Greetings, and welcome to the General Mills Q1 Fiscal 2024 earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press one followed by four on your telephone. If at any time during the conference, you need to reach an operator, please press star zero. 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. 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? Thank you. If you would like to register a question, please press the one followed by the four on your telephone. Our first question comes from Ken Goldman with JP Morgan. Please proceed. Hi, thank you. You know, 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, and I guess those FDM kind of leaning more into price to try and retain traffic and tonnage? And if they're not yet, is this something, you know, maybe we might expect to see just given past history? So, Ken, this is Jeff Harmening, and you're right. We did see, 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? Yeah, absolutely, Ken. We did see non-measured channels grow at a double-digit rate in the quarter, which, you know, obviously drove RNS ahead of the 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. 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. We're seeing a bit more frequency, but price points up versus pre-pandemic for sure. 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? I, you know, within the context of you not providing quarterly guidance, just trying to get a little bit of color there, especially in light of, you know, scanner data, maybe suggesting that, you know, performance in NAR is heading, you know, downward a little bit, in recent weeks. I just didn't know if that's what you were looking for. Yeah, Ken, you're- Yeah, so- Go ahead, Jon. Go ahead, Jeff. Yeah, I think the... You know, first of all, you're right. We're not going to give guidance on a quarter, you know, either for the segment or for the company. I'll give you some, you know, a little bit of color commentary on the year and the guidance, because I think that probably is important. I mean, you know, importantly, as we look to 3%-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, you know, due to all the factors, we've talked about. Yeah, yeah, I would also say, as importantly, our food service business is growing nicely, and we see continued growth in that, and our international business is up, really, really nicely as well. Yes, we had a Häagen-Dazs recall that we were lapping, and Häagen-Dazs has 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, and 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 and it's going to be, challenging this year, we have two other big segments that are going to do, do quite well. As it comes to NAR, you know, I-- we're executing really well in 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, you know, what happened to share performance in the first quarter?" And I guess I'd 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 made in getting their supply chains back up in order. And ours were already really good. Ours are improving too. So as we look at the rest of the year in NAR, for those listening, and 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's really going to be gaining share as, you know, as pricing gets lapped, as the competition comparisons getting tougher, and it's going to get easier because of this, supply chain challenge. And we think as with all that happening, as we continue to execute well, our NAR business will continue to get better throughout the year. Yeah, and the only thing I'd add- Oh, sorry ... 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 were 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'll help us as we expect to see sequential volume improvement. Makes sense. Thanks so much. Our next question comes from, Robert Moskow with TD Cowen. Please proceed. Hi, everybody. Thanks for the question. I wanted to know, I guess two questions. You've 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... You know, 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? Yeah, Rob, first of all, this is Jeff. Welcome back. Good to hear, good to hear you again, and, Kofi, you wanna, you wanna take this? Yeah. 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. Okay. Can I ask a follow-up? Your snacking business has improved in the quarter. It's had some ups and downs, and, you know, in the press, you were 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? Yeah, Rob, so this is Jeff. You know, clearly, we're not gonna comment on rumors or, you know, what has or hasn't transpired in the marketplace, no matter whose transaction it is. You know, 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 in that, you know, we'll look to add about 50 basis points of growth, if we can, through both acquisitions and divestitures. They're things that'll 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 both 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 disciplined. And so, to the extent we see something that we like on acquisitions, we'll certainly do that, but only at 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 commentary, you know, are food companies looking in 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 in. We, 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, you know, what isn't gonna be the case is that we see volumes going in a certain direction, therefore, we have to make up a gap. That's really not part of our plan. Got it. Makes sense. Thanks, Jeff. Yep. Thank you, Rob. Our next question comes from Andrew Lazar with Barclays. Please proceed. Great. Thanks very much. I guess with the, with the 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, a lot of, work underway in, in trying to, 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, does that get any impact- does that get impacted in any way? And I, I guess it's another way of asking it is, do you still see sort of, you know, pet as a sort of high single digit, you know, type of sales growth driver over time for the port- for the overall portfolio? Sure. Appreciate the question, Andrew. This is Kofi. Look, I think the—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 a 1%-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 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'll give us longer term benefits at a minimum, being able to steer more production to internal capacity, which will also help with margin reconstruction on this business over the 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. 