in that channel. We've actually seen an improvement in the channel. Now the job for us to do is improvement in our own performance, and it really is about wilderness and about getting our sizing right and about working with the retailers there to improve the performance of wilderness. By the way, they're in on it too. We all want to improve the performance of wilderness, and so we're all rolling in the same direction. And so my expectation would be improved performance for us in the Pet Specialty channel. We'll see what that yields over time. But I feel as if we have the right actions in place to improve our performance in that channel, particularly with wilderness, which is the most important thing to improve. David Palmer: And just a question on the Baking segment, that seemed to be an area that did very well during COVID. You cited it as one of the areas that was most declining in this quarter. Are you seeing -- I just wanted to get your pulse on that segment and be consumer behaviors around that and make sure that it's not going to be an on-going drag for you in fiscal '25. How are you feeling about that segment and the consumer behaviors around baking and the At-Home occasions that would drive that? I know it's a high-margin segment for you, and I'll pass it on. Thanks. Jeffrey Harmening: Yeah. So let me start with At-Home occasions. At-Home occasions are actually quite high, I mean, about 86% to 87% of food is now eaten at home, and given the challenges consumers are facing with inflation, we would expect that to continue. So I don't see a drag on category performance for At-Home eating occasions. So that would be the first point. The second is that the category itself in terms of volume has hung in there pretty well. It's our share position, particularly as we look at Pillsbury that has been the challenge and after many years of remarkable growth, this past year, we saw a return of private-label to shelves some smaller competitors, but mainly private-label. And so this past year, I think is going to be an anomaly. And I think the key for us is really not a change in the environment. The key for us is our change in level of activity. And I'll tell you our plans in Doughboy are quite good. As I talked about, we're bringing the Doughboy back, but also we've got product improvements, taste improvements on things like biscuits, which I think will serve us very well. We have variety packs coming in cookie dough with brands like Reese's and Oreo and Monster Cookies and so we have a really good plan and really good news to share on our Pillsbury business this year. And so it's really within our hands to get us back to growth on Pillsbury, and I feel good about our plans there. David Palmer: Thanks for that. Operator: Our next question comes from Robert Moskow from TD Cowen. Please go ahead. Your line is open. Robert Moskow: Hey, thanks for the question. Good morning, Jeff. Jeffrey Harmening: Good morning. Robert Moskow: I wanted to know, you and a lot of your peers have shifted the emphasis more to volume, and I'm not denying the importance of it right now. But it is -- it just sounds different than the strategy that a lot of CPG companies have used over the years to create value through premiumization, convenience that's been a way to improve margins and improve mix historically. Can you do both of these things at the same time? It seems like there's a lot of discussion on volume today. And I'm wondering if there's still -- if the consumer can still absorb or accept more premium offerings in this environment? Jeffrey Harmening: Yeah, Rob, I don't see it as a trade-off between volume and premiumization. I think it's an and, I'll take our Blue Buffalo, which is a premium offering, but Life Protection Formula has done particularly well behind really good marketing, and so really -- that's one when I talked about value earlier, getting back to really good marketing and really good messaging on our big brands is really crucial. So I don't see a trade-off between getting back to volume and premiumization in the categories. I think it's an and. And Pillsbury is another example where it's a premium offering in the category and we've got really good marketing against it. And I think the reason you hear us talking about volume is obviously our volumes were down versus a year ago, and so that's really the job for us to do is to get back to that. But -- and I think you're right to ask, but that doesn't mean that we can't premiumize. So those things are not mutually exclusive. And in fact, I think in many cases, they go together. The key is to make sure that the value that we offer as we think about it is commensurate with the brand itself. And so that's why you heard me talking a lot about the news we have on our big core billion brands because that really is going to be the key to our success. And we talk about value, a lot of people immediately go to price and that certainly is a component, but it's not the component. I mean, if you think about it and when consumers feel pinched, one of the most important things they have to do is feed their families and what they can't afford is waste and the family has to really want it, and so you hear us talking a lot of case, news and things like that in this environment. And so I appreciate the question. I think it's a really good one you hear us talking about volume because, obviously, if that's the most important job to do, but it is not the opposite of increasing premiumization at the same time. Robert Moskow: Great. Thank you. Operator: Our last question today will come from Chris Carey from Wells Fargo. Please go ahead. Your line is open. Christopher Carey: Hey, thank you. I'll just wrap it up with a couple of follow-ups. So number one, Kofi, on gross margins, you said expansion for the full year. In the prepared remarks, you did highlight, however, that gross margin compares harder in Q1, you'll be doing more couponing in Q1, should we expect gross margins to be down year-over-year to start the fiscal year, then improve as couponing becomes more balanced and comps get easier. Apologies if I missed that, but that would be number one. And then second, just the recurring debate throughout the Q&A this morning has been the sales reaccelerate -- or acceleration implied in the outlook. If you just think about SRM, couponing, and perhaps other items, how would you frame the relative contribution of these items to the acceleration that you're expecting in your outlook for the year? So thanks so much on those two. Kofi Bruce: Okay. Well, let me start. I would just say on Q1, I'm not prepared to get too much more detail than I already have been, which is -- effectively we'd expect the comparison on sales. Jeff mentioned the price mix comparison component of that obviously, and then profit compared, operating profit compared to the same quarter prior year will be a net headwind. So we do expect the complexion of our Q1 to be lower than the subsequent quarters. I'm not going to get too much more detail below that. Obviously, I think implied in our guidance and our expectations is that we're going to use all the levers of our SRM toolkit. So to the point, there's always a lot of focus on the price component of that, and certainly, that is important in this environment, but I think there -- we are using everything from trade optimization to mix will be front and center and focus as we're pulling the levers of SRM. Obviously, as we've worked through this year, it's been clear prices and that price mix has been less of a driver of sales as we've lapped all the pricing from the prior year. But we would expect to continue to use SRM toolkit in its full totality next year. I can't get too much more specific about the components or the complexion at this point. Christopher Carey: Okay. Thank you. Jeff Siemon: Okay. I think we'll go ahead and wrap it up there. I appreciate everyone's good questions and time and attention. And as always, we're available for follow-ups throughout the day if you have more questions that you need to get us. So I appreciate the time today and we look forward to catching up soon. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: Good morning. My name is Audra and I will be your conference operator today. At this time I would like to welcome everyone to the General Mills Third Quarter and Fiscal Year 2024 Earnings Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to Jeff Siemon, Vice President of Investor Relations and Treasurer. Please go ahead. Jeff Siemon: Thank you, Audra, and good morning to everyone. Thank you for joining us this morning for our Q&A session on our third quarter fiscal 2024 results. I hope everyone had time to review the press release, listen to our prepared remarks, and view our presentation materials, which we made available this morning on our Investor Relations website. It's important to note that in our Q&A session, we may make forward-looking statements that are based on management's current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here this morning with Jeffrey Harmening, our Chairman and CEO; and Kofi Bruce, our CFO. Let's go ahead and get right to the first question. So, Audra, if you can get us started, please. Operator: [Operator Instructions] We'll go next, oh sorry, we'll go first to Andrew Lazar at Barclays. Andrew Lazar: Great, thanks very much. Good morning, everybody. Jeffrey Harmening: Good morning, Andrew. Andrew Lazar: Hi there. Jeff, in the prepared remarks you mentioned the expected impact in the fourth quarter in terms of reported results from the lapping of the trade expense benefit last year. If we put that aside, which sort of seems like more mechanical. How do we think about momentum for the company in the fourth quarter in terms of what you'd expect in terms of in-market performance and consumption right as the company looks to really build momentum going into fiscal ‘25? Would you expect sort of an acceleration from what we saw in fiscal 3Q or something similar to 4Q? Jeffrey Harmening: Yes, thanks Andrew. And I would agree with you. The timing of the trade phasing is more mechanical in nature. So I think you're right about that. You know, more broadly, you know, I would say is, I mean, we're encouraged by the third quarter results in the improvement that we saw in underlying performance, particularly the level of competitiveness in the North America retail and improvement we saw in pet. And as we said, you know, said kind of going into the quarter in the back half of the year that there we thought there would be three external factors which would, you know, play a role in our performance. The first was lapping of pricing of last year. We thought, you know, we'd see a benefit from doing that. We're seeing that benefit in the third quarter. The second is that, you know, lapping the reduction snap benefits from a year ago, which we said we'd probably start to see in March and April. And there's a little bit of evidence to suggest that we're starting to lap that and see a little bit of benefit. And then the third would be lapping on shelf availability. And so those are the three factors we've seen, you know, the first play out a little bit in our third quarter results. So we are encouraged. You know, I would say is that outside of the trade phasing kind of mechanical issue you referenced, I mean, we're assuming that our fourth quarter in terms of sales would look about like the third quarter in terms of year-over-year performance. And it's hard to say exactly because we have inventory movements and things like that. But our expectation would be that it would look pretty similar to the third quarter. But I would also say that there are a lot of moving pieces right in the fourth quarter. And we just have to see how those moving plate -- pieces play out in terms of the external environment. Andrew Lazar: Got it. Got it. And then obviously Pet was a significance source of upside to organic sales versus at least sort of street expectations. What really drove the outperformance and I guess more importantly do you see this as sustainable? I didn't know if you had like an all channel consumption number for Pet this quarter and whether you see that sort of continuing to improve sequentially from here? Or should we not get ahead of ourselves based on what we saw on 3Q. Thanks so much. Jeffrey Harmening: Yes. Well, the third quarter of Pet results were pretty good, I mean, which is to say that they're better than maybe even we expected. The movement was a little bit better and, you know, paced by a life protection formula, which was up, but also Tastefuls our cat dry business, which also shows some improvement as well -- as well as an improvement in our wet business. We still have a lot of work to do in Pet, and we know that. And particularly with regard to Wilderness and specific channels, what I feel good about the third quarter is what it shows that the area that we put emphasis on, we've seen [Technical Difficulty] and certainly improvement, which tells us the Blue Buffalo equity is good and that we're working on the right things. And on Wilderness, we kind of know what the challenges are and we know what to do to get it back on track, you know, but it's not going to take a month or two to get that back where you want. It's going to take a couple quarters. So I'm not going to get ahead of myself. I don't think it's time to declare a victory on Pet, even if we're encouraged that the things that we have done have seemed to work the way we wanted to. I would note the other thing on Pet is that we drove some good profitability increases in the quarter. Our productivity levels are quite high in Pet, and we had a lot of disruption costs during the pandemic that we've had to get out. And we're in the process of doing that. And you see that in the results in the third quarter. So really pleased by that. We're kind of getting our feet undressed from an executional standpoint. So while I'm encouraged by the third quarter, I think it's probably a little bit early to say, kind of, what's going to happen from here on out, but we do see some green shoots in Pet. Andrew Lazar: Great. Thank you so much. Jeffrey Harmening: Yes. Operator: We'll move next to Ken Goldman at JPMorgan. Ken Goldman: Hi, thank you. You know with the understanding it's too soon to quantify or really even discuss next fiscal year. I just wanted to clarify something at first. And that's at CAGNY, I believe you said you were hoping for a year, even though it's too early, that was relatively benign. And with the understanding, again, no numbers at this time, I assume, what does relatively benign mean in the context of your longer term algo? And I'm asking because you have easy comparisons in Pet, you're hopefully still performing well in market. You said previously you'll have H&M savings above 4% or you hope to. Inflation should be you know disinflationary for lack of a better word. You're going to get help from lapping snap. I could reel off a lot of potential positives into next year, but you weren't yet ready to kind of say it would be on algo and I'm just trying to get a better sense of, you know, a month later than CAGNY you're in a little bit of better position to be somewhat more specific about how to think about maybe some of the puts and takes for next year? Jeffrey Harmening: Well, Ken you reeled off a lot of things we said at CAGNY, so please to hear that. And you're right, the -- you know, when I say, you know, the benign environment, what we hope to be, I guess it would, with regard to a couple of things, you know, hopefully with regard to inflation, we still see an inflationary environment. It's 4% now. It was, you know, double-digits last year, and long-term, it's been kind of 2% to 3% and so hopefully we're headed in the long-term direction as we look at next year we'll certainly give guidance in June on what that exactly looks like. But to the extent we can have a more benign inflationary environment and a supply chain environment we don't see the disruptions we've seen, combined with good productivity, that's a good start. And I think then the question for us, we still really haven't answered yet, even a month after CAGNY, is how exactly are some of these external factors going to play out in the fourth quarter, as we lap SNAP and as we lap on-shelf availability and private label and some of our smaller competitors. Those things are a little bit, I would say too early to call, but I will say the third quarter played out largely as we expected and the benefits of lapping pricing played out as we expected. And so it may be completely unsatisfactory. But I'm not going to comment on F ‘25 at this time other than to reiterate our productivity is good. We've seen inflation is slowing, although there still is inflation, and we'll know a lot more about what to expect out of the top line performance in a couple of months. Ken Goldman: I knew going in I'd be partially unsatisfied, but that was helpful. Thank you. And then quick follow-up, you mentioned that, and just now, again, you mentioned SNAP reductions coming in the U.S. In a number of states, a decent chunk of those reductions have already been lapped. I don't know if your data would show this, but I don't mean to put you on the spot, but is it fair to say that you've seen improvements in these states? Or is it just a little more complicated than that? I'm just trying to get a sense, because so much of what you're talking about depends on a little bit of that macro and how consumers react? Jeffrey Harmening: Yes, the answer to your answer -- the short answer is yes and yes. And I'll explain, I mean, the first yes is that, yes, we have seen a small benefit in the states where we've lapped the SNAP benefits. And so we have seen that. But I think it's important to remember a couple of things, one, that'll take a while to play out. It's not as if there's one event and it just kind of happens and there's a cliff change. The other is that that benefit is not huge. I mean, there is some benefit, but it's just not a -- it's not a huge benefit. The other yes is you said there's some complicating factors. And the answer is of course, I mean, because we're lapping pricing and pretty soon we'll have on-shelf availability changes. So there's just a lot of factors in the environment that make it a little bit noisier than a perfect correlation. But the short answer is we're seeing a little bit of benefit in the places where we've lapped the SNAP so far. Ken Goldman: Thank you so much. Jeffrey Harmening: Yes. Operator: We'll move next to Max Gumport at BNP Paribas. Max Gumport: Hey, thanks for the question. So first on Pet, it looks like the action plans you discussed for the Pet segment last quarter are starting to bear fruit. So on wet pet food specifically, I think you inflected from a minus double-digit decline in 2Q to growth in 3Q. I was hoping you could talk about any early signs of success you might be seeing with these more value-oriented multipacks? And how they may or may not inform your view of what the '24 pound bag could be doing for Wilderness over the coming quarters in pet retail? Thanks. Jeffrey Harmening: Yes, I would say on the wet pet food side, we certainly have seen improvements, you know, whether it's all the way back to growth or not. I mean, I'm not sure it's all the way back to growth, but it's -- but we certainly have seen improvements and we've importantly, we've seen the improvements in that in the wet pet food business in the places where we got our price points back in line with what we thought would be beneficial. So that's good. We haven't gotten them back everywhere yet. So that's still a work in process. And I think that'll play itself out in the fourth quarter. But we are encouraged that the actions that we took that we thought would have a benefit are having the benefit that we thought. And so some like Yogi Bear there. But that is -- so that feels good. How that relates to 24-pound bags of Wilderness, I guess, I would say on Wilderness, I think it's going to be more complicated than just that. I mean, we need to do -- we need to get back to advertising Wilderness with a message that's going to resonate to consumers. We have some ideas on that. We're working on that now. That'll be important. And then working with the Pet Specialty channel in particular, where Wilderness has had a challenge and they want to work with us and we want to work with them. And so that's positive, but we have some more work to do in that channel. And then there's some SKUs that we need to bring back. So I wish Wilderness were as simple as getting 24-pound bags in, but I think it's going to be a little bit more complicated than that and take a little bit longer. But we are encouraged by the fact that what we have diagnosed on wet pet food and then the actions we have taken have largely played out the way that we thought. Jeff Siemon: Max, this is Jeff Siemon. I just add a point on the -- you mentioned you know net sales on wet food were up and that we didn't include that in our prepared remarks. That was true. They're up modestly. There's some inventory differences as you look at the individual sublines. So retail sales on wet food are still down. They're moving. They're better, but we still have some work to do to get them all the way to bright. But you were right that from a net sales standpoint, they were up slightly in the quarter. Max Gumport: Yes, I think I saw that in the slide deck. And then one follow-up would be just given the clean balance sheet and the continued emphasis on portfolio reshaping, I think it's safe to assume you're actively looking at acquisitions. I think past commentary would suggest you're focused on snacking and pet food categories and also businesses that play in your eight-core geographies? That said, I'm just curious, given some of the recent industry news, how you might view Ice Cream, especially knowing that it is one of your global platforms? Thanks, I'll leave it there. Jeffrey Harmening: No, sure, thanks for -- I appreciate the question. Yes, on portfolio shaping, we really haven't changed our approach to portfolio shaping. We were pleased with what we have done and the 20% change we've made so far. We also know there's more to do both in terms of acquisitions and divestiture to get back to the growth levels that we're looking for. But we've been looking for a while, and you know, it's important to note that we have been and will be very disciplined when it comes to looking at acquisitions. And you know, we're only going to do things that make sense for the shareholders, not just to chase a growth goal. And we remain disciplined over that over the years. And the place that we're looking at things that will be growth-accretive. And certainly, you know, Pet is a place that we like, you mentioned snacks. There are some meal categories we like as well. And so there are a number of places where we could go that would be either in categories we're in or tangential to categories and geographies where we feel like we've got some competitive advantages. I'm not going to talk about the recent announcements in Ice Cream specifically, I'll leave that to our competitors. I don't talk about M&A and particular deals. We like our Ice Cream business. I mean, Haagen-Dazs is a great brand and that's a super-premium brand and it's growing nicely. It's good in Europe, it's really good in Asia, and so we, you know, it's one of our five global platforms, so we obviously like the category, but particularly we like Haagen-Dazs. And that is a super-premium brand that's playing in growth spaces and we feel very good about that brand. Operator: Next, we'll go to Chris Carey at Wells Fargo. Chris Carey: Hey, good morning. So, just one follow-up and another question. Jeff, you mentioned in response to Andrew's question that fiscal Q4 revenue should look similar to Q3. Were you referring to the consumption or actual organic sales growth in the quarter? Jeffrey Harmening: I was referring to the consumption growth, because as we look at it, because of the timing of some of our expense phasing, there were probably about a 3 point headwind on what we report. But I was -- what I was referring to was the consumption, which is really the most important piece. The others, not that it's not important, but it's an accounting catch-up and mechanical in nature, as Andrew suggested. So what I was referring to was the sales out, if you will. Chris Carey: Yes, perfect. Okay. That's what I thought. And Kofi, just on, you know, clearly sales were better-than-expected. Gross margins, I think were a bit light relative to street expectations, namely given positive pricing, easing inflation, strong productivity. Can you just expand a bit on maybe some of the key factors in the quarter that offset some of those positives? I think, you know, inventory work down, the volume deleverage relative to the year ago growth? Just any context on those items and how durable they might be into your Q4 and potentially a bit more medium term? Thanks. Kofi Bruce: Yes, sure. I appreciate the question and I think you've got the plot on the key drivers. The only thing I think would be helpful to add, just to give you some additional perspective, is that the inventory absorption, which was frankly one of the side benefits of supply chain stabilization as we've been able to take down our levels of inventory we're carrying and while that was a benefit to working capital and cash flow it was about a 70 basis point headwind on gross margin, which I think would probably close most of the gap that you're referring to. Chris Carey: Okay, perfect. I'll leave it there. Thank you. Jeffrey Harmening: You bet. Operator: Next is Rob Dickerson with Jefferies. Rob Dickerson: Great, thanks so much. So this might be just kind of a broader question. You know, I know within NAR, I guess, kind of calling out a little bit more pressure, let's say, in meals and baking and snacks. Then maybe there's a little bit more strength in other areas. So I'm just kind of curious, like broadly speaking, right? Now that we've kind of gone through what we would all consider a fairly material pricing phase. Have you seen any kind of, like general shifts, let's say, in this category consumption? You know, like consumers seem to be, kind of, consuming more -- a little bit more here than they used to relative to other areas? I'm just trying to kind of consider any types of shifts and kind of the value proposition, some of your brands, and also just the category positioning? Thanks. Jeffrey Harmening: Yes, I'll start with. Let me start in a little bit different place and I'll work my way back maybe to your question. I would say one of the shifts we've seen since the beginning of the pandemic is more food consumption at home. And so food consumption at home is a couple points higher than it was going into the pandemic. So roughly about 86% of food is served at home. And the reason for that is because food served at home is such a great value. And it's about 4 times less expensive to eat at home than it is to eat out at a restaurant on average. And so as Americans have felt the challenges with inflation, part of the way they deal with value is that they eat food at home rather than out. And obviously, we were a great source of value when it comes to that. That's actually probably one of the biggest shifts. Interestingly, private label shares are about the same now as where they were before the pandemic. In the categories that we're in, private label is about 10% of the category. In fact, they're down 10 basis points from when the pandemic began. And overall, food and beverage is about 19 points. And so we haven't actually seen a big shift when it comes to value there. When it comes to specific categories, one of the things I'm most pleased with our performance over the last few years is our ability to hold our growth share in half our categories over that time. And so that's so it's broad-based. And, you know, we've seen some big gains in our business, like Pillsbury, refrigerated dough, which has done quite well and, and meals and baking over time. The same with fruit snacks. Both of those businesses are up 60% over the last few years. And we've consistently gained market share in those businesses. Obviously we haven't in Pillsbury this year, because private labels getting back on shelf, but over the course of time. So we feel really good about that. We've had some struggles in bars as you well know. But I can say one of the things I'm pleased with as we look at our business now, Nature Valley is back to growing share. And it was even before one of our competitors had a big recall. So it's not a recall induced kind of activity. We've had some good new product innovation in Nature Valley. Our marketing is working in Nature Valley. I think we shared some of that at CAGNY. And so that's one category where we had struggled where we feel like we're getting a little bit of momentum. And then, you know, on yogurt too, it's an area where we have struggled as well, but we, you know, we have done well. We've got yogurt protein out there right now, which is off to a nice start. And so, but broadly speaking, I would say we haven't seen huge changes category by category in consumption. Rob Dickerson: All right, fair enough. And then just quickly, you called out in the prepared remarks, just a little bit of pressure, maybe from the consumer in China and also Brazil. And you just kind of give us the quick kind of stay of the union, what you're seeing in both countries. That's all. Thank you so much. Jeffrey Harmening: Yes, sure. In -- you know, in China, the biggest factor in our -- we did say that the biggest factor in our China business, I think it's important to note, is in our Wanchai Ferry frozen dumplings where a year ago, Chinese consumers were kind of on lockdown. And so there was a lot of at-home consumption. So we're lapping that. And so the comparisons are very, very difficult. And that's the biggest driver of our challenges in China, if you will. The other driver, though, is that we have had the store traffic in China is down a little bit from where it had been before. And I think that's probably a function of the Chinese consumer feeling the pinch of an economy that has slowed down over the past year. And so, but the bigger driver is actually the Wanchai Ferry dumplings. And in Brazil, it's kind of similar to the U.S. for the point now we're lapping pricing from a year ago and our hope is we start to see the Brazilian -- our Brazilian business start to stabilize here over the coming quarter or two. That's been the big challenge. They've seen huge commodity price increases in Brazil. And so our input costs have gone up quite a bit in Brazil. And we're lapping those now in Brazil, kins of, as we are here in the U.S. And my hope is that as we head into our fourth quarter that we start to see our comparisons, kind of, ease a little bit. Rob Dickerson: All right, super. Thank you so much. Operator: We'll move next to Robert Moskow at TD Cowen. Jacob Aiken-Phillips: Good morning, everyone. This is Jacob Aiken-Phillips on for Rob. Two quick ones, so I understand the trade timing 3% impact this year in 4Q. But last 4Q, you talked a lot about inventory reduction headwinds, and you said about 3% then. So did you ship ahead in 3Q? Or is there some other factors that we're missing? Jeffrey Harmening: Yes, in the -- let me answer that to the best of my ability. But if I didn't get the question exactly right, ask it again and that I'm not trying to avoid it. I would say in the third quarter, we had built inventory a year ago. And this year was pretty benign, I would say. Our -- if you look at our Nielsen data in North America retail, you see a 2 point difference. Some of that is due to the fact of unmeasured channels, we're growing faster than measured channels and only the balance of it is inventory growth. So our inventory is in a good position as we head out of the third quarter. And as we look at the fourth quarter, it's tough to say what's going to happen. You're right, last year, we blood inventory, several points worth of inventory in the fourth quarter last year. And so you may ask, well, does that mean you're going to build it this year or not? The answer is I'm not really sure. It's really difficult to predict inventory changes. What I would say is that we feel like we're in a good place as we end the third quarter with our retail customers, whether that's in North America retail or whether that's in Pet. We don't have too much inventory, but I think we have enough. And so what to -- we're not expecting any change in the fourth quarter. And to the extent there is a change, we think it would be modest, but we'll let that play itself out. Jacob Aiken-Phillips: Yes, you got the question. Thank you. And then, [Kofi] (ph), another one is, so reduction in incentive comp. I know you have the trade timing headwind in 4Q, but -- are there any changes to your expectations of investing in media or in the brands going into 4Q? Or is it how you're expecting last quarter? Kofi Bruce: No, I think -- I appreciate the question. I would say one of the things that worked really well, and I want to make sure it didn't get lost in the strong profit performance in the quarter is that we have continued to invest behind our brands at a mid-single-digit rate. I wouldn't expect that to change as we go into Q4 even as we're driving better-than-expected profitability in a year in which we've seen obviously some top line pressure. So -- from where I sit, I think what you're hearing is we'll continue to keep our foot on the pedal. I don't expect a material change. So I'd expect around the year out somewhere in the mid-single-digit range of increase on our media, which will put us comfortably ahead of our top line expectations. Jacob Aiken-Phillips: Thank you so much. Jeffrey Harmening: You bet. Operator: We'll take our next question from David Palmer at Evercore ISI. David Palmer: Hi. A question on North America retail and what you're looking to see from that segment as you think about fiscal 2025. Obviously, that's a key high-margin segment, and there's some big categories that make a lot of money for you in that segment. And I'm wondering, for those of us that are watching the scanner data and thinking about how you'll be thinking about the business and whether you can be sort of on Algo for fiscal '25? What should we be looking for that will give you that confidence? For example, do you need to see volume approach flat year-over-year? Are there a couple of categories that you're reviewing a little bit more closely than others. Jeffrey Harmening: Yes, I would say, you know, on -- without giving guidance to fiscal ‘25, still trying to kind of answer the tone of the question. I guess, I would say we'll look for continued improvement in North America retail and hopefully, we'll see it in Pet too. But North America retail since you asked about that, hopefully, continued improvement. We saw a little bit in the third quarter, and we'll see about what happens in the fourth quarter, particularly in volume improvements. And we'd hope to see that broadly. I mean, of course, we always look at the cereal category and what we're doing there and snacks in Mexican. Some of our big categories, but I would say that would be broadly speaking, that's what we're looking for. So we'd like to get back to a position of growth as a company, and we're going to continue to invest to do that to make sure we invest in marketing to make sure we grow. And so in a year where we hope productivity is still strong and we talked about earlier, and inflation is still there, but hopefully, relatively benign. Hopefully, we can reinvest some of that productivity back into marketing spending, so that we can continue to grow the top line of the business, because we've been very good in the middle of the P&L. The biggest challenge, obviously, this year has been with growth. And so it's really important for us as a company and not in particular, but everybody really to get back to growth. David Palmer: And then you were talking about early signs of a SNAP -- lack of SNAP subsidy headwind, I should say. What are you seeing? Is there -- is that something you're seeing in the last week or two? Is it specific to certain categories that you think are a little bit more family oriented or meal oriented? I mean what are you seeing there? And thank you. Jeffrey Harmening: Yes, the first thing a couple of important points about SNAP, I said them earlier, but I'm going to reiterate, because I think they're important. The first is that -- we have seen a little bit of a benefit, but it's not going to be a step change. It's not going to come in and, frankly, week-by-week, and it will roll in over time. And the benefits we're going to see from those are going to be modest. I mean, there may be -- we think there will be a benefit, but I think they're going to be modest in nature. The other thing I guess the other context I would add, and I'm not going to go category-by-category, but the benefits do accrue category-by-category. And so they're not going to be even from one category to the next. And so as we look at it, yes, we'll aggregate them because that's the easiest way to do it. But some categories are different than others. And certainly, when you're serving families as we do some -- for our portfolio, those are categories that tend to benefit from SNAP benefits more than others. David Palmer: Thank you. Operator: We will go next to Pamela Kaufman at Morgan Stanley. Pamela Kaufman: Hi, good morning. Jeffrey Harmening: Good morning. Kofi Bruce: Hi, Pam. Pamela Kaufman: Just in thinking about some of the headwinds that may be abating over the couple of quarters, do you have an estimate of how much you think that Snap may have impacted your overall growth or industry growth? And also just the improvement in on-shelf availability, how much of a tailwind can that be to your growth outlook? Jeffrey Harmening: Yes. I think, Pam, I'm not going to -- this would be unsatisfactory, so I apologize, but I'm not going to try to quantify either one of those two things only because there are so many there are so many moving pieces. We've got -- we are lapping pricing as well in the external environment. But I would say the SNAP benefits are pretty modest. They're there, but they're pretty modest. But look, I'll take a modest benefit at this point. The on-shelf availability should also provide a modest benefit to us. But again, that will be over time and it won't be a one-time event. And that will really start kind of the end of April, beginning of May, we would start to see the benefits of that into our first quarter. And so I think as we talk to you in June, hopefully, we'll give a little bit more satisfactory answer about kind of what we're seeing because we will -- we have seen both of these things play out for a period of time. Pamela Kaufman: Okay, understood. And then just on corporate expense, on a pretty notable reduction year-on-year. What's contributing to that? And should we be extrapolating these levels going forward? Kofi Bruce: I appreciate the question. The primary driver in the quarter was a reduction in our incentive-based comp accrual as we obviously are tracking a lower top line performance and comping last year. where we had to increase it pretty sizably on outstripping our top and bottom line performance last year. So I expect this to be a benefit that we'll see specific to the quarter. The other item is related to our recall insurance recovery, which we booked in the quarter. So those are specific to the quarter, and I wouldn't expect that to be part of the base expectation going forward. Pamela Kaufman: Okay, thank you. Jeffrey Harmening: You bet. Operator: We'll go to the next question from John Baumgartner at Mizuho Securities. John Baumgartner: Good morning. Thanks for the question. Jeff, I wanted to come back to the value-seeking consumer. And in North America retail, the areas where volumes have still been lagging. You look at cereal, go, frozen snacks where category pricing is up one-third to 50% in 2019. What can we do at this point? Any levers left to maybe enhance the volumes that are a bit more independent of the macro. I mean can you go to the pack change as you're doing in pet, can you innovate or market consumers into higher prices? Or is it just that some categories overshot on pricing, relative to what consumers can bear and now it's down either taking prices the other way or just waiting for consumers to grow into these levels financially? Jeffrey Harmening: Yes. Thanks, John. A couple of things I would say. The most important thing I would start with is that what you see in all the categories you mentioned, is a significant change in input cost inflation. So we've been the recipients of quite a bit of inflation over time. More than 30%, in fact, I think, is 32% over the past three years or so. So the cause of prices going up really has been input cost inflation and the prices that we received. As we look category-by-category, we don't think we're out of line to where we were pre-pandemic actually. And I think as important as consumers seek value, they seek in a variety of ways. The most important way are the benefits that our brands provide. And so part of the reason that we continue to invest in media and marketing and will continue to do so is that our brands have value and what they provide materials, provides heart health. And Pillsbury provides quick, easy, convenient meals at dinner time. And so that's the most important thing. But then more specifically, consumers also look at value in different ways when it comes to pricing and some want to buy in bulk. So it'd be going to a mass store to buy big boxes of cereal, for example, for the lowest price per ounce, where they'll be buying 80 packages of fruit snacks at a time at a warehouse store. Otherwise, they feed the soccer team. Otherwise, they may be stopping off at a dollar score store, a discount store to buy a one pack at a time. And so there's not one monolithic consumer. Every consumer looks for value in their families in a variety of different ways, including trying to feed their families at home. So we don't think that our pricing has gotten ahead of inflation. In fact, it hasn't. And we feel good about where we are in the categories. I think what we have to do is lap some of the one-time on self-availability, things we've seen now, we've lapped pricing. And once we do that, we feel good about our ability. And I think you see that in the third quarter. We -- in North America retail, we grew market share in about 45% of our categories in the third quarter, which is a significant improvement from what we had seen in the quarter before. And hopefully, as we lap some of these other factors, snapping on self-availability, we'll see continued improvement. John Baumgartner: Alright. Thanks, Jeff. Jeff Siemon: Okay. I think that's all the time we have. Before we wrap here. I think I'll pass it back to Jeff for some closing comments. Jeffrey Harmening: Yes. So well, thanks, everyone, for the time this morning. I guess I would start by saying we're encouraged by our third quarter results, particularly improvement in competitiveness in our categories. We're competing effectively and we thought that we would. And a lot of this is driven by lapping some pricing from a year ago and our ability to continue to execute well. We have innovated well. We have grown distribution. We have done -- we're executing our plan well. As we look to the fourth quarter, I mean, there are some timing issues as we talked about with expense -- the timing of expenses. But broadly speaking, we would expect our third quarter sales to kind of play out in the same magnitude that we saw in the third quarter. And our goal really now is to gain some -- regains some top line momentum as we continue to be very disciplined in the middle of our P&L. And we think that combination of factors will serve us well. We'll see how it plays out. There are a number of factors in the coming months, including this lapping of the SNAP benefit as well as on shelf availability and we'll be able to come to you in June with certainly a clear picture of what we expect in fiscal '25 and what some of those benefits are that will lap over the coming couple of months. Jeff Siemon: Great. So we'll wrap it there. Thanks, everyone, for the time this morning. Feel free to reach out if you've got follow-up questions throughout the day. Have a good day, everyone. Thanks. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: Greetings and welcome to the General Mills Second Quarter F ‘24 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded Wednesday, December 20th, 2023. I would now like to turn the conference over to Jeff Siemon, Vice President for Investor Relations and Treasurer. Please go ahead. Jeff Siemon: Thank you, Dina, and good morning to everyone. Thank you for joining us this morning for our Q&A session on our second quarter fiscal 2024 results. I hope everyone had time to review our press release, listen to the prepared remarks and view our presentation materials, which were made available this morning on our Investor Relations website. Please note that in our Q&A session this morning, we may make forward-looking statements that are based on our current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here with Jeff Harmening, our Chairman and CEO, and Kofi Bruce, our CFO. So let's go ahead and get to the first question. Dina, can you please get us started? Operator: Of course. [Operator Instructions] Our first question is coming from the line of David Palmer with Evercore ISI. Please go ahead. David Palmer: Thank you. A question on North America Retail margins. They've been impressive in spite of the volume declines we've been seeing. Do you think that the segment margin can hold near these levels given what's going on with volume trends? And, I guess, a couple of factors I'm thinking about is, some of your high margin categories, like dough, might be a negative mix effect, but then again, you're talking about accelerating productivity gains. So, curious about the margins for that segment? Kofi Bruce: Yeah. David, thanks for the question. Just to rewind a bit, we've seen the margin improvement, to your point, largely on the backs of really strong HMM delivery. So, one of the features of this environment has been sort of the stabilization of the supply chain environment, which has allowed us to step up HMM more acutely on this business than our other segments, and also to get at some of those disruption related costs. We've made really strong margin progression gains on this business on the backs of those two things. I expect that to abate a bit here as we move forward, just as a result of having already gotten out a good chunk of those disruption related costs. So, on balance, I see this business poised for more stability in aggregate. David Palmer: And then with regard to the pet business, maybe, is there a comment you want to make there about what the biggest fix will be from here? Wilderness, for example, has been relatively weak, but what do you think the best earliest fixes will be for that business? And what are some of the long-term things you're looking to do to improve the trajectory? Thanks. Jeff Harmening: Yeah. Thanks, David. This is Jeff. I would say in the presentation we shared four things we're working on and a couple of the things we know that we can improve upon to improve the profile of the business. And two of them where we feel good about, and that's important, because it shows that the Blue brand is still strong. And so, as we look at Life Protection Formula, we've changed our advertising on that, and the business has responded nicely, and we've seen steady improvements there. We have changed the merchandising on our Treats business, and while it's not all the way to bright, we've seen significant improvement throughout the second quarter on that business, and yet the results are still not what we want to be. And so that leads to what needs to come next. And I think there are really a couple of businesses that we need to improve. One is our wet business and our wet pet food. And so, you'll see us introduce some value and variety packs in the back half of the year starting in January, and that -- we'd like to see improvements in that. And then the biggest fixes, which will take a little bit longer and they're kind of interlinked, but they're not the same. One is Wilderness, and we really need to reposition the Wilderness brand and do some work on that, and that'll take a little while to get back to full health. The other is that, we have -- the pet specialty channel in itself has not done particularly well. We over-indexed in that channel, and there are some things we can probably do to perform better in that channel, even while we keep investing to grow our food, drug and mass channel, which we're quite pleased with the results and online with the results. The other thing I guess I would add is, we did have -- as we look at the back half of the year, the reason we're not saying recovery or stabilization is that, in the back half, we had shipments ahead of sales last year and so we're lapping. That's particularly true in the third quarter. And so, even to the extent we see some stabilization in the sales trends in pet, the reported net sales are going to lag that because of some inventory build in the back half of the year. So, those are the things that we need to do. Some of them are underway, and we like what we see so far. And there are a couple more that we really need to work on. It'll take a little bit longer. David Palmer: Thank you. Operator: Our next question is coming from the line of Andrew Lazar with Barclays. Please go ahead. Andrew Lazar: Great. Thanks so much. Good morning, everybody. Jeff Harmening: Good morning. Andrew Lazar: And, Jeff, I wanted to maybe chat a bit about -- I realize as you've talked about in the prepared remarks, the company has some EPS flexibility despite the weaker sales in the form of lower sort of compensation expense versus last year. The HMM, that's been stepped up, some more share repurchase versus your sort of initial expectations. So, I guess, my question is, is 2024 a year where maybe the company perhaps should lean in even more and maybe be a little less concerned about sort of a specific EPS range, if you will, in order to set it up -- set the company up for more sustainable sort of growth in 2025 and beyond? That's a question I'm sort of getting a lot this morning, so I just wanted to get your thoughts on that if I could. Jeff Harmening: Yeah. Andrew, I'm glad you asked, and I appreciate the fact you're getting a lot. I think, it's a really important question, because our job is to maximize long term shareholder return, not any particular quarter, frankly, even any particular year. And so, one of the things that we -- as we look back over time when the consumer is stressed and the results are harder to come by, one of the things we've seen successful companies like ours do is reinvest for the future. And that comes in the form of consumer investment, but also investment in capabilities, things like strategic revenue management and performance marketing and automating supply chains and things like that. And so incumbent and included in our results is an increase in consumer spending, even though we've guided down on our sales for the year, we'll still invest in consumer spending and we're still investing in all of the capabilities that we know will drive our growth, not only for this year but in years to come. And then that's with regard to growing revenues, but also maintaining our discipline on HMM and automation and using AI in our supply chains are going to be important parts of that as well. So, one of the things I want to make sure you can tell your investors is that, while our profit guidance is still 4% to 5% growth on EPS, that's inclusive of making sure we maintain our reinvestment in the business. And we're able to do that, because our HMM levels are very high right now. We're taking out the cost from our supply chain. And as you mentioned, our admin costs are declining. Andrew Lazar: Great. Thanks for that. And then just on -- a bit more on the faster competitor normalization of shelf availability comments that you made in the prepared remarks. Is it an issue in a specific category or is it more broad based? And is it General Mills actually losing shelf space, or really just others now having better availability in the slots that they have? And what have you seen that mean for promotional intensity or not? Thanks so much. Jeff Harmening: All right. Andrew, I'm going to try to address all those questions and if I miss one, come back, because I didn't mean to... Andrew Lazar: Will do. Jeff Harmening: Because I didn't mean to skip. Andrew Lazar: Will do. Jeff Harmening: On the on-shelf availability, when we put our guidance together for this year, I mean, we grew at 10% last year and original guidance was 3% to 4% this year. And so we knew that on-shelf availability would be a headwind for us, because frankly our supply chain held up a lot better than our competition did a year ago. And so, we calculate, we factored that into our guidance for this year. But the fact of the matter is, on-shelf availability for our competition increased a lot faster, particularly private label and small players, faster than we had anticipated. Importantly, they're now catching up to our on-shelf availability. And so, we've actually improved our on-shelf availability this year. So, it's not as if we have gone backward. We are -- our on-shelf availability is higher now and you can see that out, because we've reduced our disruption cost. It's just that our competitors have increased quite a bit now, have kind of drawn even with us after trailing for like four years. So that's the first part of the question. We anticipated it, but not the rate of change. In terms of the -- and we'll lap -- we'll start lapping that really in kind of late April and May of this year. So, that's when we started to see this impact. In terms of distribution, one of the things -- our teams across the board, certainly in North America Retail are really executing well. Our share of distribution is actually up, and so there's not a problem with our distribution. In fact, the opposite. Our distribution looks good. And I will say that I'm really excited about our innovation in the back half of this year, which I'm hoping will bolster that further. We've got good innovation in cereal. We've got good innovation in yogurt and soup and Old El Paso and Haagen-Dazs. And so, as I look across our big billion dollar businesses, our innovation lineup is really good and, frankly, better than it was last year. And so, as we look to the next half of the year, I think, we can see our distribution continuing to build. As to what it means to promotional, the promotional environment, it's been a very rational promotional environment against some thoughts to the contrary. We have seen the number of promotions pick up this year, as we expected, because of on-shelf availability. Importantly, we've also seen the quality of the merchandising, specifically the quality of merchandising that we get, has also accelerated. And because the quality of merchandising has improved for us, we've seen the lists we receive, but also the ROIs we receive have been better than they were a year ago. But importantly, and this is a really important point, even though the level of merchandising has increased in frequency, it has not increased in depth. And even the frequency is still below where it was before the pandemic, and the depth of the promotion is well below. So, yes, we're seeing increased levels of promotion. We expected that. And, frankly, the returns are better, because of the quality of merchandising that we're seeing. Andrew Lazar: Great. Thank you so much, and have a great holiday. Jeff Harmening: You too. Operator: Our next question is coming from the line of Ken Goldman with JPMorgan. Please go ahead. Ken Goldman: Hi. Thank you. Good morning. When you visited New York a couple of months ago, you mentioned that you may lean in a little bit harder to share repo. So I don't think today's announcement on that line item was a huge surprise. But, I guess, I'm curious you've also spoken about your ongoing desire to be flexible for potential strategic acquisitions. And I'm just wondering, is there any read through from your willingness to purchase more shares than you initially expected into how you kind of see the ripeness of M&A opportunities, I guess, in today's market? Jeff Harmening: Yeah, Ken. This is Jeff. Let me start with that question, and Kofi, if you want to add any color or commentary, that would probably be helpful, too. But the fact that we've repurchased more shares in the quarter than originally anticipated, the beginning of the year, is not a reflection of a change in how we view capital allocation. We're investing quite a bit in the business and then increasing our dividend. And then, if we see M&A, we'll certainly do more M&A. And if not, we said we repurchase shares, which is what we're doing. And, importantly, our net debt to EBITDA levels are in a good place. And so, to the extent that we see something that we think can create shareholder value in terms of portfolio reshaping, we're more than capable of doing that. So, what you've seen is really a reflection of our executing against the capital allocation priorities we already stated. Kofi Bruce: And I think, Ken, the only other thing I'd add is, just to state one of the obvious, sort of, underlying points, we're getting additional leverage out of our repurchase activity. So, dollars are going further because of the pressure, obviously, on the stock, and as much as the stock has come down since the beginning of our fiscal year. So, that's also amplifying the impact in terms of the diluted share count and the acceleration into the front half of the year. But, I think, I'd reiterate Jeff's point. We expect to have more than ample flexibility for M&A should we see the right project or set of projects. None of the things we're doing on share repurchase, we would expect to take our leverage above 3 times net debt to EBITDA. Ken Goldman: And then changing subjects. One of the more appealing elements of pet food as a category has been the high level of switching costs, especially in premium, where there's less price sensitivity, too. Just curious, though, given some of the challenges facing Blue, is it fair to wonder if maybe the cost to switch isn't quite as high as we all thought, and that premium isn't quite as protected? Or do you think maybe, hey, we're just in a unique time when the specialty channel is kind of lagging at the same exact time that the consumer is suddenly worse off? Jeff Harmening: Yeah, Ken, that's a fair question. I think, there are two things at play here. And one of them you pointed out. But I'll start in another area. As we look at the pet food business, the feeding business, and certainly that was a majority of the business we bought when we bought Blue Buffalo is feeding is relatively inelastic. And when we see that with our dry pet food, both cat and dog food performance, the -- but treating, and we bought into that when we bought the pet food business from Tyson a couple of years later, that is actually more elastic and is more of an impulse purchase. And that's why when you see the economy as it is, people trading down to less expensive treats, if they're still treating and treating a little bit out of treats, because they're trying to economize on that, but they stick with the feeding. And so, the first part of the question is -- the first part is that the feeding part is actually not more inelastic than we had thought the -- but the treating is more elastic. The second piece is, it's a combination. You say, I mean, I don't remember the last time we've seen 30% increase in cost over three years. And while it's relatively inelastic, it's not completely inelastic. And so, the combination of the tremendous increase in input costs combined with the pet specialty channel where we over-index, there's no question that those two things have had an impact on our business in the short term. But importantly, as we look over the five years we've owned the business, we've doubled the business. The Blue brand is really strong. When we execute well against it, whether it's on Life Protection Formula, advertising or holiday treats or things like that, we see the business really respond well. And it's very clear to us this humanization trend is going to continue, and that Blue is well paced to capture that over the course of time. Operator: Our next question is coming from the line of Nik Modi with RBC Capital Markets. Please go ahead. Nik Modi: Yeah. Thanks. Good morning, everyone. On the promotional, I wanted to follow up on the promotional comment. One thing we're hearing from retailers is, the lift doesn't seem to be as good as we've seen historically, Jeff. So, I just -- I was hoping you can just comment on that? And is that something you're seeing in the marketplace? And does that kind of maybe be a -- send a signal that perhaps absolute price points have become too high? I just love your comments on that. Jeff Harmening: So, when we talk about historical, it kind of depends, Nik, on what we mean by historical. I don't mean to be cute with this, but if we look relative to where we were a year ago, what we see is our lifts have actually improved vis-a-vis where they were a year ago. If we look to see where the lifts are versus where they were four years ago, they're not quite at the levels of where they were four years ago. And I don't have a fact that I can point to as why exactly that is the case, but I would tell you that neither we nor consumers have seen inflation the way we've seen it over the last few years, and consumers are still getting used to new prices in the marketplace. And I suspect whether that's food or gas or rent or any number of things, that is absolutely the case. And it will take a little while for consumers to settle into what new price points are to the extent we continue to see inflation, which we do, even if at more modest levels. So, Nik, I would say that relative to a year ago, we're pleased with the progress of our lifts, but relative to historic pre-pandemic, they're a little bit lower. And I wouldn't surmise that it's the consumer catching up to a new reality. Nik Modi: Great. Thanks. I'll pass it on. Operator: Our next question is coming from the line of Pamela Kaufman with Morgan Stanley. Please go ahead. Pamela Kaufman: Hi. Good morning. Jeff Harmening: Good morning. Pamela Kaufman: I had a follow up question on the guidance for this year. Just wanted to see if you could walk through the puts and takes of the updated outlook. So, your org sales outlook implies about $800 million less in sales this year at the midpoint versus before. But you narrowed your EBIT growth guidance slightly compared to your prior expectations. So, can you just walk through -- I know, you have the higher HMM savings, but where else are you finding offsets in the P&L, because HMM wouldn't seem to explain the full impact on the lower impact on EBIT changing? Jeff Harmening: So, Pam, Kofi and I are going to tag team this. Let me talk about that. Let me talk about the revenue, and then Kofi is going to take the rest of the P&L side. On the revenue side, the way I think about our guidance is that, in order to hit the lower end of our guidance, so let's call it minus 1%, that would indicate that we'd see a continuation of the top line performance we saw in Q2, and -- which would indicate a little bit better volume and a little bit less price/mix than we saw in the second quarter, but in absolute terms, about the same as we saw in the second quarter. The higher end of our guidance, which suggests that the categories get a little bit better, which we think they certainly could, due to lapping the SNAP emergency reductions from a year ago in January through March, and from our lapping pricing activity from March and April of last year. So, those two things combined with a little bit better share performance based on the out-of-stock situation changing near the end of the year. We could hit the top end of the guidance we suggested, but that kind of brackets the top line. I'll let Kofi talk a little bit more about the profitability. Kofi Bruce: Sure, Pam, and thanks for the question. I would just note that the HMM adjustment is pretty significant. As a reminder, the past two years we've delivered below our historic levels of kind of 4% [and] (ph) 3% for each of the prior two years due to the supply chain disrupted environment. We're now on pace to deliver 5% against an early expectation of 4%. That is the biggest single contributor. But we are seeing improvement in our inflation, but not significant enough to change the routing. So, that's a modest contributor as well. But the other component in gross margin is the supply chain related disruption costs. So, as I mentioned earlier, one of the features of this environment is supply chain stability has allowed us to get at some of those embedded costs we took on to operate in this environment. And we've made sequential improvement over the last four quarters on this in -- most acutely within our North America Retail business. And then, lastly, the adjustment of our incentive off of last year's peak level. So, as you know, last year, really strong year performance, historically high levels of incentive-based comp, which is variable and based on the top and bottom line projections as that's both normalized at the start of the year to a base expectation of planned targets. And now as we take the top line down, that's almost $100 million in reduction in admin expense. So, as you take all of those, that gives us the confidence to keep within the range, albeit a little tighter as volume expectations come in from the top of the year. Pamela Kaufman: Thanks. That's very helpful. And just a follow up question on gross margins. They're now back to pre-pandemic levels. So, how are you thinking about the potential for gross margin expansion from here? On one hand, you have the benefit from HMM, but I'm assuming there will be some volume deleverage. So, how should we expect gross margins to progress? And do you kind of see them at the right levels here? Kofi Bruce: Yeah. Well, okay, I think implied within our guidance would be a little bit less gross -- operating margin expansion, bolstered obviously by gross margins in the back half as we see a step down, a sequential step down in the contributions from price/mix as we lapped last year's SRM actions fully by Q4 of this year. I just note we've made significant progress at the gross margin level, bolstered in part not just by HMM these past two quarters, but in part by the disruption costs that I mentioned earlier, 170 basis points, 120 basis points in the back half of last year and the first half of this year, respectively. So, I would expect we'd see more normalized levels of gross margin expansion going forward, kind of off of this base. There's still a little bit more disruption related costs to get out, primarily in some of our other businesses outside of NAR. So, that will give us a little bit of tailwind. But to your point, given the volume environment, that's largely going to go to offset the impacts of deleverage. Pamela Kaufman: Thank you. Operator: And our next question is coming from the line of Matthew Smith with Stifel. Please go ahead. Matthew Smith: Hi. Good morning. I wanted to follow up on the elevated level of HMM savings here in the year. You mentioned, it's a step-up relative to the prior two years where it was a bit lower because of inflation and supply chain issues. But how much of the elevated rate here this year is a pull forward from savings that you would expect next year? Or, I guess, that's another way of saying just how sustainable is this elevated rate of HMM savings as you exit fiscal 2024? Kofi Bruce: Look, I would expect that if the supply chain environment remains stable and continues to stabilize even a little further, we will have the ability to deliver at least in line with our historic levels of about 4% HMM, 4% of COGS. I would expect that the contributions from getting out some of those other disruption related costs that sit in COGS to decrease a bit here as we've gathered a good chunk of them on the back of our NAR business and as we see maybe a smaller base of costs in the other three segments. So, all things equal, I think 4% would be a good long-term estimate for us to migrate back to, provided the supply chain environment continues to cooperate. Matthew Smith: Thank you, Kofi. And Jeff, maybe a follow up about your share performance as you begin to lap the rebuild of competitive distribution, which I believe you said that begins to move into the base as you exit fiscal 2024. You're holding and gaining share in the majority of the distribution of your category. So, would you expect your dollar market share performance to improve as you lap that competitive rebuild? Or are there other concerns like consumer value seeking behavior or list price gaps that may need to be addressed as the share of shelf normalizes? Jeff Harmening: Yeah. One of the things that I'm most pleased with is that, over the last five years, particularly in North America Retail, we've gained share in 60% of our categories and we continue to execute well. And the key to our success, once we start to lap the on-shelf availability and once we lap the pricing activities from March and April, will be to the question that Andrew posed, which is making sure we maintain our brand building support and really good brand building, make sure we execute against what I think is really good innovation and continue to execute in store. And if we do those things, and I would expect us to do those things, then our share performance will certainly improve over time. And, hopefully, as we're exiting this fiscal year and beginning next fiscal year, we'll see that happen. Interestingly, our dollar share performance has not been what we needed to be. In terms of pound share, we are growing pound share in about 40% of our categories. And that's because even though our pricing trailed inflation, so we responded to inflationary pressures, we're actually more agile than our competitors. And so that provided us a dollar share benefit last year, and this year it's a headwind. But we are growing pounds here in roughly 40% of our categories. Matthew Smith: Thanks, Jeff. I'll leave it there and pass it on. Jeff Harmening: Thanks. Operator: Our next question is coming from the line of Michael Lavery with Piper Sandler. Please go ahead. Michael Lavery: Thank you. Good morning. Jeff Harmening: Good morning. Michael Lavery: Just wanted to -- have a couple of follow ups on the shelf availability. You said it's improving for competitors. Would you say that there's still headwinds to come there, or is that sort of all caught up to a normal level? And then on the promotional sort of dynamic related to that, you gave some color on how that environment looks. But just given your guidance update, it would seem like strategically you'd rather take a little bit of the volume hit than push promo much harder. I suppose, first, is that a fair characterization? And what would make you lean in more on the pricing side? Jeff Harmening: On the on-shelf availability, I mean, the competitors have kind of caught up to our levels, and that's been pretty stable for the past few months, and I wouldn't expect that to accelerate. So, I think we've seen a stabilization in that. Now, we'll see that their on-shelf availability kind of -- which is equal to ours, I'll remind you, so, actually, we're doing quite well. So, it's equal to ours. We’ll see -- they will see that benefit for the next three or four months until they start to lap it a year from now. And so, while it is stabilized, we'll see some of our competitors see a benefit for that for the next few months, and then they won't. In terms of the pricing environment itself, I'm not really going to get into specifics of future pricing. What we do see is that, I think, importantly, we see an inflationary environment ahead of us. I know there's been talk of deflation in some cases, and that may be true for things like commodities like milk and eggs, but it's certainly not true for restaurants. Their inflation is actually outpacing ours, and we see inflation in the low single digits. You look at the category pricing and it's somewhere in the 2% to 3% range. So, we see continued inflation even at a lower level. And, usually, pricing tends to follow inflation, because that's the basis on which we increase prices if we see an inflationary environment. And so, the -- as we look at trade-offs, I mean, our job is to create long term value for shareholders, and we do that by serving consumers, and we'll do that by making sure that our brands are strong and by innovating and making sure the products are available when and where people want them. Michael Lavery: Okay. That's really helpful. And just one quick follow up on pet. You had mentioned the retailer inventory destocking and characterized it as a temporary headwind. Is that just because there is only so low they can go, or do you expect it to reverse? Jeff Harmening: I do not expect it to reverse. I think, there's only so low that it can go. And we may see a reduction again in the third quarter, because I suspect that our sale -- our reported net sales are going to lack our sales out to consumers. And so, we may have not have seen the bottom of that as we look at our third quarter. But it really is more of -- I don't see a rebound in inventory levels, especially as some of our retailers specifically look to manage their working capital. Michael Lavery: Okay, great. Thanks so much. Operator: Our next question is coming from the line of Chris Carey with Wells Fargo Securities. Please go ahead. Chris Carey: Hi. Good morning, everyone. Jeff Harmening: Good morning. Chris Carey: So, just a couple of quick follow up for me. I guess, number one, and I think you've been clear about this, but maybe just to put a bow on this, I mean, in your prepared remarks, you mentioned that price/mix will remain positive in fiscal 2024. I'm not sure if I'm reading too much into this, but is there an expectation that price/mix could turn negative in any given quarter ahead, near or medium term because of mixed dynamics or potentially some step up in promotional activity? And just, secondly, Jeff, you mentioned an expectation for some improvement in category growth, is any of that just associated with lapping SNAP benefits as you get kind of deeper into your fiscal Q4? Kofi Bruce: I'll take the first part of that question, and then I'll let Jeff get you on the second. So, look, our expectations on price/mix are really built around the fact that we'll be sequentially stepping down as we lap pricing actions that we took throughout last year. We should fully lap those by the time we get to the end of the fiscal year. We're not expecting any of the quarters to deliver a negative price/mix, but merely just a step down in the contribution from price/mix to total RNS. Jeff Siemon: Chris, this is Jeff Siemon. One point I'd add there is, what you're seeing over the last couple of quarters is mix, even at the segment level, is more of a headwind, as for example our pet business is growing slower than the other parts of the business. That's a high price per pound business. As our food service business, which is low price per pound, is outperforming. And so, there are mix elements within the segments that do depress the overall enterprise price/mix. Jeff Harmening: And when you ask a question about growth at the category level, I mean, there are a couple of headwinds. One is just a little bit of consumer behavior and feeling the economic pressure and a little bit less discretionary spending. And I don't frankly know when that will turn around. Consumers are certainly still stressed right now. They feel the impact of inflation over the past few years, and we certainly understand that. The thing that we -- that's more discreet really is the lapping of the SNAP emergency allotments benefits from last year. And those kind of go state by state, but they took place last year between January and March. And that may be a one-point benefit to the categories that we're in. And so, it's not a heroic increase, but certainly a stabilization of the categories. And we'll start to -- as I said, we'll start to lap that here in the next month or so throughout our fiscal third quarter. Chris Carey: Okay. Helpful. I'll pass it on. Thank you. Jeff Siemon: Okay. Unfortunately, I think that's all the time we're going to have this morning. Thank you for all the good questions and discussion. Appreciate your time and attention. And we will look forward to catching up in the new year. In the meantime, happy holidays to everyone. And please reach out if you have any follow ups to the IR team. Thanks. Operator: That does conclude the conference call for today. We thank you for your participation. I ask that you please disconnect your lines.

