Greetings and welcome to the General Mills’ First Quarter Fiscal 2021 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded today, Wednesday, September 23, 2020.

Thanks, Franz, and good morning everyone. Thanks for joining us today for our Q&A session on first quarter results. I hope everyone had time to review our press release, listen to the prepared remarks, and view our presentation materials, which are available on our Investor Relations site. It’s important to note that in this 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 COVID-19 pandemic on our results in fiscal ‘21. Please refer to this morning’s press release for factors that could impact the forward-looking statements and for reconciliations of any non-GAAP information, which may be discussed on today’s call. I am here virtually with Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Jon Nudi, Group President of our North America Retail segment. We are holding this call from different locations, so we will cross our fingers that technology cooperates. And with that, let’s go ahead and get to the first question. Franz, can you get us started, please?

Absolutely. And our first question is from the line of Chris Growe with Stifel. Please begin.

Hi, good morning. Thank you. I want to congratulate you on a very strong quarter. Yes, thank you. I had just two quick questions for you. I do want to ask as you look ahead, you do outline a high-single-digit growth rate in your categories that you expect in North American retail in the second quarter. You have had very strong market share gains to date. Should we assume those market share gains, maybe not the same degree, but those continue? Is that part of your expectations? And I guess I was also curious if you are incorporating or what stage you are in, in terms of building inventory, North American retail? Are your inventory levels back to where they need to be or is there more work you can do kind of part of the holidays to get those inventory levels up higher?

So, Chris, this is Jeff Harmening, and let me answer the first one in summary and then hand it over to Jon Nudi for any additional commentary and then for the inventory question. I am really pleased with how we have competed across the world, including North America retail in the first quarter. I think that’s one of the reasons our quarter was so good. And as we look at the second quarter, I would expect the same. I would expect us to compete effectively, including in North America, and I am not going to go category by category, but I think in general, we actually increased our market share position in the first quarter and I don’t see any reason why we can't do the same thing in the second quarter of this year because we really are kind of firing on all cylinders executionally, and we have good marketing and innovation and renovation to back that up. So, that’s kind of the summary. Jon Nudi, any commentary on that and then maybe some thoughts on inventory, retail inventory?

Yes, sure. Good morning, Chris. In terms of competing effectively, I agree with Jeff; we really like our marketing, we like our new products. The only other thing I would add is our share distribution is up nicely, and that’s a key metric that we look at. So, we do believe that we will be able to compete effectively. In terms of inventory, if you remember in Q4 we had our RNS about 9 points behind our movement. As we move through Q1, we got it back a little over 3 points of that. So, we do believe there will be some more inventory coming our way as we move throughout the year. Important to note that it won’t all come in Q2; we still have some platforms like soup and baking mixes that we are capacity constrained on, so we think that by Q4 we should be back to healthy service levels and that inventory will flow through the rest of our fiscal year.

And Jon, I was just curious; does that limit your promotional ability in some of those categories, in particular where you are capacity constrained in terms of getting back to more of a normal level of promotional spending and advertising and that kind of thing? Is that limiting you because of your capacity situation in some categories?

And Chris, I would say in the categories that we’re constrained generally, the entire industry is, so I think you will see our marketing levels remain strong. We believe that building our brands is something that we need to be consistent on, and that will be good for the short-term and the long-term. I think from a promotional standpoint, you will still see similar frequency to last year, but in some cases, less depth. And as we are working with our retail partners, that’s where we are focused on at this point.

Okay, that’s great. Thanks for all your time this morning.

Thank you.

Our next question from the line of Robert Moskow from Credit Suisse. Please go ahead.

Hi, thanks for the question. I have kind of a longer-term portfolio question for you, Jeff. You probably talked about the desire to maybe rationalize the portfolio through divestitures by about 5%. The categories that I would have thought would be kind of candidates for divestiture, are the ones that are performing the best in this environment, baking and soup, I would – I kind of thought you might be part of those considerations just, for example. Is there anything that happened during the pandemic that altered your view as to what parts and portfolio you would consider divesting?

So, Rob, thanks for the question. You are breaking in and out, but I will try to answer the question I think you asked. On the portfolio shaping, broadly speaking, I would see us continue to look at portfolio shaping both in terms of divestitures and acquisitions. There is nothing strategically that makes me think that we should change our general approach to divestitures and acquisitions. Clearly, the timing on that has changed as we have been and as we have gone through this pandemic. And the longer-term question of what consumer trends have changed, I think is yet to be answered because we are still in the middle of the pandemic. And so, we are – we still think that portfolio shaping both divestitures and acquisitions would be a part of our future. But of course, we are only going to do those things to the extent we think they are going to create shareholder value. Unfortunately, I know you know this, Rob, but I just feel compelled to say it. From the beginning, we haven’t felt compelled to do divestitures because we think we need to raise cash to pay down debt, and I think today is further evidence of that as our net debt to EBITDA got down to 3 and we resumed dividend growth. So, as we look at divestitures, I will make sure that they are constructive for our shareholders, and there is certainly not a reason not to do that, but not to pay down debt, because you have already done a nice job of that and are already on target.