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, you know, the industry gets back to maybe a more normal cadence of sort of marketing and merchandising spending 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 just a lot of little things that add up, is 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. I know there's been lots of different reasons. You know, people were traveling, now they're back, back at home or back to school, or, you know, people hunkering down a little bit. I'm just curious if what your most sort of up-to-date thinking on that might be? Thank you. Yeah, sure. Yeah, sure, Andrew. We've spent quite a bit of time on this, and you know, it's very clear to us that there are three broad reasons. There's not one thing. I mean, there are kind of three broad reasons for what we see in the marketplace right now, especially as one looks at Nielsen trends. The first one, we touched upon this a little bit earlier, but, you know, 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 channels, for example. That is certainly a piece of why you see Nielsen data as it is. The second would be that, you know, 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's a, there's 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, to people being mobile and, you know, more at education and healthcare and hotels and lodging and that sort of thing, which I think is logical. In fact, if you look at the, the movement data, through airports, you know, it's up year-over-year. Now, it's only back to pre-pandemic levels, but it's up 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 in other kind of recession, or the consumer recessionary periods, even though that technically we're not in a recession, consumer behavior trying to economize. And so that may be going to smaller sizes and things like that, which in the very short term, depletes the 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 in their more and more 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, that's what we think, and those are the three factors that is very clear to us are driving the current environment. Thanks so much. Thank you. Our next question comes from Jason English with Goldman Sachs. Please proceed. Hey, good morning, folks. Thanks for slotting me in. I have another question on pet, but, but not top line. Instead, looking at margins, input costs have been stubbornly onerous for you and 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 that, 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 second part of my margin question, I know you expanded treat capacity coming into this year with a third-party vendor. Obviously, you, you know, need it with what's happening with treats. Is, is that a take or pay agreement, and is that also a contributing factor to your margins? If so, how big and how long will that headwind persist? Thank you. Sure. Thanks for the question, Jason. Just a couple thoughts. 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, as 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 is as we need the capacity, we can get access to it. We don't have a hard floor fixed cost structure where we'd be paying if we weren't using it. Jason, this is Jeff Siemon. I would just add on that second point, we, you know, we were able to close down an internal factory, so we, we weren't adding capacity to the system. We were just reshuffling where that capacity on treats specifically was, was located. And this supplier is, w e have a strategic partnership. We have our HMM cost savings program built into that contract, so we, we like the what that can do for us from a profitability standpoint on that business. It's actually a lower cost alternative to the internal production- Yeah ... in this case. Got it. That's really helpful. I appreciate that. And one more question on margins. Food service dipped sequentially. It's historically, looking back, there's not a lot of seasonality there, but we've seen margins slip for two consecutive quarters, and we're now at 11%. Like, what, 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. 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 has been a significant headwind in the deconstruction of margins. 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 the pricing benefits from last year's significant pricing will also help buoy margins as we move through the back of the year. Thanks a lot. I'll pass it on. You bet. Our next question comes from Chris Carey with Wells Fargo Securities. Please proceed. Hey, good morning, everyone. So just on, you know, the pet business, you know, you noted SRM and, you know, pack size would be one of the, you know, methods that you're using, you know, to kind of like stimulate sales. How long does it take, you know, to get those, you know, right, you know, pack sizes in market? And, you know, is SRM your, you know, current thinking kind of exclusively, or are you starting to think about any, you know, pricing adjustments beyond just, you know, pack size and then just overall SRM? Yeah, Chris, on the good questions. On the pet business, we're doing a couple of things. First, someone asked this question earlier about the amount of marketing spend, but also what we're spending it on. You know, 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's held up well, and we think in this environment, you know, 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. Those start rolling out now, and, you know, it takes time for them to kind of get going. The same would be, you know, in treating. We are introducing some sizes that 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 will 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've 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. Okay, very helpful. Just one quick follow-up. You know, in the press release, you noted that, you know, gross margin had benefited from favorable mark-to-market. Can you just remind us of the typical hedging strategy and where you sit for the year? Basically, trying to understand, you know, where there might be some variability if we see any moves in. Thanks so much. 