Operator: Greetings, and welcome to the General Mills Q1 Fiscal '24 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded on Wednesday, September 20, 2023. I would now like to turn the conference over to Mr. Jeff Siemon, VP of Investor Relations. Please go ahead. Jeff Siemon: Thank you, Frank, and good morning, everyone. Thanks for joining us today for our Q&A session on our first quarter fiscal 2024 results. I hope everyone had time to preview our press release, listen to our prepared remarks, and view our presentation materials, which we made available this morning on our Investor Relations website. It's important to note that in our Q&A session, we may make forward-looking statements that are based on our current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here this morning with Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Jon Nudi, Group President for our North America Retail segment. So, let's go ahead and get to the first question. Frank, can you please get us started? Operator: Thank you. [Operator Instructions] Our first question comes from Ken Goldman with JPMorgan. Please proceed. Ken Goldman: Hi. Thank you. You mentioned that consumers have been shifting purchases to customers and channels, not necessarily tracked by Nielsen. I'm just curious, as this trend has taken place, have you seen any of your more traditional tracked customers, I guess, those [FDM] (ph), kind of leaning more into price to try and retain traffic and tonnage? And if they're not yet, is this something maybe we might expect to see just given past history? Jeff Harmening: So, Ken, this is Jeff Harmening. You're right, we did see increased traction in non-measured channels in the first quarter, and we'd expect that to continue throughout the year. But Jon Nudi, why don't you give a little color commentary on that? Jon Nudi: Yeah, absolutely, Ken. So, we did see non-measured channels grow at a double-digit rate in the quarter, which obviously drove [RNS] (ph) ahead of movement a bit for NAR. As you look at traditional grocery, we've seen frequency up a bit, about 5%, but price points up dramatically versus pre-pandemic and we continue to invest in our SRM tools and, as a result of that, we don't expect to see deep discounting. As we model, our retailers model, it just doesn't add up at the end of the day. So, we are seeing a bit more frequency, but price points up versus pre-pandemic for sure. Ken Goldman: Got it. And then, thank you for that. I guess, quickly the Street's modeling, just looking at 2Q, low-single-digit organic sales growth. Is this kind of a reasonable range within the context if you're not providing quarterly guidance? Just trying to get a little bit of color there, especially in light of scanner data, maybe suggesting that performance in NAR is heading downward a little bit in recent weeks. I just didn't know if that's what you were looking for. Jon Nudi: Yeah, so... Jeff Harmening: Yeah, Ken -- go ahead, Jon. Jon Nudi: Go ahead, Jeff. Jeff Harmening: Yeah. So I think -- first of all, you're right, we're not going to give guidance on a quarter either for the segment or for the company, but I will give you some -- a little bit of color commentary on the year and the guidance, because I think that's probably is important. I mean, importantly, as we look to 3% to 4% sales growth, I think it's important to remember that -- to know that we don't really expect a huge rebound in our Pet business for the rest of this year and due to all the factors we've talked about. Yeah, I will say, as importantly our Foodservice business is growing nicely, and we see continued growth in that. And our International businesses is up really nicely as well. Yes, we had Häagen-Dazs recall that we were lapping and Häagen-Dazs responded nicely, up 20%. That's not the only thing growing. Our European business was up double-digits and growing 70% on our Bars business in France and our India business, our Distributor businesses are also growing. And so, I think it's important to note that even while Pet didn't quite meet our expectations for the first quarter, it's going to be challenging this year. We have two other big segments that are going to do quite well. As it comes to NAR, we're executing really well on NAR. I mean, our distribution is up, the quality of our merchandising are up, our new products are doing well. And you might say, "Okay, well, then what happened to share performance in the first quarter?" And I guess I just remind you that, our first quarter is our toughest from a share perspective given the pricing that we're lapping and our competitors gains that they've made in getting their supply chains back up in order. NARs were already really good, NARs are improving too. So, as we look at the rest of the year, in NAR, for those listening, we do expect our volumes to improve. Importantly, they don't have to get to positive, they just have to improve from where they are now, and part of that is really going to be gaining share as pricing gets lapped, as the competition, comparisons get tougher and [indiscernible] get easier because of this supply chain challenges. And we think -- look with all of that happening, as we continue to execute well, our NAR business will continue to get better throughout the year. Jon Nudi: Yeah. And the only thing I might add some color on is on-shelf availability, so Jeff touched on that, and our on-shelf availability is better this year than last year, and that's great. What's remarkably different is, our competitors, and particularly private-label. So, if you look at private-label on-shelf availability in categories like grain and RBG, it's up 10 points year-over-year. So, while that was a tailwind for us where we are on the shelf and private-label wasn't, it's a headwind this year. That comp gets better as we move throughout the year and that will help us as we expect to see sequential volume improvement. Ken Goldman: Makes sense. Thanks so much. Operator: Our next question comes from Robert Moskow with TD Cowen. Please proceed. Robert Moskow: Hi, everybody. Thanks for the question. I wanted to know -- I guess two questions. You had some very significant marketing investment in first quarter, but this is a very tough volume environment. And I wanted to know what's your plan for marketing investment for the rest of the year? And do you have -- would you keep the same amount of pressure on, or would you change tactics mid-year if you're not getting the volume that you expected? Jeff Harmening: Yeah, Rob, first of all, this is Jeff. Welcome back. Good to hear you again. And Kofi, you want to take this? Kofi Bruce: Yeah. So, you're correct in noting, Rob, that we were up double-digits in the first quarter on our media spend. I would expect for the balance of the year, based on everything we see right now, we would expect our media spend to grow at least in-line with sales. In this environment, I think it's important for us to put support -- brand support behind quality ideas still, and especially so as we see the environment stabilize. Robert Moskow: Okay. Can I ask a follow-up? Your snacking business has improved in the quarter. It had some ups and downs. And in the press, you have mentioned as being interested in a major snacking company. As you look at your M&A objectives, is snacking a key area in which you want to expand and possibly through M&A? Jeff Harmening: Yeah, Rob, so this Jeff. Clearly, we're not going to comment today on rumors or what has or hasn't transpired in the marketplace, no matter whose transaction it is. What I will tell you is that, for us, our objectives with M&A really haven't changed. I mean, we've been very consistent, maybe boring over the last couple of years. And then, we will look to add about 50 basis points of growth if we can through both acquisitions and divestitures. There are things that will be bolt-on in nature, by which I mean, we can use our current capabilities and our knowledge of channels and technology in order to generate more sales growth and some synergies. And we do have the balance sheet in order to be able to do that. What I will also remind you is that, we've also said we've been disciplined, and we are discipline. And so, to the extent we see something that we like on acquisitions, we will certainly do that, but only if pricing that makes sense for our investors. And so, I want you to know that no matter what's transpired over the last little while in M&A, our position hasn't really changed. And that includes -- I've also read a commentary, our food company is looking at M&A now because their volumes are down, the answer is no. I mean, we don't play the short-term game when it comes to M&A. We go get brands we like. We hold them for a long time. We grow them. We've been doing that for 165 years, and we'll continue to do that. And so, what isn't going to be the case is that we see volumes going in a certain direction, therefore we have to make up that gap, that's really not part of our plan. Robert Moskow: Got it. Makes sense. Thanks, Jeff. Jeff Harmening: Yeah, thank you, Rob. Operator: Our next question comes from Andrew Lazar with Barclays. Please proceed. Andrew Lazar: Great, thanks very much. I guess with a slower result expected in Pet sales for the year versus initial expectations as you've talked about, I'm curious if this impacts your sort of Pet capacity expansion plans in any way. You, obviously, got a lot of work underway in trying to get capacity going and bringing a lot of that in-house over the period -- or the course of the next year or two. Does that get any impact -- does that get impacted in any way? And I guess, another way of asking it is, do you still see sort of Pet as a sort of high-single-digit type of sales growth driver over time for the overall portfolio? Kofi Bruce: Sure. Appreciate the question, Andrew. This is Kofi. Look, I think -- I'll start with the back end of your question first. I think we're still bullish on the long-term prospects for the Pet category. As a reminder, it's a $44 billion category. It's supported by 1% to 1.5% pet population growth. And we do think the prevailing trend over the long term will be humanization, which will drive growth, and in particular, benefit premium brands like Blue Buffalo. I think in the short term, we aren't making dramatic changes to our capacity expansion plans on dry dog food. I think it's important as we think about that capacity coming online late this year, we won't -- like, we won't see the benefits this year. We would expect that it will give us longer-term benefits and at a minimum being able to steer more production to internal capacity, which will also help with margin reconstruction on this business over the near -- intermediate term. So, we still feel good. We're still bullish and a net investor on this business and on capacity, and certainly for the long-term strategically. Andrew Lazar: Got it. And then, Jeff, I know you and others are certainly talking about the expectation to see improving sequentially volume trends as we go forward just as the industry gets back to maybe a more normal cadence of sort of marketing and merchandising expanding now that service levels are back in a better place and such, which -- it seems logical certainly. But what I still don't, I guess, have a lot of clarity on and maybe because it's the lot of little things that add up, why do you think that broadly industry volumes are still sort of where they are even as pricing is starting to lap? And maybe it's just a matter of timing and these things don't always line-up perfectly in a linear way. But I know there's been lots of different reasons, people were traveling, now they are back at home or back to school, or people hunkering down a little bit. I'm just curious if what you're most sort of up-to-date thinking on that might be. Thank you. Jeff Harmening: Yeah, sure, Andrew. We spent quite a bit of time on this and it's very clear to us that there are three broad reasons. And so, there's not one thing. I mean, there are kind of three broad reasons for what we see in the marketplace now, especially as one looks at Nielsen trend. The first, we touched upon this a little bit earlier, but we do see quite a bit of growth in non-measured channels. We're up double-digits in NAR in the first quarter in non-measured channel, for example. And so that is certainly a piece of why you see Nielsen data as it is. The second would be that food away-from-home, not necessarily in restaurant, restaurant traffic has been pretty flat, in fact, quick-service restaurant traffic has been up, so there is a move toward value in restaurants, but that traffic has remained relatively flat. What has changed is that we've seen a reversion back to people being mobile and more education and healthcare and hotels and lodging and that sort of thing, which I think is logical. In fact, if you look at the movement data through airports, it's up year-over-year. Now it's only back to pre-pandemic levels, but it's quite a bit year-over-year. So that would kind of corroborate that thinking. So that's the second reason. And the third is, there's probably as we've seen another kind of recession -- we're at a consumer recessionary period, even though technically we're not in a recession, consumer behavior trying to economize, and so that may be going into smaller sizes and things like that, which in the very short-term, [detox] (ph) a pantry, but people aren't eating less, and we don't anticipate that they will eat less. In fact, what I would say is, as consumers start to get squeezed, what generally happens is people move more at home. And now the cost of eating out is roughly four times what it is eating at home and so as consumers get more squeezed and as people get into their normal routines in the fall, we would think that at-home eating would probably pick up a little bit. We'll find out. But that's what we think and those are the three factors that is very clear to us are driving the current environment. Andrew Lazar: All right. Thanks so much. Jeff Harmening: Thank you. Operator: Our next question comes from Jason English with Goldman Sachs. Please proceed. Jason English: Hey, good morning, folks. Thanks for slotting me in. I have another question on Pet, but not top-line, instead looking at margins. Input costs have been stubbornly onerous for you in Pet, not just you, it seems like the industry at large. The rate of inflation has been a lot higher and for a lot longer. What's driving them? And what's the forward? Like at what point do we start to get some relief there and get to a point where maybe you can get some margin recovery? And the second part of my margin question, I know you expanded treat capacity coming into this year with a third-party vendor. Obviously, you don't need it, and with what's happening with treats, is that a take or pay agreement? And is that also a contributing factor to your margins? And if so, how big and how long will that headwind persist? Thank you. Kofi Bruce: Sure. Thanks for the question, Jason. Just a couple of thoughts. So, I think on the first, as you sort of take the frame on the year, given all of the challenges, the mix of business, we don't expect the operating profit margins to improve this year. As you think about the structure of inflation, some of the same trends that are driving stickiness in human food inputs are there and present, and probably more so on some of the pet inputs, in particular, the conversion costs, which are heavily factored labor, and in particular in the inputs in pet food. So that -- until we start to see that trend come off, I wouldn't expect to see any near-term relief on the inflationary pressures on our input basket for pet food. I think on supply chain, our external suppliers, we generally have a pretty flexible structure. So I mean the benefit of the way we structured those contracts as we need the capacity, we can get access to it. We don't have a hard floor fixed-cost structure, where we would be paying if they weren't using it. Jeff Siemon: Jason, this is Jeff Siemon, I would just add on that second point, we were able to close down an internal [manufacturing] (ph) factory, so we weren't adding capacity to the system, we were just reshuffling where that capacity on treats specifically was located, and this supplier is -- we have a strategic partnership. We have our HMM cost savings program built into that contract. So we like what that can do for us from a profitability standpoint on that business. Kofi Bruce: And that's actually a lower-cost alternative to the internal production in this case. Jason English: Got it. That's really helpful. I appreciate that. And one more question on margins. Foodservice, it dipped sequentially. So, historically, looking back, there's not a lot of seasonality there, but we've seen margin slip for two consecutive quarters and we're now at 11%. What's driving the sequential dip? Is there anything unique about this quarter? Or is this like 11% rate, something we should take to the bank for the rest of the year? Thank you. Kofi Bruce: No, I would expect that we will see margins improve on this business. I do think one of the big factors has been the volatility in flour pricing as we've worked through this environment, which is a significant -- has been a significant headwind in the deconstruction of margins. So that's been a put and a take as we've moved through the past several quarters, including the last couple. I think long-term, the challenge and the opportunity on this business will come from stabilization of the supply chain, giving us access to a more stable HMM delivery. We are seeing that come through closer to our historical levels in the mid-single-digit range on this business, and we'd expect that it had -- the pricing benefits from last year's significant pricing will also help buoy margins as we move through the back of the year. Jason English: Thanks a lot. I'll pass it on. Kofi Bruce: You bet. Operator: Our next question comes from Chris Carey with Wells Fargo Securities. Please proceed. Chris Carey: Hey, good morning, everyone. So just on the Pet business, you noted SRM and pack size would be one of the methods that you're using to kind of like stimulate sales. How long does it take to get those right pack sizes in market? And is SRM your current thinking kind of exclusively or are you starting to think about any pricing adjustments beyond just pack size and just overall SRM? Jeff Harmening: Yeah, Chris, on the -- good questions. On the Pet business, we're doing a couple of things. First -- and someone asked this question earlier about the amount of marketing spend, but also what we're spending it on. What we're spending it on, the first thing I would say is that we're going back to some more hard-hitting advertising that really gives pet parents a very rational reason to believe why Blue Buffalo feeds them like family. The equity is held up well, and we think in this environment, direct comparative advertising on why exactly pet parents should pay for Blue is really important. So, we're going back to that. That's the first thing I would say. On the pricing itself and price pack architecture, we're doing it along several lines of our products. I'll give you just a couple of examples. In our dry pet food line, we didn't have a medium size. We had a lot of large sizes, but not some medium sizes. So, we're introducing those. And those start rolling out now, but it takes a while for them to get going. The same would be in treating. We are introducing some sizes, hit some more entry-level price points. That doesn't mean lower margin for us. It just means lower price points so it's good for pet parents. And then, in wet food, we're looking at some variety packs and things like that, which would probably be more weighted toward the back half of the year. So those are just a few examples of things we are doing to make sure that consumers understand the value. What we're not going to do is disrupt the value proposition of Blue Buffalo, which is a premium brand. And consumers know it as a premium brand. We spent lots of money and lots of years making it the best brand in the premium part of the category. And what I can assure you we'll do is not disrupt that. Chris Carey: Okay, very helpful. Just one quick follow-up. In the press release, you noted that gross margin had benefited from favorable mark-to-market. Can you just remind us of the typical hedging strategy [and where you sit] (ph) for the year? Basically trying to understand where there might be some variability if we see any moves in. Thanks a lot. Kofi Bruce: Sure. So, as a reminder, our adjusted gross margin, obviously, does not include that mark-to-market benefit, so that is an effect of our gap reporting where we do not get the hedge accounting treatment on our commodity hedging programs. As a reminder, we're generally trying to hedge out at the beginning of the year about 50%. So, given where we are in the year, we're about 65% hedged across all of our four businesses and across all the inputs. Operator: Our next question comes from Rob Dickerson with Jefferies. Please proceed. Rob Dickerson: Great. Thanks so much. Maybe we just move to cereal for a minute. It sounds like just from various sources, I believe yourselves included, there's not necessarily a tremendous amount of growth expected in the category over the next few years. So, Jeff, it's probably easier to kind of comment on the category, maybe reverting, right, back to kind of pre-COVID dynamics, but at the same time, I felt like during that period of time, there was some acceleration for General Mills specifically, just speaking to the quality and the power of the brands. So, you own Cheerios, Cinnamon Toast Crunch has done really well. So, I'm just curious, because you think forward, next year, next three years, kind of like why even state that you would think that category might not grow kind of relative to overall food, just as a reminder. And then, just secondly, just given the power of your portfolio, like within that dynamic, like I guess what's the conviction level and your ability to continue to gain share like you've done for, let's say, the prior seven years or so? Thanks. Jeff Harmening: Yeah, thanks, Rob. Let me provide some commentary and then, Jon, follow up as necessary. The first reminder I would let you know is that cereal is still the number one item to eat in the morning for breakfast. And it's almost 20% of breakfast eatings, I think it's 19%, so that's here in the U.S. So, it's still a highly consumed item in the morning. We've been doing very well in cereal. As you noted, we've grown more than 20% over the last five years. We've gained share, I think, five years in a row. We have the two biggest brands in the category in Cheerios and Cinnamon Toast Crunch. We have almost 50% of the category's new product volume and -- I think it's 47%, and four of the last five big items are from General Mills. So, we're innovating well. We're developing, our equity is well. We continue to grow. And so, my expectation for our cereal business is that we'd grow a little bit every year and hopefully take a little bit of share every year, but keeping in growth. What everybody else does, you'll have to ask the rest of the competitors in the category. But we like cereal. We like our brands. I love how we've been competing. So Jon, anything you want to add to that? Jon Nudi: I think you hit it well. I mean, at the end of the day, we believe in cereal, and we think it's a great category. As Jeff said, it's the most widely eaten breakfast in America today. As Jeff mentioned, we've been really performing well across the board, and we -- plan to continue to do that. As Jeff said, we don't need to grow a lot, we can grow a little bit and really like the way that the business runs for us and the P&L looks as well. So, we're going to keep investing. We're more excited today about cereal than we were even a decade ago. As Jeff mentioned, grew shares six of the last seven years. We're the clear share leader today. And again, never have been in the history of the category into the last five years or so, and we'll keep investing and keep growing the category. The other question we get a lot is, what happens if one of our major competitors gets more focused? And what we would tell you is that's actually a good thing. If you go back through history when the two major competitors in the category are supporting the category with marketing as well as innovation, the category does better. So, we hope that everyone comes to play and we can continue to grow those categories we move forward. Rob Dickerson: All right, super. And then just a quick clarification question on Pet. A lot of the commentary is really around like Pet not really improving that much, as we get through the year, given the drivers relative to Q1. I believe last year, that in Q2, you did have a fairly pronounced inventory de-load. So, should we be thinking that kind of starts to revert out some to provide some tailwind to your volume dynamic in Q2 specific to Pet? Or is it basically maybe there was some de-load and then maybe a little bit of reload in Q3, but maybe some of that inventory is just kind of now being sold through kind of as normal without maybe the more traditional kind of year-over-year rebound from the dealer, if that makes sense? Thanks. Jeff Harmening: It makes sense. I guess what I would say is that one of the things I've learned about Pet in the short five years that we've owned it, first of all, it's a great category and brand, we've doubled the business, but also trying to go quarter-by-quarter on a business with this much e-commerce and everything else is a tough way to go. So, I'm not going to try to prognosticate what happens. But you do bring up the point. We had an inventory de-load last second quarter, that is true. We're going up against that. But it's also true that inventory is very quite a bit. And as the business has slowed down a little bit, inventory tends to come out of the system. And so, we'll see what happens in the second quarter. But we're not anticipating a big rebound in the second quarter from what we saw in the first quarter for -- in order for us to hit our guidance. Rob Dickerson: Got it. All right. Thanks so much. Jeff Harmening: Thanks. Operator: Our next question comes from Max Gumport with BNP Paribas. Please proceed. Max Gumport: Hey, thanks for the question. As the industry starts to return to quality merchandising and with your own display support up mid-single digits, we're hearing that the lists associated with some of these events, especially end cap displays, aren't proving to be as incremental as it might have been anticipated. We're wondering if you're seeing this dynamic and also what you think is driving it. Thanks very much. Jeff Harmening: Jon, do you want to comment on that? Jon Nudi: Yeah, absolutely. So, as we look at merchandising [at large] (ph), I mentioned earlier, we see frequency up a bit, mid-single digits, but still down about 10% versus pre-pandemic levels. One of the things, as I mentioned before, we've invested in SRM capabilities. Our competition has as well and our retailers have also. So, as all of us are modeling the various pricing actions we can take, I think some of the tactics are different than maybe what we were doing pre-pandemic. I think we all know that driving deep discounts actually drives dollars out of the category and drives profit out of the category as well. So, what you're seeing is maybe more frequency at higher price points and as a result of that, maybe the lift on each deal isn't higher. But at the end of the day, when you add up all of your merchandising across the year, a little bit more frequency with higher price points actually drives more dollars for the category and our retailers and more for us as well. So, you are right, we're seeing slightly smaller lifts off of higher price points. But at the end of the day, we believe it's a good thing for a category. And again, the big difference, I think, versus maybe in the past are the SRM capabilities that all of us have delivered -- or developed and pretty sophisticated models now that we all can have a real good conversation with retailers on what to expect from a merchandising performance. Max Gumport: Makes sense. Thanks very much. I'll leave it there. Jeff Siemon: Okay, Frank, I think we're going to wrap it up there. Appreciate everyone's time on the call this morning. I know we didn't get to everyone, so please feel free to follow up with any questions throughout the day or the coming days. Look forward to continue to connect with you, and we'll look forward to speaking again next quarter. Thanks so much. Operator: That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day everyone.

Operator: Greetings, and welcome to the General Mills Fourth Quarter and Full Year Fiscal '23 Earnings Q&A Webcast. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, June 28, 2023. I would now like to turn the conference over to Jeff Siemon, Vice President, Investor Relations. Please go ahead. Jeff Siemon: Thank you, Malika, and good morning, everyone. Thank you so much for joining us today for our Q&A session on our fourth quarter and full year fiscal '23 results. I hope everyone had time this morning to review our press release, listen to our prepared remarks and view our presentation materials, which were made available on our Investor Relations site. It's important to note that in our Q&A session, we may make forward-looking statements that are based on management's current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliation of non-GAAP information which may be discussed on today's call. I'm here with Jeff Harmening, Chairman and CEO; Kofi Bruce, our CFO; and Jon Nudi, Group President for our North America Retail Segment. So let's go ahead and get to the first question. Malika, can you please get us started? Operator: [Operator Instructions] Our first one question is from the line of John Baumgartner with Mizuho Securities. Please go ahead. Your line is now open. John Baumgartner: Good morning, thanks for the question. Jeff Harmening: Good morning, John. John Baumgartner: Maybe just to start off, just big picture Jeff. I wanted to come back to this transition you're speaking about in the environment in this new fiscal year. Last year, you made some pretty material investments back into the business. And with those now in the base and conditions getting back to normalizing, how are you sort of adapting and evolving those resources? I know there's a lot there. There's innovation, quality, promo, productivity. But how do we think about the next steps for growth and what a more offensive strategy looks like for mills going forward? Jeff Harmening: Yes, John, thanks for the question. And I'm glad to take a half a step back. I mean, if you look at our last year, I mean, I think it's important to remember that, we grew sales at 10%, operating profit at 8% and EPS at 10% while investing in the business, double-digit growth in marketing and double-digit growth in capabilities. And so the -- as we look ahead, and our guidance also reflects our continued investment in growth. If you look ahead, we're going to be on track of our metrics on sales and operating profit and EPS and ahead of our long-term algorithm for dividend growth, which reflects the strong year we just had as well a confidence in the year ahead. So as we -- you're right, we've been investing for growth. We'll continue to invest for growth while we continue to drive higher levels of productivity, which you saw in our release and while supply chain disruptions get less, which, again, allow us to drive gross margin, which creates a really good flywheel for growth. And so as you take a step back from last week's Nielsen data, what happened this last quarter, we feel great about the year and we feel confident about the year that's going to come up. And I think that confidence stems from the fact that we have been agile in the last few years. And it's not an accident, we've grown share in the majority of our categories each of the last five years, and it's been hard work and good marketing. And as we look at the growth ahead, one of the things we're excited about is that the freeing up of supply chain and the normalization of supply chain gets us back to the kind of productivity we've been looking for and gets us back to getting rid of some of the pandemic era costs. But more importantly, freeze the rest of the organization up to get distribution to drive the innovation. We've got a really good new product innovation this coming year. And then finally, that's our marketers market, and we've got really good ideas. And so we feel good, and I appreciate the step back. John Baumgartner: Great. Thanks Jeff. Operator: Thank you. Our next question is from the line of Ken Goldman with JPMorgan. Please go ahead. Your line is open now. Ken Goldman: Thank you. Good morning. I just wanted to ask a little bit about the decline in retail inventory. I'm just curious we get a little bit of color on which of the categories that maybe felt the biggest impact this particular quarter. And I guess also, it's certainly encouraging to hear that the worst is over, as you see it when it comes to this particular temporary headwind. But I think for some of us on the outside or at least me, it does feel like a little bit of a red flag, right, that maybe end user demand isn't quite as strong as what you had hoped. So I appreciate that your customers are trying to get their inventories into a better place. And we're just not necessarily hearing that from many of your packaged food peers. So I'm just curious what gives you the confidence that it's not necessarily a General Mills specific dynamic that's happening there? Thank you. Jeff Harmening: Yes, Ken, this is Jeff. Let me start off with kind of how I see this broadly and then maybe Jon and Nudi can provide some commentary specifically. But -- and look, I respect the fact that the factory inventory decline was a surprise given our strong deals and trends, and we feel great about our movement trends. And we did have a five point headwind in this quarter, and we didn't see that coming when in the quarter began. So that is true. What I'm pleased with is actually we were able to hit our guidance on profitability and exceed margins and EPS despite the fact that we had this big headwind. We don't see this as a General Mills-specific trend, and we don't see this as something going forward. It truly is a couple of big customers were trying to get their inventories back to a good place and which I understand, the carrying cost of inventory is higher, interest rates are up. They're trying to work their balance sheets. And so in retrospect, perhaps it shouldn't have been a surprise, but it certainly was an order of magnitude. I don't see it as a red flag for us. And I'm not - I don't see it actually as a red flag for the industry as well. But I want you to know from my chair, is something that's kind of behind us and it's not General Mills specific. But Jon, if you have any specifics you want to add? Jon Nudi: Yes, absolutely, Ken. So as I mentioned, we did see a five point gap between the Nielsen movement and quarter. For the year, that was a two point gap. And it's not something that's new. We've seen this phenomenon for six of the last eight quarters. So as Jeff mentioned, retailers are focused on inventory. One of the things that we feel more confident about is being able to supply the business after all the supply disruptions in the last few years, then feel like they don't have to carry as much safety stock. In addition to that, obviously, the inventory is more expensive. So working capital is a focus as well. As we look at the absolute levels of inventory, there are some of the lowest levels we've seen on record. So again, we don't believe that we can go much lower. What we can focus on are the controllables. So that's making sure that we have good marketing and driver baselines and our merchandising, and we feel great about that. We feel really good about the movement of 10% in Q4. So again, we feel like this was a onetime headwind. We're not expecting to rebuild those inventories. But at the same time, we don't expect another leg down in fiscal '24. Ken Goldman: And if I can just ask a very quick follow-up for Jeff, the Pet business, had a little bit of a down during this past year. I mean a lot of which is sort of out of your control in terms of supply. Is it reasonable to expect that we'll see an acceleration in your organic growth this year? Or is it still going to be held back for most of the year by some of the supply issues that you have that are, of course, temporary? Jeff Harmening: Yes. The -- we did have -- we had a rough start to the first half of the year. There's no question about that. And the primary driver of that was lack of capacity. What I feel very good about in our Pet business is that we've rebounded and our service levels are back in the 90s. The Pet team worked very hard to get there. It's more expensive than we would like because we have to go outside for external supply chain, but we've rebuilt our capacity. So that's not a concern going forward. What I also feel good about is we did what we said we're going to do. We said we're going to grow at double digits in the back half of the year, and we have done that. I would also say that our dry pet food business is getting better, and we thought that would be the first recovery and it has. It's responded very well to advertising. Life Protection Formula, I think, was up more than 20% in the fourth quarter. Our treats business, we said would improve, but would follow that and it has, and it actually grew in the fourth quarter and there is much more to do on treats. We can now market that business, and we have full capacity. And then we set our wet test food business with lag and unfortunately, we were right up that too, and it did lag. And so I think for our pet food business, I would characterize it, I feel good that we have improved and there is more work yet to do. And so as we look at this coming year, our supply should not be an issue for us. It will come at a higher cost. So I still expect us to grow our sales and maybe our profit has ahead of sales, but a big improvement in profitability would come until fiscal '25 when we can internalize all of our capacity. Ken Goldman: Thank you. Operator: Thank you. Our next question is from the line of Andrew Lazar with Barclays. Please go ahead. Your line is now open. Andrew Lazar: Great. Thanks. Good morning. I guess, in the prepared remarks, you mentioned that volume in fiscal '24 should be improved relative to the decline you saw in '23. Just to clarify, should we take that to mean volume is potentially still down year-over-year, slight better than the minus 4% decline that we saw last fiscal year? And then if it is going to be a pricing-led organic top line growth sort of here in fiscal '24, and I think most of it, you said was from wraparound pricing from actions taken in the second half of '23. I guess, is there a possibility, and I'm just trying to think ahead here, that there's a period of time maybe where organic sales could even go negative for a bit later in the fiscal year until of volume catches up? Thanks so much. Jeff Harmening: Yes, Andrew, I'll take it and then Kofi jump in if there's anything you want to add. Our expectation -- again, we don't give specific volume guideline growth. But having said that, we said our top line to grow 3% to 4%, and we'll have mid-single-digit inflation, roughly 5%. And so we do see pricing this year. I'm confident that our pounds will be better in fiscal 2024 than they were in fiscal 2023, which is to say they'll certainly decline less. Whether they get to positive or not? We'll see. That's a really difficult thing to call, especially because of the mix factor involved. I'll give you this last quarter in China, our sales grew really nicely, but our pounds were down is because we sold more expensive Häagen-Dazs ice cream and less one and the Wanchai Ferry dumplings. The same could be true set of our foodservice business where we sold less flower and more of other things. So our pounds were down. So how is a little bit tricky because of mix, but in all I would expect that our – our sales certainly won't -- our pounds certainly won't be as negative as they were in, they may be positive. We'll wait and see. But I think it will be much more competitive on that front. But for sure, we'll see some pricing because we still see inflation in the marketplace. Kofi Bruce: Andrew, this is Kofi. The only other thing I would add is just given the comps, we would expect a little bit more weighting to the front half on the growth profile versus the back half. Andrew Lazar: Got it. And then just a super quick follow-up just to the inventory piece, just to put a sort of point on that. With supply chain constraints easing, and obviously, is looking to get back to much more active merchandising and display activity and all of that. I guess I would have thought that retailer inventory reductions would be sort of counter to that dynamic, right, wanting to get out there collectively and collaboratively and get going on merchandising and really driving volume and whatnot. I guess what am I missing on that thought process? Is it just that retailers are so much more confident now that they can get what they need when they need it from you and others that the safety stock that was more aggressive, just isn't needed? Or because I would think if it's the first time in a couple of years that you can get out and really drive the business, everyone would be, I don't know, maybe it's naive, but okay with a little more inventory just to make sure you have it on hand? Jon Nudi: Yes, Andrew, this is Jon. I think it's a fair question for sure. I've had a chance to check in with a couple of our major retailers then. Again, I think everyone is just trying to figure out the way forward. And I think for the immediate term, and if you think about some of our bigger retailers, not only carry food but the carry general merchandise, there's been a big focus on just making sure they get inventories in check. And they feel like when they're in check, they can then drive the business moving forward. So they -- we're definitely holding a bit more stock because until six months ago, we had supply disruptions throughout many of our categories when they feel felt like they could bring it down a bit. As we move forward, again, I think as we get the bottom line the volume moving and it really gets back to merchandising. We would expect retailers to certainly support that and bring it in. And again, I just think it was a point in time and that's something we're reading into the future. And again, as I talk to these retailers, I don't think that they plan to bring them down to the future. And to the extent we can drive the top line, they'll continue to invest behind inventory as well. Andrew Lazar: Great. Thanks so much. Operator: Thank you. Our next question is from the line of Cody Ross with UBS. Please go ahead. Your line is now open. Unidentified Analyst: Hi, this is [Brandon Cohen] filling in for Cody Ross. Thank you for taking the question. So you mentioned in the prepared remarks that with your current debt levels, you have more flexibility for M&A going forward. What categories are you targeting? And what are the main characteristics that you're looking for in an acquisition target? Thank you. Jeff Harmening: So let me -- so it is true, our balance sheet is in great shape, thanks to the profitability we've had for the last few years as well as all the work we've done to unpayable and receivables asset. So our balance sheet is in really good shape. We do have a lot of flexibility. The first point I would say that even though we have a lot of flexibility, we're still going to remain disciplined. To the extent we look at M&A, we have about 50 basis points of growth we'd like to get from M&A over the coming years, both through acquisitions and divestitures. And so in general, we'll look for businesses that are accretive to our growth. And in categories we're already in or adjacent to categories we already participate where we think we have a competitive advantage. And to the extent we do those things and they're bolt-on acquisitions, we would expect some synergies to come with that growth. And so I'm not going to get into a specific category that we're looking at. You can probably guess them as well as anyone else. But they would be growth -- but I can say they'll be growth oriented, and there will be places where we think we have competitive advantage, and we can create value for shareholders. Unidentified Analyst: Great. Thank you very much. Operator: Thank you. Our next question is from the line of Pamela Kaufman with Morgan Stanley. Please go ahead. Your line is now open. Pamela Kaufman: Hi, good morning. Jeff Harmening: Good morning. Pamela Kaufman: Your gross margin was a highlight in the quarter. I just wanted to get a sense for how you're thinking about gross margins in fiscal 2024. And then for the 5% input cost inflation outlook, I guess, could you just give us a sense for how you're thinking about the cadence and how that influences the cadence of your gross margin for the year? Jeff Harmening: Well, Pamela, first of all, thank you for asking about that. Gross margin was a highlight for the quarter. And it was a highlight for a year and I think it will be a highlight in the coming year as well, and we're really proud of what we'll be able to do on the gross margin front over the last couple of years. And so probably turn it over to Kofi with more specifics, but appreciate the question. Kofi Bruce: And I would just add, I think we've made some really good progress in moving back towards our pre-pandemic gross margin. We still have a little bit of work to do. And obviously, if you read our guidance, you can expect that we expect to make further progress towards recovering our gross margin levels. I think the important thing to note in our guidance around inflation is that we see it moderating, but there will still be inflation above sort of the historic levels we would expect to see in our category. And as we work through the year, I wouldn't necessarily call out anything notable as you expect the quarterly flow to play out, other than the comments I made about sales and the expectation of the price mix and SRM actions and the interaction of those on the top line. I think the key thing for us though, is that we do see a step up in our HMM levels at 4%, a one point step up from the past couple of years where we've been kind of under-delivered at 3%. With the moderation of supply chain that in -- that we certainly have higher confidence in being able to pull that off, as well as our confidence in our ability to take out some of the significant levels of cost and continue to take out some of the significant levels of operating costs that we put into our model to manage through service disruptions. So, all those things give us the confidence that we should be able to continue to drive back towards pre-pandemic level gross margin. Pamela Kaufman: Thanks. And my second question is just around the promotional environment and your outlook for promotions and brand building. How are you thinking about reinvestment levels in fiscal 2024? And any color on the mix between price promotions versus marketing and advertising? Thanks. JeffHarmening: Yes, I would say on the -- as we look ahead to our marketing and our -- the promotion environment, the first thing I would say is really important to remember that we still have inflation. I mean, there have been a lot of -- a lot of commentary about disinflation or going negative, but we don't actually see that. And it's driven by labor cost inflating. So I think that's the first and most important thing to remember as it relates to the promotion environment. We would expect that promotional frequency would increase a little bit and importantly, the quality of our merchandising, especially display merchandising, will improve. And the reason we think that will improve is that retailers have more confidence that we'll be able to supply the business because our service levels are back in the 1990s. And when that happens, they're more confident in displaying, display merchandising for us has very high rates. And so -- and it does for a retailer as well. So we're kind of aligned and wanting to do that. And now we feel as if we can. And so as I look ahead, I'm not sure the promotion intensity is really going to increase that much. I think it's going to be maybe a little bit of frequency and actually more quality, if you will, merchandising levels. As it relates to marketing, we really like our marketing across our biggest categories, and that's why we've been investing in it. And we'll continue to invest in it. I'm not going to lay out a number of our marketing will improve x-percent, but what we have said is long-term, our marketing spend will grow in line with our -- in line with our sales growth. And over the past few years, our marketing is actually up 35% versus pre-pandemic levels. So we've actually done that benefit us in this year ahead because, what I can tell you is that consumers in this environment and customers, they're all looking for new ideas and ways and our customers are looking for ways to grow. And so we feel good about our marketing spend in the year ahead. Pamela Kaufman: Thank you. Operator: Thank you. Our next question is from the line of David Palmer of Evercore ISI. Please go ahead. Your line is open now. David Palmer: Thanks. Good morning. As you were setting your guidance for fiscal 2024, what was the -- what were the biggest challenges to visibility or variables that you're thinking about for this year? Is it simply North America retail consumer demand or other factors? Kofi Bruce: Yes. That's certainly the state of the consumer, the interaction of frankly all of the, interest rate environment and the expectation of potential economic slowdown on consumer behavior is certainly variable that's a very front and center for us as we set the guidance. Obviously, inflation remains at least sticky and above expectations. And I think the challenge of setting expectations is an environment that any one of those and visibility any one of those factors is hard not the interaction gives us sort of the challenge of setting the frame for the year. But we're confident that kind of whatever operating environment actually shows up, that we will be able to respond and pivot as needed. David Palmer: Yes. I wonder, how you were thinking about that North America consumer demand, given the industry has been slowing on a multiyear basis right through the last month or so. And I'm just wondering if you're assuming that, that recent rate, I mean, we hesitate to use four-week data to project anything else, but I also hesitate to use even 12-week when the multiyear has been breaking down for the industry. So I'm wondering how you assume that multiyear trend in how you about that demand in 2024 given the slowing in the industry on the consumer lately? Jeff Harmening: No, I think that's very fair, David. And I can understand your angst on this point. I guess I would do a couple of things. We talked about three-year -- three-week data. Last time I remember talking about three-week data was back in December when there was a panic about what was going to happen due to timing of Christmas and New Year and Nielsen data and then it turned out that it wasn't as bad as people thought. So I think that's a cautionary tale about three-week data. The other thing I would say is that if you look at two-year comparisons over the last few weeks, what you'll see is that the last couple of years, the trends haven't changed all that much. Having said that, I mean, as you look at the last two weeks, it's pretty clear that elasticity -- volume elasticities have increased. And it's something that we expected, and we baked into our guidance for the year. And so, elasticities have not been zero, but they've been quite low. We would anticipate as the year goes on, that elasticities will increase, and that's what we have seen. And so I want you to know, we're not too surprised by the last quarter's trend and it's anticipated in our guidance. And so that's what -- but look, it's a hard period to model from that perspective, but that's what we think is going to happen is that we elasticities will increase, but that's accounted for in our guidance already. In the last three week trends, I wouldn't follow those all the way out the window. David Palmer: Got it. Thank you. Operator: Thank you. Our next question is from the line of Max Gumport with BNP Paribas. Please go ahead, your line is now open. Max Gumport: Hi, thanks for the question. It's nice to see the recovery in dry pet food and treats, however, it does sound like the trends in wet pet food have been a bit challenged. I understand it seems like maybe it's a mix of your own service levels as well as some category weakness as a result of changes in the consumer economic environment and consumer behavior as well. I was hoping you could talk a bit about what you're seeing in that subsegment and what you expect in terms of a recovery moving forward? Thanks. Jeff Harmening: Yes, Max, I think you just set you summarized it nicely. What we see here, there are a couple of different trends. And remember, the pet category is almost a $50 billion category. So, there can be lots of trends going on at the same time. Importantly, there's still a trend toward humanization, which is why I think you see our dry pet food recovering so nicely and why you see our treats business recovering. At the same time, there is -- people are more mobile. And so they're not -- in aggregate, the treat segment is down a little bit, and the wet segment is down a little bit because consumers are not home as much. And so they can't do it on their pets as much as when they are at home all the time. On top of that, as consumers are feeling the pinch from inflation, there is some downward pressure in several other places on sales. And I think you see that most pronounced in wet foods a little bit a treat. It's a tailwind for our dry pet food business. And so that's one of the reasons why we see that improving. And so -- but I think in general, you have the plot, which is that our wet pet food business has not recovered as fast as we thought. Part of it is due to mobility, part of it is due to service, and part of it is due to behavior in the current environment. Max Gumport: Great. Appreciate it. And one follow-up would be on volume for fiscal 2024. You gave three reasons to believe we could see some improvement at least in the rate of decline, and we've touched on two of them on the call, but I was hoping to move to the capacity side regarding the constrained platforms of pet hot snacks and fruit snacks. Any way you can help us get a sense of the increase in counts that you might expect in fiscal 2024 on those platforms? Thanks. Kofi Bruce: Yes. So, you're right, Max. Those four platforms, we do have significant capital investment coming online. The first three, excluding exclusive of pet, you would expect to see some of that capacity impact this fiscal year. The pet capacity comes online really pretty late in the year, so we would have a very modest impact on our ability to internalize some of the supply for dry dog food. Jeff Harmening: And Max, I would just say, beyond capacity, supply disruptions are probably the biggest tailwind for us. Last year at this time, we had significant issues on things like yogurt and bars. This year, we're feeling much better about the way we're performing. So, at least for North America retail, we feel really good that we'll be able to supply all of our businesses and merchandise behind them for the first time in several years, which we feel very proud about. Jeff Siemon: Max, maybe -- this is Jeff Siemon. I'd add one on pet, Kofi is exactly right that our internal capacity comes online in about a year. But we did have some external capacity in the last couple of quarters. So, that will give us an opportunity to, and it has already given us an opportunity to improve service both on our Treats business as well as on our Dry business. Max Gumport: Great. Thanks very much. I’ll leave it there. Operator: Thank you. Our next question is from the line of Matthew Smith with Stifel. Please go ahead. Your line is now open. Matthew Smith: Hi, good morning. I wanted to ask a follow-up question on the Pet business. The profit recovery there is underway, and there's been some commentary that you expect operating profit to grow a bit faster than organic sales in fiscal 2024. Can you provide some color on the puts and takes for the margin recovery after a couple of years where we've seen the margin compress? I know you have incremental capacity coming online. It sounds like that's later in the year for external supply chain costs are lower across the organization, and you have some pricing there. So what are the offsets benefiting or limiting that margin expansion in 2024? Jeff Harmening: I would say on the benefits to margin expansion, we have some pricing that we have already taken that kind of wraps around in the current year, and you see that in the current results. You certainly saw that in the fourth quarter. You'll also see our productivity levels in Pet are good. And the fact that our supply chain has not disrupted also helps bring down the cost. And so all of those things go to the gross margin level. Kind of what partially offsets that is the fact that we have external manufacturing and not our own internal manufacturing. And so the benefits of some of that will not be as great as they would have been otherwise. I would also say that we're really -- we -- as much as we are on a focused profit recovery on Pet we really want to drive growth. And so we will invest in marketing and capabilities to make sure that we accelerate our top line growth on that. And so we may see a little bit more gross margin expansion than we do operating margin expansion. And that's simply because as we get healthier on supply chain, we'll reinvest some of those savings back into driving top line growth on Pet. Kofi Bruce: The only other thing I would add is just there might be a modest mix of business headwind from production just a little bit less wet obviously, given the macro trends that Jeff referenced in. So as you take that into account, that would be a put. Matthew Smith: Thank you. I can leave it there and pass it on. Operator: Thank you. The next question is from the line of Bryan Spillane with Bank of America. Please go ahead. Your line is open. Bryan Spillane: Hi, thanks operator. Good morning everyone. Kofi Bruce: Hi, Bryan. Bryan Spillane: Kofi, I just had two questions related to the cash flow outlook for 2024. The first one is just free cash conversion back to 95% versus 80%. Is that mostly just working capital that will drive that improvement? Kofi Bruce: Yes. That is the primary driver, and that was also the primary driver of the miss that we had this year relative to our long-term target. So challenge, obviously, the other side of the inventory reduction in the retail trade was unexpected inventory build as we went into the last two weeks of the year. So as we step into next year, supply chain environment is more stable gives us the capacity and the ability, frankly to have more visibility and manage our inventory levels lower. We continue to make progress on our overall core working capital on our Pet business. So those things should help us drive a more significant provision of cash from working capital next year. Bryan Spillane: Okay. So the bulk of it is inventory, right? Is that kind of the way to look at it the majority of the improvement? Kofi Bruce: Yes, year-over-year on a cash flow basis, that is a fair way to look at it. Bryan Spillane: Okay. And then the second one is just -- I know you've given the interest rate guide – the interest expense guidance, I'm sorry. And you called out having refinanced some debt at a higher rate. Kofi, is there any opportunity with like some of the shorter term whether it's commercial paper or just shorter term debt? Is there any possibility to just apply some free cash flow to take some of that short-term debt in order to relieve a little bit more of the interest expense pressure? Kofi Bruce: Yes. We do expect to be able to run with lower commercial paper balances. But I mean, candidly, commercial paper rates and long-term debt rates in the – at least in the middle of the curve were somewhat adverted for periods of time as we looked at the Tier 2 market in, which we issue commercial paper. So we actually could issue term debt more cheaply and did that here as we came out of the fourth quarter. Bryan Spillane: Okay. But – so it doesn't sound like there's a lot that you can do to chip away at that guide? Kofi Bruce: It's not a median arbitrage. I expect – look, this will be an adjustment factor as we see some of our term debt roll off as long as we're in this higher interest rate environment, that will be a modest headwind. It is manageable, and we happen to have a fair amount of maturity concentration in this, call it, two to three quarter window that – which is driving our outlook for next year. . Bryan Spillane: Okay, all right. Thanks Kofi. Thanks guys. Kofi Bruce: You bet. Operator: Thank you. Our next question is from the line of Chris Carey with Wells Fargo. Please go ahead. Your line is open. Chris Carey: Hi, good morning. So just a couple of quick follow-ups for me. So just number one, do you think that, I guess, inventory availability is impacting consumption that we can see in data at all, right? So on-shelf availability, is that becoming a factor with these inventory cuts? Or is it reasonable to assume that what we see coming through is kind of consumption? The second question would be just around a follow-up around pricing for fiscal 2024. The press release said that most of the pricing in fiscal 2024 would be carry over. Obviously, inflation will still be quite a bit above historical norms. So are you embedding any yet taken pricing into the fiscal 2024 outlook is just overall thoughts on the potential to take incremental pricing not already in market? So thanks for those too. Jon Nudi: Yes. So on the first question, on-shelf availability is significantly higher today than it was a year ago across most of our categories. So again, everyone has gotten better. I think the supply situation become more stable. So as a result, retailers feel like they don't have to hold as much inventory to service the demand. The other thing I would tell you is we've invested in digital capabilities to have retailers. I can tell you their inventory systems are much more sophisticated today than they were a few years ago. So, obviously, their goal is to keep the shelf full, but at the same time, hold as little inventory as possible. At this point, we don't see inventory as a hindrance to us being on the shelf or getting the displays when we find them. Again, I think they're just focusing on the working capital and trying to manage it as efficiently as they can. Jeff Harmening: Yes. And when it comes to pricing, we're not going to comment specifically on forward-looking pricing. Having said that, we did say that the majority is in the marketplace already. That is true. We operate in markets all over the world, some with different inflationary pressures than others. So it's not just – it's not really just about the U.S. But we feel good about what we see right now with our pricing and the inflationary environment that we see, but we all know these things can change over time. And so we think we have most of what we need in the marketplace already, but there may be a category where we need a little bit more than maybe a geography or where we need a little bit more because the inflationary prices are different. Chris Carey: Okay. Thanks. One question just and then I'll be done. But Jeff, you've been talking for a number of quarters now about promotional levels and how promotions would remain rational. And you listed kind of a number of reasons why? I just wonder with supply chains coming back and you've already commented it on the call today, but how do you think about the tools that you would have to reignite volume growth? So obviously, there's a concern about some normalizing of volume. Like what's in your -- what's in kind of -- what are the kind of errors in the quiver, I guess, right? Could you -- is it more promotion? Is it more advertising? Is it more merchandising? Can you just talk to maybe how you think about potentially lifting volumes over the next 12 months, if we see any shifts in the consumer environment? Thanks, so much. Jeff Harmening: Yes, sure. As I look at it, I mean, the promotional environment has been quite rational. And I suspect that it will be going forward. I haven't seen anything yet to lead me to believe otherwise. As we look at what's going to drive growth, I think it will be a number of factors. One I would lead with this new product innovation. Even though our new product innovation has led our categories each of the last four years, it's still below what we would have expected normally. And the reason is not because we haven't had good innovation is because some retailers were reluctant to bring it in, because their own supply chains were pressured, our own supply chains were pressured. And so, as I look at the year ahead, I like our new product innovation network, we have to come. But I also think we're going to get better distribution on innovation we've had over the last couple of years where we didn't get full distribution even though it may have warranted given the quality of the innovation that we've had. And so, I think that will be a driver. The same with distribution, and I look to our pet business, especially on our distribution levels of treats and wet because we haven't been able to supply the business. And so if you can't supply the business, that means that you're going to lack some distribution. You may have some distribution gaps. And so distribution growth across a couple of our key categories in North America Retail, as well as Pet is certainly going to be an opportunity for us. And then with promotional spending, I think the quality of our merchandising, and we have very good tools to understand what the return on investment are so to our retailers. And so, I don't know that it's going to be a significant increase in amount of merchandising. I think it's going to be, I would hope, and I would certainly anticipate an increase in the quality of the merchandising, which should be good growth drivers for our customers, as well as for us. And because, in our categories, they are really able consumption categories. And the more you have in your pantry, the more you tend to use. And so, those are some things that I think will be the drivers, along with increased marketing, and our marketing has been very good. And we have a lot of tools to ascertain where the best marketing spend is going to be in. We've been investing in our brands. We'll continue to invest in our brands, and that will certainly be a source of growth for us. Chris Carey: Okay. Thanks so much for the perspective. Appreciate it. Jeff Siemon: Okay. Malika, I think we'll wrap up the questions there. Maybe I'll turn it to Jeff to -- for some closing comments before we finish the call. Jeff Harmening: So I'll end this call where we started, which is to say, as we take a quick step back, we're really pleased with the year that that's just happened and 10% sales growth, 8% operating profit growth. That's included -- that excludes a 3% headwind from divestitures as well as earnings per share growth that are double digits. As we look forward, our guidance is to be in line or exceeding our long-term growth algorithm on sales, operating profit, EPS and certainly on dividend increases. And so, we are confident about the year ahead and that confidence is driven by our ability to navigate a number of environments these past three years. And will this next year look different from the last? Of course, it will. But we know that already, and we're confident that we have a team and brands and capabilities that will thrive in the year ahead. And so we look forward to keeping the conversation going. Jeff Siemon: All right. I think we'll wrap it there. Thanks, everyone, for the time and attention, and we're available throughout the day for follow-ups and we look forward to connecting again later on this year. Operator: Thank you. Ladies and gentlemen, that does conclude today's call. We thank you for your participation and ask that you please disconnect your lines. Have a good day.

Operator: Greetings, and welcome to the General Mills Third Quarter Fiscal '23 Earnings Q&A Webcast. During the presentation, all participants will be in a listen-only mode. Later, we will conduct a question-and-answer. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, March 23, 2023. It is now my pleasure to turn the conference over to Jeff Siemon. Please go ahead. Jeff Siemon: Thank you, Tina, and good morning to everyone. Thank you for joining us today for this Q&A session on our third quarter fiscal 2023 results. I hope everyone had time to review the press release, listen to our prepared remarks and view our presentation materials, which were made available this morning on our Investor Relations website. It's important to note that in our Q&A session, we may make forward-looking statements that are based on our current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here with Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Jon Nudi, Group President of our North America Retail segment. Let's go ahead and get to the first question. Tina, can you please get us started? Operator: [Operator Instructions] First question comes from David Palme of Evercore. One moment please. First question comes from Andrew Lazar of Barclays. Please go ahead. Andrew Lazar: In Pet, you called out high single-digit takeaway through nine months. And I'm curious what you have is takeaway in fiscal 3Q specifically. And regarding 4Q, I believe you've previously spoken to your expectation for double-digit sales guess, given where we can see consumption trends currently, trying to get a sense of what gives you confidence in that outcome, given it more inventory rebuild to go or a step-up in consumption along with better service or more of a benefit from pricing or some combination of these? Jeff Harmening: Andrew, this is Jeff, and thanks for the question about Pet. I would say, first, I would say our third quarter sales, was roughly in line with what we thought it would be at 15%. And it is true that we rebuilt some retail inventory. I think importantly, when you look at it, we built about as much inventory back in the third quarter as we lost in the second quarter. And for the year, our inventory and our -- I mean, our sales out and our reported net sales are about the same. So just you know, as we end the third quarter, we don't have a big retail inventory build they really are about the same. I would also say, and this may sound like a little bit of a spin, but I'm actually glad that we could rebuild some inventory in the third quarter. We didn't think we're going to be able to. But because our supply chain got better pretty quickly in the third quarter, our service levels got to 90% or so. Especially in dry dog food as well into the 90s. Because that happened, we were able to rebuild our inventory. Our customers are glad. Our retail customers are glad we're back in business. And so we shipped some inventory from promotions and so forth. So we're pretty pleased with the pet business, and there's more work to do. For sure, there's more work to do, but it was a good quarter in terms of the ability to rebuild some inventory. The other thing I would say, a couple of more points. I think when you look deeper into our third quarter and retail movement, what you'll see is that our dry dog food business really performed quite well and Life Protection Formula continued to accelerate and was up 23% in dollar terms, but also 9% in pounds. And so we're feeling really good about our dry dog food business, which is good because that's one we thought we'd recover the fastest followed by treats and then wet. And that seems to be the case. The other thing I'd point out about retail movement is that our third quarter last year in Pet was very, very strong. And so, as you look at the comparisons, we actually sold more dog food and pet food in Q3 than we did in Q2, both in terms of pounds and RNS. So, it sequentially got better even if the comparisons don't look that great to Q3 in retail movement. And so as we said before, we'll grow double digits in the back half of the year, and we certainly did that in the third quarter, and we'll see what the fourth quarter brings. Andrew Lazar: Okay. And then just a quick follow-up. You mentioned mid-single-digit inflation expected for fiscal '24. I'm curious if you think the carryover benefit from pricing already implemented and in place would be enough along with productivity to handle this? Or perhaps would other actions maybe be necessary, at least based on what we can see today. Admittedly, it's dynamic. Kofi Bruce: Yes. No, I appreciate the question. We don't want to get too far ahead here of our expectations. I will tell you, as we always do, we'll approach the fiscal year with an eye towards leveraging first, the productivity we get through our HMM cost savings programs. And to the extent that there is additional margin that we need to protect, we'll use the other levers we have up to and including SRM. But I think we're not going to say much more at this point about fiscal '24. Operator: The next question comes from Steve Powers of Deutsche Bank. Steve Powers: Great. Maybe a follow-up on Andrew's Pet question. It sounds like on the -- from a retail perspective, you think any of the sort of the deceleration we've seen is more a product of year-over-year comparisons. But I guess, I guess when we cut in the data, it looks as though there is a deceleration and maybe a deceleration in General Mills' market share performance as well as just year-over-year growth. So how are you thinking about that? And to the extent that you are seeing some slowdown in takeaway relative to the overall category, is that a byproduct more of ongoing supply constraints that should improve with time? Or is it maybe more of a byproduct of category dynamics and some degree of demand softening and then trade down in the category? Jeff Harmening: Yes. No, I appreciate the follow-up question about Pet. I would say, first, it's not about dynamics in the category. I mean the trend towards humanization is quite strong and remains quite strong. And so, we really don't see a lot of trade down to private label, for example, or lower-priced brands. I mean it really is a function if there's a change in the category dynamics is that more people are going back to the office, and so mobility is a little bit higher. And so there's a little bit of feeding of wet dog food, for example, and more dry dog food and maybe a little bit less treating because people, again, are at their place of work more. So, we see a little bit of that in the dynamic. So as we look at the category, I mean, we were -- our pounds were down 2% or so and what we can read in the category and the pounds in the category are down flat. So we're trailing -- we're still trailing the categories, so we still have some more work to do. But it certainly is not as big as a delta as it had been before. And so as we look ahead, one of the things we said is that we were pleased to see Life Protection Formula do so well, which tells us that the Blue brand is really good. And so we're pleased with that. And so the first key is to get service levels up, and we've done that on dry dog food. The next is to turn our advertising and marketing back on. And again, we've done that in dry dog food, and we've seen the results. Now, there service level is getting better on treats, now it's really time to activate our marketing on treats, and we would think that, that would get better over time. And then the probably the last to come along will be wet pet food, which is a combination of our service levels still only being in the 80s as well as a pet parent behavior and mobility. So, that's kind of the order of things. And I guess I would characterize our pet businesses, we feel good that we have improved and yet we know that we have more work to do in several of our areas. Steve Powers: Okay. Great. And maybe shifting gears a bit. Just want to ask around how you're thinking about elasticity. I know in the in what you put out this morning, you talked about expectations for little change in elasticity through the end of fiscal '23. I guess just maybe a little bit more on the puts and takes you're seeing there? And what I'm really curious about is, how you think all of different accelerate strategy points of focus -- may help your portfolio hold up to the extent that we see more broad-based consumer slowing over the course of the calendar year. Just how you're thinking about those dynamics and your specific positioning should the consumer weaken as we progress forward? Jeff Harmening: Let me take that at a top level, and then I'll probably pass it to Jon -- maybe give a couple of examples about NAR. Yes, I would say for the rest of our fiscal year, I mean, we're seeing little change in elasticities. And we have seen consumption of food at home remains stable over this past year despite all the volatility and puts and takes and theories. I mean the consumer seems to be reasonably robust. And at the same time, they're eating at home more than they were during pre-pandemic. And so, we see a continuation of that. I will say there are a couple of things. One private label exposure in our categories around the world is lower than what you see on the average. And I think that's a benefit to us. The other thing is that we've been investing. We've been investing in marketing. And so you see, over the last four years, our compound annual rate of growth and marketing spending is up, I think, about 4% or 5%. And if you look at this year, our marketing spending is double digits. And so, it's not an accident that our brands -- we had strong brands to begin with, but we also know that brands are kind of organic in nature, if you will, and that you need to keep them growing. And so, we've invested in marketing spending as well as capabilities. And we continue to do that through the third quarter of this year. And so is not really an accident that private label is lower in our categories, and I think it pretends well for our future because even during the last recession, what we found is that even though private label gained a little share back in 2008 to 2010, we were able to hold -- we were able to hold market share due to our brands, thanks and our investments in consumer spending. But Jon, do you want to talk a little bit about NAR. Jon Nudi: Yes. So just building on what Jeff talked about. So as part of Accelerate, and Jeff touched on this, capabilities is something that we're very focused on. And one of those capabilities is strategic revenue management. So we've probably been at that one the longest five or six years now and feel really good about the capabilities that we've built. So we leverage the entire toolbox. So obviously, with the inflation we've seen this past year, we've taken list price increases, focus on a lot on promotional optimization. So if you look at what's happening in the market, frequencies coming back from a trade standpoint as we get healthier from a service standpoint, but price points were up double digits across our categories. And again, getting smart about how we look at pricing, not only at list price but also from a promotional standpoint as well. We look at price architecture and mix as well. So we are much more sophisticated today than we were even a few years ago. And I think that's helping us to make the right moves in market, which is helping with the elasticities as well. So it's something we'll stay focused on. And as Jeff mentioned, if we do run into a recessionary period, historically, we've held up pretty well. Obviously, private label does well during that period. But we've held our own and hold share relatively flat. It's really the third and fourth tier players in categories that seem to get hit the hardest from a share staple. Operator: The next question comes from Ken Goldman of JPMorgan. Please go ahead. Ken Goldman: One quick follow-up on Pet and then I had one on North American retail, if I could. Is there any way to roughly quantify how much maybe the gap between shipments and consumption or maybe the trade load however you want to put it, kind of helped company margins or segment margins during the quarter. And Pet, I realize there's back and forth and things have gone around quarter-to-quarter. So I'm just curious if we get a little bit of quantification around that, if possible? Jeff Harmening: It's really difficult to quantify, Ken, this is Jeff. It's really difficult to quantify what's going -- the contribution of inventory rebuild with margin for Pet in the third quarter. I would say, but there are a couple of things. First of all, I would say our margin in Pet was roughly in line with what we thought it would be. And the fact that our profitability decline in Pet was not a surprise to us and is really based on a couple of factors. One is -- and by the way, even though our margin actually did improve slightly from the second quarter. The factor is really contributing to the fact that our profit decline in the third quarter in Pet was that we did see significant inflation and we did see a lot of costs coming in due to capacity expansion as well as some external sourcing. And so, these are things we expected. The other thing I would point to is that when we saw Life Protection Formula really doing well behind our marketing efforts in the second quarter, we decided to spend more against it in the third quarter. And that's paying dividends as our Life Protection Formula has continued to accelerate, but it does mean our marketing spending had a negative impact on the P&L in the third quarter over the although it's clear over the long run -- that this is such a good idea. So, I want you to know that when it comes to Pet, the margins that we saw in the third quarter are very much in line with what we thought even if it's difficult to quantify the impact of margin rebuild. It's just our service is getting better, which I think is a positive. Ken Goldman: Got it. But if I'm reading between the lines, it doesn't sound like it was a major impact if the margin came in somewhat close to what you thought. Is that correct? Jeff Harmening: That is correct. It's not a major impact, Ken. And I would also say, you didn't ask this, but I guess a bonus answer would be that in our fourth quarter, we actually -- we expect that our profitability will be up in our fourth quarter as we see our pricing that took place at the end of the quarter come into effect as we see a little bit easing on inflation, we see the service getting better. And so the drags that we see less on, we see a little bit more pricing and so we would anticipate that in Q4, our profitability will be up in Pet. Ken Goldman: And just to clarify, is that dollars margin, both? Jeff Harmening: Both. Ken Goldman: Both perfect. Yes. I'll let it go there. Jeff Harmening: You have a question about NAR? I'm sorry. Operator: The next question comes from Alexia Howard of Bernstein. Please go ahead. Alexia Howard: Two questions. Can I ask about marketing spending to begin with? I know that you said it was up mid-single digits, I think, 4% to 5% over the last few years and up double digits, I believe, this year. Do you anticipate that the sort of strong level of marketing reinvestment or increase as a percent of sales is going to continue? And then linked to that, promotional activity, are you seeing any changes there? Is it sort of steady Eddie because obviously, that's come in or down quite a bit since the pandemic began. Do you anticipate not a big resurgence, as I think you've said before on the promotional side? Jeff Harmening: Yes, I would say -- Alexia this is Jeff. I'll answer the first part of that question, and maybe Jon Nudi can give any insights on the second. I would say, in general, what we -- in general, what we would expect is that marketing spending growth would be roughly in line with sales growth. And we've seen last year, we've seen so much inflation on the food -- the cost of ingredient side. Our marketing spending has grown 4% or so, but it hasn't kept up with the sales growth. That's because we saw so much food inflation. But it actually has kept up more than kept up with pound growth. And the same is true this year, we're seeing double-digit increase in marketing spend. But over time, we -- our goal would be to increase our marketing spend roughly in line with our sales growth. So Jon, do you want to take the second part of the question? Jon Nudi: From a merger standpoint. So if you look at versus pre-pandemic levels, merchant our categories is still down double digits. I will say you're seeing frequency this past year increased high single digits. And that's really driven by the fact that we're getting back into merchandising in some categories that we couldn't support from a service standpoint over the last few years. At the same time, you're seeing merch price points up double digits across our categories as well. So again, as all of us are dealing with inflation and leveraging our SRM capabilities, we're raising the floor on many of our merged promotions. So, as we move forward, service is still not back to historical levels. So, we don't expect there to be significant inventory to be getting aggressive from a pricing standpoint. And obviously, everyone in the industry is dealing with increased costs and inflation as well. So, we expect to continue to make sure that we're rational from a merchandising standpoint as we move forward. Operator: The next question comes from John Baumgartner of Mizuho. Please go ahead. John Baumgartner: I wanted to come back to Steve's question, I think, on U.S. retail. The elasticity still favorable, but that elasticity alone sort of masks the underlying percentage volume declines from this pricing? And that's an industry issue, not just mills. But since food at home is not losing share to away from home, I mean you also think, I guess, once consumers normalize to these new prices, volume declines should also moderate independent of recession. So I'm curious, Jeff, for John, absent a bounce from recession, how you're thinking about that path to volume normalization? And then just given your brand-building innovation, do you think the portfolio's volume plus mix can grow reliably with population over time? Do you aspire to ahead of population growth? Just what's the expectation for that normalized performance at the portfolio level where you sit right now? Jeff Harmening: Let me start this is Jeff. Let me start with the end in mind. And the end is that we think absent the current inflation environment we see, which, by the way, we don't think is going away anytime soon as we talk about mid-single-digit inflation in our next fiscal year. But absent a heightened inflationary environment we would expect our portfolio -- our exposure to growth to be in the 2% to 3% range, so call it 2.5% range. And that's what we talked a little bit about at CAGNY. And that would imply some level of volume growth as well as some level of pricing growth, a mix of those two, which would, of course, fluctuate based on what happens in any particular year. But we would think once we get back to a normal environment, which we don't see coming actually in the next 12 months. But in a normal environment, we would see some level of pound growth and some level, a little bit of pricing as dictated by the growth in our categories. And then you have another deeper question about recession versus non-recession. I'm not really sure how to go about all of that other than to say that what we do see is mid-single-digit inflation coming in the next 12 months. John Baumgartner: I guess just thinking about the depth of the volume decline, and it feels like you're not seeing a shift out-of-home channel. So it feels like it's more to be just more left over consumption at home. I mean do you sense that consumers are getting close to normalizing to the new prices on shelf and that should just over the next couple of months sort of roll off with less deep volume declines going forward at this point in terms of the adjustment process for the consumer? Jon Nudi: Yes, John. So obviously, volumes are down for NAR. And as we look at that, we expect, frankly, with the amount of pricing that we've taken, historical elasticities would suggest much bigger declines. So again, we feel comfortable with where we are. That being said, as we pivot into fiscal '24, we want to get back to growing not only dollars but growing pound volume as well. And it's going to be really all about the fundamentals. And as Jeff mentioned, we're investing in marketing. We feel really good about our marketing on our major brands. Innovation is something that we haven't pulled back on through the pandemic, and we'll continue to press the advantage there. And we think that we've got some great items coming in the coming year. And the capabilities that we're investing in from an accelerated standpoint are really helping as well. I mentioned that around -- in addition to that, digital marketing is something that's very exciting right now in terms of the ability to really have one-to-one relationships and target consumers and over 50% of our marketing now across NAR is digital, and that will continue to increase. So, it will be back to the fundamentals, and we feel really good about our ability to compete in that role as we move forward. Operator: The next question comes from Chris Carey of Wells Fargo. Please go ahead. Chris Carey: So just a couple of quick questions around inflation. Just on the mid-single-digit inflation. You noted in the prepared remarks that, that is split between labor and conversion costs primarily. I wonder if you could just aggregate that. And then, what are you seeing from a commodity standpoint within that mid-single-digit equation? Kofi Bruce: Yes. I appreciate the question. So I won't decomp it very deeply other than to tell you that what we're tracking is some of the headline commodity numbers have been obviously coming off of their peaks. Part of the reason we're giving this expectation is because embedded within the inflation expectations for our total input cost a fair amount of conversion cost behind some of we're not taking in just raw commodities. So as we think about the impact of continued labor pressure, energy costs, those and other conversion costs that go into taking raw materials, creating value-added inputs that go into our products. That's what's driving the inflation. So, I think the key here is it probably is an overread to look just at the commodity softening on some of the key commodities and assume that there's going to be a more benign inflationary environment. So we'll give you a decomp and a little bit deeper dive when we come back in Q4 and provide guidance for the next year. Chris Carey: Okay. That's helpful. One quick follow-up. On the last earnings call, I believe there was a question just around whether the non-commodity pieces of the equation were appropriate buckets to come to retailers with an inflation story, right? And so this mid-single-digit inflation, are these the types of a typical inflation drivers that typically, you would be able to come to a retailer with the pricing story. I appreciate HMM and other offsets are going to be important, including revenue growth there of SRM. But just in the context of this total inflation idea that we're hearing across the space right now, is that really sticking with the retailer? I just wonder if you could provide any context on that. Kofi Bruce: Yes. I'll talk broadly for the enterprise. And Jon, if you want to jump in and provide some specific perspective from NAR, and we can do that. Broadly, we look at the entire basket of our input cost. So that includes manufacturing, sourcing and freight. So as we think about the combination of those three things, that's generally or we go and we talk to retailers about the total input cost basket. What's probably not included in that we have talked about in past earnings calls is the other costs to serve in this environment. Some of the added pressures that come from supply chain disruptions, some of the short-term decisions we've had to make wrong product changes and external supply chain that have allowed us to service in a disrupted environment. Those things probably a little bit harder to include in the conversation. Jon Nudi: I would just say, as we talk to retailers, we're focused on multiple things. I mean, focused on supply chain. So again, we're still short order. We've been historically in the 98% to 99% service level. So, we certainly better than where we were a year ago, that continues to be a focus and something we spend a lot of time talking about. And then it is about growth. And again, obviously, dollars have grown strongly. I think all of us want to get back to not only growing dollars but also growing units as well, and that's something that we stay very focused on. In terms of SRM and whether what levers we pull into the coming year, we pull extra levers every year regardless of inflation. And as we see inflation next year, we'll continue to leverage SRM. And obviously, our retailers are being impacted by inflation as well. So, we'll see how the year unfolds. At this time last year, we certainly didn't envision the number of moves that we've taken this year. One of the things we're really proud of is the way that we've reorganized over the last few years as an enterprise, we're much more agile. So, we feel really good about being able to deal with what comes our way, and we'll have any appropriate conversations with retailers if we get to that point. Chris Carey: Perfect. Thank you for the perspective. Operator: The next question comes from Bryan Spillane of Bank of America. Bryan Spillane: Just two for me. One, what is just SG&A in the quarter was up pretty meaningfully, just in absolute dollars, and I understand there's a pretty strong marketing component. Can you just maybe copy, give us a little more insight in terms of outside of marketing or advertising, just what else is driving SG&A and I don't know, it's just sort of the level we should be looking at as we model the fourth quarter? So just some perspective there and then I have a follow-up. Kofi Bruce: Yes. So let me -- you're absolutely right. In the third quarter, media was a big driver. It was up strong double digits. We expect it to actually be a driver of SG&A as we head in the fourth quarter as we've been turning marketing back on, on Pet, putting additional spending on key platforms. And as a reminder, I think it's important as we were coming out of a period where five years, six years earlier, we had pretty much depleted pretty significantly the amount of marketing spending. So we've been sort of investing through this cycle to ensure that we have appropriate support behind strong marketing ideas. I think the rest of it outside of marketing spending, we have seen some increase in admin primarily related to comp and benefits as we've seen our performance improve. Obviously, that increases our incentive accrual. We've seen some increase related to charitable contributions. Those have been kind of the big non-marketing spend drivers as we look at the quarter. Bryan Spillane: Okay. And those seem like they're more transitory, meaning we shouldn't see an absolute dollar levels, probably not the same level of SG&A in the fourth quarter that we saw in the third quarter? Kofi Bruce: I think that is generally fair. Bryan Spillane: Okay. All right. Cool. And then second question just on food service. And maybe, Jeff, if you can just kind of give us a perspective on kind of where that business stands now? You took the convenience piece out of it. It looks like food sales are coming back even if you strip out the benefit of Flower milling. So can you kind of give us a perspective on kind of where you see that business today in terms of where you kind of envision it going forward now that it's really focused on food service? And also just a comment on profitability, the margins, again, kind of back into the mid-teens level, it used to be kind of a higher-margin business pre-COVID just trying to get a sense of like -- is this early innings in terms of kind of what you envision for what this business could be like, both from a revenue and a profitability standpoint? Jeff Harmening: Yes. So on Food service, you're right, we took convenience stores out of our food service business and put them in North America retail, and that's been going very well. Really pleased to see that combination of businesses in North America retail. At the same time, we also expanded our food service business to not only be just U.S.-focused but North America focused. And we're really pleased with that, too, because we have a lot of customers that operate across North America. So we're really pleased how we're executing the convenience piece in NAR but also adding food service and to make it North America Food service was also meaningful for us. I'm really thrilled to see the momentum that we have in this business. As you can imagine, with fewer people eating in restaurants, it was a little bit tougher for our food service for a number of months. But we've got a strong K-12 school business that has served us very well. We continue to gain share in many of our categories across food service. And as we look, as you can see, it's back to pretty strong growth now. Last year was a tough third quarter. So, the comparisons in the third quarter are easy. And yet, in aggregate, we have really good momentum in our food service business. And so what I believe is that our food service business can continue to be an accelerator of top line growth, but also continuing to expand margins. When you talk about the profitability, they were hit particularly hard on the profit side. And I think it's fair to say that we're still in the early innings on driving back margin growth into our food service business, and we're confident that we can and we're also confident that we need to. And so we'll continue to drive margin growth as we still grow our top line sales growth. So we think we can do both of those at the same time in food service and are pleased with the momentum that we've regained in there. Operator: Thank you. At this time, I'd like to turn the call back over to our speakers for any closing remarks. Jeff Siemon: Okay. Thanks, everyone. I think that's all the time we have this morning, but I really appreciate the good engagement. And we will obviously be available throughout the day for follow-ups. Otherwise, we'll look forward to seeing you over the spring. Thanks again. Operator: Thank you. This does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you, and have a good day.