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 GAAP 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. Our next question comes from Rob Dickerson with Jefferies. Please proceed. Great, thanks so much. Maybe we just move to cereal for a minute. You know, 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. Jeff, you know, I, like, it's probably easier to kind of comment, you know, on the category maybe reverting, right, back to kind of pre-COVID dynamics. At the same time, I felt like, you know, during that period of time, there was some acceleration for General Mills, specifically, just speaking to the quality and power of the brand. You own Cheerios, Cinnamon Toast Crunch, it's done really well. So I'm just curious, because you think forward, you know, next year, next three years, you know, 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, you know, within that, within that dynamic, you know, like, I guess, what's the conviction level in your ability to continue to gain share, like you've done for, let's say, the prior seven years or so? Thanks. Yeah, thanks, Rob. Let me provide some commentary and then, John, follow up as necessary. The first reminder I would let you know is that, you know, cereal is still the number one item eaten in the morning for breakfast, and it's almost 20% of breakfast eating. I think it's 19%. That's here in the U.S. 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 4 of the last 5 big items are from General Mills. So we're innovating well, we're developing our equities well, we continue to grow. And so my expectation for our cereal business is that we grow a little bit every year and hopefully take a little bit of share every year, but keep it 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? 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. And 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 gonna keep investing. We're more excited today about cereal than we were even, you know, a decade ago. As Jeff mentioned, grew share six of the last seven years. We're the clear share leader today, and again, never have been in the history of the category until the last five years or so, and we'll keep investing and keep growing the category. The other question we get a lot is, you know, 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 this category as we move forward. All right. Super. And then just a quick clarification question on pet. You know, a lot of the commentary is really around, you know, like, pet not really improving that much, you know, as we get through the year, given the drivers relative to Q1. I believe last year, though, Q2, you did have a fairly pronounced inventory deload. So, you know, should we be thinking, you know, 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 deload 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 a deload, if that makes sense? The, the-- it, it makes sense. I guess what I would say is that one of the things I've learned about pet in the short 5 years that we 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. I'm not gonna try to prognosticate what happens. We did-- we... You do bring up the point. We had an inventory deload last second quarter. That is true. We're going up against that, but it's also true that inventories vary quite a bit, and as the business has slowed down a little bit, inventory tends to come out of the system. And so, you know, we'll see what happens in the second quarter, but we're not, we're not anticipating a big rebound in the second quarter from what we saw in the first quarter for us in order for us to hit our guidance. Got it. All right. Thanks so much. Thanks. Our next question comes from Max Gumport with BNP Paribas. Please proceed. 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 lifts associated with some of these events, especially end cap displays, aren't proving to be as incremental as might have been anticipated. We're wondering if you're seeing this dynamic and also what you think is driving it. Thanks very much. Jon Nudi, do you want to comment on that? Yeah, absolutely. So as we look at merchandising with large, 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 is 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're doing pre-pandemic. I think we all know that driving deep discounts actually drives dollars out of the category. It drives, profit out of the category as well. So what you're seeing is, maybe more frequency at higher price points and, 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, 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 our category. And again, the big difference, I think, versus maybe 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. Makes sense. Thanks very much. I'll leave it there. Okay, Frank, I think we're gonna 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 continuing to connect with you, and we'll look forward to speaking again next quarter. Thanks so much. 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.