Jeff Siemon: Good morning. This is Jeff Siemon, Vice President of Investor Relations. Thank you for listening to General Mills' prepared remarks for our Fiscal 2023 Second Quarter Earnings. Later this morning we will hold a separate, live question-and-answer session on today's results, which you can hear via webcast on our Investor Relations website. Joining me for this morning's presentation are Jeff Harmening, our Chairman and CEO, and Kofi Bruce, our CFO. Before I hand things over to them, let me first touch on a few items. On our website, you will find our press release that posted this morning, along with a copy of the presentation and transcript of these remarks. Please note that today's remarks will include forward-looking statements that are based on management's current views and assumptions. The second slide in today's presentation lists several factors that could cause our future results to be different than our current estimates. And with that, I will turn it over to Jeff. Jeff Harmening: Thank you, Jeff, and good morning, everyone. Let me start by summarizing today's key messages. Building on a good start to the year in Q1, we delivered strong results in our second quarter, including double-digit growth in organic net sales and adjusted diluted earnings per share. We also delivered a second consecutive quarter of gross margin expansion, representing continued progress toward restoring our pre-pandemic margin profile. The operating environment remains volatile. While we've seen some modest improvement in recent months, it is still far from pre-pandemic conditions, particularly at our up-stream suppliers. In this context, our team continues to execute well and we remain focused on advancing our Accelerate strategy and delivering on our fiscal 2023 priorities. Given our strong first-half results and positive momentum on our business, we are once again raising our full-year guidance for organic net sales, adjusted operating profit, and adjusted diluted EPS growth. Slide 5 summarizes our financial performance for the second quarter and the first half of fiscal '23. We drove 11% organic net sales growth in the quarter, fueled by strong net price realization in response to significant levels of input cost inflation. Adjusted operating profit was up 7% and adjusted diluted EPS was up 12%, each in constant currency. Our first-half results were also strong, with double-digit growth in organic net sales and adjusted diluted EPS. The operating environment in fiscal 2023 remains challenging and dynamic. On the cost side, we continue to forecast total input cost inflation of approximately 14% to 15% for the full year, including double-digit inflation in the second half. Volume elasticities continued to remain below historical levels in the first half, particularly in North America Retail. We are watching these trends closely, but we do not expect a return to pre-pandemic elasticity levels during fiscal 2023. We've seen some modest improvement in the supply chain environment in recent months, with logistics challenges continuing to ease and a slight reduction in the level of upstream supply disruptions. As a result, our customer service levels reached the high 80% range in U.S. retail by the end of the quarter, up from the mid-80s last quarter, though still well below our normal range of 98% to 99%. Despite these improvements, supply disruptions remain well above historical averages, and we aren't forecasting a return to pre-pandemic levels of supply disruptions or customer service during this fiscal year. Finally, we continue to see the pandemic impacting consumers' health and mobility around the globe. This has been most acute in China during the first half of this year. Overall, while it's encouraging to see some signs of supply chain improvement recently, we expect the pace of change in the operating environment to remain high for the foreseeable future. As we've said in the past, our job is not to predict the future better than our competition, but instead to be better able to adapt to change and deliver winning results regardless of the environment. That has been our recipe for success in recent years, and we're focusing on continuing that success in fiscal 2023 and beyond. We are continuing to drive our Accelerate strategy this year by executing on the three priorities outlined on Slide 7. We will continue to compete effectively by boldly building our brands, relentlessly innovating, and servicing the business with excellence. We will continue to invest for the future by delivering HMM and SRM to offset inflation, making strategic investments in the business, and continuing to progress against our ESG commitments. And we will continue to reshape our portfolio by ensuring smooth transitions for our announced transactions and assessing the landscape for additional growth- and value-enhancing acquisitions or divestitures. I'm pleased to say that we are making progress against each of these priorities through the first half. We're competing effectively once again in fiscal 2023, building on four consecutive years of strong market share performance. We are holding or gaining share in 37% of our priority businesses through the first half, but that includes a share decline in Cereal, where we're comparing against our unusually strong share gains in the U.S. a year ago when a key competitor was dealing with significant service challenges. On a two-year basis, our market share in Cereal is still up, and after adjusting for that change, we are holding or gaining share in 54% of our priority businesses, including a broad array of platforms in the U.S. and internationally. In addition to executing for today, we continue to make strategic investments to strengthen our brands and our competitive advantages for the future. Our Media investment was up double digits in Q2, and we expect it to be up double digits for the full year behind compelling campaigns that are increasingly leveraging our digital capabilities to reach consumers everywhere they interact with our brands. We've invested significantly in recent years to strengthen our capabilities that are critical to our future success, including Digital & Technology, Strategic Revenue Management, E-commerce, Global Impact, and others. Our total capability investments will be up again in Fiscal 2023, led by Digital & Technology. In fact, we've increased our investment in this area by more than $100 million dollars over the past few years, and we expect to grow in this area by double digits again this year. Additionally, we plan to increase our investment in growth capital by more than 50% in Fiscal '23. This includes investments to increase internal manufacturing capacity on key platforms where we see sustained growth into the future, such as pet food, Mexican food, hot snacks, fruit snacks, and cereal. Another important way we are investing for the future is through our commitment to Standing for Good. For decades, General Mills has taken action to reduce hunger and food insecurity in our communities through grants, corporate contributions, and food product donations. We work with food banks in more than 40 countries to expand food security and build long-term resilience for the future. One example is Feeding America. General Mills was a founding member of this U.S. hunger-relief organization more than 40 years ago. More recently, we supported the creation of Feeding America's MealConnect, a solution for the nation's charitable food system that allows member food banks to coordinate and receive donations from their local food businesses and grocers. As the only food-rescue technology available nationwide, MealConnect serves more than 12,000 nonprofits and has enabled the recovery of more than 3.5 billion nourishing meals since its launch in 2014. In addition to providing monetary support, General Mills helped co-create MealConnect's Logistics function, which works to reroute rejected or damaged but perfectly safe food products for donation at food banks. Standing for good is a critical pillar of our Accelerate strategy and is an important way we are investing for our future for our company, our planet, and for our communities. Switching gears, I'd like to spend a few minutes highlighting several businesses where we are consistently competing effectively and investing for the future, led by North America Retail. As we've shared in the past, we've built a multi-year success story in cereal behind strong innovation, renovation, and investment in what we believe are the best brands in the category. In fact, annual Nielsen-measured retail sales for our U.S. cereal business are up 20% since fiscal 2018 to more than $3 billion dollars. We've gained two-and-a-half share points over that time and solidified our number one position in the category. We're bringing more compelling news and innovation to the cereal category in fiscal 2023. Cheerios, which is by far the largest brand in the category, continues to keep its heart-health messaging fresh for consumers, while Cinnamon Toast Crunch, the second-largest brand in the category, is engaging new consumers with its crazy squares. In addition, we've launched three of the top five new products in the category so far in fiscal '23, and we are particularly excited about our second-half innovation plans. Our new Minis platform brings consumers miniature versions of their favorite cereal brands, providing a fun, new way to enjoy the big flavors they love. We've seen exceptional retail acceptance for these new products and they're already among the top turning items in their first few weeks on shelf. We've grown retail sales for our Pillsbury U.S. Refrigerated Dough business by nearly 50% over the past five years, to nearly $2 billion dollars, and we're working on our fifth consecutive year of market share gains after having added five points of share in the past four years. Pillsbury provides convenience and joy to families for special occasion and everyday meals. We're having another strong key baking season this year, and we're bringing the brand more regularly into consumers' everyday meal routines. Our most recent messaging with consumers highlights the many ways to conveniently make homemade using Pillsbury dough products outside the oven. And we are leveraging our data and connected commerce capabilities to personalize our messages. For example, by targeting our make homemade messaging to consumers who recently purchased an air fryer, we were able to drive lower cost-per-click and convert a higher share of our new Pillsbury consumers, further building confidence in the value of our first-party data. Our Fruit Snacks platform is an underappreciated local gem in our portfolio like Pillsbury dough, but on a smaller scale. Here, too, we've generated tremendous growth in recent years, with our retail sales in U.S. fruit snacks up nearly 70% since fiscal 2018 to more than $800 million dollars, and our market share up almost four-and-a-half points to 54% of the category. We accomplished these results despite being capacity constrained for much of that time, but we completed a $100-million-dollar capacity expansion on fruit snacks in Q1, which has allowed us to execute new channel expansion plans for e-commerce and convenience stores. Year-to-date, we've driven a 44% increase in our e-commerce retail sales on fruit snacks by optimizing our online shelf and consumer experience, leveraging our connected commerce capability. We've also expanded our fruit snacks presence in impulse channels, launching new peggable packaging that has helped us drive a 12-point increase in fruit snacks market share in convenience stores. With strong momentum, growing consumer demand, and plans for further capacity expansion ahead, we are excited about the continued runway for growth on fruit snacks. Another business that has a long runway of growth is Blue Buffalo pet food. The trends toward humanization and premiumization in the pet food category are strong and will continue to grow -- in the U.S. and around the world. We are focused on leading and expanding our presence in high-quality, natural feeding and treating for dogs and cats. We are led by our purpose to Love them Like Family, Feed them Like Family, which is the reason Blue Buffalo ranks as the number one brand pet parents are likely to recommend, the top brand pet parents will pay more for, and the most Loved and Trusted Natural Brand in the category. This has helped us drive terrific growth since we acquired the business in 2018, with our Pet net sales up by $1 billion through fiscal 2022. While we continue to believe in the long-run growth opportunity for our Pet business, we experienced an unexpected headwind in Q2 in the form of inventory reductions at some key retailers. As a result, while our all-channel retail sales grew at a high-single-digit rate in the quarter, our net sales were essentially flat. Beyond the unexpected retail inventory decline, our Pet results in Q2 largely reflected the continued impact of the capacity limitations and resulting customer service challenges that we called out on our first-quarter earnings call. Because of these service challenges, we pulled back on media and in-store support so as not to amplify our issues with on-shelf availability. While these headwinds have been felt across our Pet business, they've been particularly acute on our Dry Dog Food and Treats sub-segments. As we move into the second half of fiscal 2023, we expect to get back to double-digit net sales growth on Pet, supported by better customer service, stronger product news, increased brand support, and stable retail inventory levels. We expect our customer service will improve because of the external manufacturing capacity we've added on dry dog food and treats. To further improve service, we recently added a new distribution center and expanded capacity at our existing warehouses. We initially prioritized customer service improvement on Life Protection Formula, which makes up more than half of our dry dog food retail sales, and we've seen encouraging volume growth on that business in Nielsen-measured channels in the past six weeks. We're now expanding our service improvement focus to the rest of our Dry Dog portfolio and to Treats, leveraging our increased capacity. Improved customer service will also allow us to step up our media and in-store support, including a strong double-digit increase in media investment on Pet in the back half. And we have an exciting lineup of innovation and renovation launching across dog food, cat food, and treats. Our back-half news on Pet starts with significant renovation and innovation on our Wilderness dry dog food line. We're adding 20% more meat to our core Wilderness dry dog food products, and we're ramping up spending behind this news. We're also launching Wilderness Premier Blend, a new, super-premium offering that includes kibble, plus a new, proprietary tender meaty piece that dogs love in a convenient all-in-one solution pet parents will love too. On cat food, we're renovating our core dry portfolio and re-launching it under the Tastefuls equity. This launch builds on the success of the Tastefuls wet cat food line we introduced in 2021. Blue Tastefuls now offers a complete portfolio of feeding options for cats that provides the perfect combination of great taste and healthy ingredients. The new packaging is just starting to hit shelves now, and we'll support the news with media and in-store activations in the coming months. And on Treats, our added capacity will help us drive improved customer service on our Nudges, True Chews, and Top Chews products, which now carry the Blue Buffalo shield. With better on-shelf availability, we'll be able to turn on national media support and in-store merchandising, leveraging the Blue Buffalo master brand, which will help amplify awareness of these highly differentiated products. We remain bullish about the growth prospects for our Pet business. With a retailer inventory reduction and the worst of our capacity and service challenges behind us, and with exciting innovation and brand-building investment behind the strongest natural brand in the category, we're poised to continue Pet's track record of outstanding growth in fiscal 2023, and over the long term. Taking a step back, I continue to be pleased with how we're executing our Accelerate strategy to drive profitable growth on our core while continuing to reshape our portfolio. Now let me turn it over to Kofi to provide more details on our second-quarter results and our increased guidance. Kofi Bruce: Thanks, Jeff, and hello everyone. Our second-quarter financial results are summarized on Slide 18. Note that there were a handful of events that impacted our year-over-year comparisons this quarter. These included the acquisition of TNT Crust, as well as the divestures of our European yogurt business, our international dough businesses, and the Helper and Suddenly Salad business in North America. We also had an impact from the international Haagen-Dazs ice cream recall that we announced last quarter. We do not expect any further material impact from the recall in the remainder of the year. Now let's move on to our Q2 results. Reported net sales of $5.2 billion dollars were up 4%, and organic net sales grew 11% in the quarter, reflecting continued positive price/mix in response to significant input cost inflation, partially offset by lower volume. Adjusted operating profit of $880 million dollars was up 7% in constant currency, with benefits from positive price/mix partially offset by higher input costs, lower volume, and higher SG&A expenses, including a double-digit increase in media investment. Adjusted diluted earnings per share totaled $1.10 in the quarter and were up 12% in constant currency. Slide 19 summarizes the components of our net sales growth in the quarter. Organic net sales were up 11%, reflecting 17 points of positive organic price/mix, partially offset by a 6% decline in organic pound volume. Foreign exchange reduced net sales by one point, and the net impact of acquisitions and divestitures was a five-point headwind to second-quarter net sales. Now let's turn to our segment results, beginning with North America Retail on Slide 20. NAR continues to perform exceptionally well, with our brands delivering for consumers and the business executing successfully amid ongoing volatility in the operating environment. Organic net sales grew 13% in the quarter, driven by positive price/mix, partially offset by lower volume. Despite elevated levels of inflation-driven pricing, elasticities continue to remain below historical benchmarks. Growth in NAR this quarter was broad based, with double-digit net sales growth in U.S. Snacks, U.S. Meals and Baking Solutions, and U.S. Morning Foods, and mid-single-digit net sales growth in Canada in constant currency. We continue to compete effectively, with 67% of our North America Retail priority businesses holding or growing share so far this fiscal year, when adjusting for Cereal on a two-year basis. Second-quarter constant-currency segment operating profit increased 24%, driven by positive price/mix and HMM cost savings, partially offset by high input cost inflation, lower volume, and higher SG&A expenses. Slide 21 summarizes our Pet segment results. As Jeff mentioned, Pet net sales in Q2 were negatively impacted by a reduction in retailer inventory. All-channel retail sales were up high-single digits in the quarter. We expect Pet net sales growth to accelerate in the second half behind increased capacity, improved customer service, strong innovation and renovation news, and increased brand-building investment. Additionally, we expect retailer inventory levels to remain stable in the back half of the year. On the bottom line, second-quarter segment operating profit totaled $87 million dollars compared to $132 million a year ago, driven primarily by high-teens input cost inflation, a significant increase in costs related to capacity expansion and supply chain disruptions, and lower volume, including the impact of the retailer inventory reduction. These headwinds were partially offset by positive price/mix. We expect to deliver profit growth on Pet in the back half with stronger volume performance, less headwind from capacity and supply disruption costs, and better alignment between price/mix and inflation. Moving on to our North America Foodservice segment results on Slide 22, organic net sales grew 17% in the quarter. As we expected, this quarter's performance included greater price/mix benefit on our non-flour business compared to Q1, and less benefit from market index pricing on bakery flour, which is dollar profit neutral. Segment operating profit for the quarter was up 20%, driven by positive price/mix, partially offset by higher input costs and higher SG&A expenses. Second-quarter International segment results are summarized on Slide 23. Organic net sales were up 5% this quarter, driven by good growth in Brazil, our Distributor markets, and Europe & Australia, partially offset by a decline in China due to continued consumer mobility restrictions due to zero COVID policy as well as the impact of the international ice cream recall. Second-quarter segment operating profit totaled $18 million dollars compared to $59 million a year ago, driven by higher input costs and lower volume, including the impact of divestitures and the ice cream recall, partially offset by positive price/mix and lower SG&A expenses. With comparisons against the Yogurt divestiture and the Ice Cream recall now behind us, we expect to generate profit growth in International in the back half of fiscal 23. Slide 24 summarizes our joint venture results in the second quarter. Cereal Partners Worldwide net sales were up 2% in constant currency, driven by favorable price/mix, partially offset by lower volume. Haagen-Dazs Japan net sales were down 10% in constant currency as the business lapped strong new product performance last year. Second-quarter combined after-tax earnings from joint ventures totaled $25 million dollars compared to $33 million dollars a year ago, primarily driven by unfavorable foreign currency exchange as well as lower constant-currency profit at Haagen-Dazs Japan, partially offset by favorable CPW price/mix. Turning to total company margin results on Slide 25, our second-quarter adjusted gross margin increased 100 basis points versus last year to 33.2%, driven by positive price/mix and HMM cost savings, partially offset by mid-teens input cost inflation, higher other cost of goods sold, and supply chain deleverage. While this is our second quarter of gross margin improvement, our adjusted gross margin is still below pre-pandemic levels, and we have more work to do to restore our historical margin profile. Adjusted operating profit margin increased 60 basis points in the quarter to 16.9%, driven by higher adjusted gross margin, partially offset by higher SG&A expenses. Slide 26 summarizes other noteworthy Q2 income statement items. Adjusted unallocated corporate expenses increased $30 million dollars in the quarter, primarily reflecting increased capability investments this year and certain discrete favorable items a year ago. Net interest expense decreased $1 million dollars, driven by lower average long-term debt balances, partially offset by higher rates. The adjusted effective tax rate for the quarter was 21.1% compared to 22.3% a year ago, driven by certain discrete tax benefits this year. And average diluted shares outstanding in the quarter were down 2% to 602 million, reflecting our net share repurchase activity. Our first-half fiscal 23 results are summarized on Slide 27. Net sales of $9.9 billion dollars were up 4%, including a five-point headwind from net divestiture and acquisition activity and one point of unfavorable foreign currency exchange. Organic net sales increased 11%, driven by positive organic price/mix, partially offset by lower organic pound volume. Year-to-date adjusted operating profit of $1.8 billion dollars increased 8% in constant currency. And adjusted diluted earnings per share of $2.21 were up 13% in constant currency. Turning to the balance sheet and cash flow on Slide 28. While we drove strong growth in adjusted net earnings in the first half, our operating cash flow was down from $1.5 billion dollars a year ago to $1.2 billion in the first half of fiscal '23, driven primarily by an increase in inventory and higher cash tax payments. Year-to-date capital investments in the quarter totaled $227 million dollars. We remain on track for capital investment to total roughly 4% of net sales for the full year. And we returned $1.4 billion dollars in cash to shareholders in the first six months of the year through dividends and net share repurchases. On Slide 29, you can see our increased guidance for fiscal 2023. We now expect organic net sales to increase 8% to 9%, reflecting better volume performance and improved price/mix relative to our prior outlook. We continue to expect elasticities will remain below historical levels over the remainder of this fiscal year. We now expect adjusted operating profit to increase 3% to 5% in constant currency, reflecting stronger top line performance. We continue to expect total input cost inflation of 14% to 15% of total cost of goods sold, HMM cost savings of 3% to 4% of COGS, moderately lower supply chain disruptions versus last year, and increased investment in brand building and other growth-driving activities. Constant-currency adjusted diluted earnings per share are now expected to increase 4% to 6%. This updated outlook reflects stronger profit growth and higher net interest expense, which is now expected to total more than $400 million dollars for the full year, reflecting rising interest rates. Our guidance for both adjusted operating profit and adjusted diluted EPS both include a three-point net headwind from divestitures and acquisitions and an estimated one-point headwind from the ice cream recall. Finally, we continue to expect free cash flow conversion will be at least 90% of adjusted after-tax earnings. Let me now turn it back to Jeff for some closing remarks. Jeff Harmening: Thanks, Kofi. Let me close with a few thoughts. I continue to be pleased with how we're executing our Accelerate strategy and driving profitable growth, including delivering strong results again in Q2. We're competing effectively, building on four consecutive years of positive market share performance, and we continue to invest for the future. While we have work to do to overcome some short-term headwinds in Pet and International, we've taken actions to drive stronger results in those segments in the second half of this year. I'm also pleased that we are once again raising our guidance for the full year, building on our strong first-half results and compelling plans for the back half. Thank you for your time this morning. This concludes our prepared remarks. I invite you to listen to our live question-and-answer webcast, which will begin at 8:00 a.m. Central time this morning and will be available for replay on our Investor Relations page at GeneralMills.com. Operator: Greetings, and welcome to the General Mills' second quarter fiscal 2023 earnings Q&A webcast. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, December 20, 2022. I would now like to turn the conference over to Jeff Siemon, Vice President of Investor Relations. Please go ahead. Jeff Siemon: Thank you, Kelly, and good morning, everyone. Thanks for joining us today for the Q&A session on our Q2 fiscal '23 results. I hope you all had the time to review the press release, listen to our prepared remarks and view the presentation materials, which are made available this morning on our IR website. Please do note that in our Q&A session, we may make forward-looking statements that are based on our current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which will be discussed on today's call. I'm here with Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Jon Nudi, Group President of our North America Retail segment. Let's get to the first question, Kelly. So please get us started. Thanks. Operator: [Operator Instructions] Our first question comes from Andrew Lazar with Barclays. You may proceed with your question. Andrew Lazar: I think just to kick it off, I guess, I appreciate that capacity constraints can often lead to a gap between shipments and retail takeaway, but obviously, the differential in Pet was far greater than anticipated. So, I'm trying to get a sense of why would retailers pull back on orders when capacity is constrained and demand remains so strong and does this pose any risk ultimately to the demand side of the equation? And then I've just got a quick follow-up. Jeff Harmening: Yes. Sure, Andrew. Thanks for the question. I would say, ironically, in the second quarter, a lot of what occurred in we anticipated, including retail sales and the fact that we were capacity constrained. And as we look ahead, we guided to double-digit growth for the second half of the year, by which I mean starting in Q3, given the strong level of innovation we have and the fact capacity is online, and we've got really good advertising and marketing support. The one thing that was different than we expected was a drawdown in retail inventory you pointed out to. But we don't -- first of all, most importantly, we don't think that this is a long-term trend. We think it is something to happen this quarter. In terms of the rationale why, I would say, in general, the retailers have carried a little bit less inventory across the board during this time only because with inflation, what you don't want to do is carry a lot of working capital. And so -- but certainly not eight points worth of differential. The other reason I would say is that because we lack capacity, there are a lot of categories like treats, for example, where normally we would merchandise a lot during this time of year, but we couldn't do that. And so not only do we not -- were we not able to service demand, but we had to pull back on merchandising. And a lot of times, retailers carry more inventory when they're going to merchandise. And so you really see that in our treats business. And then the third reason is we had a couple of big retail customers and we have a more mass merch orientation that didn't take inventory coming into the season because that warehouses full of other things. It's a little bit different customer set than our North America Retail business, for example. And so that's why we don't see it on the North America retail side. So, those are really the laundry list, if you will, of reasons why inventory was less. But as you can imagine, we've done a very deep dive on inventory levels by customers. And I can tell you, we don't think there's going to be a repeat performance of that nature in the third quarter. In fact, that's why we're comfortable guiding up double-digit sales growth again. Andrew Lazar: And then, I think you were looking for flattish gross margins or so for the full year, if we were thinking about last quarter's conference call, obviously, with the upside to gross margins in this quarter despite the pet constraints on profitability. Could we see gross margins likely up year-over-year for the full year at this stage? Kofi Bruce: Sure. Andrew, it is Kofi. Thanks for the question. Certainly, as we look at our revised guidance, that's within the range of possibilities. And while we're not giving specific guidance on gross margin, we're very comfortable we're making good progress against our long-term goal of getting our margin back to pre-pandemic levels. We're still about 150 basis points back of there. So, we're going to continue to drive at the things that will help us improve the margin profile as we go forward. Operator: Our next question comes from Ken Goldman with JPMorgan. You may proceed. Ken Goldman: I wanted to just ask, you seem confident understandably why, why the de-load won't happen again, and thank you for the clear explanation, Jeff, on what the drivers were. I'm just curious, as you progress into your third quarter, it might be a little early to ask because we're still not at Christmas. But are you seeing any refilling of inventory levels by retailers, if you addressed this already, forgive me, but just trying to get a sense of sort of more real-time data as to what's going on? Jeff Harmening: Yes. I think a couple of points, Ken. Yes, we are early in the quarter. Having said that, there are a couple of things that give us confidence in our forecast for the third quarter, the first I would start with Life Protection Formula, which is our biggest dry business. And we've seen over the last six weeks, we've seen demand really rebound quickly. And that's important because that's the first business that we could bring back up to appropriate service levels. And so that gives us confidence. In addition to that, we -- I did tell you we were going to grow double digits in the third quarter. And I can report that we're only about three weeks into December. So it's -- but three weeks is not nothing, and I can tell you, we're on track to deliver what we said we're going to do in the third quarter, which again gives us more confidence that we're going to be able to do what we say we're going to do and that we've seen the pipeline of inventory start to refill itself because we're able to service the business better, and it's especially true on treats. Jeff Siemon: And Ken, I'd add just to put some numbers on it, this is Jeff Siemon. For Life Protection Formula, the movement in Nielsen measured channels in the last month is up almost 20% and volume has been positive and accelerating recently now that we've gotten service back in the 90s. So just to put some dimensions on it, it's been encouraging to see that business grow basically in line with or even ahead of where the category is growing overall. Ken Goldman: And then a quick follow-up. Just how do we think about the impact of adding more production from co-manufacturers and maybe re-stepping on the marketing pedal, for your pet food business in the third and fourth quarters, obviously, hopefully, there will be a better volume turnaround, and that will help as well. I'm just trying to get a general sense of, I guess, how to model those margins given all the puts and takes. Jeff Harmening: So let me start and then Kofi can give you some more thoughts on the margin. I would say how to think about the whole basket. I would say, clearly, we anticipate our reported net sales to improve to double digits in the second half of the year behind all of the activity we talked about. Given that we went -- we've gone externally both in treats and more importantly, in dry dog food for -- to get capacity sooner, that obviously helps our service levels, external capacity doesn't tend to be as profitable. So I wouldn't anticipate our gross margins to rise as proportionately as our sales would rise. But the benefit is that we're getting back, and we're satisfying pet parents sooner. The other thing I would say is that to the extent that we increase advertising in the third quarter, and I think we have some really nice advertising. We're going to increase that double digits in the third quarter. I wouldn't expect our operating profit margin to rise as fast it should get better, a lot better, but it probably won't rise as fast as the sales growth in the near term, but that's a choice that we're making. And our choice is to get back to growth first and making sure we can get that flywheel going again. So Kofi, you want to add any color to that? Kofi Bruce: Yes. And that said, we do expect profit growth on our pet business in the back half of fiscal '23. Some of the key things you'll see is we'll expect price/mix to catch up with inflation. We've got another effectively round of pricing coming through at the beginning of calendar year '23. We don't expect the pressure on supply chain to be as acute. So, we won't see as much sort of drag from other cost of goods sold. And of course, we're not expecting the inventory depletion and the pressure that and deleverage that comes with that headwind. So as a result, we would expect our second half top line growth should give us still a solid profit growth even if it's slightly behind the top line growth. Operator: Our next question comes from Max Gumport with BNP Paribas. You may proceed. Max Gumport: Thanks for the question, and happy holidays. And going -- sticking with pet, you just mentioned another round of pricing you expect to come online in CY '23, I believe, and there's a narrative that the pet food industry in the U.S. could be on the horizon of getting more competitive due to potential supply/demand imbalances. I'm wondering, if you can provide any color on what you're seeing on that front? Jeff Harmening: Yes, Max, thanks for the question. As we -- when you say more competitive, first of all, I would say that category is always competitive. There are a lot of great competitors in the category. Having said that, I suppose the question comes down to, you're talking about price competitive or something like that. What I would say is that we continue to see the premium end of the category growth. And we see Blue Buffalo is present life protection formula, again, continue to accelerate once we get supply back online. And in general, we see the premium part of the category doing quite well. And it's a category that really lends itself is a fairly inelastic category. And that's because pet parents really, really care about what they feed their pets. And so I don't anticipate between the nature of the category and the fact that we're still seeing inflation. Our inflation for the Company in the back half of the year will be up double digits. And so, it's not as if we're answering into a deflationary environment. We're all still making -- we're all still kind of recovering service levels. So the supply chain, we're not in an overcapacity situation. Supply chains are still have some catching up to do. So because we see inflation, because of the nature of the consumer, because of the nature of the supply chain, even though it's always a competitive category, I wouldn't see it getting more competitive in terms of pricing in the near term only because of all of those factors. Max Gumport: Great. And one follow-up. So you mentioned that you expect the price elasticities to remain below historical levels during the remainder of FY '23 and also that there particularly benign in North America retail. I'm wondering what you're seeing on this front in your international businesses, particularly European Cereal as we've heard some commentary of a return to normal levels of elasticities in those markets from other industry participants. Jeff Harmening: Yes. I guess I would say, in general, not commenting on cereal specifically, I guess, but in general in Europe. First of all, we say the economic situation in Europe is more challenging than it is here, particularly driven by energy prices and unemployment, that's a little bit higher than it is in the U.S. So I would start with that. The second, I would say, is that elasticities in Europe tend to be a little bit higher than they are in the U.S. normally, and we're seeing that in this environment as well. And that kind of plays itself out across categories. And so, whether it's cereal or bars or ice cream, so we -- so I would say the situation in Europe is a little more challenging than it is here, but it really has to do with a combination of macroeconomic backdrop, combined with elasticities in general, tend to be a little higher. But I would say directionally, we're seeing the same kinds of things there that we see here. Operator: Our next question comes from Robert Moskow with Credit Suisse. You may proceed. Robert Moskow: You mentioned some new pricing actions in pet. Do you expect to take more pricing actions in North America retail as well? The public comments from the grocers sound increasingly concerned about higher pricing and the impact on their consumers. So, I wanted to know if there's any blowback on that. And then also, in the past, there's been unusual de-loading in January by some retailers to protect balance sheets. I think you mentioned it here today. Do you see any risk of that happening as well? Jeff Harmening: So Rob, I would say as it relates to pricing, I mean, we've announced some pricing on pet. We've announced that to our retail customers already to take effect, I think, February 1. So we've announced that already. In terms of -- but I will also remind you that when we started the year, we said that for most of this fiscal year, we've taken most of the pricing that we need to take in the market already for this fiscal year. So that also remains true. But I will also say in the back half of the year, we're expecting double-digit inflation. So it's not as -- it may decelerate from where it is now, but then decelerating to double digits is not exactly zero. And even as we look across a longer horizon, I don't want to play Nostradamus with inflation rates. What I will say, though, is even looking out past six months, it's pretty clear to us that we'll still see an inflationary environment. It may or may not be as robust as it is now, but it will still be an inflationary environment, driven quite a bit by wage increases. So it's hard for us to see an environment where we don't see inflation. Even if that inflation -- those inflationary levels may not be exactly what we've experienced over the last six months. And so as we look at our business, we'll continue to look at pricing. But the key is that the pricing has to be justified. And this has always been the case. But it has to be justified based on the cost that we're seeing. And we find with our retail customers if we can justify the cost that we're seeing and that they know that we're investing in the growth of our categories, which we are through double-digit consumer spending increases, launches like minis and cereal and like the innovation we have in Pillsbury and Blue Buffalo, then the conversations are a lot more productive than otherwise. So that's, I guess, what it was a long-winded answer to a fairly straightforward question on pricing. With regard to retailer inventories, I would say we have seen a little bit less retail inventory because of this inflationary environment. But I would say as we look forward, we've probably seen -- I wouldn't -- I don't think that's a risk to our go forward either on Blue Buffalo or our business in general. So that's kind of some generalities. Jon Nudi, anything you want to add to that? Jon Nudi: No, I think you hit it. I would just say that our SRM capability is something I'd point to is much more sophisticated than it was a few years ago. So as inflation continues to come, we'll leverage the entire toolbox. So it's not just list pricing, it's promotional optimization and mix and pack price architecture. And by leveraging all those tools, we believe that we'll be able to combat inflation as we move forward as well. And in terms of retailers, as Jeff mentioned, I mean, is pricing has never been easy. And even over the last couple of years that we've seen significant inflation. But if we can bring in a strong market basket story, we have had success moving pricing through the market. Robert Moskow: Can I ask a follow-up? In the past, have you been able to go to retailers and show labor inflation internally and use that as a rationale for raising price. It seems like that's something new. Jon Nudi: Yes, Rob, I think the scale of the inflation is different today, right? So we're seeing a double-digit inflation. And historically, over the last decade or so, we haven't seen a lot of inflation has been low single digits. So it really hasn't been a conversation because there really hasn't been enough inflation to take significant action. I think with the scale of the inflation we're seeing today and the sophistication, as I mentioned as well, we're able to really break down where we're seeing inflation and some things are starting to moderate. But at the same time, you're seeing things like labor, certainly, sprout remains sticky, and it's in the equation. And we've gotten more sophisticated but our retailers have as well. So again, I think we have really good constructive conversations that are really based on facts at this point. Jeff Siemon: Rob, or where we see that impacting us is not so much our own labor, but it's the labor at our suppliers, which translates through their pricing to us. So yes, there's labor inflation in our own facilities, et cetera, but the much bigger aspect of labor is upstream at the supplier base. Operator: Our next question comes from Michael Lavery with Piper Sandler. You may proceed. Michael Lavery: I just wanted to come back to the elasticities and maybe understand a couple of things better. You say you don't expect to sort of revert to more normal levels over the second half. I guess -- or at least over the year? And is that just because half the year is done? Or what are you seeing something different maybe structurally what -- what's driving that expectation? And what would you consider a more normal level to be? Jeff Harmening: I think what drives our assumption, Michael and [Frank] look is an assumption is that we still see the conditions for an elasticity relative in elasticity, not complete inelasticity, but relative inelasticity in the marketplace. And those conditions are a continuation of inflation. And even if they're not what we experienced in the first half, they're still double digit. The second is supply chain, the supply chain still having supply chain disruptions. Again, our service level is in the high 80s. So that's certainly a lot better than they were a year ago, which were they were in the 70s, but it's certainly not at 98% either. So a continuation of supply chain challenges. And also, consumers to be under pressure. In fact, it's highly possible consumers will be under more pressure over the next six months. And when that happens, consumers tend to eat at home more rather than eat out more. And so, it's very possible we'll see -- continue to see trading into food eaten at home. So those are the factors that we see and drive our assumptions that there won't be a significant change in elasticities over the next six months. But look, those are the assumptions based on what we see right now. Michael Lavery: Okay. Great. That's helpful. And I know China is fairly small, but just would love to get an update on maybe what you're seeing there. Obviously, in the second quarter, there were some of the lockdown, I guess, pressure or the -- certainly, food service challenges from those restrictions. As kind of evolving there, any update on the latest of what you're seeing in China and how we should think about that? Jeff Harmening: Well, there's been a fairly significant policy change by the Chinese government on COVID and zero COVID. And it's going to be a ride, I think, for the next few months because we've had a population that's gone from relatively no COVID to quite a bit of COVID in the marketplace. And so that now people don't lock down as much. But I think when you have as much COVID as they have, we'll see not as many people venturing out, which is very good for our Wanchai Ferry dumpling business, which is half of our business and not as good for our Haagen-Dazs business. And so, I want to think about that business over the next few months, I think it's going to be a wild ride. But I would think that our dumpling business will do quite well. And our Haagen-Dazs business will maybe be a little bit more challenging over the next few months, but they're about equal in size. Michael Lavery: Since they pivoted on policy, they've conveniently stopped giving information on case counts. But so I guess, yes, it -- is it pretty chaotic there? I mean, I guess we're just in for a few months of some uncertainty, but it sounds like you're positioned while neither stated that pretty well. Jeff Harmening: I think so. I think in the grand scheme, it won't be material for General Mills, the shift from one to another. It may be a little more material for our Chinese market, but it won't be for the Company in aggregate. In terms of the case counts, I don't know, but they're clearly going up, and they're going up, they're going up rapidly for the moment. Operator: Our next question comes from Pamela Kaufman with Morgan Stanley. You may proceed. Pamela Kaufman: I wanted to come back to the Pet segment. And just to revisit what gives you confidence that you can return to double-digit growth in pet in the second half of the year? And can you decompose how you're thinking about the drivers of that growth? I mean, can you grow volumes with the capacity that you've secured? Or do you expect volumes to continue to decline with the growth driven predominantly by the pricing? Jeff Harmening: So the -- so Pam, what gives me confidence are a combination of factors. And I think the key -- the first key factor is the restoration of our supply chain and of our capacity. And this particularly important in our treats area, and -- but it's also important for dry dog food and cat food as well. But I would start with treats and then go to dry dog and cat food. So the first piece of confidence is that we've -- we have gained enough capacity to actually to be able to grow volumes in the second half of the year on both of those platforms. And so that's the first piece. The second, though, then it has to be backed up by good marketing. I feel really good about our innovation, really good about what we're doing on the Wilderness brand, I feel good about our change to Tastefuls and cat dry food. I feel very good about our partnerships with our retail customers to get our treats business take started again. We have great products on treats. We've rebranded a lot of what we had bought from Tyson to Blue Buffalo. And so the branding is really good. We've got good programs with our retail customers. So I feel good about our ability to drive our treats business. And then we're going to increase our brand building by double digits. And we've actually already seen a return to volume growth on Life Protection Formula, and we didn't have innovation on that. We didn't have advertising increases on that. All we had a supply. So I feel like the key is supply and then building on top of that really good innovation, strong in-store execution on treats and good advertising at good levels on top of that, that gives me quite a bit of confidence that we'll be able to turn around the Blue Buffalo business in short order. And as we've seen through this whole time, even though our second quarter was not what we wanted and not what you all expected, the brand remains really good. And we've done a lot of brand -- a lot of brand testing. The brand remains really good. The trends towards humanization are really good. So the tailwinds in the category are still there for us behind a good brand and increased supply and marketing. Pamela Kaufman: That's helpful. And you pointed to a lot of innovation that's coming within the Pet segment. Is there anything in particular that prompted your plans to step up innovation or were these initiatives already in the works? And how should we think about the margin impact of the innovation? You mentioned you're adding more meat to Wilderness. How are you planning to offset these costs? And what is the margin profile versus the existing portfolio? Jeff Harmening: Well, I would say on the innovation front, we've been we've had innovation that we've been willing to put in the marketplace for some time. But obviously, we haven't been able to supply the base business where one or two. So adding innovation on top of that is probably not a good idea. In fact, I think the people listening should take a sign of confidence that we can supply our business better because we're bringing this innovation to the market -- marketplace. And we certainly wouldn't do that if we didn't think we could supply it. That would be my fit point of innovation. So we've had this plan for a while. When it comes to the product renovations themselves, I mean, Wilderness is a high-priced, high-margin business. And so, to the extent that the pet parents want more meat in the product, which they do, and we're giving that to them, that's to do wonders for our margin profile. In fact, I would tell you the most important thing that we can do to enhance our margins in pet is to grow pounds. And so, to the extent that we have the supply and the news on a high price, high-margin brand, that should be just what the doctor ordered for the margins for the pet business. Operator: Our next question comes from Chris Growe with Stifel. You may proceed. Chris Growe: Good morning. I want to start first, if I could, with a question on the gross margin, perhaps for Kofi, but just to understand, the sequential change in the gross margin from 1Q. And again, your gross margin was up nicely year-over-year, and that's been quite unique in the industry. I just want to get a sense of any factors that are worth considering that occurred sequentially. And obviously, the one that stands out, I think, would be around Pet. Was that one of the sequential drivers of the softer gross margin absolute performance or any other factors that are worth noting there, if you could, please? Kofi Bruce: Sure, Chris. You have the plot. Certainly, Pet is a contributing factor, but there are also some other structural things around mix of our business as we move from Q1 to Q2. We have a lot more volume from businesses such as soup and baking products, which is, as you know, are heavily merchandised in that seasonal window, so those tend to drive us to a structural step-down in margin as we move from Q1 to Q2. And the other factor, as you rightfully noted, was the acute pressure on Pet margins in this quarter. Chris Growe: Okay. And I just had one more follow-up on the Pet profit. And you had indicated that the second quarter would be a little softer. You had some costs related to getting third parties and co-manufacturing ready, some inventory and warehousing costs. I guess I just want to get a sense of this second quarter Pet profit performance was unique. You plan on some of that occurring. So are a lot of those costs then sort of embedded in the business? Do you have any ongoing costs related to the co-manufacturing outside just that's a lower margin way to supply your business? Kofi Bruce: Sure. So I would expect some of those costs to be structural for sure as we go forward. We'll have external supply chain costs related to the step-up in volume that we're getting. But not all of those costs will carry forward. Some of these costs were related to disruption and enrollment of additional warehousing capacity in that window. So we would expect in aggregate that the drag from those costs will reduce as we step into Q3 and Q4 for this year, which is part of the reason why we also expect profit growth and profit margin improvement as we step into those quarters. Operator: Our next question comes from David Palmer with Evercore ISI. You may proceed. David Palmer: Just another angle on that gross margin question. If we look at this quarter, your gross margin is still down maybe 80, 100 basis points from pre-COVID levels, tons of cross currents there, but I'm wondering how you're thinking about that gap and your ability to get back to pre-COVID levels on gross margin? And the things I'm thinking about are you mentioned the supply chain friction costs, but there's going to be maybe be some categories out there where you're going to be pricing to protect profit dollars. And so, there's some math going against you. So I'm wondering if you'll need to see some easing in some key commodities in certain categories. But the other thing I'm also thinking about is you've had some very strong growth in some of your highest margin categories. So, I could imagine a scenario that you'd be -- particularly as you're doing as well as you're doing with dough that you could be above past peak as you get past some of these friction costs. So any commentary there would be helpful. Kofi Bruce: Sure, sure. I'll try to do justice to your question. So as you think about the path forward, obviously, you hit on the first thing and sort of one of the precedent conditions will be a return to something that is a much more stable and closer to historical level of supply chain disruptions. We're still probably running about 2x our historic levels well off of the peak of 6x to 7x where we were last year, but still enough to be meaningful and significant. And we would also expect that once we get out of a short supply environment, it will be easier to get at HMM and more fully utilize that lever. And that we would expect some of the pandemic era costs related to servicing the business in a more stable environment will become easier and lower. So structurally, we view our job to kind of claw back about 150 basis points of margin versus our sort of pre-pandemic level. I think the stable environment from a supply chain standpoint will be one of the first and the most important things. And then second, it will be probably a return to more historic levels of inflation, moderation of inflation, which -- who knows when that's coming. But we're certainly positioning our business to make sure that we're taking the cost out as we as we have the opportunity to do so. David Palmer: And just a separate follow-up. You talked about investments in your prepared remarks in digital and other capabilities. Could you just give us a sense about what you think the benefits will be from those investments and when and where we'll see that? Kofi Bruce: Sure. So a lot of the focus of our investments in digital and technology to enable our marketing activity and as well our supply chain efficiency. So, we'll see benefits both in gross margins, and we would expect to see that deliver on growth. And then, I'll ask Jon if he wants to weigh in since we're seeing a lot of investment in our North America retail business. Jon Nudi: Yes, absolutely. So as Kofi mentioned, supply chain is a big focus and there's a lot of opportunity for efficiency there. Now on the marketing side is really something we call connected commerce, and it's really the funnel -- the top of the funnel is we generate demand and in a digital world, more and more of our marketing is becoming digital marketing, performance-based marketing. So, we've invested heavily to acquire first-party data and really make sure that we have a strong marketing engagement platform that we can then serve up relevant messaging at scale and really customized for our consumers, we're seeing really incredible returns from that. Further down the funnel, at the bottom was actually the transaction that we're kind of ambivalent whether it's in-store or online. The margins are the same. We actually over-index from a share standpoint online. But we've developed quite a few digital tools to really understand the digital shelf. We grew up in a world that a bricks-and-mortar world that we understand Nielsen and the drivers of our business, digital is different, right? So, we had to develop the dashboards for our team is to really look at the metrics that matter, make sure the digital shelf is correct, make sure that our search metrics where they needed to be. And a lot of that is now digitized. It's on our leaders, computers every day in a dashboard form, and they're making real-time adjustments to the business. So I think you're seeing it actually translate into strong performance in the market today, and will continue to become even more sophisticated as we move forward and continue to invest in this capability. Operator: Our next question comes from Cody Ross with UBS. You may proceed. Cody Ross: Can you just clarify or quantify how much the retailer inventory reduction was in Pet this quarter? And then also, I apologize if I missed it, which channels or retailers was the inventory reduction in? Jeff Harmening: I'll answer the first part of that question for you. The second one, I'll take a polite pass. But the -- on the first part, our retail sales, Cody, were about -- up about 8% during the quarter, and our reported net sales were flat. And so the difference between that 8% points was a reduction in retailer inventory for the variety of reasons that I stated earlier. In terms of which customers and retail, I'm not going to get into a customer-by-customer kind of dissection of that. Cody Ross: Understood. Thank you for that. And then you mentioned in your prepared remarks adding capacity in fruit snacks and in pet treats and dog food. Can you just discuss holistically across your business? How much capacity you are adding? And can you walk us through the planning and analysis that is done to determine, which categories that you choose to add more capacity in? Jeff Harmening: Yes. From a high level, I mean the what I would tell you, the best returns that we can generate as a company are adding capacity on platforms that we already know and that are already growing. And the litmus test for me is that if they're growing before the pandemic and they're growing during the pandemic make the chances they grow after a pandemic are quite a bit higher. And you see that in our Pet food business. You see that in Fruit Snacks. You see that in Totino's, you see that in Old El Paso. And so, we have a variety of businesses. You've seen that in our Cereal business. And so, we have a variety of businesses that we've seen continued growth, and we've run out of capacity. And frankly, as soon as we've generated capacity, I think Fruit Snacks is a good example. We've added capacity and you will probably need more given the high level of demand. So that's kind of how we look at it. We make sure that all of these growth investments are value enhancing for our shareholders. But to the extent there are growth businesses and they are good margin businesses and all of the above or meet that criteria then we're more than happy to invest in our own internal capacity. Jeff Siemon: Okay. I think that's all the time we have for this morning. So Kelly, I think we can go ahead and wrap up. Thanks, everyone, for the time and the good questions, and happy holidays to everyone. End of Q&A: Operator: Thank you. That does conclude the conference call for today. We thank you for your participation, and we ask that you please disconnect your lines.

Operator: Greetings and welcome to the General Mills First Quarter Fiscal 2023 Earnings Q&A Webcast. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded Wednesday, September 21, 2022. I would now like to turn the conference over to Jeff Siemon, VP of Investor Relations. Please go ahead. Jeff Siemon: Thank you, Kelly and good morning everyone. We appreciate you joining us today for a Q&A session on our first quarter fiscal ‘23 results. I hope everyone had a time to review our press release and listen to our prepared remarks and view the presentation materials, which were made available this morning on our IR website. It’s important to note that in our Q&A session, we may make forward-looking statements that are based on our current views and assumptions. Please refer to this morning’s press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which maybe discussed on today’s call. I am here with Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Jon Nudi, Group President of our North America Retail segment. Let’s go ahead and get right to the first question. Kelly, can you please get us started? Operator: [Operator Instructions] And our first question comes from Andrew Lazar with Barclays. You may proceed with your question. Andrew Lazar: Thank you. Good morning, everybody. Kofi Bruce: Good morning. Jeff Harmening: Good morning, Andrew. Andrew Lazar: Maybe to start off, I think the area that diverged from expectations the most in the quarter was certainly on gross margin, which actually expanded modestly year-over-year. I was hoping you could provide a bit more detail on sort of the drivers of this performance. And maybe more importantly, how do you see the sustainability and sequential cadence of margin performance through the remainder of the year? Kofi Bruce: Sure, Andrew. This is Kofi. I would just note we are pleased with the start on margins for Q1. The primary driver, just as we think about kind of where we are, the HMM cost savings plus benefits from price/mix, offset inflation, deleverage and our other sort of operating costs we have taken on in this environment to show modest expansion in the quarter. I think as we look forward, we are not going to give guidance largely in recognition still of the fact that we are in a highly dynamic environment and still vulnerable to supply chain disruption. So as we think about the operating environment, there is still a high degree of volatility. The biggest variables, as you can imagine, as we think about the gross margin progression for us are going to be volume performance on the level of disruption and as we obviously would just take note of the inflationary environment, where we just noted that we are expecting modestly higher inflation for the year. So that’s kind of the table setting. Andrew Lazar: Okay. And then I guess second, I am curious of some of the volume declines that you are seeing just based on elasticity in, let’s say, North America retail. Do you have a sense for how much of that is due to, let’s say, the loss of promoted volume versus base or full price volume just given that you and others are not promoting as much in light of current service levels? And I guess I asked this, because it could help us get maybe an even better sense of the health of sort of the underlying business, if you will? Jeff Harmening: Yes. Jon Nudi, do you want to take that? Jon Nudi: Yes, good morning, Andrew. So as we look at the unit declines, the vast majority of that is due to promotional pulling back and not so much frequency, but really adjusting our price points. So in most categories, it’s up to about 75% of the unit decline is due to promotional pullback. Andrew Lazar: Okay, very helpful. Thanks so much. Operator: Our next question comes from David Palmer with Evercore ISI. You may proceed with your question. David Palmer: Hi. I am trying to think of a good follow up on gross profit, because obviously that was very impressive this quarter. I am wondering how are you viewing your gross profit performance, your gross margin performance versus your plan so far, maybe you could speak to that? And I am wondering to what degree would you be teasing or have us tease out perhaps some benefits that might not repeat in the future, some things that are outsized benefits such as some of the market share gains in your higher margin categories or perhaps promotional activity that you don’t feel like will be as favorable anything that you would do to caution us on gross margins? Kofi Bruce: Yes. I think sort of broadly beyond the qualitative, let me get to the front part of your question. In the quarter largely the – what was sort of unexpected on gross margin was the level of volume and on the back of the elasticities that Jon just alluded to, which were lower than we expected going into the quarter and into the beginning of the fiscal year. So that resulted in less deleverage pressure. So that flowed through to gross margin. I think as a cautionary note, well, I would certainly be in the front of the line along with all our business leaders, including Jon to want the environment stabilized, I think supply chain disruption is still very, very real, categorically well above historical levels and the cost of servicing volume in this business even as we think we are doing it competitively in our North America business is just higher and will remain higher until we see that stabilization. So that probably is the first and primary cautionary note. And the second is obviously the interaction of pricing and volume and elasticities in this environment remains, still hard to read because we are in a historical period and it is hard frankly to [coalescence](ph). So those are sort of the cautionary notes and they all have pretty reasonably significant impact on gross margins. I think the last thing is, as we noted in the scripted remarks, we did flag some other headwinds that potentially will flow through to operating margin, including increased investment on the business to sustain long-term growth and the cost of the expected cost of the recall on Haagen-Dazs. David Palmer: And if I could just squeeze in just a follow-up on your – the supply chain comment, was there improvement through the quarter such that your so-called exit rate, supply chain friction was less at the end of the quarter than it was at the beginning of the quarter that gives you hope that, that will be less going forward? And I will pass it on. Thanks. Kofi Bruce: Yes, sure. So a fair question. As we entered the year, we expected a very modest improvement in the level of supply chain disruption. The quarter effectively played out in line with those expectations and with the expectations we set at the beginning of the year, which are we are still expecting a categorically higher level of supply chain disruption than our historical experience. David Palmer: Thanks. Operator: Our next question comes from Chris Growe with Stifel. You may proceed with your questions. Chris Growe: Thank you. Good morning. Jeff Harmening: Good morning, Chris. Chris Growe: I just had a question if I could. And I think you have an expectation that elasticity will increase from here. I think that’s a very prudent assumption. I am just curious if you are seeing any signs of that or any indicators that would increase that – that would indicate that elasticity is increasing or maybe some categories where you are seeing it perhaps that give you a bit of a warning sign for the business overall. It seems like it’s going pretty well across the industry. I just want to see if there is anything that we are missing here? Jeff Harmening: Chris, this is Jeff Harmening. I mean, I don’t think that – I don’t think you have missed anything so far. As Kofi alluded to just a minute ago, elasticities have been more favorable to us than we had anticipated in the current environment, particularly as consumers have traded to away-from-home meeting to more at-home eating consumption. It’s just a matter of as we look through the year, we would anticipate that elasticities would become a little bit less favorable than they are right now, but still more favorable than they would have been historically, but so far, we haven’t seen really any change in elasticities, which for us was a positive for the quarter. Chris Growe: That’s great. Thank you. And I know we have had a few gross margin questions. It was quite a great performance there. I just was curious maybe Kofi to you and to the phasing questions around the gross margins, do you still have price increases that are going into place that need to take place to offset the inflation? And I guess related to that, you had this increase in inflation, does that prompt you to take more pricing at retail overall? Thank you. Kofi Bruce: No, I appreciate that. We have most – the vast majority of our pricing in the market to address or announced to address the inflation that we see, including the revised modest provision up in the inflationary guidance. And the last round being in our North America foodservice business, where we have taken some additional steps to address cost of goods as we saw more inflation in the quarter than we did price/mix. So I think we are in a place where we feel comfortable we have got this sort of bounded. Chris Growe: Okay, great. Thank you. Operator: Our next question comes from Cody Ross with UBS. You may proceed with your question. Cody Ross: Hey, good morning. Thank you for taking our questions. I am just going to nitpick a little bit here. You noted supply chain headwinds in pet. Can we unpack that a little bit, which brands and categories are you seeing the most impact? And I am just a little bit surprised that given the pet demand that you are seeing or demand in the pet category, you were not able to deliver total sales dollars in line with the fourth quarter of last year? Jeff Harmening: Yes. So let me take that, Kofi, and I’ll unpack it a little bit and then if you want me to unpack it even more let me know. But I would say first, I would remind everybody on the call that we grew our pet business double-digits yet again in the first quarter and then we have increased our pet sales of $1 billion over the last 4 years. And so while it may not have been the run-rate in Q4 is still growing at double-digits. So I guess that would be my first bit of context. The second I would always say is that I think it’s also important to remember that Q1 last year, our sales were really, really strong. And that’s not only because we had capacity, but also we are working off some inventory. So we are selling not only everything we could make first quarter of last year, but we are also drawing down inventory levels, a product we had made previously. And so the comparisons are particularly difficult by the way as they are in the second quarter of this year as well. And so the comparisons are really difficult. When we look at – so when we look at our performance, I would say our supply chain improved modestly throughout the quarter in pet. Our service levels improved modestly in line with our expectations. And we actually grew share in the wet pet food category and we lost share in treats and dry and that’s where we don’t have the capacity. Just to answer your question just a little further, as a reminder, we anticipate having more capacity for treats coming online in the third quarter in January of this year and then dry is going to take another few quarters to get in line. And that’s important to note because as we think about our second quarter in pet, we will have a lot of costs from increasing service in the business, whether it’s through external supply chain or through adding capacity on treats and warehouse space and all those things, but we won’t yet have the sales associated with it. So you can expect our second quarter pet to be a little bit challenged, but we’re highly confident that will rebound in the third and fourth quarters of this year. Cody Ross: And that’s 2Q Pet margin that you’re referring to, not sales? I just want to make sure I understand that. Jeff Harmening: Yes. I would say primarily the margin piece, yes. Cody Ross: Got it. That’s helpful. And then one more quick question, if I may. You noted in your prepared remarks plans to step up brand building and investments for growth. Which categories and brands do you see the most opportunity? Thank you. Jeff Harmening: Well, I would say, over the long run, we see the most opportunity in our global brands and our local gem businesses. And so that they include businesses like pet and Haagen-Dazs and Nature Valley probably the biggest upside potential, but also some of our local gem businesses like Totino’s where we highlighted during the quarter and we are adding capacity is now a $1 billion brand for us, Pillsbury, which is a $1 billion brand, Wanchai Ferry in China. So the biggest areas of opportunity for us are going to be probably the ones that you would anticipate, which are big billion-dollar brands in global categories as well as some of our local gem brands that I just mentioned. Operator: Our next question comes from Steve Powers with Deutsche Bank. You may proceed with your question. Steve Powers: Hey, thanks. Good morning. Jeff Harmening: Good morning. Steve Powers: I want to hit on gross margin again. And then a follow-up on pet. On the gross margin, so acknowledging the uncertainty around volume progression and the supply questions, Kofi, you mentioned. We just focused on the phasing of run rate inflation relative to pricing benefits and HMM benefits. Do any of those things get tougher from 1Q before they get better? Or it feels like you’re relatively well caught up between pricing and productivity benefits relative to the rate of inflation as we run through the first quarter. So I’m just trying to get a sense of, a, if that’s correct and then, b, the only thing that can get worse for some reason before they get better? Kofi Bruce: Well, I would say, broadly, we are modestly higher on inflation in the front half and modestly is probably appropriate. But I think on balance, it is still a relatively balanced year in terms of our inflation call it between 14% and 15%. Jeff Harmening: Steve, this is Jeff – I’d just say, from a pricing standpoint, we will start to roll over more meaningful pricing in the back half of this year. And obviously, we saw a strong price/mix come through in Q1 that’s likely similar in Q2 and then it decelerates as we start comping more meaningful step-ups last year. Steve Powers: Yes, okay. That’s fair. Thank you very much. And then on the Pet question, given sort of the tightness of supply, and it looks like you’re obviously making efforts to bring supply online. But it feels like the real relief isn’t going to come at this point until fiscal ‘24. We’ve seen competitors in the space start to buy up capacity to sort of accelerate that and get incremental capacity online sooner. And I just wanted to kind of play that off to you and just get a sense for – is that something you would consider as you think about capital allocation and M&A strategies is adding capacity through acquisition, something that’s on the table? Or are you more inclined to just stick to building it out and working through co-packers. Jeff Harmening: Yes. Thanks. Very fair question. Let me make sure. There is one point I want to make sure or clarify because you talked about relief coming in fiscal ‘24. I would say, I think about it in two pieces. And I’m not trying to nitpick, but I think this is important. Our treats - we’re lacking capacity and treat and dry. On treats, we will bring on external capacity in the third quarter of this year. So we don’t need to wait until fiscal ‘24 for treat capacity, and we are really short on that. We bought a great business on Nudges and True Chews and so forth, we are branding at Blue Buffalo. So we are really excited about what we can do. We just need the capacity, and we don’t need to go out and buy additional capacity for that because we will have what we come January. On the dry, it is true that it’s going to take a while for us to get dry capacity. And if something became available, whether it’s through external supply chain or buying or another source if the question, would we be willing to look at that, absolutely, we’d be willing to look at that if it would speed up our rate instead of doing it internally. We haven’t had that option yet present itself, but were we to, we would certainly evaluate that and the speed to market of that and the cost relative to doing it ourselves. Steve Powers: Great. Okay, thank you very much. Operator: Our next question comes from Jason English with Goldman Sachs. You may proceed with your question. Jason English: Hey, folks. Thanks for slotting me in, and congrats on a strong start to the year. I’m going to come back to pet, but with really a different question. So first, the capacity that you’re going to be bringing on in dry, can you give us some context in terms of like quantify how much is this is going to add for you in fiscal ‘24. Jeff Siemon: Jason, we said it was – it’s going to be about upwards of $150 million of capital that we’re putting in. We talked about that on the Q4 call. But beyond that, we haven’t - we haven’t quantified what percentage of additional capacity, but it will be a meaningful chunk to add. Jason English: Okay, okay. And you are not alone, right, Nestle is adding, Mars is adding, Hills is adding, as Steve mentioned, both organically and inorganically, Simmons is adding, Phelps is adding, like [Indiscernible] in small manufacturers, there is a lot of capacity being built. It seems like it’s coming in like the wake of COVID as we start to anniversary a pull-forward of pet adoption. In other words, it seems like it’s coming at a time when there is not a lot of volume growth in the industry. How does this play out? And as we think forward, what’s the risk that gets pretty darn competitive with an overbuild of capacity and becomes a pretty promotional category. Jeff Harmening: Yes. I understand the rationale behind the question. But I mean promotional activity in pet really is in a very productive effort because demand is pretty inelastic and consumers tend to be very loyal. I would also add that even pre-pandemic, as you probably realized, Jason, you probably remember this, is that we were growing Blue Buffalo double digits already even in a category that was barely growing in terms of pound before that. And the most important thing to remember is not the trend of the pandemic, but it’s a humanization trend, which I know you well remember. And that’s been going on for 15 years or so and Blue Buffalo is very well positioned to grow in that market. So even in the face of a category that sees low growth in pounds, Blue Buffalo participates in the fastest-growing part of a very attractive category with the best brand. And so we’re confident no matter what happens in the rest of the category. That Blue Buffalo is going to be well positioned as we look to the future. Jason English: Yes. No doubt. I’m not arguing that premiumization should fade away. And to that point, you’ve got double-digit growth this quarter. I think everyone has double-digit growth because the inflation out there. Can you unpack maybe that that price/mix line then for us? Like how much of it just pass-through of higher cost? And how much of it is the mix, the premiumization that you’re talking about? Jeff Harmening: It’s really a combination. So we did – we have seen meaningful pricing SRM actions on the business obviously, the business itself is high mix, but the largest amount is really what we’re seeing from an SRM standpoint in the quarter. Jason English: Got it. Alright. Thanks a lot, guys. I will pass it on. Jeff Harmening: Thanks. Operator: Our next question comes from Bryan Spillane with Bank of America. You may proceed with your question. Bryan Spillane: Hey, good morning, guys. Wanted to ask a question about foodservice. And I guess, looking at the margins in the quarter, I know you called out in the press release that maybe pricing has lagged outside of flower milling. So can you just talk about a couple of things. One, how much pricing do you think you’re going to need to recover margins? Can margins sort of recover in the course of fiscal ‘23. And then maybe separate from that, is there any, I guess, like stranded cost or dis-synergy related to the resegmentation that’s kind of reflected there. So is it more than just inflation? And is there any like stranded cost or anything related to the resegmentation that’s affecting it in the near-term? Jeff Harmening: So I’ll have Kofi probably get into the specifics of this, but this is Jeff. Let me just – it was – it’s a lot to unpack in food service this quarter. I guess one of the takeaways top line I would share with you is that we have high confidence in our food service business and certainly and the fact that we can grow it into the future and that the margins will improve. So I want you to know there is nothing fundamentally mass in our food service business. Having said that, it was – there is a lot going on in this particular quarter. So probably let Kofi explain a little bit of that. Kofi Bruce: Sure. And let me just start with your reference to index flower pricing or index pricing on our bakery flower, so as a reminder, that is profit neutral, dollar profit neutral. So as prices go up to cover costs, it just flows through at a fixed dollar profit. So as you think about that, a good chunk of the price/mix you saw in the business, which was about 21 points was actually driven by index pricing. On the rest of the business, we did not see enough price/mix come through to cover – fully cover the inflation in the quarter. We subsequently have additional pricing to work with pass-through to the customers. And we would expect in the balance of the year, we will continue to see improvement in the margin prospects for the business. To your question about stranded costs, so as we – just as a reminder, we decoupled the convenience business, primarily focused on convenience stores and other smaller convenience channels and put that into North America retail as part of the snacks business. And with that, we actually moved administrative structure as well. So there isn’t really an overhang from stranded costs, all of that kind of went with the business. So this is a pretty fair representation of the underlying food service business margins. Bryan Spillane: Okay. So, some of this is just the math of flour prices going up, you get the dollar profits, but it’s profit neutral. And the rest is really just going to be catching up to inflation, I guess in the non-flour milling piece? Is that a good way to say that? Kofi Bruce: That is exactly the way I would put it. You have got it. Jeff Harmening: And Bryan, just to maybe put a finer point on that pricing going up for index pricing with no incremental profit dollars coming with it is actually margin negative for the segment in the quarter to the tune of about 200 basis points. So, margin which is obviously a big portion of – you are seeing that flow through in this quarter. Bryan Spillane: Yes. Perfect. Thanks Jeff. Thanks guys. Appreciate it. Jeff Harmening: You bet. Operator: Our next question comes from Jonathan Feeney with Consumer Edge. You may proceed with your question. Jonathan Feeney: Hey. Good morning. Thanks very much. Two questions. First, I wanted to on the 14 – dig-in on the 14% to 15% expected COGS inflation. Could you comment, if you can, any more about kind of how much of that is input costs relative to all the other structural inflationary things in Japan? Just a flavor for that or is input cost the vast majority of that would be helpful. My second question would be more broadly in the U.S. promotional levels, merchandising levels or if you want to use the syndicated data, something like 10 points off their pre-COVID normal. Do – are retailers expecting they get back to that pre-COVID normal at some point? Thanks. Kofi Bruce: Yes. Well, let me start on the front part of the question, and then I will hand the second part probably to Jon or Jeff. Just as you think about our call on modestly higher inflation, we are seeing a couple of things go on, but primarily it reflects the burden of higher labor, energy and transportation costs on our suppliers, in particular, on items in our COGS that have high conversion. So, think about your value-added ingredients such as nuts, fruits, flavors, etcetera, so the pass-through impact of that. Second is that we – as we have been working our way through the quarter and on the expectation that we will see higher volume flow-through as a result of slight lower elasticities than expected. We have outstripped coverage in some areas. So, we are actually buying out in the back of the year at and exposed to more spot market prices. So, that – those are the primary drivers as we think about it. And then just as a reminder, we started taking coverage positions at the turn of the calendar year for this year. And our coverage position is still reasonably strong relative to the spot prices. So, we are effectively pretty in the money as you think about our coverage. So, those are some of the critical things just as you think about the guidance and how we are thinking about the balance of the year on inflation. And then I will let Jon or Jeff handle the second part of your question. Jeff Harmening: Yes. Let me – this is Jeff. Let me take that one. I think as I said at a conference a couple of weeks ago, we think the risk of promotions ramping up significantly over the next couple of quarters is quite low. And the reason is that you kind of have to believe three things to be true in order for – to see a lot of promotions increase. The first, you would have to think that this inflationary cycle were different than the ones we have seen before. And I was running a business in the last inflationary cycle here at General Mills. And what we see is that there isn’t really a sharp increase in promotions coming out of an inflationary cycle. So, you have to think that the environment would be different. The second thing is you have to believe the disruption in the supply chain are going to change significantly from where they are now. And the third is that you would have to see COGS inflation not only decelerate, but also get to absolute deflation. And the fact is that I think you need all three of those things, we don’t see any of those things as we see right now. We just increased our guidance on inflation a little bit. We have told you that supply chain disruptions remain high, elevated, they are about 2x what they were before the pandemic, even if they are below what they were a year ago. And then there is inflationary cycle as we see keep playing out, so – but that’s what we think. I mean that the risk is relatively low given what I just laid out. Jonathan Feeney: Thanks. Very helpful. Jeff Harmening: Thank you. Operator: Our next question comes from Ken Zaslow with Bank of Montreal. You may proceed with your question. Ken Zaslow: Good morning guys. Jeff Harmening: Good morning. Ken Zaslow: Two questions. One is, what are your expectations for your innovation progression this year and next relative to the last 2 years? Jeff Harmening: I would say in aggregate, we would expect our levels of innovation to roughly flow the same as they have in prior years. I would say the one exception to that would probably be our pet business. Clearly, when you are capacity constrained innovating when you are capacity constrained is a little bit difficult. And so in pet, we would see our innovation weighted to the second half of the year, and we will talk about that more in December. We are actually quite pleased with some of the innovation we see coming. A lot of it is on our established businesses and some of it some new products. But in pet, I would say that we probably have more coming in the second half of the year than the first half of the year. But in general, the promotion – the innovation timing is roughly similar. Ken Zaslow: But you don’t think that you will accelerate given your supply constraints being a little bit ease. I would have thought you would have told me your innovation will actually accelerate over the next 2 years, given all the things that have happened between the consumer and the – but I hear what you are saying. I am just curious. And then my next question is as you go forward in a couple of years, can your gross profits expand if elasticity becomes what you think it’s going to be and volumes don’t kind of subside a little bit, or do you truly need the volume operating leverage because that seems to be one of the points you pointed to as a key core reason for gross margin expansion. So, I was just trying to get a little color on that, and I appreciate your time. Kofi Bruce: Sure. I appreciate the question. This is Kofi. So, I would just note. Our gross margins are down still relative to the pre-pandemic. So, in fiscal ‘19, probably about 140 basis points or so and I think the goal for us during this inflationary period has really been to drive our HMM cost savings between roughly 3% to 4%. And our price mix benefits from SRM to be enough to offset inflation. And I think actually, as we measure it, we have done a pretty good job of kind of covering the inflation with the combination of those two things. The reason our gross margins are down versus that period is because of the cost of dealing with supply chain disruptions and the additional cost to operate and serve the business in this environment. So, those costs, when the supply chain environment stabilized are the things that we would expect to be able to take out in relatively short order with targeted HMM and productivity actions as well as changes in our supply footprint. And that, I think gives us confidence that as we step out of this environment, we will be able to get our gross margins back to sort of pre-pandemic levels in a more stable environment. Ken Zaslow: Okay. Appreciate it. Thanks guys. Jeff Harmening: You bet. Operator: Our next question comes from Michael Lavery with Piper Sandler. You may proceed with your question. Michael Lavery: Thank you. Good morning. Jeff Harmening: Good morning. Michael Lavery: You have mentioned consumers shifting back to more food at home as part of what’s probably softening elasticities, but your organic growth in food service outpaced North America retail. And even going back a few years, I know there are some moving parts, maybe the comparisons aren’t all perfect, but it looks like even against fiscal 1Q ‘20, it’s growing faster. Is there – is that driven by inflation and index pricing, or is there just that much momentum in food service? Maybe help us reconcile just how strong the numbers look versus some of the very logical color about consumer shipping back to more homes. Jeff Harmening: Michael, you are right in the sense that it is logical to assume that the food service will move in a different direction than with our retail business, given the trend at at-home consumption. But there are two things playing into this for the quarter and one thing playing over this more generally. In the quarter, remember, we have a lot of index pricing on bakery flour, which is – which really inflates the sales number on our food service business. I mean the accounting is right, but it just – it makes it look higher than it would be otherwise. And so that really all of our growth this quarter in food service is a result of that index pricing. That’s the first thing I would tell you. The second is that even given that, though, our food service business doesn’t move in perfect correlation, inverse correlation with our retail business because we have a really big school business. And so we are not only servicing restaurants, we have a significant part that we sell cereal and yogurt and other baked goods through our education, and we are really, really good at that. And so that demand tends to be a little bit more inelastic. And so even though it may seem logical in the face of it, they have food service inversely with retail, and point of fact, ours doesn’t move perfectly that way for that reason, even if we take out of consideration the index pricing. Michael Lavery: Okay. That’s helpful. And then can I just follow-up on – you called out higher SG&A in pet as one of the margin drivers or having an impact on margin. What maybe is behind that? I guess I am just curious because if there is the capacity constraints on two of the biggest pieces of that business, it wouldn’t seem like it’s higher marketing. Is it just a sort of a step-up in the G&A, or what’s behind the SG&A curve there? Kofi Bruce: Yes. No, we have had, along with most of our retail businesses, modest increases in our spending behind data and analytics. So, that would be a big chunk of, as you think about what’s driving SG&A growth in the comp. That would be more of it. As you know, obviously, we have maintained modest levels of increases in media as we step through, and we are trying to manage through the supply pressure on this business. Jeff Harmening: And Michael, the one other thing is you have got now a full quarter of the Tyson business that we acquired last year. So, there is a bit of step-up in SG&A just by the math of adding an incremental business there. Michael Lavery: Okay. Thanks for all of that. Jeff Harmening: You bet. Okay. I think we are going to go ahead and wrap up there. I appreciate everyone’s time and good questions. And please feel free to follow-up over the course of the day with the IR team, and we look forward to being in touch next quarter. Operator: That does conclude the conference call for today. We thank you for your participation, and we ask that you please disconnect your lines.

Operator: Greetings, and welcome to the General Mills Fourth Quarter Fiscal 2022 Earnings Q&A Webcast. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded Wednesday, June 29, 2022. I would now like to turn the conference over to Jeff Siemon, VP of Investor Relations. Please go ahead. Jeff Siemon: Thank you, Kelly, and good morning to everyone. We appreciate you joining us today for a Q&A session on our fourth quarter and full year fiscal '22 results. I hope everyone had a time to review our press release, listen to our prepared remarks, and view our presentation materials, which were made available this morning on our Investor Relations website. Please note that in our Q&A session, we will make forward-looking statements that are based on management's current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements, and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here with Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Jon Nudi, Group President of our North America Retail segment. Let's go ahead and get right to the first question. So Kelly, can you please get us started? Operator: [Operator Instructions] Our first question comes from Andrew Lazar with Barclays. Andrew Lazar: I think you've talked about over the course of this year how the combination of HMM and pricing and other levers have actually been pretty effective. It's sort of protecting a lot of the -- at least the dollar cost of actual sort of inflation, but that supply chain costs and some other things, of course, have weighed on margins and profitability as well, like it has for the Group as a whole. I guess as you look forward to '23, I think you mentioned that you anticipate another sort of call it low double-digit benefit from pricing, that's you've taken already or is already in place. But of course, you still see another very significant 14% jump in inflation, and slowly but surely, hopefully will continue to improve on the supply chain side. So I guess the question is, do you think that the combination of the pricing and the HMM, and the other levers that you've got would be enough in fiscal '23 to sort of better protect dollar profits, even including some of the supply chain issues and other things as opposed to just cost inflation? And then I just got a quick follow-up. Thank you. Jeff Harmening: Kofi, do you want to take that one? Kofi Bruce: Absolutely. Thank you, Andrew. So as we think about our approach to the next fiscal year, we're thinking about it much the same way. We're expecting only a modest decline in the level of supply chain disruption. We expect, as you mentioned, our price realization, and the combination of HMM to largely offset the dollar cost of the 14% inflation that we've called. And our expectation is that the remainder costs from disruption, we would work out over time to the extent that we see the environment stabilize. So the only big question remains, when that happens, we’re -- I think we're expecting another year of uncertainty candidly similar to the table that was set this year. Andrew Lazar: And then, obviously, it's still very dynamic and I know there have been plenty of discussions and a lot of debate, of course, around pricing and cost and everything else. But as you build your plans going into '23, and then discuss them with your key retail customers and things, I guess, are there things that have changed a little bit around going into your plans for fiscal '23 in terms of your retailer conversations versus let's say, a year ago, meaning things around innovation or marketing plans, merchandising plans? I mean, are you seeing customers start to think a little bit differently about those things as opposed to simply the pricing and inflation dynamic or right, being naive, and we're just not there yet? Thank you. Jeff Harmening: Jon, you want to take that question? Jon Nudi: Yes, absolutely. So it's certainly a dynamic environment, there's no doubt about that. And certainly inflation and supply are two big topics that we spend a lot of time with retailers on. But I would say, Andrew, that things are pivoting back a bit more to growth from a marketing standpoint, from an innovation standpoint, we're having those conversations as well. And also, how do we provide value to consumers at a time that they need as well. So we're talking about many things that we're -- honestly, a year ago, it was really about supply that we were thinking then. So I think things are getting back to some of the conversations we've had in the past and it's all about how do we profitably grow our businesses together. Operator: Our next question comes from Bryan Spillane with Bank of America. Bryan Spillane: I guess my question -- and maybe this is for you, Kofi. If we look at the guidance, the organic guidance, right, so the revenue range is 4% to 5%. And if you add back the impact of the -- the net impact of the divestitures and acquisitions, the operating income ranges is 1% to 4%. So, can you just kind of help us kind of think through what are the drivers that would cause you to be at the low end of that range, the OI range or the higher end of that OI range, again, assuming that 4% to 5% organic sales growth is the right number? Is it a reflection of commodity volatility? Or just like, what are some of the pieces there that kind of describe or inform that that wider range in OI? Kofi Bruce: Appreciate the questions. And think back to my earlier comments about sort of the backdrop for the operating environment. It still remains volatile with a high degree of uncertainty. I think we're expecting as a backdrop that the supply chain disruptions to the extent they are foreseeable will, in the near-term, not abate that much. So that is a factor that even as we worked through this past year, was a headwind to margins and even as we moved from quarter-to-quarter, provided some volatility to our expectations. So the guidance range primarily reflects that. And then obviously inflation is, our best call based on the information we have in front of us is 14%. But I would note that our expectations moved up, even as we worked through the early part of this last fiscal year we just closed. So those are the two primary sources of volatility driving our expectations on the range. Jeff Harmening: I would just add one additional piece on the inflation is, we are about 55% covered on our ingredients and packaging material requirements. As we start the year, that's a bit higher than average. But that still leaves obviously some lack of coverage, especially in the back half of the year, so [Indiscernible] point about the uncertainty. Bryan Spillane: And anything in terms of I guess you might -- you must know more about the first half of the year than the second half of the year, just anything we should think about that in terms of phasing, just in terms of the inflationary pressures is a little bit more front or back half loaded? Kofi Bruce: So I think, that's a great question and one worth just a little bit of comment. So as you think about the year. I would say, we'd expect that the first half profit growth to be slightly weighted and favorable to the second half. A lot of that, obviously, is in part of the weight of the comparison on this Q4 that we just closed. But as you think about inflation, which you also referenced, we would expect that to be highest in Q1 and then decelerate as you work sequentially through the comps over the course of the year. And price mix, we'll expect a partial impact in Q1 from recent actions, and a full impact kind of in Q2. And then the other factor that I’d just call out that's worth mentioning is the impact of divestitures, the ones that we've announced and the ones that we've closed, will be a bit higher in the first half before we begin the lap the yogurt and dough divestitures which happened in the second half of this recent fiscal year. Operator: Our next question comes from Robert Moskow with Credit Suisse. Robert Moskow: I just have a couple of questions. Kofi, I think in the middle of the year, you actually quantified the cost of supply chain disruptions. And I don't know if you've quantified it since. Do you have a number for us? And when you talk about your pricing and HMM actions offsetting cost inflation, does it also offset that disruption estimate or is that a separate number? And then I have a quick follow-up. Kofi Bruce: Yes. So we did provide a number, it's -- I think, is in the range of 200, previously 250, is about where we halved the mark here at the end of the year. And then think back to my earlier comments, as we look at the full year, our adjusted gross margins are down. And if you kind of deconstruct that the elements would drive you to inflation being about 500 basis points, roughly drag, offset, almost completely by price mix and HMM. And that leaves the cost of the operating environment, the disruptions to deleverage other intermodal transports, all the things that we're doing to accommodate supply in this environment as the driver of the margin decline. Robert Moskow: Okay. And I might just not be competent in finding things, but I'm having trouble finding the price mix for North America retail in fourth quarter. I think I'm backing into something like 16% pricing. So… Kofi Bruce: You are close. Robert Moskow: Okay. So if your cost inflation is… Kofi Bruce: 15.5 is the number, our organic price mix. Robert Moskow: And I guess here's the question. If your cost inflation for the year is only 14%, but you're running pricing at 16%, isn't that a net positive? Kofi Bruce: Are you talking this fiscal year or next fiscal year? Robert Moskow: Fiscal '23. So for fiscal '23, I think you're guiding to 14% inflation, but your pricing in your biggest segment of the market is up mid-teens. So I guess it seems like the pricing benefit is -- from a dollar standpoint is a net positive compared to your price inflation on a -- cost inflation on a dollar standpoint. Kofi Bruce: Rob, I think you've got -- you have to remember that we'll be starting to roll over some pricing as we come into fiscal '22 and certainly much more so as we get into the back half of the year as we have significant pricing come through in the back half of -- sorry, of fiscal '22, we'll be rolling over that in fiscal '23. My apologies. And then the other piece that would be included in that would be the offset from volume and deleverage that comes through. We mentioned that we are expecting elasticities to be below historical levels, but to increase somewhat as we go through '23. Robert Moskow: Okay, that makes sense. And should I think about like for first quarter pricing, is it -- you're lapping only a 4% price mix for North America. You're taking more action. So are those two things kind of offsetting each other do you think? Like you will still be mid-teens in first quarter? Kofi Bruce: Yes, roughly. I think that's a fair assumption. Operator: Our next question comes from Michael Lavery with Piper Sandler. Michael Lavery: Just looking at the SNAP benefits that Federal COVID Emergency Authorization is now set to run at least into October and that of course supports the state emergency elevated levels of SNAP benefits that have been pretty significant, contemplate your top line guidance. What assumptions do you make around how that might unfold? Jeff Harmening: I would start and I'll have Jon Nudi follow-up on this but I -- Michael, I would start with the -- our assumptions include people starting to eat from away from home more to a little bit at-home eating. And so I think as consumers become more concerned about their economic reality, the first thing they tend to do is eat more at home and less away from home. And we've seen restaurant traffic year-over-year in the last couple of months has gone down a little bit. And eating at home has gone up. And so as we think about our assumptions for the year -- and we saw this in the last recession, The Great Recession, we saw that consumption away from home eating was down and replaced by at-home eating, we're seeing the same kind of behavior starting now. So that's actually the first place I’d start. And then -- and that's because consumers want to eat out more, but the cost of eating away from home is more than double the cost of eating at home. And then of course, there's value seeking behaviors once they get in the store. But consumers try to change their habits as little as possible, and still be able to get what they want. And so that's how we frame. I mean, it's a not answer to the SNAP question. But before we go deep down that hole, I just wanted to start with kind of an overarching comment. And Jon or Kofi, do you want to take over a little bit on the SNAP question? Jon Nudi: Yes, so thanks, Jeff, and I think you hit it exactly right. So SNAP is obviously one of the elements that will drive top-line. And while SNAP is down versus pandemic highs, it's still above pre-pandemic period. So we continue to monitor SNAP and it plays into things. But as Jeff mentioned, some bigger factors in play, as well, including the shift to more at-home eating, and then even what's playing on their categories. We've obviously watched very closely as well in terms of how branded players are performing, how private label is performing. And if you look back through history, during economic downturns, we tend to perform pretty well to see our categories increase by 1 point or 2 point in terms of volume performance. We've actually held our own from a share standpoint during those periods. We've seen the second and third tier brands lose share to private label. So it's a dynamic time. We're very close to our business and watching all the factors, SNAP is just one of those. Michael Lavery: And just to follow-up, I know you've called out the elasticities you expect to start at least getting closer to normal levels, and factoring in some of that volume piece. On the pricing side, just especially with what the consumer is facing and some of the pushback maybe even from retailers, are you starting to feel like you're hitting a price ceiling in any categories? Or is it really still more of the same like it's been in this recent environment? Jeff Harmening: I would say until this point we haven't really seen any change in elasticities. And I think the reason for that -- there's a couple reasons for that. One is that consumers are switched to more at-home eating because it's more expensive. So the reason I started talking about, I would say would be a big contributor to elasticities not having changed much even over the last month and what they were two or three or four months ago. And the consumer is actually still in -- they're still in a decent place. They're getting nervous. But when it comes to savings rates or the employment rate and consumers are still spending quite a bit of money. Now as they look ahead, they get nervous because they see inflation and so forth. But right now the consumer is in a decent place and any -- we haven't really seen any elasticity change. I think that's because of the shift from away from home to at-home eating. Operator: Next question comes from Cody Ross with UBS. Cody Ross : I just want to dig a little into pet here, because the pet margin continues to slide further driven by inflation and supply chain disruptions that you called out. Did this catch you by surprise during the quarter? And when do you anticipate the rate of margin declines to moderate? And then I have a follow-up. Kofi Bruce: Yes, absolutely. Sorry. I just presumptively jumped in there. So thanks for the question. I just want to kind of set the frame by just acknowledging I think the pet business for us is still seeing a really strong demand, right? And we've grown the pet business double digits on both the top and the bottom line in the four years post acquisition. So this is more a function as we look at the margins, specifically around 2 things roughly in equal measure. The first, the impact of the acquisition that we completed early this year, this past fiscal year of the pet treats business, which is -- has largely driven by some onetime costs and some modest margin dilution that comes with that business. And then second, the cost to serve, which were acutely higher in the quarter on the pet business. We've sought to service that business at levels to meet demand. We candidly were not able to produce to the demand we saw in the quarter and have had challenges and headwinds as we worked through the year. We're taking significant actions to your question on kind of what we're doing about it to debottleneck and continuing to add external supply capacity. In addition, we've put $150 million of capital spending, additional capital spending behind our dry dog food business, which is where we're seeing the most acute challenge on service to get additional capacity online in -- starting in '24. So we would expect this -- the margin pressure to modestly improve as we take the near-term actions and then the real unlock to come as we get additional capacity both external and internal online. Cody Ross : And I just want to follow up a little bit about gross margin and some of the stranded costs you expect. So if you combine the low double-digit price mix with the HMM savings, it looks like you should fully cover the inflation you're going to endure next year. You'll also be lapping the supply chain challenges in the second half next year. Is it fair to say right now that gross margin could actually increase next year? And if not, is that because of stranded costs? And if so, can you just kind of give us any color as how much stranded cost you expect? Jeff Harmening: Cody, this is Jeff. I think you've got the right drivers. You're right that HMM plus our SRM pricing actions are intended to offset the inflation component. We did talk about a modest decline in disruptions. We will have an impact from divestitures and obviously, particularly the Helper and Suddenly Salad divestiture. That's clearly a higher-margin business as we disclosed in the announcement on the deal. And so the divestiture of that business will have a negative mix impact on margin for the year. Operator: Our next question comes from Pamela Kaufman with Morgan Stanley. Pamela Kaufman : In the prepared remarks, you highlighted that portfolio reshaping is going to be an ongoing aspect of the company's strategy. One of your key competitors is pursuing a more surgical approach to portfolio reshaping. What are your views on pursuing a similar strategy? And have you considered splitting up the company across higher and slower growth segments? Jeff Harmening: Yes. Thanks for that question. You know what I love is that our strategy is working, and it has been working, regardless of what competitors are doing. Our strategy has been working for the last 4 years, as that inspire continue growth above our long-term algorithm and the fact regaining share in the majority of our categories. And so I think actually, the worst thing that we could do is look at what somebody else is doing and try to emulate that when the strategy we have is working. And I say that because we're executing well on our core business as evidenced by the share gains over the last 4 years. But we've also integrated M&A quite well and whether that's seamlessly divesting the yogurt business or aggressively growing Blue Buffalo and the pet treat business, we feel great about that. The other thing I would say is it kind of goes -- people get lost and we talked -- there are a lot of dis-synergies or splitting things up and not only financial dis-synergies, but also capability of dis-synergies. And let me get me give you a couple of examples. When we bought the Blue Buffalo business, one of the things we said was that the capabilities we have at General Mills are very similar to what is needed at Blue Buffalo. And one of those is extrusion technology, which is the technology we use in cereal. And we're 1 of the world leaders, if not the world's best at extrusion technology. The same would be true for things like thermal processing, where the same technology that's used for wet pet food is used things like soup and yogurt and other things. And so for a whole host of reasons, but ending with our strategy is working. Whatever our competitors do, their strategy may be best for them, but we really like our strategy. We like the way it's working. And at the end of the day, it's creating quite a bit of value for shareholders. Pamela Kaufman: Great. Thanks. And also, you've discussed how you expect consumers to seek more value given the pressures that they're facing. In this environment, how are you thinking about managing price gaps versus private label and your branded competitors? It seems that your price gaps have widened pretty meaningfully versus private label in your categories. So what are your expectations around trade down? And how are you thinking about price gaps going forward? Jeff Harmening: I'll let Jon Nudi answer the details. I would note that our pricing, it has been higher in the last few months, but at the same time, we're still growing share, which I think speaks to the strength of our brands. But Jon, you want to follow up? Jon Nudi : Yes, absolutely. And Jeff, you touched on this before, but it's not only looking at our categories but looking at broader consumption. So it starts with the consumers eating away at restaurants or eating at home and we're seeing the shift to at-home, which is important. We've built an SRM capability over the last 5 or 6 years that we're really proud of. And it's much more sophisticated today than it was. We're able to monitor what's happening in the environment, and they take targeted actions and it might be list pricing and make promotional optimization. So we're taking the actions we believe will enable us to win in the categories that we're competing in. And we are. If you look at the past year, we've grown share in the majority of our categories, not only North America retail, but really across the enterprise, leveraging this SRM capability. We take private label very seriously, I would call it retailer brands. We believe the best course is to make sure that we build our brands and we innovate. And over time, if you look at our performance, our categories actually hold up really well versus private label. On total food and beverage private label is in 18 share and our categories is a 10. And again, we believe that's because we build our brands and we innovate and we'll continue to do that as we move forward. So we compete in North America retail in over 25 categories. We're laser focused on looking at what's happening from an inflation standpoint, how we're going to offset that from a pricing standpoint, how we're going to build our brands and how we're going to innovate. Again, we feel good about our plans for the coming of the year. We do believe that we're going to be able to compete effectively and grow share in a majority of our major categories again in fiscal '23. Operator: Our next question comes from Chris Growe with Stifel. Chris Growe: Just had a question for you to be clear on kind of the phasing of pricing through the year. Is it -- so you have pricing actions that have already either been announced or -- and you have carryover pricing from this past year. So is it the second quarter when pricing plus your HMM cost savings would be sufficient to offset inflation. Is that the right way to think about that in the second quarter? Jeff Harmening: Yes. Sorry, I jumped in again. So, Chris, roughly it’s right. I think that's a fair expectation given the inflation assumption for the year and the expected phasing. Chris Growe: Okay. And then I was curious, jumping over to the pet division. You're bringing on new co-packers. You want to have new capacity available it sounded like until fiscal '24. Do you believe you can meet demand in fiscal '23 with the addition of co-packers and perhaps some of the new capacity that's going to allow you to meet demand in fiscal '23 for that division? Jeff Harmening : I think it's fair to say in the near term, this will continue to be a headwind. We expect modest improvement to come in the near term primarily from bottlenecking and enrollment, continued enrollment of additional external supply chain capacity. But I would expect it to be probably enough to satisfy the demand we're seeing in the business in the near term. Operator: Our next question comes from Ken Goldman with JPMorgan. Tom Palmer: It's Tom Palmer on for Ken. I wanted to ask on elasticity. So guidance assumes elasticity increases but remains below historic levels. I just want to make sure I understand this. Are you assuming elasticity returns to more normal levels at some point of the year? Or that some degree of below-average elasticity persists throughout the year? And why you have that view and what do you consider to be normal elasticity? Jeff Harmening: Do you want to take that, Kofi? Kofi Bruce : Yes. This is Kofi. So I think the fair assumption is, for the full year, our guidance is predicated on elasticities being higher than this past year, where, as a reminder, they were significantly below what our historical modeling would tell us. We are not expecting for the balance of the year a return to the full levels of elasticity that the historical models would indicate. Structurally, there are a number of reasons for this, I think Jeff referenced a lot of them around the at-home dynamics, the consumption patterns that we expect to see from consumers being a primary driver as a backdrop. And then I think it's hard to drive by the continued challenge around supply chain disruption as you think about that as a backdrop for choice and selection for consumers. And then lastly, when you think about the broader inflationary pressures and the value trade-offs that the consumers make, it's important to note that inflation is hitting away-from-home through more heavily than even at-home food. So I think all of those things are good for our assumption. Tom Palmer: Okay. Thank you for that. And then just on shipment timing, I think a quarter ago, you talked about how some of that under-shipment in North America would likely be a fiscal '23 event, at least looking at Nielsen seems to be a bit of timing benefit in the fourth quarter. Is there more to come as we think about 2023? Jeff Harmening : Jon, do you want to take that? Jon Nudi : Yes, absolutely. We actually don't believe there is any benefit in the quarter. We think non-measured channels is really the difference versus what you see in Nielsen and movement versus [R&S]. So we don't believe that we either build inventory or replenish it at our customers. So as we move through the first half of fiscal '23, we expect some of the same service issues that we experienced through fiscal '22 to still be with us. So as a result, we're not baking in any real benefit from rebuilding inventories. Operator: Our next question comes from Steve Powers with Deutsche Bank. Stephen Powers : Just a relatively quick follow-up on pet, if I could. I think the discussion has been pretty full. But I guess the growth rate as realized in the quarter was still quite substantial despite the supply constraints. So I guess is there -- can you give us some color on what that implies about what you're seeing in all channel consumption, #1? You said you're not delivering to that demand. How you're thinking about channel inventory levels, any risks that we should be -- that you're monitoring or we should be aware of around fulfillment rates or out of stocks? I guess I'm looking at the current situation as a potential opportunity as you catch up, but I'm also just trying to level set on the interim risk. Jeff Harmening : Yes. Well, let me frame it primary into the lens of what we saw for service. And as we look at the fourth quarter on this business, our service levels came in at the high end of 60%, low end of 70%. So I think the opportunity as we go forward is to be running probably closer to 80%. But we see strong demand across all the channels as we look forward. So this is not a demand issue. It is ultimately going to be even modest improvements in supply will allow us to unlock additional growth and the other factors be listed around retailer inventories are less a challenge and a consideration as we look ahead. Jon Nudi: And I would say in terms of risk, I'm not sure there's risk beyond what we've already identified in our guidance. I mean the demand is clearly there, and we've accounted for the fact that in the very near term, we're not going to catch up fully to demand, but this is not beyond the way of what we know how to do. I mean this is really about debottlenecking capacity and using external sources and then building more capacity. And so as you indicated, we also have to remember, we did grow, I think, 20% in the fourth quarter. So we feel great about our pet business and we just have to make sure that we get our capacity back particularly on dry dog food, and we're in the process of doing that. Operator: And our final question comes from David Palmer with Evercore ISI. David Palmer : Just following up on the gross margin question so far. Gross margin in fiscal '22 was 33%, I think, and gross margin in pre-COVID fiscal '19, mid-34s. I wonder what the net impact to that gross margin has been from M&A over that time. Basically, I'm wondering how much lower gross margins were versus pre-COVID on a comparable basis and how that compares to that 200 basis points plus of supply chain friction you mentioned? Jeff Harmening: Yes. I think I can give it to you in the perspective of the friction from other supply chain costs being the primary driver of the drag as you look from beginning of that period to through the most recent quarter. And I think I would note that some of the biggest divestitures we've made over that period also had probably some margin dilution already embedded in our P&L. So to the extent that we are -- the most recent divestiture obviously had attractive margins, but the net of all of those is probably a small for us to neutral from a margin mix perspective. Kofi Bruce: So basically, the decline -- to put a finer point on, the decline versus pre-COVID is really all supply chain disruptions. David Palmer : Yes, that makes sense. Any thought on the ability to reclaim that margin? Is there anything aside from the timing of pricing actions versus inflation that makes you think you can't get back to a business adjusted pre-COVID gross margin level? Jeff Harmening : Yes. No, look, I think the main thing I would start with is a recognition that the supply chain environment stabilizing. And once that begins to stabilize, we will be able to apply our peer-leading HMM capability to get at these costs. Some of these costs will fall fully naturally with the environment and the stabilization of supply chain. Some of them will require just some focused HMM work, and all within our capacity to deliver. If you look at our historical ability to drive HMM, pre-COVID levels have been in the 4% to 5% range. So I think this is comfortably in the zone of what we can manage. What's not notable right now, obviously, is exactly when we'll see the supply chain environment stabilize. But that is the way we're managing the business. David Palmer: And I just had 1 last one. Your media advertising, you said in the presentation, it's going to go up by more than the 5% CAGR that you've had over the COVID era. And so that would be -- I guess, would get you 20% above pre-COVID levels in media spend. This is sort of a fundamental change that you started from before -- just before pre-COVID where you're, I guess, getting bigger in digital. And I think it's worth sort of addressing how different this has been for you, how you're spending on this. But also why you feel confident that this is getting an ROI in a way that would make you different than you were in the 3 years before COVID? Jeff Siemon: Yes. Let me clarify one point and then maybe I can shift it back to Jon or Jeff. Dave, in the presentation, we talked about the fact that we expect media to be up in fiscal '23, but there wasn't a relation to the growth rate, that was just in terms of dollars. So we've grown at a 5% compound growth rate in the last 3 years. We expect media to be up in fiscal '23, but that wasn't a rate guidance. So in terms of where we're spending or how we feel about it, I'll pass it over to Jon or Jeff. Jon Nudi: Yes, I would just say we feel great about our media and the granularity we have and understanding the return, our ability to optimize. So north of 50% of all our media spend is digital now and amongst that digital spend more than 50% is performance marketing. And our first part of that which we've invested to acquire probably with the retailers and their data which is really powerful and becoming really targeted, building one-to-one personalized relationships. And then testing and iterating at scale. We can take 200 different ads online and optimize and really have been focused on the one that have the best return. And that's seeing significant increases in return for us. So we believe we're getting more than -- more return from our advertising than ever before. We're able to optimize, the days of shooting an ad and hoping it works for a year or over. We're literally optimizing ads on a daily basis. That's really good for our brands because it helps build them and helps you find the messages and it builds more loyalty for us as well. So we feel great about media, and we're continuing to invest heavily to make sure we have the digital capabilities in the future. Jeff Harmening: Jeff, you can close out here. Operator: Pardon me, it seems Mr. Harmening's line did disconnect, unfortunately. So Mr. Siemon, you're good to close the call, if you'd like. Jeff Siemon: No worries. Thanks, Kelly. We just appreciate everyone's continued engagement and interest in General Mills. Certainly, the IR team will be available today for follow-ups, but we wish you all a good continued summer, and look forward to catching up soon. Thanks so much. Operator: That does conclude the conference call for today. We thank you for your participation, and we ask that you please disconnect your lines.

Operator: Greetings, and welcome to the General Mills Third Quarter Fiscal 2022 Earnings Q&A Webcast. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded on Wednesday, March 23, 2022. I would now like to turn the conference over to Mr. Jeff Siemon. Please go ahead. Jeff Siemon: Thank you, Frank, and good morning, everyone. Thanks for joining us today for our Q&A session on third quarter results. I hope everyone had time to review our press release, listen to our prepared remarks, and view our presentation materials, which were made available this morning on our Investor Relations website. As a reminder, beginning this quarter, we are reporting results under a new segment structure. You can find supplementary information on our website that shows our historical net sales and segment operating profit results recast for this new segment structure. I'll also remind you that in our Q&A session, we may make forward-looking statements that are based on management's current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. Joining me this morning are Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Jon Nudi, Group President of our North America Retail segment. Let's go ahead and get to the first question. Frank, could you get us started, please? Operator: [Operator Instructions]. Our first question comes from Andrew Lazar with Barclays. Please proceed. Andrew Lazar: So, Jeff, maybe if we put aside General Mills’ comments from CAGNY around sort of 3Q expectations and such, I guess the bottom-line is the company has still raised its full year outlook above where that initial sort of set of company forecasts were prior to the start of 3Q despite a very tough environment. So I guess a twofold question on that. First, what do you think enabled that? Because I think there has been still ample industry skepticism around the industry's ability to sort of deal with the current environment as it is. And then more importantly, I know you're not going to give sort of detailed guidance for next year until next quarter. But do you think this dynamic of managing through this can hold as you move through fiscal '23 because the concern I hear from many investors really is that the industry is just sort of kicking the can down the road so to speak about when the impact of certain things like costs, particularly in light of recent global events will ultimately catch up to the group. That would be my questions. Thank you. Jeff Harmening: So, Andrew, as I think about this year, I mean importantly, we ended the Q3 with momentum and the reason we ended with momentum is because our service levels improved. And as a result, our volume approved more than we had thought, even before we were going into CAGNY. And as we look at the fourth quarter this year, I think it's important to realize we're still going to have inflation. In fact, inflation in the fourth quarter will be higher. My pricing will also be higher in the fourth quarter. And in line, Q3, our inflation and pricing was in line with what we'd expected. And so we feel as if we have a good handle on both those items. And then -- so then what's really driving the improvement in the fourth quarter is just a little bit better volume than what we had anticipated, given service levels a little bit higher. We're also seeing -- a lot has been made of elasticities. I mean, it's a pretty benign elasticity environment right now, which is not to say there's no elasticity. Certainly as prices go up, there will be some level of elasticity, but it's also important to note that it's not in line with historical elasticities given this current environment. And so, our raise on the fourth quarter really is confidence in our underlying assumptions around inflation and pricing. We are, as we said, mostly hedged on commodities through the calendar year, which obviously includes the fourth quarter. And inflation and pricing, we saw the pricing we thought we would get through. And so, it really has increased confidence in our ability to service the business in the fourth quarter. Now our service levels won't be as they have historically been. So we're not anticipating getting all the way back to that. As we look at '23, I mean, it's a pretty volatile environment. And so, usually as you well know, Andrew, we don't comment even on hedging. We don't comment on past and current fiscal year, but these are unusual times. And so we thought we'd give a little bit of color into what we have hedged through the calendar year. And what our hedging really does is, it mostly buys us time, and we'll have inflation in our fiscal '22. We'll have a significant inflation in fiscal '23, it just won't be at the level of spot prices at least in the calendar year you're seeing now in the market. Operator: Our next question comes from Ken Goldman with JP Morgan. Please proceed. Ken Goldman : I wanted to just ask specifically on pet, so the margin I think dropped to its lowest level since you brought Blue Buffalo. Can you talk a little bit about what caused the pressure in terms of input costs? And I assume that those are here to stay for a while. I think you also mentioned higher SG&A. So I'm just curious, how do you think about the potential for pricing to start offsetting some of these headwinds? When do you expect sort of the bottom in that margin to be reached? Just trying to get a little bit of a better sense for how to view that progression? Kofi Bruce : Ken, I'll take that. This is Kofi. Thanks for the question. So one of the important things to also think about here is the impact of pet brands on the pet margins. So that is dilutive to the margins this year. There's some specific one-time charges related to purchase accounting flowing through in the -- weighing on the margins as well. So we expect as we both bring that more fully into our production system and get it online for HMM that we'll see those margins improve on the pet brands business and -- on the acquired brands, excuse me. And then as we step forward, we expect a gap between inflation and pricing to close. So pet will be a meaningful contributor to the pricing step up we expect in Q4. Operator: Our next question comes from Michael Lavery with Piper Sandler. Michael Lavery : I appreciate just even a little peek under the tent for fiscal '23. I guess maybe I'm pushing our luck here, but would love just to know when you say you've got some coverage through calendar '22, it still noted that there's significant inflation, would that -- if things are where they sit now, if that holds, would that be an acceleration in inflation or does the coverage give any moderation? Maybe just order of magnitude what you're seeing as far a little bit of a further look ahead? Jeff Harmening: Yes, Michael, thanks for the question. And yes, you might be pushing your luck a little bit. I think it's fair to say. We expect the inflation to be significant. I wouldn't want to go much further than that. And I think our expectation at this point in the year would be -- a normal policy would be to be about 50% hedged, which is the perspective I give on why we guided you to calendar 2022. So the goal here is to buy ourselves the time to get actions aligned up in the market, and frankly, to give ourselves time to read whether or not we see the inflation as being structural. Michael Lavery : Maybe just a follow up, on the service levels for pizza and dough and snack, you said you kind of really pushed to get more out the door in the last couple of weeks of the quarter, short period of time, but your margin performance was still quite good in North America Retail relatively speaking with fairly modest sequential and year-over-year declines compared to what we've been seeing. Was it just the pricing that really drove that and obviously it was significant? Or is there some other things going on that are just good to keep in mind for how we think about your momentum and margin outlook in that segment? Kofi Bruce: Yes, I'll start. And then I'll ask Jon to provide any color if I missed anything. So I think you got it mostly right. So we saw pricing actions come-in in the quarter probably towards the middle to tail end of the quarter. So as we go forward, we'd expect that to be a meaningful step up in this segment as well as a meaningful contributor therefore to the step up for the total company. On top of that, as Jeff referenced in his comments on the first question, we expect service levels to reform closer to in line with what they had been trending prior to the quarter. So I think the combination of those two things is what gives us a good portion of a confidence that drove our guidance rate. Jon Nudi: Yes, I think that's exactly right. So again, pricing and service are the two big things that we are focused on across our end. Maybe I'll spend just a minute to go a little bit deeper on service. Obviously, that's been a big challenge for us this year and it's really evolved as well. At the beginning of the year, it's really about our distribution centers and logistics bottlenecks. We have done a nice job at staffing distribution centers up and feel good about our ability to move product now. The biggest issue we’re seeing is really around materials selection. So, ingredients coming into our plants to run our products. In Q3, it was particularly challenging, particularly in RBG, pizza and hot snacks, so things like fats and oils and starch and packaging. So we spent a lot of time really working as a team to improve on those platforms. We've seen an improvement in our case fill and on-shelf availability, but our service levels are still quite a bit below historical levels. We trade 98% to 99%. We were in the 70s overall for Q3. We expect to get better but not near historical levels. We expect to be in the 80s as we go into Q4. So we've taken lots of actions, really proud of the team. Supply chain team is doing the yeomen’s work, and it's really one business team working together. And we've pulled many levers. We started up control towers daily at the working team level. At the senior level, we're meeting once a week on RBG and hot snacks or other constrained platforms to make sure that we're removing hurdles or at the senior level getting on the phone with suppliers, at senior levels to make sure that we prioritize for ingredients. We've adjusted formulations. In some of our products, we've reformulated over 20 times year-to-date. Every time you make an ingredient change, you have to change the formulation, which is obviously a lot of work by our [IGT] (ph) teams. We just did freight lanes as well pretty significantly to make sure that we can get to our customers on time. We've added capacity on things like OEP, fruit, cereal, potatoes. We're adding ESC. So we're spending a good chunk of our time making sure that we service our business. We did better, I think, as we entered this quarter. We've got a lot more work to do, and we'll stay very focused on that. Operator: Our next question comes from Robert Moskow with Credit Suisse. Robert Moskow: Just a couple of quick ones. Jeff, can you talk a little bit about your plans for capacity expansion in this calendar year? I believe you're adding more in refrigerated dough. I wanted some more specifics there and see if there's any other categories that you've been expanded. And then secondly, I want to know in the flour milling grain merchandising business, do you expect any kind of benefits from dislocation in the grain markets? Jeff Harmening : So Rob, on the 2 questions, in terms of capacity expansion, I probably won't go product line by product line. However, I do appreciate the question. And what I will say is that we are certainly willing and will be spending capital to expand capacity on a few of our lines in the coming year. And really, the businesses are -- that we'll spend money on are the ones that performed well pre-pandemic and continue to have momentum during the pandemic, and there are actually a number of those. And so what you'll see in the coming year is that we will expand capacity on several of our major businesses. We'll probably give an update at the end of the year on where we intend to do that. But your question is a fair one and just know that we do -- our first call on capital is investing in our current business. We have momentum on a number of businesses that we had pre-pandemic and we have during the pandemic. In terms of the question about flour milling and dislocations, I mean, I don't know that we're going to see any benefits. Having said that, I think we'll have full supply on our grain milling businesses. We're world-class in that. We've been milling flour since 1866, so we have a pretty long history of being able to do that effectively. Operator: Our next question comes from Steve Powers from Deutsche Bank. Steve Powers: I guess you performed well on HMM cost savings despite the supply constraints that you've been talking about. And I guess I'm curious just to what degree you think that HMM cost savings momentum continue, but may actually be able to accelerate to some degree as those supply constraints abate and you're able to focus more on so-called business-as-usual conditions, hopefully, into the new year. Just some commentary around HMM would be great. Kofi Bruce: Appreciate the question, and I'd love for business-as-usual conditions tomorrow if you've got that in your powers. So I think our expectation is HMM is a core capability for us. And we've been at it as a disciplined - really since the start of -- close to the start of this century. We've been pretty consistent in delivering mid-single-digit COGS productivity off of it. I don't have any concerns about our ability to keep doing that. What I would expect is that if we -- if and when -- or when, I should say, we get to, and it's hard to say when that is, when we get to more stable conditions that we'll be in a position that HMM will be the lever that allows us to shed a lot of the operating costs that we put on in this environment due to disruption. And so what that will do is allow us to bring our margins -- our gross margins back up as a result of the SRM actions that we've taken in this environment to deal with the extraordinary inflation. Steve Powers: If I could, just on a fully different tact, just on pet. I'd love your perspective on how you expect the category broadly, I mean your brands specifically, but the category broadly, high-end, premium pet care, pet food to hold up if we enter a more adverse consumer environment. Just how you think that category has evolved and solidified itself to be able to persevere through a cycle? Jeff Harmening : Yes. Steve, this is -- it's -- we anticipate the category will continue to perform well, and we think that our segment will continue to perform quite well. And even through the last recession, which was a long time ago, one of the things before we even bought Blue Buffalo, we look at how the category performed during a recession, and it turns out it performs very well. The last thing you want to do in tough times is sub-optimize what you're going to give your pet. And I would tell you that on top of that, the predominant trend in pet food now, and I think will be going forward, is the humanization of pet food. And we're clearly very well positioned in that area given that we're the #1 natural pet food in the pet category by a long, long way. And so we believe we have the best brand and the best part of a really good segment and a really good category that holds up well during recessions. And by the way, as a result, all those things have very low exposure to private label. Operator: Our next question comes from Bryan Spillane with Bank of America. Bryan Spillane: So my question is around elasticity, and I guess wanted to just get 2 perspectives on it. Jeff, I think in the prepared remarks, you mentioned -- there's a mention about the sort of expectation that this elevated level of demand is -- you expect it to stick. And so is part of that just a function that now given where inflation is, just an expectation that consumers just be eating more at home? So we've kind of shifted from being at home because of COVID to now eating more at home because it's so expensive to go out? And then maybe just a second point, maybe for Jon Nudi, is anything that you're seeing now in terms of like cross-elasticity between channels. So consumers making different choices in terms of maybe avoiding food stores and/or convenience stores or just anything that's going on between channels as we're just watching the pricing set in? I know there's a lot there, but would appreciate. Jon Nudi: Thanks, Bryan. This is Jon. So maybe I'll tackle pricing here, and then I'll get to elasticities in a second. So obviously, I talked about supply chain. Pricing, the other subject, we're spending a lot of time on. We do believe that we're pricing effectively within the market, and for each brand, that looks different. And one of the things I'm really proud of is the SRM capability, our strategic revenue management capability we've built over the last 5 or 6 years under Jeff's leadership. And our SRM plans look different for every brand and really go down to the SKU level. It's an always-on capability. We're looking at what's coming at us from an inflation standpoint. We're looking at what's happening in market. And then we're leveraging the full SRM toolkit. So that's car lot advances, it's trade optimization, tag price architecture and mix. And in the U.S., our measured data or our average unit prices are up a bit more than our categories, and that's really where we want to be. In many cases, we're the leaders in the category. We feel like it's on us to make sure that we have clear pricing strategies. At the end of the day, our goal is to pass as little as needed. But certainly inflation, we need to take pricing at this point to preserve our margins. So we work closely with the retailers. Pricing is never an easy discussion. Everyone is facing inflation, though. So again, we can lock in and provide a good rationale for why we're taking the pricing, and more importantly, a coherent plan for what pricing will look like in market. We've been able to find good acceptance, and more importantly, good reflection in the market. So it's been a big focus area for us. I feel great about what we've done to date. We've got a road map for each of our brands and down to the SKU level for the future as well if more pricing is needed. In terms of elasticity, I mean, Jeff touched on this earlier, I mean, we are seeing elasticity. So again, it's not like we're not. This is not at historical levels. We've seen elasticities remain pretty consistent quarter-to-quarter. So what we saw in Q3 was consistent to Q2. We expect that to be the case in Q4 number. And we're going to have more price/mix in Q4. So we expect to see a bit more elasticity as a result, but again, not back to historical levels. In terms of what's happening and across segments and categories and channels, there's obviously a lot of noise in the data, everything from product availability to consumer mobility to government support levels and significant inflation away-from-home channel. It's really hard to try to parse them out, but we'll continue to try to do that. But again, elasticities remain constant. That's the important thing to remember and not at historical levels as well. Operator: Our next question comes from Alexia Howard with Bernstein. Alexia Howard: Could I ask about marketing and innovation? Obviously, there's so much disruption going on in the industry. You've talked about supply chain issues starting to be resolved. I can imagine there's a lot of fires to put out right now. But on the underlying marketing, it sounded as though SG&A was down this quarter. Does that mean that the marketing spending was down? Is that likely to remain that way until things get easier on the supply chain? And then also on the innovation side, has that also had to be ratcheted back just because of the current state of play out there in the world? Jeff Harmening : Alexia, I really do appreciate that question. This is Jeff. The -- I think the key to remember is that we've gained market share in more than 60% of our categories for 4 years in a row. And there's a reason why we've done that, and that's because we really haven't cut back on marketing spending or our levels of innovation. In fact, our levels of new product innovation have led most of our categories all over the world. And we've actually increased our marketing spending over time. And you can't just turn on and off marketing spending on brands and have those brands be effective, and the same will be true of innovation. So through this whole pandemic, we -- one of the things we see is that companies that come out of rough periods like we have been through, the ones who invest in their brands, whether that's new product innovation or whether that's marketing, are the ones that are successful. With regard to the latest quarter, the reason our SG&A is down, the #1 reason is that our admin costs are down. Our marketing spending is down just a touch, but that really is a reflection of a very short period in time. But broader picture, we've continued to innovate and we've continued our marketing, and that's the reason why we're growing share pretty much everywhere in the world. Operator: Our next question comes from Laurent Grandet with Guggenheim. Laurent Grandet: I'd like to come back a bit on pets and pricing because that's a question I've got from many investors. So first on, what is the price, what is the mix in pet food in the third quarter? What -- if you can really unbundle those 2? And are you seeing pet parents shutting down to smaller pack size as we are seeing from -- for some of the brands? And anything you could share on price elasticity, again, as it's one of the major concern, specifically for that business from investors? And finally, could you please update us on the split between mass retail and e-commerce and pet specialty impact and what are [they into next year]? Kofi Bruce: Sure. This is Kofi. So I'll start with the front part of the question on price/mix. Just to give you a sense here, we saw about 7 points of price/mix on pet in the quarter. And then our expectation is that we'll see that step up as we go forward into Q4. I think the rest of your question was about the channel split, which we may have to get back to you just to verify. I don't have that at fingertips. Do you have it, Jeff? Jeff Siemon: Yes. I think, Laurent, the -- I mean broadly, the channel splits, we're at about 1/3, 1/3, 1/3 across food, drug and mass, probably a little bit higher in food, drug and mass down, maybe closer to 40%; and then e-commerce and specialty, maybe about 30% each. So in kind of broad terms, that's roughly where we are from a channel. I just wanted to -- it’s actually correct, Kofi’s comment on -- looking at maybe on the reported number. On the -- for pet on an organic basis, price/mix was plus 13% in the quarter. And that's a -- you've got a combination of pricing, which was -- we did have some pricing going to the market in the quarter. So we only have a partial benefit of that in the quarter and then some mix benefit as you heard us talk about at CAGNY, our Tastefuls launch, for instance, on wet cat food on a price per pound basis, as you know, both treats and wet food are advantaged relative to dry, and those are growing faster for us both for Tastefuls as well as from the acquired brands that we've had here recently. Jeff Harmening : And Laurent, you asked a couple of other questions -- more detailed questions. In terms of elasticity, the pet category is relatively inelastic. Even in recessionary periods, it's relatively inelastic. And you asked about pack sizes, one of the things we've seen is that demand has been so strong in the pet category, and we anticipate going forward. The consumers really are buying what they can find in the shelves. And whether that's wet food or whether that's dry food, the availability really is driving consumer acquisition at this point. There's really not a trade down in pack size. It's going to trade off in pack sizes. Really the availability is the key because the category is so strong, and we believe it's going to remain strong. And as we said in our kind of opening remarks, as we look at the fourth quarter, our pricing will catch up to inflation, which will have a positive impact on our pet margins in the fourth quarter. Operator: Our next question comes from Chris Growe with Stifel. Chris Growe: Just had 2 quick questions. The first would just be -- maybe one for Kofi. As we think about this pricing cost dynamic and inflation picks out or it's going to be double digit, I should say, in the fourth quarter. The pricing is accelerating as well. Obviously, that reflects in the guidance. But should we expect the same kind of gross rate of change in gross margin year-over-year, and therefore, should improve sequentially but should be down still year-over-year? Just trying to get some order of magnitude there. And then I had a second question, maybe more for Jon. On the undershipment in North American Retail, you that 3-point gap you called out. Does that quantify the sales shortfall in the quarter from the service issues you had? And I guess also I'm curious about rebuilding inventory. Are you in that -- are you still hoping to do that? And should you be shipping ahead of consumption theoretically to keep up with demand here? Kofi Bruce: Okay. So let me take the first part of your question. I expect the price/mix step up to be meaningful. And obviously, embedding our range, if you do the squeeze on gross margin would be -- is absolutely a sequential improvement and the possibility, obviously, of a gross margin increase year-over-year. Jon Nudi: And on the shipments versus consumption question, Chris, U.S. net sales did lag Nielsen measured retail sales growth by 3 points in the quarter, as you mentioned, really driven by the service issues on RBG, pizza and hot snacks. We don't expect shipments to lag sales in Q4. We also don't expect to rebuild inventories in Q4, and that's really reflected in our guidance. If we can do a bit better and service levels improve, we might be able to rebuild a bit, but likely will push into fiscal '23, where hopefully, we can get back to more historical inventory levels. Operator: Our next question comes from Ken Zaslow with Bank of Montreal. Ken Zaslow: I don't want to go dig a little deeper into the elasticity question. You said that there's been a little bit of elasticity. Is it just similar level across all your categories? Or is there a spectrum of elasticity where certain categories are showing zero elasticity and some categories are showing a greater variability of elasticity? And can you talk about either the spectrum or is it flat? Jon Nudi: Yes. So this is Jon. It's -- for U.S. and for not a long, we competed in over 250 categories. We have had obviously in the U.S. and in our global businesses. And I can tell you, every category is reacting differently. So we are seeing elasticities that vary. There's not a single category that has zero elasticity, though. So when you take price and particularly the levels of pricing that we're seeing due to the heightened inflation, there are elasticities for sure. Again, there are changes between categories. But at this point, we are seeing elasticity in everything. As I mentioned earlier, though, those elasticities are generally holding. So again, they're not increasing. They're not getting towards historical levels. They're holding at lower levels than what we've seen in the past. Ken Zaslow: Okay. And then my second question is on data analytics. Can you talk about the speed to which -- or the real-time data analytics? The idea that the service levels came back quicker is obviously a positive. Was it -- in your understanding, how quick it came back, were you able to understand that came back in real time? Or was there a lag in the understanding of when it actually occurred? And just kind of figuring that out, is the real-time data and your data analytics on real-time data analytics improved, changed or stayed the same? And I'll leave it there. Appreciate it. Jon Nudi: Yes. So related to data analysis on this one, I think was pretty simple. So at the end of the day, we had -- particularly on RBG, pizza and hot snacks, more demand than supply and was really focused on getting as much as we could out of our plants. And the big issue, again, was not so much capacity on those platforms, those getting the ingredients to get our lines running literally 24 hours a day. So as we get towards the end of the quarter, we had put a full court press. Our teams did a great job, and we were able to pump out significantly more volume than what we had originally thought. And we shipped that directly to customers. So again, through our distribution centers in some cases; in some cases, directed to our retailers. And as a result, of that, we were able to see some stronger sales to end the quarter and our -- so again, it really wasn't a data analytics thing. It was more about just our ability to run product. And again, our supply team did a terrific job really significantly improving that situation. Jeff Siemon: We have time for one more Frank. Operator: Our next question comes from Nik Modi with RBC Capital Markets. Nik Modi: Just 2 quick questions on the consumer. You guys talked about at CAGNY about deal prep. So I just wanted to see if you have any more evolved thoughts on that and what you've been seeing. And then, I guess, given what's been happening with inflation and just thinking about the consumer, would you guys agree with the statement that perhaps the low-income consumer is going to maybe go into a quasi-recession sooner rather than later just given what's going on with all the external pressures? Or is that not the way you see it? Jeff Harmening : I guess I would start by saying our -- I think our success is going to be determined by how fast we can pivot, as witnessed by Jon Nudi's latest comment about supply, rather than our ability to predict exactly what's going to happen in the future. I mean -- and I'm not trying to be opaque on purpose. It's just that there are so many moving pieces. We have some people returning back to the office, yet demand will be greater than pre-pandemic levels for quite a while. There is a possibility of a recession, but it's certainly not here yet. There is going to be inflation, but how much that inflation is a couple of quarters from now is yet to be determined. And the state of the consumer and their financial well-being, they're -- consumers are in a good place now. How that can look for 2 quarters from now is difficult to say. And so I think our ability to be successful over the last couple of years has really been predicated on another ability to determine what's going to happen next but our ability to react to what's happened next. And that's what I feel great about. And you'll see that in pet. You see that in North America Retail, you see it all over the world. And so as we think about the future, there are a variety of outcomes that are possible. But I will tell you there's been a variety of outcomes over the last few years, and we've been successful through all of them. And so we're confident that whatever comes at us next, we'll be able to deal with that, at least as well as our competitors, if not perfectly. Jeff Siemon: Great. Frank, I think that's all the time we have today. Appreciate everyone following along, and appreciate the good questions this morning. Please feel free to reach out to the IR team if you have follow-ups today. Otherwise, wish you a good day, and we'll talk next quarter. Operator: Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.

Operator: Greetings and welcome to the General Mills Second Quarter Fiscal 2022 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a Q&A session. [Operator Instructions] As a reminder, this conference is being recorded Tuesday, December 21st, 2022 [ph]. I would now like to turn the conference over to Jeff Siemon, VP of Investor Relations. Please go ahead. Jeff Siemon: Thank you, Silvana and good morning everyone. Thank you for joining us today for our Q&A session on second quarter results. I hope everyone had time to review our press release, listen to our prepared remarks, and view our presentation materials, which were made available this morning on our Investor Relations website. It's important to note that in our Q&A session, we may make forward-looking statements that are based on management's current views and assumptions, including facts and assumptions related to the potential impact of the COVID-19 pandemic on our results in fiscal 2022. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. We're here with Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Jon Nudi, Group President of our North America Retail segment. So, let's go ahead and get to the first question. Silvana, can you please get us started? Operator: Certainly. [Operator Instructions] And our first question is from Ken Goldman with JPMorgan. Please proceed with your question. Ken Goldman: Close enough. Good morning everybody. Jeff Harmening: Good morning. Ken Goldman: You highlighted that you're actions offset supply disruptions in logistics issues that are starting to bear fruit. Great to hear, obviously, but we've sort of been seeing similar pattern from the whole sector for a while now, like what is, I guess, "hidden costs arising", management team think the worst is over, and then the next quarter unfortunately the pattern repeats. So, I guess my question is, in the wake of these exogenous issues continuing to crop up, this guidance has any sort of bigger cushion in it, bigger than usual to kind of account for the potential that some of these logistics and supply shortages worsen once again in the back half of the year? Kofi Bruce: Sure Ken. This is Kofi. I appreciate the question. As you can obviously see we gave a little bit wider guidance on operating profit than we did on the topline and EPS as a result of the operating profit guidance, which reflects I think what you're alluding to which is the underlying volatility in this environment, right? So -- and the root cause of this we see about eight to tenfold increase in the amount of disruptions in our supply chain. So, the predictability in that and has been linked to quarter, but what we provision and expect in the back half is not as much of an improvement to be candid. So, as you think about it in relation to last year, we saw a ramp-up in the external supply chain costs in the back half of the year. We don't expect these costs that we're seeing for disruptions to really materially change in the balance of a year, but just to replace the ramp-up in those external supply chain costs. And the lighter guidance reflects that the volatility in the call. Ken Goldman: Okay. Thank you for that. And then quick follow-up. On your cereal business, obviously, you've taken a great deal of share from your larger competitor that's having some unfortunate issues of its own right now. Can you just walk us through a little bit where your plants are in terms of utilization in case that the demand for your products continues to grow over the next few months. Jon Nudi: Hi Ken, it's Jon Nudi. I will tell you we feel really good about our cereal business and certainly there has been some short-term dislocation from our major competitors. Our performance which will come in a longer time, in fact, over the last four years we had really strong performance. As we look at short-term, we feel we have a capacity, we need to continue that, invest in our brands and continue to innovate and again we expect to grow share and in the category growth as well. So, short-term, we feel good about our [indiscernible] business and we continue to do what we've done over the last four years, that's continuing with the category. Jeff Siemon: Thank you. Why don’t we go to the question? Operator: Certainly. Our next question is from Andrew Lazar with Barclays. Please proceed. Andrew Lazar: Good morning. Happy Holidays everybody. Jeff Harmening: Happy holidays. Andrew Lazar: Thank you. Jeff, I'm curious how General Mills thinks about sort of the balance between, let's say shorter term profitability given the dramatically higher cost to serve currently versus the potential for longer term benefits from sort of stepping up and servicing the customer and consumer in this difficult environment. So, I guess what gives you the confidence that fulfilling this excess demand at this higher cost is sort of worthwhile, and like where is the cut-off and where you would decide to like forgo a sale, not suggesting we're kind of at that point yet? Jeff Harmening: Yes Andrew, I mean one of the main reasons, we spent quite a bit of time looking at the trade-offs between things like customer service and margin and sales growth and that sort of thing. And we always try to make sure we play the long game at looking at these things. We've been around for 155 years because we play the long game. What I would say, in this environment there is a huge trade-off, but I'm not sure there is a trade-off between higher service level cost and that's because if we were to take our foot off the gas on service, what you would -- what we would find is that we create more deleverage and we would incur fine because and be more inefficient and get fine for our retail customers because the more efficient and then we'd be shipping truckloads stuff that we're probably most efficient, and so there really isn't a cost trade-off. So, I don't -- we would not be making more money if we look less at our service. We feel it's our responsibility at the end of the day is to the end consumer and making sure they have the products they want to our retail customers and by filling that we're doing our job. The only thing we would gain by lessening service on margins look at the moment better, but our sales will be down, but we wouldn't make any more money for General Mills' shareholders, we certainly are going to generate more cash then we're generating now either. Andrew Lazar: Got it. And then -- thanks. And then Kofi just a quick follow-up. In the outlook, I think you say General Mills expects back half EPS growth to be more weighted to the fiscal 4Q. Does this mean you see some, even if modest, EPS growth in 3Q and just far more in 4Q or do I not have that right? Thanks so much. Kofi Bruce: I appreciate the question. But it really reflects is our expectation that we will see an improvement off of the margin decline that we just posted in Q2 and sequential improvement on that as we work around it from Q3 to Q4. Andrew Lazar: Thank you. Operator: Our next question is from Nik Modi with RBC Capital Markets. Please proceed with your question. Nik Modi: Thank you. Good morning everyone and Happy Holidays. I guess the question Kofi is if you can just give us some context on the inflations, delta in terms of the guidance? Where were things worse than you expected? And then the other question I had just around price elasticity. I mean we've heard a lot of companies talking about things are better than expected, but it just seems like the retailers aren't passing all the pricing on. So, I wanted to get your thoughts around that as we kind of go forward over the next few months and quarters. Kofi Bruce: Sure. Let me start with your first question. So, just as a reminder on the frame here, about 55% of our input costs are sitting in raw packaging materials, 30% in manufacturing, and the remainder in logistics. And what we really saw that kind of accelerated was in particular our raw and packaging material moving out to double-digits, logistics, which we now expect to -- which was already in the double-digits, continued to survive the loss of that base, and manufacturing remaining in the low single-digits. In particular, as we look at sourcing and packaging, aluminum, resin, fiber, raw materials, green fats and oils, and these are particular pressure price as well as [indiscernible] we look at logistics structure. And then on your second question in relation to elasticity-- Jon Nudi: Sure, its Jon. So, one of the things we are really pleased with is our strong capabilities that we've built over the last five to six years and got a lot more data and analytics that we lever, so [indiscernible] company acquisition. So, we've been closely monitoring, obviously, the pricing that we've taken, reflection that we see in market and that's really meeting our expectations at this point. We have seen elasticity something better than what we would have modeled historically to-date. As we move to the back half, we expect to see a bit more elasticity and we'll continue to monitor that. With our capabilities there, [indiscernible] take the system where we’re literally looking at pricing from a -- on a daily basis and continue to moderate adjusted. Nik Modi: Great. Thanks a lot guys. Operator: Our next question comes from Robert Moskow with Credit Suisse. Please proceed. Robert Moskow: Hi thanks. Hope everyone's well. I wanted to know in your raising your prices, Jon, and you're showing customers your inflation and your ingredients like 8% to 9%, do you also show them the supply chain disruption costs that you're incurring? And is it possible to justify the pricing based on this? Because, like, a customer could argue that maybe some of that's transitory. So, I want to know how that conversation goes? Jon Nudi: So, I've been here for a long time and I continue to make conversations are no easier than they have been in the past. I think everyone recognizes inflation and I was -- our job is to justifications, so we spend a lot of time building the case. Most of that case has been built around inflation and market basket. So, I think with that we will stick over a longer period of time. Certainly, retailers are very aware in the short-term supply chain costs that we're incurring and they are incurring the same and cost, but at this point, really don't understand the conversations. Again really focusing on some of the more macro factors and inflation to justify the pricing. Robert Moskow: Yes, so that's kind of my question, Jon. So, is it more difficult than to factor in supply chain disruption as justification? So, like the pricing that you're taking, is that designed to offset 8% to 9% inflation longer term or is it also designed to offset some of this disruption as well? Jon Nudi: Yes, so if you look at our pricing as well, we would offset the inflation, it's really the short-term supply chain costs, obviously that really the bogey for us. That is our composition of the retailers. And again, we want to make sure that we price in a way that is right for our consumers as well, so we're balancing how much pricing we could take, how much is wanted, and then really leveraging these strong capabilities that we build off. So, we're trying to take a long view from a pricing standpoint and clearly, there is some short-term trends that are challenging the supply chain investment. Jeff Harmening: But Robert, I think you bring up a good point, Jon answered it well. But some of these supply chain disruptions, they will be transitory and we would expect them to improve for the rest of our fiscal year as noted by Kofi earlier. But over the longer term, I mean the supply chain will get more efficient. We had a terrific Asia now productivity capabilities and so we are highly confident that these costs over time are costs that business will not bear. So, even if September conversation we have with retailers now, we are confident that over time once the market stabilizes, these are costs that we can recoup in our P&L. Robert Moskow: Got it. Okay. Thanks a lot. Jeff Siemon: This is Jeff Siemon. I have one more point to add to, maybe hit the nail on head. While we don't expect these disruption environment necessarily to improve meaningfully in the back half. As Kofi said, we do expect our margin performance year-over-year to improve, which is really all about the comparisons which get quite a bit easier as we have more other supply chain costs in the back half of last year. So, the cost that we're seeing this year on a year-over-year basis will be less of a headwind, which is -- which really drives gross and operating margin improvement in the back half. Robert Moskow: Okay. Actually I have more questions, but it's Christmas. So, this is my gift to you is to not ask -- small gift, but something. Operator: Our next question is from Jason English with Goldman Sachs. Please proceed. Jason English: Hey good morning folks, and Happy Holidays. Jeff Siemon, you just clarified one of my questions with Kofi. But I going to still ask the question with the finer point. Year-on-year, obviously the gross margin pressure is going to subside just given the comps you have, but you've got price mounting or climbing to the quarter -- the rest of the year and also inflation coming. As we think about sequentially, your gross margins dipped down in the second quarter. Is this a floor level based on what you know today? Could we expect -- should we expect sequential growth in gross margins? Jeff Siemon: I think I think what you can expect is we will see improvement off of the decline and sequential improvement as we move through from Q3 to Q4. And that's about as far as we've implied in the guidance we've given. Jason English: Okay, so implicitly that 3Q margins could be weaker than 2Q. Next question. The U.S. consumer is still obviously very flush with cash. But one of your competitors has already noted that trade down began to resume in categories like cereal. Are you seeing something similar across any of your categories? And what are you planning for in regards to trade down behavior, price elasticity, et cetera, as we begin to cycle a pretty big stimulus early next year. Jon Nudi: This is Jon. We have seen the dynamics play out. When we look at our business, most of our categories in our business is strengthening. As we look at share versus private label, private label lost share in the pandemic, we lose continue share and we're continuing to monitor that. We believe that building our brands and innovating and doing what we know best, we're driving our business. And if you look back historically during the times of recession, again our brands performed well. So, at this point, we haven't seen any change in dynamics. Jeff Harmening: And I would add on that Jason. We haven't seen in foodservice either. We haven't seen in pet. We haven't seen in Europe. We haven't see in China or Brazil. So, we simply haven't seen that behavior. Jason English: Yes, I haven't seen it either. I was surprised by your competitor noting it, which is why I asked the question. But thanks a lot for the clarification guys. Happy Holidays. Jeff Harmening: All right. Thanks Jason. Operator: Our next question is from Steve Powers with Deutsche Bank. Please proceed. Steve Powers: Yes, hey, thanks and good morning from me as well. On the supply chain disruptions that you're seeing in labor shortages, et cetera, taking all your prior comments in context, I guess, are there -- is there a cadence that you're expecting or you're places where you're a little bit more optimistic whether categories of bottlenecks or geographic overlays, is there a -- there are places in what you're facing now where you're relatively more optimistic versus not in terms of finding that release? I'm just curious. Jon Nudi: Yes, hey Steve, it's Jon. One of the challenges right now is the disruptions are really across the entire supply chains, on some cases it's material disruptions is really impacting the category, in other cases, where capacity is constrained which is extremely a challenge for all of our businesses. I think in one area that we do believe will get better as move to back half is material disruptions and that due to the actions we're taking, we're bringing on alternate suppliers where in the past not even single source in particular ingredient, production in looking in back half. Our sourcing team has been doing a great job really find submission and we will see some of this come online for some key ingredients are really hard us through Q2 and I think that's the one area that we do expect to get a bit better. We do expect our service levels to remain challenged in the back half of the year with the Q3 will look a lot like Q2, with the Q4 will get better, but look more of a Q1. So, an average, we think our services will look similar in the back half. Steve Powers: Okay, great. Just to be -- just to clarify that. So, you're expecting that relief to come in the ingredient sourcing, but more because you're diversifying and less because the conditions get better, is that fair? Jon Nudi: That's fair and today we've not seen a huge improvement and availability across materials and every time we see something get better, something else goes the other way around. So, continues to be [indiscernible] Steve Powers: Okay, great. And then the other question I had was just on Europe and Australia where the margin pressure is obviously exceptionally acute. Just as you go into annual price negotiations there, just your -- based on what you're talking about so far, just your relative confidence that that will be a source of relief -- a further relief in the fourth quarter as those negotiations take effect? Jeff Harmening: I think you you've outlined the constraints on pricing in that environment. There is a pretty firm negotiation window for pricing. I can't comment on anything forward-looking, obviously, but what I will confirm is that that's why you've seen our margins on EU under a little bit more pressure than the rest of the segments, and in particular, as you look at pricing as a contribution onto to sales growth, you will see that reflected there. So we'll leave it there and it's -- I just add it's also it’s a small business, so its 5% 10% of our total sales. Steve Powers: Yes, understood. Operator: Our next question is from Wendy Nicholson with Citigroup. Please proceed. Wendy Nicholson: Hi good morning. My first question has to do just in terms of the magnitude of the pricing that we should expect to see on shelf. I think the last few months, you said it was 9% average increased at retail in North America. Can you give us a sense for how high you think that would be maybe over the next six months? Jeff Harmening: Yes, I think we generally don't comment on forward-looking pricing and just know that we have pricing already in the marketplace that we've already announced to our customers and so we're confident that that it will be higher in the second half of the year, but overall we don't comment on the specifics of forward-looking pricing. Wendy Nicholson: Okay, fair enough. But I guess my question is with regard to the competitive activity, I know you said private label really isn't a threat and they're not gaining shares, but sort of over a longer term basis, your share trends have been neutral effect, but I assume at some point competition is going to sort of fight back harder and maybe in terms of cereal, your competitor -- your major competitor has their hands tied behind their back a little bit from a supply perspective. But can you talk about what you're seeing maybe from some of the other branded guys in North America in your other categories, are they being as equally aggressive on pricing? Do you expect them to step-up promotion in an effort to gain share? Just maybe what you're seeing kind of in the store right now? Jeff Harmening: I think it's probably best to let our competitors talk about what their pricing is going to be and what their outlook for the business is. One of the thing that I'm most proud of Wendy that you did note, and I'm glad you noted is that we've gained share over a long period of time and we've been doing in North America Retail, we’ve been doing in our pet business. We've been doing it in Europe and China and Brazil. And so one of the things I'm most proud of even in this tough environment, we continue to keep very, very effectively and I think that's a sign of the quality of our execution and our customer service levels. And so no matter what -- and that was happening before the pandemic, it's happened through the pandemic, it's happening now and so I think that is the most important thing. A lot of the time our competitors we're not constrained by supply and they did not have material disruption. And so those things come and go and we take them as they come and go. But one of the things I am most pleased about is our performance. We've have been able to do all of that while reshaping our portfolio and so we've added pet brands and this worked really well. We've divested our yogurt business in Europe and now announced a dough business and we restructure our organization. So, we've been able to have all this competitive quality with that, while navigating a lot of changes internally as well as externally. Wendy Nicholson: And just in terms of the North America business, I assume one of the big contributing factors to your market share being has been the innovation we've seen, which has been terrific, seemingly across the portfolio in North America Retail. But I assume innovation kind of comes in ways, some quarters are stronger than others. And I'm not looking for specifics or things you haven't announced yet, but just generally can you comment kind of thinking maybe about calendar 2022, if you think the innovation pipeline things to come or as strong as you've launched over the last six to 12 months, just sort of conceptually as innovation still set to be a good a strong driver of hopefully more -- even more market share gains. Thanks. Jon Nudi: Yes, sure. Hi Wendy. As Jeff noted, we've been performing well over a long period of time and to the point is really by focusing on the fundamentals and one of those fundamentals is innovation. So, brand building and innovation are key to our brands over time. And one of the things that we did view during the pandemic was pulled back on innovation that we kept innovating and our customers really appreciated that. We've kept the pedal down. So, as we move into calendar year 2022, we'd expect see similar levels of innovation versus what we saw in the past year, in some case we got some better ideas and are quite excited about. So -- and the other thing, whether there is inflation or not, the fundamental is less about building our brands and innovating and we'll continue to that as we move forward. Wendy Nicholson: Terrific. Thank you. Operator: Our next question is from Pamela Kaufman with Morgan Stanley. Please proceed with your question. Pamela Kaufman: Good morning. Happy Holidays. During the quarter, in North America, you mentioned that your shipments lagged consumption by about 2% because of the service challenges you experienced. Can you just elaborate on what some of the dynamics were that contributed to that? And would you expect this to continue into the back half of the year? And I guess as a follow-up, is that -- is it related to inventory levels and do you feel like you have adequate inventory levels to meet elevated demand into the back half? Jon Nudi: Yes, hi Pam, clearly as we talked about lots of challenges in supply chain and those have impacted our ability to service our customers or service levels, during the quarter when the low mid-teens versus high 90s targets as the result, we couldn't ship to all the demand that we saw, so a result retailers drew down a bit of inventory in the quarter and that was the gap that you talked about. As we look to the back half, we do expect our service level to be similar to the front half. We wouldn't expect to certainly close that gap as we move through the back half of our fiscal year. Clearly, our goal is to continue to strengthen our supply chain as we get into fiscal 2023 and beyond, we do believe that we'll be in better shape and yield service all above that that is there. One of the things that we pivoted to is we mentioned on shelf availability, we think that's really important. And while it's certainly not where we wanted be is and it's better than our competition, our share of sales in Q2 now being on the shelf is lower than our competition as well and that's really a testament to our supply chain and the great job that we are doing and the communication we have with the customers. Pamela Kaufman: Great. Thanks. And can you talk about what short-term initiatives you have on the operational side to manage the disruption that you're experiencing in the supply chain? And I guess over the longer term, are there any changes that you're making to operations or increasing investments and capabilities or automation in response to the current operating environment? Jon Nudi: Yes, for sure. We look back to lot of the practices that we put in place at the beginning of the pandemic, so one of the things we have are daily [indiscernible] meeting historic level for North American retail, I share a weekly supply chain huddle together with all of our senior leaders across the business talk about these issues and trying to help our team work through some of the challenges that are out there. We're leveraging data analytics one of the things just and continue for a long period of time, is really increasing our investments and our capabilities there, and that's starting to bear some fruit. So, if you think about the number of trucks we have running across North America, we can show that they are more full than they are currently, that's good for us, good for our business, good for our customers, good for our margins. We're seeing the leverage in that technology. We have a host of other initiatives from a data standpoint, analytics standpoint and supply chain will help us over time. And we're also giving a look at our distribution centers and there are some opportunities, some of those facilities where we're challenged right now from a labor standpoint. So, we have a host of things happening. But at the end of the day, our communication is probably the most important trends, communication with our vendors to make sure the ingredients will be given to keep our pricing running, and then we spend a lot of time meeting with our customers, all been tighter from a supply chain standpoint. Really wanted to know in real-time where we are and we've done to make sure the service done the best we can also the service the consumers. Pamela Kaufman: Thank you. Operator: Our next question is from David Palmer with Evercore ISI. Please proceed. David Palmer: Thanks. Good morning. Happy Holidays. Just looking back at your presentation slide number 32, which is that gross margin waterfall chart. Thanks for that. There is no numbers on some of those steps in the chart, but it looks like the supply chain disruptions, deleverage, and other is a large part of the -- or the majority of the decline, if you net out everything else. In other words, about 300 basis points. Maybe you can confirm if that's at least ballpark correct? But also, obviously these effects are not new to the quarter. I mean how would do you think about that same line item, supply chain disruptions, deleverage, and other through the year and what's implied in the guidance for the second half? Jeff Harmening: Yes so, let me add. So, thank you for the question David. Let me start with Q2 and then I'll talk about what to expect going forward. So, I think your read is about exactly right. So, just to be very certain, I think you got is about 300 basis points or so related to the combination of those disruption factors and the H&M and price/mix in the quarter offset the impact of the inflation. But I think going forward what you can expect as you move into the back half is a step-up starting in Q3, the contribution from price/mix. I would expect inflation to be roughly equal front half, back half. So, this is pretty evenly spread across the quarters and so nothing material there. And then in easing in the drag of the headwind from the other supply chain disruption costs, not because -- but because as you think about the comparison in the last year, we saw a ramp-up in other costs, primarily driven by our step into greater external supply chain costs. So, we don't expect these costs to ease. We expect them to -- those cost we saw last year. So, effectively, that's how to think about the back half of the year and what drives the margin improvement as we step from Q3 to Q4. David Palmer: Great, that's helpful. Thank you. And then you mentioned in one of your remarks that you thought the price elasticity would perhaps get a little less good, but lag and less favorable later in the year, and what is your thinking there? I think it was Jon that made that comment. I mean, how much -- we had something we've been thinking a lot about, is it the lapping of stimulus for greater availability of private label or value brands that have perhaps been more supply chain constrained. What you're thinking about price elasticities as you get further into say calendar 2022? Thanks. Kofi Bruce: Yes. So, let me start first. I think I might have just spoke. I said inflation will balance -- inflation actually stems out in the back half, H&M is balanced. But to your question on elasticity, we are assuming a moderate increase in price elasticity, although still below our historically levels in the back half. So, that's what is contained in our sales and profit guidance. Jon Nudi: I think we're just trying to be pragmatic, right. So, all the things you mentioned, David, are real, sometime snap benefits are decreasing a bit, although still elevated since 2019 levels. So, from a planning standpoint, we're just trying to be pragmatic and elasticity standpoint. We'll see how things play out. David Palmer: Got it. Thank you. Operator: Our next question is from Chris Growe with Stifel. Please proceed. Chris Growe: Hi, good morning. Jeff Harmening: Good morning. Chris Growe: I'll add my Happy Holidays as well. I had just two questions. The first one will just be in relation to this incremental $500 million in inflation from your initial expectations, I'm just curious if you could frame how much of that is cost inflation and how much of that is the pricing disruptions? I think you said that's incorporated into that figure. Just to get a sense of like what's ongoing, what will stall for, and what -- and hopefully will be transitory? Jeff Harmening: It's a great question Chris. I'll -- let me take a crack at it. So, as you think about the $0.5 billion of increased cost that came in since the start of the year in our -- of that, a little less than half of that is sitting in inflation. So, which we're now estimating to be 8% to 9% for the full year, and that implies in obviously double-digits in the back half. The other half is really relating to those factors in the disruption in the supply chain, so most of which is driven by a direct costs that things that Jon alluded to inefficiency in trading, supply all the things that we're doing in this environment to ensure in key customer service levels. Chris Growe: Okay. Thank you for that color there. And then just a follow-up question. I think a but to Dave's question, but -- so this quarter had a stronger pricing performance than I expected, but the gross margin was weaker. And I'm just try to understand the incremental inflation you're feeling that did more of that as you think about for the year and more of that come through in 2Q causing that weaker gross margin. I'm trying to flip that with your comments about second half inflations that we have versus first half. So, -- but in the quarter was that a more heavy -- a heavier drive on the gross margin? Jeff Harmening: The drag came from a combination of inflation and really we saw a step-up in the cost of disruption in Q2 as we move from Q1 and Q2. And so that was actually a bit more of the driver as we look into the quarter. And then I think as we go forward, as I alluded to, we expect our price/mix contribution from actions that we've already announced and negotiated with customers to start probably mid-quarter and then ramp fully into Q4. Chris Growe: Okay. Thank you for your time. Jeff Harmening: Thanks Chris. Operator: And our final question will be from Michael Lavery with Piper Sandler. Please proceed with your question. Michael Lavery: Thank you. Good morning. Jeff Harmening: Good morning Michael. Michael Lavery: You've obviously talked a lot about the disruptions in the various stages of supply chain. Can you just give us a sense in your guidance what you're assuming relative to a vaccine mandate and what that might do at impact the labor market or testing costs or both? Jeff Harmening: We actually don't have a specific provision for vaccine mandate. Obviously, it's still working its way through course, but we aren't expecting it to have a material impact on our guidance beyond what we already painted. Michael Lavery: So, if it did stick, you've got -- the incremental cost would be pretty modest or just capture again what you already allow for? Jeff Harmening: Yes, I think it's far more of the second, Michael. It gives us coverage. Michael Lavery: Okay, great. And then on the North America Retail components, you're snacks business is pretty significantly outperforming. But it had been for a while one of the laggards. Can you just maybe give a sense of what's really given that a boost? And if it's related to a better ability to supply product or is there, is it more innovation than some other factors? Jon Nudi: Yes, hi Michael. So, we see the grain category and the bar category really accelerate during the lockdown and people get back to be being more mobile. So, the categories are nice. Our business actually and largely up 16% in Q2. Just not quite as much of the categories. And we'll continue to stay focused on building the brands, we're still the number one brand in the category [indiscernible] innovation month in the past first half. And then we're seeing lot go to the kids segments, so that's probably one area that we're queuing up. We're doing nicely these products we have, you see some competitor products like [indiscernible] treats that are growing really mostly off the same base. So, that’s probably the one area that we're losing competitor share. But overall, we like with competing in bars and we just focus innovation and brand building. There are new snack products, category we really like through snacks and spend and many category for us over the last four to five years are big challenges than keeping up from a capacity standpoint. We continue to be challenged from capacity standpoint, we get more coming a lot in the back half and we'll continue to grow that business nicely, double-digits, which is really exciting. So, we like our snacks business and how it's performing. Michael Lavery: Okay, great. Thanks so much. Jon Nudi: Thanks Michael. Jeff Harmening: Okay, I think that's all the time we have this morning. Appreciate everyone's interest and good questions and discussion. Thanks for sticking with us during the holiday week. We wish everybody a restful holiday season and before we catching up in the New Year. Thanks so much. Operator: That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

Operator: Greetings and welcome to the General Mills First Quarter Fiscal 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Wednesday, September 22, 2021. It is now my pleasure to turn the conference over to Jeff Siemon, Vice President and Investor Relations. Please go ahead, sir. Jeff Siemon: Thank you, Franz, and good morning, everyone. Appreciate you joining us today for our Q&A session on first quarter results. I hope everyone had time to review the press release, listen to our prepared remarks and view our presentation materials, which were made available this morning on our Investor Relations website. Please note that in our Q&A session, we may make forward-looking statements that are based on our current views and assumptions, including facts and assumptions related to the potential impact of the pandemic on our results in fiscal '22. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. And on the call with me this morning are Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Jon Nudi, Group President of our North America Retail segment. So let's go ahead and get to the first question. Franz, can you please get us started? Operator: [Operator Instructions] And our first question will be from the line of Andrew Lazar with Barclays. Andrew Lazar: Jeff, wanted to start off maybe to get a better sense of how you are thinking about guidance for the rest of the year and kind of how you're managing the business in obviously what's still a very volatile environment. I guess, specifically, it sounds like the company has not made meaningful adjustments to its original net sales outlook for the remainder of the year. But it seems like consumption still remains elevated even into your fiscal 2Q. Volume elasticity in response to pricing, while admittedly early, is almost nonexistent so far. And the company obviously has taken additional pricing actions as well. So I guess at a high level, I'm trying to get a sense of how much of guidance sort of builds in a sales deceleration and cost increases that you're already seeing versus just trying to be prudent in what's clearly still a very fluid sort of environment. Jeffrey Harmening: Yes. Thanks, Andrew. And let me start by just kind of reiterating what's kind of in our guidance and what's not. And then I'll provide some clarity on kind of what lies ahead. Even in an uncertain market, I find that clarity beats certainty in terms of how we think about these things. And the guidance, important, you kind of hit on it that our updated guidance for the year would reflect the beat we had in sales in the first quarter, which we just announced, but really didn't have any change in our sales performance for the balance of the year. And I mean it probably raises the question then if our [ sales ] remains elevated as it has for the first quarter, would that indicate that there's a possibility that our sales could be higher. And the answer is yes, there is that possibility. The -- and our second quarter has certainly started out well, particularly in North America. As you look at the retail sales and as you look in past or second quarter, we're off to a nice start. But there's certainly -- there is a lot of uncertainty in our -- the revised guidance we have does not contemplate yet revised demand guidance, but I think we'll have a much better view as Q2 unfolds. And as we announce earnings in Q2, we'll have a better view, not only in the quarter, but then how does demand look for the rest of the year. The other piece of it is really on the bottom line. And our guidance not only contemplates what happened in the first quarter, but also the elevated inflation that we're going to see for the balance of the year. We said it was 7% at the beginning year. It's clearly going to be between 7% and 8% now as we go on the year. It also contemplates some pricing actions that we have taken in order to help address that rising inflation. And how our profit comes in will be determined -- I think about how much exactly does inflation go up and exactly when does -- was pricing hit. In terms of as we look forward, I think the important thing is that there are a couple of things that are really clear to us. One is that inflation is going to continue through the balance of our fiscal year, which is to say, the first half of calendar '22. That much is clear. And it's going to be broad. The second thing that's clear is that we've done a really nice job with pricing so far. And we -- our prices are going to go up for the remainder of the year as we see inflation going up. And so you started to see that at the end of Q1. And by -- hitting Q2, you'll see more pricing. And our job is to, as we've done for the last 3 or 4 years, is just kind of stay in the middle of both, which is to say, we're not going to chase sales growth at the expense of profitability nor are we going to be slaves to profit margin at the expense of things like driving our brands. And this balance of driving sales growth and profitability has served us well over the last few years and, I would argue, during the pandemic has served us especially well, and we're still in the midst of it. So I think I'll stop there. Otherwise, it will probably be a filibuster, but appreciate the starting question. Andrew Lazar: Yes. Very helpful. And then just a very quick follow-up. With some of the incremental pricing, retailers obviously always say the same thing, which is they're open to pricing when things are structural as they see structural versus, let's say, purely transitory and things of that nature. So I guess as you've kind of gone back to the well, so to speak, as a lot of others have as well, are those conversations changing at all, broadly speaking, in terms of what is sort of acceptable or thought of as transitory versus structural things that one would need to price for? Just curious, perspective on that. Jeffrey Harmening: Let me give you an overview, and then, Jon Nudi, if you have anything to add, I would welcome your commentary as well. I mean, ideally, you'd not like to go to -- back to retailers multiple times or consumers with price increases, but we're clearly not an ideal market. And in a market -- and everyone understands that not only is there inflation, but everyone understands it's also dynamic. And it really is, I'll probably use that word 15 times this morning, but dynamic market. And so people understand the need to revise plans and make sure that we're staying current. And we all -- we're all seeing the same costs. Whether it's transportation costs or labor costs or ingredient costs. I mean we're all seeing the same kind of costs, whether it's CPG companies or retailers. So it's not -- it's never easy, but I think there is understanding that we're in a market that is continuing to change. Jon Nudi, any color you'd like to add to that? Jonathon Nudi: Yes. I think that's exactly right. And obviously, retailers are seeing increased cost and inflation as well. And one of the things we're really proud of is the Strategic Revenue Management capability that we've built over the last 5 years or so. And it's differential in terms of the information we have, the data, the talent and the stories that we can put together. When you come to retailers with a rationale that makes sense, in fact, they tend to listen. And we're really leveraging the entire restaurant tool kit as well. So obviously, we've taken some list price increases, but we continue to look at promotional optimization and mix and PPA and leveraging all of those different tools. So far, so good. We like the way that conversations have gone. We've gotten the majority of our pricing accepted and more importantly, reflected in the market. So that's a trick as well. So we're really working well with retailers, and we'll continue to take the inflation and deal with it as we move throughout the year. Operator: Our next question is from the line of Ken Goldman with JPMorgan. Kenneth Goldman: With the understanding that you don't provide specific quarterly guidance, are there any items, Kofi, that we should be particularly aware of as we model the current quarter, I guess, especially as we think about unusual comparisons with last year or the timing of pricing by segment? I just want to make sure we're sort of minimizing potential surprises there. Kofi Bruce: Sure, Ken. Thanks for the question. Well, obviously, as you think about the -- in particular, the first half, second half perspective on the year with Q1 coming in stronger than we expect on both the top and the bottom line, we would expect a little bit more balanced year in terms of the flow of margins and that we're seeing more of the cost, obviously, and the cost increase coming in, in the back half, offset by a little bit stronger performance in the first half. And we do still expect our pricing realization to come in sort of full force in Q2 and against the inflation expectations. So just to give you a little bit more color. We don't want to get any deeper on a quarter-by-quarter basis. Kenneth Goldman: I appreciate that. And then as a follow-up, you showed in your chart how -- or sorry, you showed a chart in your slides on how difficult the labor market is. Obviously, your inflation outlook is being raised today largely because of that. We are anecdotally -- and it's very early, but hearing that perhaps the worst is over, though, for the labor situation, given some benefits rolling off, given back-to-school. Obviously, labor is still incredibly difficult to secure. I guess I'm just asking, is it worsening any more? Is -- are you seeing a peak in that -- those challenges? Just curious how to think about that going forward from here. Jeffrey Harmening: Yes. I would think the -- no, it's a very fair question, Ken. I guess we foresee labor challenges persisting for quite a while, I mean, especially if you look at logistics. So there's a shortage of truck drivers here in the U.S., and that's not going to abate for a while. There is a shortage in shipping containers as we look at global transportation. You can see them on pictures in the L.A. port. So that's not going to be -- go away for a while. And while we have seen a little bit of loosening in the labor markets once the government spending has kind of decreased, that's not going to solve the whole -- that's not going to help solve the whole dilemma. So I would suggest that the challenges we have with labor and labor inflation are going to persist for quite some time. We have not really seen them abate significantly at this point. Operator: Our next question is from David Palmer with Evercore ISI. David Palmer: In your transcript, you mentioned that your service levels weren't quite where you wanted them to be. I wonder, what is the average out there in service levels in the industry? And where do you think General Mills is versus normal for today for the industry, but also normal versus itself? And is there any sort of outcome from this? Is it -- are you below where you'd like to be in terms of ship sales? Or are there penalties happening? Jeffrey Harmening: Fair question. Jon Nudi, do you want to take that one on? Jonathon Nudi: Yes, absolutely. So David, what I would say is that our service levels are certainly better than they were at the beginning of the pandemic, but still quite a bit off of where we'd like them to be, which is in the high 90s. And really, we're seeing a widespread impact, everything from raw material vendors, challenges there, internal manufacturing, co-packer manufacturing and our distribution network. And it's almost whack-a-mole right now. So we have literally hundreds of disruptions in our supply chains, and it really changes on a daily and weekly basis. So we've gone back to some of the practices that served us well at the beginning of the pandemic. We've stood up the control towers at the working level on a daily basis, on a weekly basis at, I mean, more senior level to really dig in and work with our teams to solve these issues. And we do expect these issues to persist throughout the year. What I like is the way that we're performing, and I think we're outperforming versus many of our competitors in this space. So we are probably somewhere in the 80s in terms of total service levels. And what I would tell you is that it varies widely across categories. And the majority of our categories were actually in the 90s and then performing well. We have a few that -- we have capacity issues. We have a few ingredient issues that are really dragging us down. So we continue to work closely with retailers. In fact, the bulk of our discussions right now with retailers are really around service and making sure that we can ship the product that our consumers are ultimately looking for. So I like the way that we're performing. At the same time, we think it's going to be a challenge as we continue to move throughout the rest of the year. David Palmer: And then just a follow-up on pet food, maybe a good time to go over where you think the big picture strategy and opportunity is now that you closed on the treats acquisition. Where are your market shares maybe by major pet segment? And where do you see that opportunity? Where do you see that market share going to from your major segments? And I'll pass it on. Jeffrey Harmening: Sure. On Blue Buffalo, the first thing I would say is that our organic business on Blue Buffalo performed quite well in the first quarter. I mean we were up 20% and gaining market share really across all the different segments. Having said that, I think it's important also to reflect that for pet, we probably had our easiest comp in the year this past quarter. We're going -- grew about 6% in the first quarter last year and 18% in the second quarter. And so as good as I feel about Blue Buffalo, I feel great about it. I wouldn't model 20% growth for us from here on out because the comparisons get quite a bit steeper as the year goes on. But Blue Buffalo in itself is performing quite well. We really have opportunities across the segment. We over-index in dry dog food, and we basically under-index in every other subsegment of the category. So there is broad opportunity. And I would say with the Tyson acquisition, when we first looked at it several months ago, we liked it. And once we had bought it, we got a closer look. We really liked it. Now that we have it, we like it even more. And what I can tell you is that the growth of 20% is -- kind of exceeded our initial expectations, and it's got a good management team. And they're -- we've not only bought some nice brand, a good portfolio, but a good team. And what that acquisition really helps us to do is cement our leadership in the treats part of the dog category and something we wouldn't have been able to get to by ourselves. And so it's very complementary, both in product form and in customers where Blue Buffalo sits. So the more we've got to see it, the more we feel good after spending that kind of money to make an acquisition. But we feel good both about Blue and about this recent acquisition of the Tyson pet food business. Operator: Our next question is from the line of Michael Lavery with Piper Sandler. Michael Lavery: You -- you've got broad pricing across, really, it looks like, every category and segment. Can you touch on just what you're seeing as far as elasticities? And certainly, your sales are holding up, but any surprises? Any variation? It looks like the consumer demand really remains strong, but especially just looking ahead, anything we should maybe watch out for or where there could be some little bit more volume pressure, perhaps? Jeffrey Harmening: Michael, what I would say is you made an observation, I think, which is really important, which is that the pricing that we realized in the first quarter is broad. And I think that speaks to what Jon Nudi was talking about earlier in our Strategic Revenue Management capability and the fact that our capability is significantly better across our company than it was 4 years ago. And you see that in the market. We got out to market fast, and we've been out there effectively. As we look at -- as -- you talk about elasticity of demand, it is still early. We don't have a tremendous amount of data points yet. Having said that, it seemed to us as if demand is holding up quite well, it's holding up a little bit better than we had thought. And if I think through the logic of that, particularly here in the U.S., you see that restaurant traffic is still down, the food cost from away-from-home eating are going up at least as fast as they are in at-home eating because of the labor piece of that, and they face the same pressures we do from an ingredient standpoint. So when you see broad-based inflation not only in at-home eating, but also perhaps even more so in away-from-home eating where restaurants, many of them not only do they see inflation, but they're having trouble staffing all of their restaurants. It seems to us that this is an environment where elasticity, at least so far, has seemed to us, are a little bit lower than what we have said. Now the sample size is small, and we'll continue to monitor that. But that's what we see in the world right now and pretty much true across the world, whether it's here, in the U.K. or in China or Brazil. Michael Lavery: Okay. That's great. And just a follow-up on your comments about the digital programming and just the unique position you have with all the data you get from the receipts for Box Tops. Can you give a little bit more sense of how you can take advantage of that and really put that data to work? Jeffrey Harmening: Well, what we're able to do, whether it's the Buddies by Blue Buffalo, whether it's Box Tops for Education or whether it's what we're doing in China with our Häagen-Dazs omnichannel approach to shops, is that we can better meet consumer demands, and we can give them things that are more specifically interesting to them. And the more specifically -- specific things you can give to consumers, the better off you're going to be in attracting their sales. And not only that, particularly things like Box Tops for Education, we can also partner with our retail customers because a lot of them have first-party data now. And we can combine the data that we have with the data that they have in order to customize offers to consumers that are to the benefit of them, realizing, of course, all the privacy laws and so forth. So I don't want to go in too much more depth than that other than to say that it's the next evolution of marketing. And we talk about connected commerce, and I think for some, it sounds like a buzzword. But we wanted to give you a couple of clear examples that -- at least here at General Mills, it's not a buzzword. It's something we're taking an active approach to. Operator: Our next question is from the line of Chris Growe with Stifel. Christopher Growe: I just had a quick question, if I could. In an environment where you're seeing stronger revenue growth, and that's translated into stronger profit growth as we saw in the first quarter. I just want to get a sense around investment. And that can obviously take many forms, marketing or investing back in the business, sort of white space. And you've done a lot of investment back in the business for the last few years. But I want to get a sense of as we think about your opportunities for, say, incremental marketing or something along those lines, would continued stronger revenue growth prompt you to want to reinvest more heavily is the ultimate question. Kofi Bruce: Chris, thanks for the question. So as we think about structurally, where we are in the year, we're confident that we have strong support behind our priority brands. And we would expect to retain that even as we do see additional cost pressure come in. On the basis of everything we know, we still believe that we have strong ideas, and we're going to continue to support those. I think as we roll forward here, we will also continue to support our capabilities, investments around data and analytics. So at the core of our expectations and our guidance, we've preserved our expectations for the year. Christopher Growe: Okay. And just a follow-up question, if I could. In relation to the incremental cost inflation that you expect for the year, you also talked about some more SRM actions and obviously, you still have HMM savings. So does the inflation that's coming through, do you believe you can offset that with your SRM initiatives this year, such that costs are roughly offset by the SRM initiatives and plus HMM? Kofi Bruce: Yes. So I think I'll start with just the recognition that the environment remains dynamic on the cost side. So we are seeing cost changes moving through the system rapidly. We are -- at this point, our -- we do have a best call on the cost picture for the year, moving up from 7% to 8%. And we've got plans to address what we can see. And the best thing I can tell you is that we are prepared to act should it change further, which is a very distinct possibility in this environment given how much we've seen it move here in the first 3 months of the year. Christopher Growe: And then just one follow-on to that, Kofi. The incremental inflation, is that across the remaining 3 quarters? Or is it maybe perhaps more heavily in, say, Q2? Just to understand how that cost -- the incremental costs run for the year. Kofi Bruce: Yes. So I'll give you the perspective that it is going to impact the second half of the year a little bit more heavily than the first half as you can expect, given the combination of our hedge positions and where we would expect to see this exposure more heavily hit us. So that is part of why we would give you the perspective that we see a little bit more balance in the profit picture between the first half and the second half. Operator: Our next question is from the line of Alexia Howard with Bernstein. Alexia Howard: Can you hear me okay? Kofi Bruce: Yes. Jeffrey Harmening: Yes. Alexia Howard: Perfect. All right. So the first question I had was really around the categories or the businesses that are holding or gaining share. I think you said that of your priority businesses, you are holding or gaining share in over 2/3 of those. I'm just wondering, which businesses are not priority? And is there an overall number for the company overall? And then I have a quick follow-up. Jeffrey Harmening: Yes. I'm not going to give it down to the decimal point, Alexia, on what's priority and not. But I would say that our priority businesses are the overwhelming majority of our businesses. So they are the most significant part. They represent the top 10 categories for us in the U.S. and our categories in Europe and Asia and Brazil. And they include all the global categories as well as the local gems that we talk about. So it's the vast majority of our categories. And so when we say we're gaining share, roughly 65% or so of our categories, you can be confident that is most of our categories throughout the world. And we say prioritize, though, because it doesn't include some, but it includes all of the biggest, most important categories for us. Alexia Howard: Okay. And then I think you said earlier that, in answer to the question about service levels, that there are certain categories where you've got capacity constraints and/or ingredient issues. Are you able to just give us a little bit more color on where those ingredient issues are happening? Is it bringing things in from emerging markets? And then domestically, is it capacity issues mainly because of labor? Or is it getting parts into the machines? I'm just trying to figure out where the pain points are from a supply chain perspective. And I'll pass it on. Jeffrey Harmening: Yes. I would say, Alexia, that there are a couple of categories where we have supply constraints, only because demand has been high for such a long time. And I'll give you fruit snacks as an example of that here in the U.S., where we grew share, massive amounts of share 2 years in a row. Demand was high before the pandemic, has been high during the pandemic. It's certainly higher right now. And so we've had to go out and add more capacity, which we're going to do -- which we signed off on a year ago and which we come to market a year, but that takes a long time to get to. So fruit snacks would be a great example of one of those places. And desserts right now would be another example where the desserts category has been really strong for us. And so we have capacity constraints. When it comes to ingredients, it's a little bit here and a little bit there. It's not one particular ingredient all around the world. It's really a combination of small things, as I think Jon Nudi aptly described it as whack-a-mole. I mean there's a little -- there's ingredient shortage here and a little bit there. There's labor shortage here, and a truck that's not out there. And so it is not a geography or a category where we see it. It's a little bit of everything. And from what we understand, I think probably most of our competitors and most of our retail customers are experiencing something very similar. Operator: Our next question is from the line of Steve Powers with Deutsche Bank. Stephen Robert Powers: Kofi, not to belabor it, but just to round out the comments you've made thus far on cost and cadence. Can you just talk about where cost inflation ran in the first quarter relative to your call for 7%, 8% in the year? And then if possible, the same thing on HMM savings relative to the 4% full year impact expectation? And then I've got a follow-up on pet likely for Jeff. Kofi Bruce: Okay. Sure. So our HMM ran roughly in line with our sort of full year forecast. And then I think as you look at cost inflation, it was a touch lower, still elevated. So not -- I don't want to get too precise. But I think it's a touch lower than we expected it to be for the remaining 3 quarters [ than it was. ] And the original inflation call is relatively balanced. Stephen Robert Powers: Okay. Okay. That helps. And then, Jeff, going back to pet treats and the Tyson brands, as you said, off to a very solid, strong start. Can you expand just on your expectations there as you -- mainly as you plug those businesses into the Blue Buffalo go-to-market model? And just any context on timing as to how you see that process unfolding? Jeffrey Harmening: Yes. I was -- first of all, I would say it's off to a strong start. I mean -- and the -- what I'm really pleased with is the way that the Tyson team we inherited and the Blue Buffalo team are really working together already, even if we haven't plugged it into our system. And as I indicated earlier, there is certainly a talented team that we brought over from Tyson, we feel good about them. But we haven't plugged them into our whole system yet or either our distribution system or how that -- or our omnichannel system. And so that's going to take a little bit of time. I mean I don't have an exact date for that. The key for us is that we maintain our execution of that business because it's executing quite well on its own while we bring it in piece by piece to some of the Blue Buffalo businesses, and some things we'll integrate, and some things we won't. And -- but what I can tell you right now is that the teams are working very well together, and it's -- we're only a couple of months in, but we like the start we're off to. And I think once we are able to plug in some of our capabilities to this Tyson business, whether it's Strategic Revenue Management, which we really haven't quite done yet, or Holistic Margin Management, which we haven't done yet, or plug it into the sales team and add to their capabilities, we think that there's quite a bit of room for growth. Operator: Our next question is from the line of Nik Modi with RBC Capital Markets. Nik Modi: Jeff, I wanted to ask a question about -- you've been talking a lot about whack-a-mole, which I think is pretty clear given the environment. But the whack-a-mole seems like it's becoming more normal when you think about just disruptions, weather events and labor shortage, labor issues are probably going to persist longer, issues with other countries in the U.S. and trade wars and impact on ingredient costs. So I'm just curious, like do you think the industry, in general, needs to go through a mini CapEx surge to really appropriate the supply chains and the capabilities to make sure that they can deliver consistent results through this, what I would characterize is going to be probably a volatile environment for many years to come? Jeffrey Harmening: Yes. The -- Nik, your observation that it's a volatile environment across all the things you indicated, I think that's exactly right. What I would say is that I think in environments that are difficult, General Mills has tended to perform it's best, and you saw that during the beginning of the pandemic. I think you see it with our first quarter release, and I'm certainly hopeful that you'll see it in the subsequent quarters. And people talk about strategy all the time, but execution is pretty important. And we're executing really, really well. And it's because we're addressing all the things that you just talked about. Now the question is how to address it. Capital may be one area. In some places, automation be -- maybe an area in some cases. But I would also tell you that the coordination amongst your supply chain and your marketing functions and your sales functions, that's as important as adding capital expenditures or automation or things like that. And so I do believe that the challenges that we see right now are -- I think they are the new normal for the foreseeable future. And with the supply chain we have and with the restructuring that we just did, which kind of addresses the holistic business here in North America, I think our chances of executing well will remain high. Operator: Our next question is from the line of Robert Moskow with Credit Suisse. Robert Moskow: Congrats on the results, certainly much better than I expected. I wanted to know about the hedges, Kofi. I think you said that you're about 50% hedged for the year. In the back half of the year, can I assume that, that means that you're generally like 0% hedged in the back half? And then what kind of things do you hedge? And what do you not hedge? Maybe you could remind us. Because like trucking, logistics costs, are those part of the hedges? Or is it really like just ingredients that you hedge? Kofi Bruce: Sure. Sure. So just -- I'll start by just a gentle correction of our hedge levels. We're at about 66%, so roughly 2/3 covered on the year at our present demand and volume expectations. So I think to your question about what we cover, I think, generally, in the ingredients on commodity side, we'll be able to hedge where there are markets. Some of those ingredients cover the long-term contracts, which gets you effectively the same thing. As we look at the logistics side, obviously, we do have long-haul and short-haul trucking contracts in our network. Obviously, with the labor pressures, there is upward price pressure on that entire complex just as a result of the shortage of drivers to get to drive trucks and, frankly, I think, even labor to unload trucks and shipping containers on the other side. So that -- we are covered partially through the contracts that we have. The key is making sure that we continue to execute most of our routes on contract, and we are seeing a little bit of pressure as a result of having to do more sort of off-contract and off-network as a result of the labor shortage and the environment. Robert Moskow: Okay. That makes sense. And what happens when a supplier, like, is late or has to charge premiums to you because of logistics challenges? Is that hedged? Or is that not hedged? Kofi Bruce: No. Generally, no. And that is part of what -- I think one of the things that Jon has spoken to very clearly, this is -- the entire network, incoming and out, is under similar pressure. So that's a place where we do see some incremental operating costs in this environment. Operator: Our next question is from Jonathan Feeney with Consumer Edge. Jonathan Feeney: In the years before the pandemic, I had the pleasure of covering some of the retailers, too, as well as food. And I think the conversation was relentlessly data versus relationships. It was all about elasticity and private label shares and retailers getting smarter, omnichannel, creating more data. And it's basically forcing retailers to change their shelf set more frequently based on all this maybe more quantitative factors than qualitative. And -- but in the past 6 months, it seems like there's this narrative in the industry that it seems that retailers are unhappy with case fill rates. It's difficult to -- and the industry pricing-wise, like it was a very good performance to have a minor -- relative performance to have a minor gross margin decrement year-over-year, but some others are much worse. It feels to me like the pendulum has swung, and now it's -- well, that data is less important. I mean elasticities, to your point earlier, are excellent. Private label shares are in free fall in most of these categories. I mean supply is short. You would think if this were -- you look at the inflations of -- that I lived through in '07 and 2011, like these kinds of indicators would have suggested dramatically more pricing protecting and maybe even expanding gross margin on a 2-year basis, certainly, versus prepandemic levels and better utilization, et cetera. So I guess I wanted your comment about-- is that -- am I wrong about the analytics, first of all? Is that right about that kind of pendulum and the conversation between you and your retail customers? And do you think that in a more normal environment, it swings back to where, hey, more people buying your products, elasticities are good, and that suggest more pricing power over time? Jeffrey Harmening: I guess, Jonathan, let me take a crack at the overview and then Jon Nudi, to the extent you want to add on. When I think about the data versus relationships when it comes to retail customers, I think about it the same way as I think about brick-and-mortar retail and e-commerce, which is at the end. And especially in food, where yes, we have [ e-commerce, ] but a lot -- 85% of our e-commerce goes through stores. And so you need to be good at e-commerce, and you need to be good at the physical distribution of products as well, which is why we've talked about connected commerce. The same is true of what we're going through with retail customers right now. Yes, data is important. It will be coming -- it will remain important. Data keeps getting better for our retailers. It keeps getting better for us. That will certainly play a role, but you only trust the data of people you actually trust. And so the retail relationships we have are also important because as we go to market and talk about what's going on in the environment, we need to make sure we have those relationships. So they are both important. As we think about elasticity of demand, we'll see. We're kind of an uncharted territory, to be honest with you. And that's why all elasticity models are always based on historical data, which is usual to a point, but only to a point. And that's why I made the commentary earlier about we're seeing inflation broadly, not only across our products, but also across restaurants as well. And that's why I made the comment about service levels of restaurants and the ability to get labor because it seems like in that environment, it feels like elasticity should hold out pretty well, and they have so far, but we'll see what is to come. Jon Nudi, anything you want to add on either of those topics? Jonathon Nudi: Yes. I mean I think that's well said. The only thing I would add is I think prior to the pandemic, there was a narrative that big brands were challenged. And I would say, first of all, consumers like our brands, and we continue to build them and innovate and build our brands, and that's worked for us. The other thing I would say is for retailers, there's power in having scale. So they can -- a retailer can make a call to us, and we operate across 25 different categories in the U.S. And that's helpful on the supply chain side. We can work in all those categories and really drive scale and make sure that we're operating well to service their shelves. And at the same time, we can focus on capabilities, whether that be connected commerce and digital marketing or e-commerce. So I think retailers are recognizing or have recognized that having powerful partnerships with some big manufacturers is beneficial to them, really streamlines their work. It's good for us, and it's good for them as well. Operator: And speakers, our final question for today will be from the line of Rob Dickerson with Jefferies. Robert Dickerson: So just a quick question kind of to dissect category dynamics a bit. Obviously, elasticity kind of remains just unknown, but it seems as if maybe there is encouraging light at the end of the tunnel so to speak. At the same time, though, you're saying food at home demand remains a bit elevated. But then we also see cereal, meals and baking decline a bit, which, obviously, isn't shocking relative to the year ago quarter. I'm just curious, as you sit down and you think about the guide and you dissected category to category, like is it fair to say, as we move forward over the next few quarters or so or as mobility increases, that it's rational to think that maybe meals and baking and cereal are still a bit more pressured relative to kind of fluid COVID rates versus snacks and maybe the snacking part of the portfolio actually could continue to perform despite shifts in mobility? That's the first question. Jeffrey Harmening: I guess I would say, Rob, that broadly speaking, all of our categories are up over where they were a couple of years ago. And at the same time, you're right, as consumers get to be more on the go, categories that are more on the go have -- we've seen an uptick in those. And for our -- that's our bars category, for example. And whether that's in Europe or whether that's in U.S., we've seen the same kind of trend. But I think importantly, either whether you look at baking or whether you look at cereal, I mean, the trends versus a couple of years ago are pretty good. And the ones that are on the go categories are improving as you suggest. Jon Nudi, anything you want to add to that commentary? Jonathon Nudi: No. I think you hit it. I mean obviously, it's dynamic. And when you compete in as many categories as we do, there's a lot of moving parts. And one of the things that Jeff has really stressed since he's been CEO is that we want to compete effectively in all the categories we compete in. So that's what we're really focused on. And obviously, as Jeff said, snacking has really rebounded, and we're seeing good growth there. And there's big important categories like cereal where, again, over a 2-year basis, we are growing, which is great. And we think there's some dynamics with kids getting back to school and focus on convenience, we'll see that category continue to accelerate, which we sell in August. So we like how we're competing broadly in the U.S. We've grown share in greater than 50% of our business in Q1, and we've done it for 4 years in a row. So again, this wasn't just a pandemic-driven performance. We like the way that we're competing, and we'll continue to focus on that as we move forward. Robert Dickerson: Okay. Perfect. And then just quickly, I think in the prepared remarks, you stated that it's an ongoing process and search for potential go-forward acquisitions, but then also potential divestments. So I guess, just very broadly speaking, now that we have kind of a time line on yogurt divestment, would you say you're kind of like largely done with that divestment piece of the portfolio optimization efforts? Or are you always looking, let's say, and specifically looking at certain pockets that could still be up for divestment potential? And that's it. Jeffrey Harmening: Yes. Rob, I guess, I mean, what I would say is that we're looking to close the [ Yoplait ] transaction at the end of this year, and we just closed an acquisition with Tyson. So we feel good about those things. I would view our portfolio shaping as kind of an always-on capability. I mean, similar, we viewed strategic revenue management -- it used to be episodic until we made it always on. And the same will be true with our portfolio shaping. I'm really proud of what we've done in our base business, not only this quarter, but the last few years. But it's also clear to me that we need to do that and continue to reshape our portfolio. And some of that will be through acquisitions, and I think this Tyson acquisition is a great example of that. And to the extent that we think that investments are better spent in priority categories versus those that aren't prioritized, we'll look at additional divestment opportunities as well. And so we'll continue to compete effectively in the categories we're in, and we'll continue to look for M&A opportunities. I think one of the things I've been most pleased about over the last couple of years is that we've been able to do both effectively. And whether it's the start of Tyson or the way we've done with Blue Buffalo, we're keeping our eye on the ball as we've divested Yoplait. We've done all of that. And so there are some companies that can say that, but I feel good about that combination for us, and we'll continue to look at that into the future. Operator: And speakers, I'll return the call back to you. You may continue with your presentation or closing remarks. Jeff Siemon: Great. Thanks so much. We are going to wrap up there. Thank you, everyone, for the time and good questions this morning. If you do have follow-ups, please feel free to reach out to me throughout the day. Otherwise, we look forward to speaking with you again next quarter. Thanks so much. Operator: And that does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a great day, everyone.

Operator: Greetings, and welcome to the General Mills Fiscal 2021 Q4 Earnings Call. During the presentation, all participants will be in the listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded on Wednesday, June 30, 2021. I would now like to turn the conference over to the VP of Investor Relations, Mr. Jeff Siemon. Please go ahead. Jeff Siemon: Thank you, Frank, and good morning. Thanks, everyone, for joining us today for our Q&A session on fourth quarter results. I hope you had the time to review our press release, listen to our prepared remarks and view our presentation materials, which were made available this morning on our Investor Relations website. It's important to note that in our Q&A session, we may make forward-looking statements that are based on management's current views and assumptions, including facts and assumptions related to the potential impact of the COVID-19 pandemic on our results in fiscal '22. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here this morning with Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Jon Nudi, Group President of our North America Retail segment. Let's go ahead and get to the first question. Frank, can you get us started, please? Operator: [Operator Instructions]. Our first question comes from Ken Goldman with JPMorgan. Ken Goldman: Two for me. The first is, can you give us a sense of what to expect for the cadence of the cost inflation this year? And then the second one is, the street, I think, is looking for maybe about 40 basis points in your gross margin in terms of the decline year-on-year in fiscal '22. I know you're not guiding to this, but given what you've said about inflation, HMM and pricing and nearly net pricing, is it kind of reasonable to expect something in this range? Or is that far off from what you're looking for? Kofi Bruce: Ken, this is Kofi. Thanks for the question. So as we look at the year, I think it's important for us to just give some perspective, and I'll address it maybe through the lens of the flow of margins. We would expect our back half to deliver higher margins than the front half with particular pressure on Q1 where we would see the combination, obviously, of inflation and pricing that starts later in the quarter, the benefits of pricing flowing through later in the quarter. So -- and as for the flow of those, that guidance on margins would reflect roughly relatively balanced flow on our expectations for the full year for inflation, and then obviously, with the pricing really kicking in as we step into Q2. Ken Goldman: And then just the second question. Is that 40 basis points for the year that The Street is looking for, is that far out of line with what you're thinking, Kofi? Kofi Bruce: Well, we're not going to give guidance at gross margin. But obviously, our guidance on profit, on operating profit and sales would indicate something in the range of a modest decline in operating profit margin. Operator: Our next question comes from Andrew Lazar with Barclays. Andrew Lazar: Jeff, I know you used the words dynamic, and I'm certain a bunch of times in your prepared remarks. And even though the consumer side of things may be getting -- maybe a little bit more visible, obviously, the cost and comparison side of the equation are still pretty challenging. So I guess my question is, how much flexibility do you think you've left yourselves in the FY '22 guidance in light of the industry challenges, also knowing how the timing of pricing and other actions tends to work to offset costs? Jeff Harmening: Yes, Andrew, I think your observation is a good one. And we use dynamic and we use uncertain, I also say volatile, so we can throw that one in too, right? And it is -- from a demand perspective, it's still as volatile. And even if mentally many consumers are getting beyond COVID, the demand environment is volatile not only with respect to at-home versus away-from-home consumption but also what is the impact of pricing going to be? And what does that mean for elasticity? So I would say the demand environment is still volatile, and as is the cost environment. And so whether that's input costs on manufacturing or whether that's transportation or whether those are commodities, it is a pretty volatile environment. What I'm proud of is over the past year, and we've been able to navigate that well and do what we said we're going to do. In fact, each of the last 3 years, we've done what we said we're going to do. And now we still have to face this year. And -- but I feel good about our guidance. I don't think it's so conservative, and I don't think we're on over our skis. We're trying to tell you here's what we think we will do. And is it easy in this kind of environment? No. But I feel good about our capabilities and how we're executing right now. And we're very clear on our path forward. So all of those things give me confidence that we can do what we said we're going to do. But it's a tricky environment, and I think that it will be. Andrew Lazar: And then there was a survey done recently that we read about one of the large CPG brokers, and it showed how, I guess, manufacturers were more optimistic about sort of sales trends in the back half of this calendar year compared to retailer expectations. And I didn't know if you've encountered sort of this divide in expectations in your discussions with your key customers. And if you have, maybe why you think this gap exists with respect to the differential again and expectations around maybe sales and/or stickiness between manufacturers and retailers? Jeff Harmening: Yes, Andrew, and this -- I want this to come off in the right way, but you know what I said just a second ago that it's volatile. I think this is exhibit A, when you have a group of one -- one group thinking one thing, another just shows that there's a level of uncertainty and volatility. That would be the first point. The second is that if you look at our guidance for the year, we said we'd be down modestly on sale of minus 1% to minus 3%. And I can tell you that we're lock-step with our retail customers, and we have good partnerships with them and we're pretty well aligned with what they think. And so -- but I can understand why there are differences because it is a volatile environment by -- varies by category as well as geography. So we're very well aligned with our customers, not only on the demand environment, but also the cost environment. They see the same cost pressures we do. And we've instituted pricing in the vast majority of our categories and markets throughout the world. And while no one wants to increase prices, we've had to do that because the cost environment is what it is. And we have found them to be understanding because they're in the same kind of boat that we are. Operator: Our next question comes from Robert Moskow with Credit Suisse. Robert Moskow: I was thinking about the terms that you're using, Jeff, to describe the environment as volatile. But I want to get a little tighter on it because I would say that the cost environment is very volatile and maybe the pricing as well. But your opening comments would indicate that demand has been fortuitously strong, it has stayed strong. So are you saying demand is volatile, too? Or are you just saying it's uncertain? Because I would describe it as uncertain because you just don't know how their people will react in the fall when maybe they go back to school and go back to offices. Jeff Harmening: Yes. Rob, I appreciate the distinction. I would say that what we have seen in the recent past is not very volatile. In fact, it's been pretty steady. And honestly, it's kind of playing out as we thought it would, which is our business was down in the last quarter versus where it was last year during the stock up. It was actually quite a bit higher than it was pre-pandemic as are our shares. And we've been talking for quite some time that although in some corners people thought demand would kind of fall off a cliff when people started going back to the office and got returning to normal pre-pandemic, we said we think actually some of these behaviors will be sticky, and that's what we have seen. So it hasn't been volatile in the recent past. The question is, what's going to happen for the remainder of the year as pricing kicks in, as we -- as kids go back to school as we hit the fall, I think it will be a volatile environment, and we're calling it the best we can, given our assumptions. But you are correct. It hasn't been volatile in the recent past. But as we look ahead 3 months and 6 months, I think that will be what we're going to be dealing with. And yes, I would note, during that period, Rob, we still expect at-home food consumption to be above pre-pandemic levels, even if it's below -- slightly below a year ago. Robert Moskow: Right. Okay. And this question might be more in the weeds, but the strategy in grow, I guess, division or organization that you're creating internally, is that just combining some corporate functions together like corporate insights and M&A together? Or are you expanding the role and taking some of the responsibilities of the business units like revenue growth management maybe and pulling it into this division? Like how is this -- how big of a change is this division you've developed? Jeff Harmening: Yes, it's a -- I would say it's a decent-sized change, but what we're not doing is taking operating responsibility out of the businesses. And in fact, what we're doing is pushing operating responsibility for the near term and more closely align to the businesses, which is really important. So we are doing that. In terms of the strategy area itself, we are centralizing some of the capabilities because you don’t want to do modeling, for example, in many different places. You want to be able to do that in 1 central location, but then it's up to the businesses themselves to use that modeling and then to decide what's best for their businesses. So you want some centralized capabilities so you can develop scale and expertise, but then you want to use those models to be in the businesses who are responsible for the P&L. So that's where we're doing that. The other thing we're doing, I would say, is that similar to what we've done with strategic revenue management over time, we're -- at one point in time many years ago, it was something we did periodically was thinking about pricing and we turned into it always on kind of function. The same would be true of our strategy function. We're kind of beefing up our strategy function as well as M&A as we look to the future and certainly what we need to do to hit our sustainable top-line growth targets is we need to keep competing effectively, but we also need to do more portfolio shaping. And so in that sense, we have an always-on strategy group that is maybe different than what we have done in the recent past. Operator: Our next question comes from Laurent Grandet with Guggenheim. Laurent Grandet: And maybe if I can come back on one of those questions. So when you say at-home consumption will be more elevated in post pandemic, I mean, I think that's probably what the assumption for everyone. Now by how much, it's really a question. So could you maybe help us understand your thinking process made by category, how you see those more elevated than -- consumption post pandemic and what is triggering this in your view? Jeff Harmening: Yes, Laurent, I think for this call, it's probably not helpful for us to go category by category. But I think if I can give you -- what's underlying the assumption as to why we think this is going to happen. In our human food business, and I'm going to separate pet. But in our human food business, what I would say is that there are a couple of factors underlying our belief that we'll continue to see demand that's above pre-pandemic levels. The first is that more people are going to work from home more often than go into the office every day. And we're fairly certain that, that is here to stay. So there will be a new normal and where people work. The second is that consumers, many millennials have really gained cooking skills and baking skills and newfound confidence in the kitchen and they can find that they can save money by doing it. And so while they -- we're not saying people won't want to still go out to eat, we believe that there's a younger generation that maybe not have done this before. Our penetration data show this, especially in the U.S. that we have a whole new group of consumers that have elevated demand. The third would be that our e-commerce business has grown rapidly over time. In fact, it's now 11% of our sales, up from 5% 18 months ago. And while the continued growth may not be linear over the next period of time, many people have found shopping in grocery stores become much easier than it was before. And many time [Indiscernible] convenience [Indiscernible], it tends to stick. So for all of those reasons on our human food business, we believe -- even as people go out to restaurants more, even as kids start to go back to school, there will be some of the demand that is sticky for food at-home. The other thing I would say is, for pet is a little bit more straightforward, and frankly, there are more pets than they were before. And that is certainly true here in the U.S., it's true in other parts of the world as well. But particularly in the U.S., 85% of those new pets are in homes that already contained one pet. And so these are people who are used to having pets. And so the amount of pet food that's going to be consumed over the next few years, we think, is going to be elevated in addition to the fact that the fastest-growing part of pet continues to be the natural segment, which is where our Blue Buffalo competes. And so we would anticipate that the category itself will be above what it has been the last couple of years, and that natural will remain ahead of the category in terms of growth. Laurent Grandet: If I may, I got a second question. It's about plant-based dairy. We have seen, I mean, recently increased interest in plant-based dairy from consumers and actually also from investors as well. So could you please update us what's the plan with your Yoplait brand in the U.S. and Canada as well as again that internationally and potentially maybe update us about your pet investment as well? Jon Nudi: Laurent, it's Jon Nudi. Hope you’re well. So the yogurt category in the U.S. is really starting to accelerate. So it was up 5% in April and May, up 2.5% in June. And really, what's driving that is this simply better health segment, so that was up 31%. So that's products like Ratio Keto, which is one of our products, [Indiscernible], and we put plant-based in there as well. So we're definitely seeing growth in that segment. In terms of the Yoplait, we launched Oui a plant-based product several years ago that has continued to do quite well. We're actually looking at launching a Yoplait plant-based product in the coming year as well. So it's still relatively small in yogurt in the U.S., growing quickly. Really, that’s simply better health segment with the dairy-based products there, Ratio Keto, and [Indiscernible] and the [Indiscernible]. So plant-based remains an area of focus for us. I would tell you it's not the biggest segment and probably not with the bulk of the growth in the coming year. Laurent Grandet: And internationally for Häagen-Dazs, any plan there? Jeff Harmening: When it comes to plant-based ice cream, I think it is a very, very small part of the category. What I will say is our Häagen-Dazs business has been growing very, very nicely and continues to do well all over the world, particularly strong growth in China and in Europe this past year. And we've got some great innovation coming on Häagen-Dazs. And so plant-based is really small, but we are confident that we can continue to grow our Häagen-Dazs business really well in key geographies and looking for a summer where more consumers are out and about. Operator: Our next question comes from Jason English with Goldman Sachs. Jason English: So now that you've announced price increases in the vast majority of categories and markets, can you give us some clarity on how much net price realization you expect to realize in your down 1 to 3 full year organic sales outlook? Kofi Bruce: Jason, this is Kofi. Appreciate the question. Let me give you a frame to think about this. So as we give guidance on inflation of about 7%, we would expect our holistic margin management to register about 4 percentage points of cost of goods sold. So that would offset a good portion of the inflation. And obviously, in this environment, we would need some additional price realization. While we're not quantifying it, we would expect the combination of levers through strategic revenue management, both list pricing, price pack optimization, trade optimization, all of those things to yield us enough to cover our inflation expectations. Jason English: Okay. So take that remaining 3% of COGS and gross it up to revenue is probably a safe place to go right now? I think that's what you said. Switching gears but still remaining kind of on the topic of offsetting inflationary pressures. Your recent restructuring announcement, I thought you're going to have a lot more meat on the bone to give us today on this. But there's not a lot. Can you give us more clarity around the initiatives, including the expected cost savings? And how much do you expect to reinvest? Kofi Bruce: Well, I will give you a frame to think about this. And let me sort of touch on what we're getting at. This is not simply a cost savings exercise, as Jeff kind of alluded to in some of his earlier answer. We are sort of aligning resources to growth-facing purposes. So there isn't here an expectation that we'll prioritize. Areas like digital and data and analytics, SRM, strategy and M&A, as Jeff mentioned earlier, those things are all critical to sort of maintaining the growth engine. Our expectation after this exercise is that our admin costs as a percent of net sales will be roughly in line with our fiscal '21. So they will keep pace with the sales decline. Operator: Our next question comes from Bryan Spillane with Bank of America. Bryan Spillane: So I guess my question is just around as we're working through our models and thinking about and trying to factor-in in inflation, maybe Kofi, could you give us a little bit of a -- some color on maybe which segments are going to feel more inflation than others. And maybe just how we could think of how we should be thinking about the potential volatility of inflation just within segments? And then, I guess, tied to that question is just as we're thinking about the revenue management component of covering inflation, is it more pronounced in some segments than others? Just trying to get a sense of how we should be looking at that across segments? Or is it really generally the same across all of them? Kofi Bruce: I appreciate the question. And while I don't want to get too specific at the segment level, what I will tell you is all of our segments are experiencing higher inflation, we are addressing in all of our segments with the mix of holistic margin management in line with our historical levels and SRM, I mean, using the entirety of the SRM toolkit in all 5 of the segments. Bryan Spillane: Okay. And then maybe just a follow-up. I know there's been a lot of talk about pricing, price increases as part of the way to combat inflation. We've heard that across our whole coverage universe. What do we expect on the back side of that, right? So as some of this inflation moderates, hopefully, would the expectation be that this pricing has stopped? Or would there be the potential that some of it would have to be dealt back as inflation moderates? Just trying to understand just how unusual this environment is, just how we should be thinking about the stickiness of those price increases if and when inflation rolls over? Jeff Harmening: We'll probably -- usually, we don't give forward-looking views on pricing. And so I think that's probably the best plan to stick to that here, which is not to say your question is not a fair one. I just think for us to talk about future pricing is probably not something we should do too much other than to say, I think one of the keys to our success as we look ahead as it has been recently, is our agility. And we've proven ourselves pretty agile during that last year, including with recent pricing we've taken into the marketplace relatively quickly. And I attribute that to the fact that we have an always-on capability. And so in a volatile market, trying to be certain is not a good place to be. What you need to be is thoughtful and you need to be fast. And I think of both of those things, and we're going to try to continue to do both of those things. So you raised a good question. We're not going to answer directly because we usually don't talk about pricing. But I do believe that the key challenge in the volatile environment is to be clear and to be agile. And we will certainly endeavor to do that and we feel good about our ability to do that. Operator: Our next question comes from David Palmer with Evercore ISI. David Palmer: Andrew mentioned that mega broker survey, and in that survey in the Q&A they cited there's consumer and category insights that the food companies have is a reason why the food companies were more bullish about demand than the retailer customers were. In other words, you had a better level of understanding about where things have been more sticky and for good reason. What is your latest thinking about categories and brands that you think most benefited in a semi-permanent way from COVID and perhaps because of consumers embracing new habits? And I have a quick follow-up. Jon Nudi: David, it's Jon Nudi. As we look at our business, we think our Meals & Baking businesses particularly benefited during the pandemic, and it's all that in the sales numbers. As we really dig into our consumer insights, consumers changed their habits. Obviously, baked a lot more. We believe that some of it will be sticky. It's more than just food. It's really bringing joy to the family and bringing the family together, which is terrific. And then Jeff mentioned a lot is learning to cook and that's something that's going to stick as well. So all of our research would say, certainly, we're not going to go stay at the elevated levels that we've seen in the pandemic. But consumers will eat at home more than prior to the pandemic and they'll use these new skills to use our products more than prior to the pandemic as well. So we're spending a lot of time. We've got a lot of new insights, really digital insights, really leveraging the first-party data that we have with Box Tops for Education, Pillsbury.com, bettycrocker.com, that's really giving us some rich views into the consumers’ day in their journey. And we think, again, via that data, there's going to be something that sticks in the future. David Palmer: One category that I'm really confused by is cereal. It's an at-home category, but it's perhaps part that lives in that world of convenience that compressed morning daypart. In other words, cereal has really lost a lot of share of at-home breakfast during COVID, if that's a way to think about it. At-home breakfast getting the benefit of people being at home. But cereal not as being as much part of that. In other words, cereal is up 1% over the last two years, not really that impressive. How are you thinking about cereal going forward? Do you think it actually has a bit of a re-brand as people get back to convenience? Or is this sort of just the new normal, more of the existing normal? One of the few categories that really didn't get affected by COVID at all and it's just sort of low growth? Any thoughts there. Jeff Harmening: Yes. Absolutely, David. For sure, I think as consumers who are at home have more time to prepare breakfast. We saw things like eggs and pancakes grow more quickly than cereal. We do believe cereal will continue growing in the future. And again, as we look over that 2-year period, the category did grow. We grew even more aggressively than that. So again, we increased 60 basis points of share in fiscal '21, that's 31 consecutive months of share growth, 10 consecutive quarters, 4 consecutive years. And we believe that cereal is an important today, it will be important in the future. It's used, obviously, for breakfast. It's used for snacking throughout the day. We've got some great innovation coming this past -- this coming year. And at the same time, we know that our marketing continues to work, things like cereals and our cholesterol messaging, our kid fun messaging around Cinnamon Toast Crunch and Lucky Charms. We believe the category will continue to grow. We hope again it's probably not going to be high single-digits, but we think a little bit of growth in that category is in our future. And I think as things come back to normal, to your point, to more normal and consumers are back to school and back to the office, we'll see some of the convenience cereal provides -- providing a bit of a tail into the category. Operator: Our next question comes from Faiza Alwy with Deutsche Bank. Faiza Alwy: I wanted to first just ask about your investments. So I know you've increased media spending and you've also spent to build critical capabilities. And I'm curious how you're thinking about investments as we look at fiscal '22. Essentially, I'm asking like are you expecting media spending to continue to increase at that double-digit CAGR that we've seen over the last 2 years? And then where -- or should we stay at the level that we're at? And then how much more investment and capabilities do you need from here and out? Jeff Harmening: So let me take that one a little bit. And then, Kofi, if there's any background you want to give as well. On -- we're not going to give specific guidance on our media spending for next year. I would say when we talked at CAGNY Q4, we had talked about as we look into the future, we'd have media grow roughly in line with sales over time. And we'll see what happens this coming year. But that's what we said we would do over time. In terms of investments, we're really pleased with what we've seen out of our data and analytics capabilities. And Jon Nudi touched on Box Tops obviously a little while ago. We digitize that. In our opening remarks, we talked about some of the things we're doing in patio, you'll hear more -- a lot more about that this coming year. We've tied together an omnichannel approach in China with our shops in our retail, which is yielding some good insights, great results. We like what we're seeing there. And even on the cost side, as we look at our global sourcing efforts, we've tied data and analytics into that to help us with our costing and HMM. And so you can see -- you'll see us continue to invest in our data and analytics capabilities because we really like what we have seen so far. And some of that will be foundational and some of that will be on the analytics themselves to drive growth and other parts will be on analytics to help us to save money. But I think that will be a big area of investment as well our strategy and M&A area as we, again, look to further our Accelerate strategy. Faiza Alwy: Okay. Great. And then just a second question on Blue Buffalo on the Pet segment generally. I know you talked about growth in that segment. I'm curious -- I mean it sounds like category growth is going to be strong. Are there any specific plans beyond the connected commerce initiatives that you talked about? Is there any innovation that we should look out for? And I know at CAGNY, you talked about potentially taking Blue Buffalo to international markets, so I wonder if there's any plans to do that this year? Jeff Harmening: So first of all, we're really pleased with our Blue Buffalo performance, including the fourth quarter where our retail sales grew in the mid double -- mid-teens. And so even if it doesn't look like that on the P&L, you have to remember, we're lapping 4 months from last year and the stock up from the year before. And so we're really pleased with Blue Buffalo. We see strong growth ahead. That would be my opening comment. In terms of how we're going to grow, this digital capability will certainly be a big piece of that, but so with innovation. What we really like what we've seen on the Tasteful launch, and we're literally selling everything we can make from this new Tastefuls cat line and we’re under-indexed in cat, the margins in that segment are good, and we're highly confident Blue Buffalo can play a role in that. We've recently launched some innovation in the snacking and the bones launch, and we're excited about what that can be, in addition then to clearly bringing online this Tyson acquisition, which we hope to close shortly. And so we're going to grow Blue Buffalo organically, continue to do that. We're bullish about our opportunity to do that as well as effectively bring on this new part of the portfolio, this Tyson treat business where we’re under-index and Tyson has done a nice job with that business. But we think combining what we can do with our capabilities in pet with the business they already have, we think there's good growth in that as well. Operator: Our next question comes from Michael Lavery with Piper Sandler. Michael Lavery: I know you've called out the uncertainty, and I think that's all very clear. But can you give a sense around elasticity, what kind of assumptions you're making for your planning process? Kofi Bruce: Sure. So as we built our plans this year, we -- one of the benefits of our SRM capability as we actually have very detailed demand elasticity models. I would say that and also given not to the uncertainty of this environment and the fact that inflation in the market is broad spread, it's across industry, it's global. And so with those factors, all are potentially a setup for demand elasticity models that are by design that we're looking to be perhaps overcall the elasticity of pricing in this environment. So I'd make that note because this is an environment where that uncertainty becomes a relevant factor as we talk about demand elasticity. Michael Lavery: And so does that net you out at greater elasticity than historical levels? Or do you expect it to be pretty consistent with what you've seen before? What's that kind of net out to? Kofi Bruce: Yes. Well, our models are built on sort of historical expectations. I think what I'm also giving acknowledgment to is that the environment itself is reason for us to be cautious about being certain on the call, there will be demand elasticity. There's certainly an environment where I think demand elasticity models could be launched just because of the breadth of inflation in the market. Michael Lavery: Okay. That's helpful. And just a follow-up on the C-store and Foodservice segment. You've called out how you expect the lift to volumes or sales from more demand or reopening. But can you touch on the impact for pricing and specifically pass-through pricing. How much of a factor do you expect that to be for the sales lift? And should we look the modeling an acceleration there specifically on the pricing side because of this pass-through costs? Jeff Harmening: So Michael, I would say that what we see with our cost going up is very broad. I mean it's broad across geographies, it's broad across product segments, it's broad across channels. And so that would include what we see in C&F. So our cost for our products in our Convenience and Foodservice segment are going up as well, and so we would anticipate pricing in our Convenience and Foodservice segment because we see our costs going up. And so in this environment, there's obviously not only inflation improvement kind of everywhere. And so it's no different in C&F. And so we would anticipate prices going up. In fact, we've already increased prices in the Foodservice segment because our costs are going up. And so -- but what I will also say is that we're very confident in our convenience and foodservice business to return to growth this year as schools reopen and as people get out a little bit more, we're well positioned to capture growth that returning to that market. Operator: Our next question comes from Chris Growe with Stifel. Chris Growe: I just had a couple of questions for you. When you gave your guidance for the year, like your constant currency EPS growth, I am just curious, it does not incorporate the acquisitions or divestitures. And I don't know if you have any kind of quick words on those. We've modeled, have estimated kind of 1% to 2% dilution for the yogurt business and then slight accretion for the pet treats business. Would that be in the realm of expectations? If you have any thoughts on that? Kofi Bruce: So Chris, this is Kofi. So we don't have new information that would change the perspective we've already given. Obviously, we do expect the pet treats business to close shortly. And obviously, until that point, we can't get too much more specific, but it is probably important to give some parameters around what slightly accretive means. I think it's important to note, we will see a portion of earnings contributions for the year. We will also see some of the purchase accounting related amortization, including inventory step-up. And those factors will lead us to expectations probably in the range of $0.01 to $0.02 accretive for the year on the pet treats business. Chris Growe: Any comments -- no changes there on your expectations for yogurt when that closes, correct? Kofi Bruce: No. And that sets further out, and we'll give more color as we get closer. Chris Growe: Okay. I had just one other question, if I could, on the international segments. Asia, Latin America hit about a 5% operating margin for the year. Europe, Australia, about 7.5%. Are these sustainable margins? Could they grow from here? There's obviously some pretty significant moves as we move through the year in terms of improvements in profitability. I just want to get a sense how much of that was the benefit of COVID in some cases and the pandemic? And how much of it is potential to kind of stick, if you will, based on changes you're making in those businesses? Kofi Bruce: Chris, that's a great question. I think we've been very pleased with the progress we've made in margins on both of those businesses in this environment. Obviously, some of that is related to the leverage benefits of operating in elevated demand. But we've also been making and continue to make business model changes in both businesses that are driving margin improvements. And actually, we'll continue to make them even contemplated as part of the restructuring actions that we've already announced. So I would expect that we would hold on to the portion of these margin gains and continue to drive margin improvement and get to a much more competitive place on both of these businesses. Jeff Siemon: I think we have time for one more question, Frank. Operator: Our next question comes from Ken Zaslow with Bank of Montreal. Ken Zaslow: I have 2 questions. One is, you guys have been really early on the data analytics side. What are the specific new capabilities that you need? I mean just a little surprised that you're not there, I guess, is kind of what I think. You guys were very, very early on that. So what is the new learnings that you are looking to explore and do more with? And what will be the returns on that? And then I have a second question. Jeff Harmening: So we've been working on our data and analytics capability for a couple of years now. I would note that the first thing we had to do is build a foundation. And I won't get into the details of that in this answer, but we had to build a foundation. And then now we're building on top of that with some specific capabilities around growth capabilities like strategic revenue management, growth capabilities like addressing consumers through things like Box Tops for Education and what we're doing in the pet personalization space as well as what we're doing in omnichannel in China. And then the on the cost side, what we're doing with procurement, but there's a lot more -- there are a lot more things that we can do using data and analytics to drive our business. So we'll continue to invest in order to drive those parts of the business. So it may seem like a lot, but we had to build a foundation first, which is the right way to do it. And now we're building on top of that with specific capabilities. Ken Zaslow: Great. My second question is, you put out the 3-year growth that you had, 2% sales, 2% operating income and 5% EPS. When you think about the next 3 years beyond that, does that seem like the right mix? Or do you think the changes that you're having should accelerate that by a certain amount of basis points? And how do you think about the next 3 years? And again, not next year, but just thinking about it in the 3-year clip, I think that's a good way of thinking about it and how you're positioning it. So I was just curious to see how you think about relative to the last 3 years? And I'll leave it there, and I appreciate it. Jeff Harmening: Again, I'm going to try to take you through this year. On the -- what I would say, though, on the -- look, I do respect the question. As we look ahead, our goal is to get back to sustainable growth and to get to 2% to 3% growth. And I mean, I'll probably restate something I've said already, that requires us to do 2 things. One is compete effectively. And I think we've said over the past couple of years, we've really improved our game there to compete. We're competing effectively pretty much everywhere around the world. So we'll continue to need to do that to get to 2% to 3% growth. And we'll continue to have to reshape our portfolio. And you see that through to the divestiture of Yoplait and at least the proposed divestiture of Yoplait in Europe, and you see that with the upcoming acquisition of [Pluto]. And so we'll look to continue to reshape our portfolio as well as compete effectively to get to that 2% to 3% growth rate. And so that will be our plan after this year. And we have got a group that's focused on that, and we've got another group that's focused on making sure we can deliver what we said we're going to do this coming 12 months. Ken Zaslow: Great. And do you think that all these things that you're putting in place seems like it should fuel this growth. But I appreciate the answer, and I look forward to seeing what you guys can do. Jeff Siemon: Okay. I think that gets to the end of our time this morning. So thank you, everyone, for your time and attention and appreciate the good questions. Please reach out over the course of the day if you have any follow-ups. And we look forward to talking to you again soon. Bye, bye. Operator: That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.

Operator: Greetings and welcome to the Fiscal 2021 Q3 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded Wednesday, March 24, 2021. I would now like to turn the conference over to Jeff Siemon, VP of Investor Relations. Please go ahead. Jeff Siemon: Thanks, Jennifer and good morning to everyone. On behalf of my colleagues at General Mills thanks for joining us. We are looking forward to have our live Q&A session on our third quarter results. I hope everyone had a chance to review our press release, listen to our prepared remarks and view our presentation materials, which are made available this morning on our Investor Relations site. Also refer to the press release we issued yesterday announcing our proposed sale of our European Yoplait operations to Sodiaal. I will just note that in regard to that transaction, we have a memorandum of understanding and that is still subject to appropriate labor consultations, regulatory filings and other customary closing conditions and we expect to close that proposed transaction by the end of the calendar year. Furthermore, it’s important to note that in our Q&A session today, we may make forward-looking statements that are based on management’s current views and assumptions, including facts and assumptions related to the potential impact of the COVID-19 pandemic on our results in fiscal ‘21. Please refer to this morning’s press release for factors that could impact our forward-looking statements and for reconciliations of non-GAAP information, which maybe discussed on today’s call. I am here virtually with Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; Bethany Quam, Group President for our Pet segment; and Jon Nudi, Group President for North America Retail. We are holding this call from different locations. So hopefully, technology cooperates and everything goes smoothly. And with that, we can get into the first question. Jennifer, you can get us started. Operator: Thank you. [Operator Instructions] Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question. Andrew Lazar: Good morning, everybody. Thanks for the question. Jeff Harmening: Good morning, Andrew. Andrew Lazar: Great. I think I would like to stick with the 2-year growth CAGR methodology that you kind of laid out and discussed in the prepared remarks. Thinking about it that way would imply fiscal 4Q organic sales growth that would look to be roughly in line with what you reported in fiscal 3Q, again on a 2-year basis. And I realize some of this is likely a bit of a shift of inventory refill from -- that you expected in 3Q into 4Q, but it would seem to suggest you believe sales growth – the sales growth deceleration as reopening occurs is likely to be maybe slower than many currently expect. So, I am just trying to get a sense of if that’s a fair characterization of your thinking at this juncture. And if it is, sort of what’s informing that viewpoint? Thank you. Jeff Harmening: Yes. Thank you, Andrew. This is Jeff Harmening. You do have that exactly right. I mean, as we look at the third quarter of this year, demand was high all over the world, including the U.S. fueled by clearly the pandemic as well as stimulus spending, and in addition to that some weather-related events. As we look at Q4, we really believe that our sales both in terms of pounds and pricing is going to be higher than it was pre-pandemic, and we are seeing that in the first couple of weeks of the month and we are confident the consumer behaviors aren’t changing as quickly as some would think. And what fuels that Andrew, is really, as you look at the last year, if you look at 2020, our foodservice business in general, in the U.S., the industry declined about 25%. And of that, about 25% was quick-service restaurants, schools, and healthcare, and we have seen quick-service restaurants bounce back and school are gradually getting online as is healthcare. So a lot of bounce back relatively quickly. Another 25% of that decline was related to casual dining, and that’s going to take longer to come back. And then finally, about half of the decline we have seen over the last year in away-from-home eating is really driven by travel, leisure, business, and industry think canteens at places of work. And clearly, that’s going to take a longer term to come back if it ever does at all, because we are not going to work the same way. We are going to be working at home a little more than we were before. People want flexible schedules. While consumers may be making vacation plans now more than they have, business people are not going to be traveling as much because technology has caught up, and we realized we can do a lot of things remotely. And so, we have what fuels our belief in the fourth quarter and we are confident there is not only inventory buildup, but the move will be better than what some expected based on what we have seen over the past year and kind of what we see in the first few weeks of this month, this quarter. Andrew Lazar: Great. Thanks very much. I will leave it there. Jeff Harmening: Thanks. Operator: Our next question comes from the line of Ken Goldman with JPMorgan. Please proceed with your question. Ken Goldman: Hi, thank you. Two for me. First, how should we think about your appetite for being aggressive on share repo? Just looking back prior to the Buff deal there were some years the company spent upwards of $1.7 billion on buybacks. So, should we think this level is at least within the realm of possibilities or do you want to keep a little more dry powder around? That’s my first one. Kofi Bruce: Sure, Ken. This is Kofi. Good morning. Thanks for the question. Look, I think we are absolutely in a position where we ended the quarter with a really strong balance sheet. Our leverage ratio at 2.8x net debt-to-EBITDA, which means we have continued to make great progress against our capital goals. I expect we will restore our full capacity to use all of our levers of cash return. And I think with the signal that I think was important is that we have already started. So, while I can’t commit to anything beyond what we have done, we continue to have the flexibility to act and use the balance sheet to the extent that the full extent of our capital allocation policy. And I think as a reminder, share repurchase is the last of those, so that is where we would look to manage leverage and steer any excess free cash flow. Ken Goldman: Thank you for that. And then Bethany, within broader pet food, the refrigerated [indiscernible], it’s small, but it’s growing quickly, not really showing a lot of signs of slowing down except for some supply chain issues. Has Blue Buffalo’s appetite to break into this subcategory changed at all or is it still sort of a wait and see attitude? It is not necessarily what you have said, but some of your predecessors may have kind of implied in talking about it? Bethany Quam: Well, hi, thanks for the question. What we really have seen is that pet parents throughout this pandemic have really wanted to continue to offer their pets different forms. So, you are talking about different forms here. So, we have seen mixing between kibble and then wet food from cans to our wet business performing incredibly well as well as fresh. It’s still a very small part of the category, but the trend is pet parents continuing to mix different kinds of food. So, we will continue to look at all those different areas and continue to take the Blue Buffalo master brand where we think pet parents want to see it. Ken Goldman: Very good. Operator: Our next question comes from the line of Chris Growe with Stifel. Please proceed with your question. Chris Growe: Hi, good morning. Jeff Harmening: Hi, Chris. Chris Growe: I just had a question for you on – to start first with the cost inflation and to better understand the kind of the moving pieces in the gross margin that gets very clear about the inflation, and there was some cost to secure incremental capacity. So, just to understand a couple of simple things, was weather a factor at all in the gross margin for you this quarter? And then I also just want to understand like the rate of inflation and then how fourth quarter inflation might look in relation to the third quarter? Kofi Bruce: Sure. Chris, I will be happy to address your question. Thanks for asking. So, as you think about the other factors certainly, as you – as we flagged, there are higher costs to operate in this higher demand environment, and I will tell you that part of the cost in our logistics network costs have gone up in relation to responding to the high demand environment. Specifically, as we are operating in an environment where we need to open new lanes of freight to reach our external supply capacity, but also to reposition within the network, which is where we have seen some incremental costs as related to the weather in the quarter. And as we get to Q4, while we are not giving guidance on Q4 inflation, I think it’s important to note for the full year, we are still expecting about 3% inflation. And the way I would characterize it is our expectation at the beginning of the year were 3% and we are rounding up to about 3%, and we are in a position now where we will be rounding down to about 3% inflation, and I think the critical thing for us is we are taking the opportunity to act with all of our SRM and our HMM levers to set ourselves up to – in anticipation of higher inflation as we step into F ‘22. Chris Growe: Okay. Thank you for that. And then I had a separate question, if I could on pet, so perhaps for Bethany. But just in relation to -- you had some incremental promotional costs around Tastefuls, the launch of that. Does that continue? Do you see a step-up sort of increase in promotional spending for that business? And then that’s also a division where there has been higher costs? Is that one where we could see some pricing coming through? Has that come through at all in the industry, not looking for forward commentary there, but have you seen that yet in the industry? Bethany Quam: Well, starting with the support, we are launching a new business, and so you have cost to do that. And so, we see ourselves spending at a rate that’s right for the category. And again, we can work within the entire portfolio. So, those are launch costs that we are talking right now. In terms of premiumization, that is absolutely continuing in every part of the category. So, the premium cost per pound on wet cat food, definitely higher than what you see in dry, but every part of the category continued to see premiumization on a cost per pound basis. Jeff Siemon: Chris, this is Jeff Siemon. I would just add to the original question about costs in the quarter, I would just note that on a year-to-date basis, the pet segment is at about a little over 24% margin versus 22.5% last year. So, while the quarter was – maybe there was a little bit of incremental cost, we still feel very good about where we are year-to-date for that business from a margin and a growth standpoint. Chris Growe: Okay. Thank you for that and I appreciate it. Operator: Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question. Michael Lavery: Thank you. Good morning. Jeff Harmening: Good morning. Michael Lavery: Just following up on the Pet segment, you have had some accelerating volume growth over the course of the year. Can you give a sense of how much of that is driven from pipeline fill behind new launches versus just kind of a more run-rate type momentum? Bethany Quam: Yes, thanks for the question. So, we have continued to see the movement of the business accelerate. And so in Q2, we had talked a little bit about movement when we had reported 18% sales being a little bit ahead of our inventory, but our movement accelerated as we went into Q3. And so, we feel pretty good about the levels of inventory at this point. Michael Lavery: Okay, great. And then just following up on the inflation question looking ahead a little bit, can you give a sense of how much you are positioning yourself for ‘22 and just trying to get a sense of how much you think the current kind of run in prices might be sticky versus waiting to take some positions if it may come back? What’s your thinking on that at a high level? Kofi Bruce: Well, certainly, at a high level, we are preparing for higher inflation, and I don’t want to get too far ahead. We will come back and talk to you in Q4 about F ‘22 inflation expectations, but I will just reiterate we are taking actions on the basis of that preparation specifically around our HMM and our strategic revenue management plans and using all of the levers of strategic revenue management. Michael Lavery: Okay, great. Thanks so much. Kofi Bruce: You bet. Operator: Our next question comes from the line of Robert Moskow with Credit Suisse. Please proceed with your question. Robert Moskow: Hi, Kofi and Jeff. I think I am going to get the same answer as Michael just got. But inflation is accelerating higher than you thought and I know you have multiple levers to offset it. But within SRM, I think list price increases are one of those levers. So, is it fair to say that, that will have to be utilized more than originally contemplated? And look, a lot of retailers are talking about inflation right now a lot of your competitors are talking about inflation. Is it fair to say that there is more willingness to pass that through? I know it’s never easy, but it’s not just you who is facing the inflation? Jeff Harmening: This is Jeff. Let me take that question, because if you get the same answer, then at least you get it from a different person. Robert Moskow: If you would, please, yes. Jeff Harmening: So I would start by saying that inflation is very broad-based and it’s actually global. So we are seeing it across the globe we are seeing inflation and it’s broad-based across commodities, across logistics, across things like aluminum and steel. And so whenever you see this kind of broad-based inflation and it’s global, that’s an environment where you are going to realize net pricing. And we certainly go to HMM first, but in this kind of environment, just like a few years ago, when we saw the same thing, our retailers are seeing it, our competitors are seeing it, we are seeing it and so we will realize pricing. We will also, just we will use all of the tools and that includes list pricing, but it’s list pricing, it is price pack architecture, it’s how we manage trade and then finally, price and mix. We will need to use all those levers. And when it comes to pricing, you go from the macro to the micro pretty fast and so the levers we pull certainly depend on category and they certainly depend on geography. And so, I want you to know we would use all those – we would use all the levers at our disposal and we will begin that process here in the fourth quarter. Kofi Bruce: Yes. And let me just add for additional context, a reminder that our first lever is holistic margin management, right. So, our cost of goods sold productivity, which has been averaging about 4% annually. So we are not relying just on SRM to address the issue, the first four points or so, we would expect to get through gross margin productivity. Robert Moskow: Okay. I will leave it there. Thank you. Operator: Our next question comes from the line of Jason English with Goldman Sachs. Please proceed with your question. Jason English: Hey, good morning folks. Thank you for taking. Jeff Harmening: Good morning. Jason English: I guess I was going to keep coming back at sort of the same point of question and that’s just really just trying to understand the margins here. Kofi, I think clearly, great margins this quarter and I think your guide for profit or margins actually be below fiscal ‘19 levels in the fourth quarter, so below pre-COVID. And I am trying to wrap my head around it, you are talking about HMM savings exceeding inflation. So, for the year, you are actually net deflation on those still? You have got phenomenal volume leverage, huge pricing rolling through the best pricing in years. What is the other offset? You have stacked those up right there and I would expect meaningful margin expansion for the year, not profit actually falling below pre-COVID. What are the other offsets? Can you help us quantify them? And which of those offsets maybe transitory and related to COVID, with costs falling out as we look over the next say 12, 24 months? Kofi Bruce: Sure. Sure. So, let me speak to some of the key drivers here. Foundationally, after those, you need to look at the higher operating costs in this environment related to us securing additional capacity from external supply chain. And with that, the logistics cost associated with operating in that environment puts us in a position where we are securing more lanes for freight to support that external capacity at higher spot market rates, which we would note that we are seeing about mid single-digit inflation in freight in this environment. So as we are exposed to the spot markets on those external supply chain lanes, the cost of delivering to customers and distribution centers is higher. So, those two factors, I would expect to be largely linked to the demand environment and as supply and demand come more into balance as our inventory levels in the system come more into balance, I would expect those costs to abate. And obviously, we are lapping a tremendously strong Q4 where a fair amount of leverage was driven just in part because of the inventory in the system that both us and the retailers used to drawdown to service the demand. Jason English: That’s really helpful. Is there any way to quantify some of those things like these transitory logistics costs that can fall away? Just so as we look to attack our model, we have got sort of the right puts and takes that we are contemplating? Kofi Bruce: Yes. I don’t want to get too specific on Q4, but I think it’s fair to say that – as you think about the offsets to some of the key drivers and specifically leverage, those are more than sufficient to offset some of the leverage benefits we expected to see this year. Jason English: Okay, thank you. Kofi Bruce: You bet. Operator: Our next question comes from the line of Faiza Alwy with Deutsche Bank. Please proceed with your question. Faiza Alwy: Yes. Hi, good morning. So I guess I wanted to follow-up on Andrew’s question, and that was what I wanted to see if you could talk about how you think consumption patterns will trend from here. And within that, specifically, how you think about the snack bar category, which is one of your global platforms. But Jeff, you talked about how you don’t expect consumer habits to change. So I’m curious how you’re thinking about the recovery in that category. The overall category is fragmented. And there are many different segments. So just wondering if you could share your aspirations around how you would like to play in the overall category. Jeff Harmening: Yes. So let me make – thanks for the question. Let me make a clarifying point. What we see happening is that demand will be higher in the near future than it was pre pandemic. Certainly, as people return to eating out and people return to schools, we’ll see a reversion of some of that volume back to where it was before, just not all the way back. So I would envision an environment where demand is not as high as it is today in at-home meeting, but it’s higher than it was pre pandemic. And I think some investors and some analysts feel as if volume is just going to snap back to the way it was before the pandemic. And what we’ve seen outside the U.S., what we’re currently seeing in our current channel will lead us to believe that any return to normal will be more elongated, and that return to norm will eventually be different. So as we see that, the same would hold true of our bars category, and I’ll give a little high level commentary, and then Jon Nudi may want to weigh in. In bars because it really is energy on-the-go, the fact that the category has been down recently, is because people have not been on-the-go as much. As people start to get out a little bit more, we’ve seen the category improve a little bit. In fact, I’m really pleased with our progress in terms of share. We’re competing effectively all over the world in the bars category that would be the U.S. as well as Europe as well as Australia. And so we’re starting to see that category return a little bit, and we’ve been competing quite effectively in it. Jon, do you have any other – anything you want to add to that? Jon Nudi: I mean you really hit it, Jeff, on on-the-go nature of the categories. I mean, a tough time with the grain snacks is down high single digits year-to-date. Performance bars is down double digits. So again, that’s been the toughest to point. As Jeff mentioned, we’ve been really focused. In fact, one of the things I’m proud of is that we’re actually growing share total bars. As many of you remember, we’ve been struggling with this category in the last few years. And our turnarounds are really gone by Nature Valley base brands. We’ve got some really strong marketing out there, some great news around recyclable wrapper that just rolled out as well as the number one launch in the category, which is packed this past year. So we feel good about how we’re performing. And as Jeff mentioned, we get back to a more normal time the categories will bounce back to growth. Faiza Alwy: Great. And then just I wanted to also take advantage of Bethany being on the call. And Bethany, I was hoping you could give us a little bit more color on the treat side of the business. Early on, there was a view that as Blue Buffalo moves into FDM that is the channel where treats are more prevalent. And I think it’s been a bit disappointing relative to everything else that Blue has done. So, I am curious if you have any thoughts on the long-term potential of the treats business and whether there is sort of more innovation, more marketing? Any more work you can do or that you think needs to be done around that side of the business? Bethany Quam: Yes. Thanks. You’re absolutely correct, right, as you get exposed into the food drug mass channel, there is more treats that are sold in that channel. Blue Buffalo definitely resonates with pet parents in terms of treating. You’ll see here in the fourth quarter, we are launching a new innovation behind bones. And so that is the opportunity for pet parents to clean – to feed a bone alternative, crunchy biscuit that meets the true Blue promise. And so we are continuing to do well in the treats category, but we know we can do better. And so we have both innovation launching as well as we’re doing some price pack architect work as well. And so we’re able to merchandise. If you look at the Pet category, the treat segment is obviously more responsive to merchandising than your food segment. And so if you look in our remarks today, we have a picture of how the whole portfolio will show up now. And so when we merchandise, retailers are able to offer the new bone, our sticks, our sizzlers, and we really cover all different treat types. So we are continuing to press merchandise. We also are starting to do some different types of marketing behind tradable moments. And so we are pushing on all areas to continue to drive that business. It’s a huge category. We’ve got growth. We would like to have a higher share of it. Faiza Alwy: Great. Thank you so much. Operator: Our next question comes from the line of Nik Modi with RBC Capital Markets. Please proceed with your question. Nik Modi: Good morning everyone. Jeff Harmening: Good morning, Nik. Nik Modi: So I just wanted to ask about new items. My understanding is General Mills is going to be pretty active in this area in 2021. And just within a construct in the backdrop of a SKU rationalization happening at retail, I just wanted to kind of understand how that kind of – is going to work as you look to really get all these new products onto the shelf? And then I just have a quick follow-up. Jeff Siemon: Jon, do you want to take that? Jon Nudi: Yes, sure. So obviously, there is some SKU rationalization going on really driven by click-and-collect and retail is really optimizing the shelf space. At the same time, consumers are always looking for new products and new innovation. And I’ll tell you, retailers are very engaged by that as well. So in fiscal ‘21, our new products performed quite well. In cereal, we’ve got 3 of the top 3 launches in the category. In, we’ve got 3 of the top 4 launches and we’ve got a great track record. And that track record really helps us sell in new products. So the bar is higher. We’ve got to have good items. We’ve got to perform. And we really have a track record of doing that, which will help us as we place new items in the coming year. The other thing it actually looking at is our share distribution is up overall and in our key categories as well. And again, new products really help us with that. So that’s how we’re going to approach it. We are really excited about the plans we have coming for fiscal ‘22 as well, which we’ll share as we get closer to the new year. Nik Modi: And Jon, just as we think about SKU rationalization and how retailers prioritize which brands to have on the shelf, I mean, would you expect additional space kind of over the next 12 months as a result of some of those changes? Jon Nudi: Well, I think I mean, obviously, the highest turning SKUs, getting those shelf space right now as they really are using the shelf for bricks-and-mortar shopping as well as their click-and-collect operations. So our top SKUs continue to grow shelf space and that’s a really good thing for us. And then from an innovation standpoint, again, I think that retailers are looking for a track record of success. So as we have proven that we can do that, I think if we are looking to our items first, I think in some cases, the smaller companies that are coming in where a few years ago, retailers were jumping all over those items. It’s a tough environment for them right now. So I do believe for manufacturers that have big brands that turn well, it’s a good time with shelf. And I think new products are really all how excited you can get retailer sees about these items and building a track record to deliver. And we’ve been able to do that more recently. Nik Modi: Excellent. Thank you. I will pass it on. Operator: Our next question comes from the line of Jonathan Feeney with Consumer Edge. Please proceed with your question. Jonathan Feeney: Good morning and thanks. I’d love to – given a clearly – you touched on this a little bit before, but given the clear rise in visible costs here, I’m a little surprised there is not more dedicated effort to raise pricing. Is this something that’s like just tactical inside your organization, just going to let it right here or is this a response to discounting and private label growth or fear about that in the marketplace? Because you would look at your input cost and everything that’s in the headlines and this would – that feels like a 2006-type environment and yet we are not seeing that at least yet, on the pricing front? Jeff Harmening: Jon – go ahead. Go ahead, Kofi. Kofi Bruce: No. Hey, Jon, I think just to answer your question, we certainly are responding right now on the expectation that inflation is going to be higher. As Jeff referenced earlier, we’re seeing it broad-based. We’re seeing it global and we are frankly in all of our businesses, working hard at using the SRM levers. So I think you will see us acting. And in fact, in some of our businesses, we already have actions in market on the SRM front. So I would just sort of respectfully note that we’re moving right now. Jonathan Feeney: Okay. I recognize it’s a sensitive topic. Thanks very much. Operator: Our next question comes from the line of Laurent Grandet with Guggenheim. Please proceed with your question. Laurent Grandet: Hey, good morning everyone. Jeff Harmening: Hi, Laurent. Laurent Grandet: Hey, I’d like to come back on the Pet segment. I’d like to understand better the dynamics in price/mix as it was negative in the quarter. Third quarter, you launched in premium weight and treats, but also where – I mean, in your [indiscernible] you said, I mean you grew in the pet specialty and for the first time, which probably asked for a premium price. So I’d like to understand better what was driving this negative price/mix in the quarter and how we should think about price/mix in that segment going forward? Thank you. Bethany Quam: Again, thanks for the question. So for the 9 months into the year, right, our sales are up 13% and our profit is up 22%. So we feel really good about how we’re able to drive the business in the quarter, right? Our mix can vary depending on channel. And so as we continue to build out, this is a really young business in some channels. And so we’re building out. We didn’t have a variance from the channel mix, but also the product mix. And so we invested behind the different parts of the business. I feel good about the long-term price/mix, again, what’s driving the pet category is premiumization. Blue Buffalo is solely in that part. And we will continue to ensure that we have the right price/mix, and it can vary by quarter, by channel, by product mix. Jeff Siemon: Laurent, this is Jeff Siemon. I’d just add that, as a reminder to everyone, especially in the first half of the year, we were comparing against the first half last year where we were still expanding our Wilderness line more broadly into food, drug and mass and so that – it’s a very high price/mix business. And so that comparison was probably a headwind through the first half, maybe a little bit into the back half. As we go forward, we’ve now fully comped all that expansion. And as Bethany said, a lot of the innovation and news you’re seeing is in the wet and the treat segments, which are certainly mix positive. So we feel good about where we go from here. Laurent Grandet: Thanks. My second question, I mean, a completely different topic. It’s about your play in Canada. Not much visibility on the business there. Could you maybe give us some color as to, should we think about the same type of profitability in Canada that you got in the U.S. and also in terms of growth, is it growing faster? I like to have a bit more color on your play in Canada, please? Thanks. Jeff Harmening: We have a good market pension in Canada. Why don’t I have Jon Nudi provide some of the commentary on that business? Jon Nudi: Yes, Laurent, we really like our business in Canada. Yogurt business, it’s about third of our total business in Canada. And actually, the bigger business for us is Liberté. So it’s about 60% of our total yogurt business in Canada versus 40% for Yoplait. And one of the things we love is Liberté takes a leading greek yogurt in Canada. So while we – a few years back into so well that trend in the U.S., we did very well in Canada and as a result of a strong market share and position in the market. So we’ll exposure to more as we move forward, and we’ll probably highlight some of the new products and other things that we have coming, but we really like our business is performing well in Canada as to speak. Laurent Grandet: Thank you. I will pass it on. Thank you. Operator: Our next question comes from the line of David Palmer with Evercore ISI. Please proceed with your question. David Palmer: Thanks. As you know, in the U.S., there are some markets that are reopening faster than others, Texas and Florida. I’m wondering, as you look at some of those micro examples, what sort of 2-year trends are you seeing? And maybe even within that, some insights that you’re garnering about the reopen and the impact on our individual categories, retail pet and within retail, and I have a follow-up. Jeff Harmening: Yes. So David, let me – this is Jeff. Let me provide a little background on the last year, and I’ll take you a little bit of what we’re seeing in the last month or so. But as we look at the past year, we’ve really seen the at-home trends across our markets. And some have been relatively more open than others, as you know. We’ve seen at-home trends have accelerated across those markets, even the markets that are more open. And they may be a couple of points less growth at-home than those that have been relatively more closed, but we’re seeing pretty consistent performance across markets over the past year, whether it’s at-home or away-from-home consumption. The – there has been a lot of talk on reopening the last month, but the data gets really challenging because – especially because of the weather situation. So for example, Texas has opened up its away-from-home eating, but they had a huge winter snowstorm over the last month, which elevated demand quite a bit and so trying to pick part and pieces. And the variables over the recent short-term, but it’s really difficult to do. And I don’t say that to try to hide anything. But if you look at it, you would see that at-home consumption in Texas would be up, which would be counterintuitive, but that’s because of this huge storm. And so I think we’ll know a lot more at the end of this quarter once we’ve seen more. So right now, what I can tell you is over the long-term, over the last year, we have seen elevated demand across markets. Over the shorter term, there are so many variables to play. It really is hard to pick them apart. David Palmer: I sympathize with that. It feels like we’re going to be looking week-by-week from now on. But when we look at this last year, the fiscal ‘21, and we look backward, what are some COVID-related costs, both direct and indirect? And for example, you cited the supply chain demand and the elevated trucking costs and that just basically freight and logistics being under such pressure that it’s essentially an indirect COVID-related cost, but is there – could you maybe sum that up in terms of gross margin headwinds that you will be lapping in fiscal 22? And I’ll pass it on. Kofi Bruce: Yes, sure. And I’ll add to that list, some of the other COVID-related costs, such as some of the policy – leave policy dispensation we’ve given to our employees. Obviously, some of the security protocols and adjustments we’ve made in the early days. And I expect a good portion of those costs as we work into a more normal environment to sort of get back in line with normal trends. So I wouldn’t build off of a base of this cost on a full go-forward basis as you think about F ‘22 and demand potentially for at home consumption being lower than this year, but even still elevated above pre-COVID levels. I’m not going to quantify at this point, but we’ll talk more about that as we work our way into F ‘22. David Palmer: Okay, thanks. Jeff Siemon: Jennifer, I think that’s all the time we have. So I think we’ll go ahead and close up now. Thanks, everyone, for taking the time out and the interest. If there are follow-up questions, please reach out over the course of the next couple of days. And we hope everybody is staying safe and healthy, and we’ll talk you again next quarter. Thank you. Operator: This does conclude today’s conference call. We thank you for your participation and ask that you kindly disconnect your lines. Have a good day, everyone.