Right. Can I ask a quick follow-up for Kofi, one of your competitors set up some expectations for how much incremental sales to expect this calendar year from the pandemic, a percentage that you expect to retain in calendar 2021. And then by 2022, I think a very conservative expectation about it is that there are no further retentions. Are you looking at your forward outlook the same way? Are you trying to think about maybe calendar ‘21 how much you retain from what happened in 2022? And then looking at that, are you looking at it in the same manner or are you looking at it differently?

Rob, this is Kofi. Thanks for the question. It’s probably the question of the moment, and I think it’s important for us to stay grounded in what we actually know right now, which for us I think we need to prepare for scenarios in which sustained levels of at-home consumption remain for a period of time. I think it is hard to make a call on duration at this point, with all due respect to any of our competitors who are doing so, especially that far out. So, there is a reason why we haven’t given guidance. And it is not – it is not for lack of confidence in our ability to compete, but more a reflection of the uncertainty of the environment and the expected duration of at-home demand. But I think – we know that our posture is to be prepared for whatever shows up and be prepared to compete, and I think you saw us put a pretty good down payment on that in Q1.

Great, thank you.

You bet.

Our next question from the line of Andrew Lazar with Barclays. Please proceed.

Thank you. Good morning, everybody.

Good morning, Andrew.

Good morning, Andrew.

That’s actually a good segue into my question, which is you have talked about incremental capacity coming on stream both internally and externally. I am curious maybe how much of this addition is internal, and maybe in sort of what categories the internal capacity is expected to come online from; and I really ask because my assumption is that you would not necessarily add internal capacity, if there was not at least some anticipation of elevated demand being somewhat sticky, which of course is a big topic of debate among investors. The third-party manufacturing, I guess can be a little bit more flexible in that regard, but the internal side, of course, is kind of sticks with you, there is capital involved and things of that nature. So, that would be helpful. Thank you.

Andrew, this is Jeff, let me summarize. During this quarter, we are adding both internal and external capacity. On the internal capacity, the places we are adding capacity are things where we actually saw quite a bit of demand, even pre-COVID. We have some cereal businesses, fruit snacks businesses where we saw demand really for a number of years that was growing, and we had reached our internal capacity limit even before COVID. We made the decision to add capacity to those, and while some of those coming online in Q2 and some coming online in Q3, but there are areas that have seen the self-sustained growth even before COVID. Even if we would have wanted to in the second quarter for many of our seasonal businesses where we are adding a lot of capacity in Q2 and really differential capacity, we are going external not due to lack of competence, but primarily because it provides greater agility. It’s faster to get into the capacity, and then to the extent we don’t see the capacity stick, then it’s easier to get out and we don’t spend the capital doing it. The places where you see us spending on external capacity in the second quarter are really our seasonal businesses which is why we called out the margin pressure in Q2, but it allows us to react quickly to growing demand and if we see that stick, then we can make other decisions down the road.

Okay, got it. Very helpful. Thanks so much.

Yes.

Our next question from the line of Ken Goldman with JPMorgan. Please proceed.

Hi, thank you. Good morning.

Good morning.

You highlighted that you are taking – you highlighted that you are taking a number of approaches to I think maximize the stickiness of demand. You mentioned higher e-com spending, higher marketing, and then you also talked about renovation and innovation. I understand what you are doing differently with e-com and the spend on marketing. I wasn’t quite clear though if you are doing anything necessarily new in terms of renovation, which you have been doing well for years, and innovation, which is always a company priority. So, I am just curious if you could help us understand what’s new in those areas versus pre-pandemic? Thank you.

Yes, Ken, I think – this is Jeff, your observation is a good one. I would say that, I don’t know on renovation that we have we are doing anything new pre-pandemic. I think actually, the point is actually the one you made that over the last few years, we made a lot of changes to a lot of products, some of which we actually highlighted during the presentation, but I think the point is that because of all the renovation we have done, as we are bringing new consumers into our franchise and you saw during the presentation, we are bringing a lot of new consumers into our franchise. One of the things we are finding is that the repeat rate of those new consumers is about the same as the users we already had, which is actually highly unusual and very encouraging. The other thing we would say is that the new households we are getting are happening to be at a different demographic which is to say younger and more Hispanic, which we under-indexed and we are also actually excited about that. But the point about renovation, you are right, I don’t know that there is anything new other than what we have been doing for the last few years is really paying off as new consumers come into the franchise. And you will see us continue to renovate our products because we feel as if it’s paying dividend now for the work that’s been done before, and any – Jon Nudi, you would like to add to that?

No, I completely agree with that. Jeff, I think the only thing I would add is we have gotten smarter in terms of renovation, instead of blanket renovations across categories, for example, a few years back in cereal kicking up artificial flavors and colors. I think we are very targeted now, and also if you look at yogurt, we are seeing great growth in original style Yoplait, because we know that consumers care a lot about fruit and put more fruit in, and we are seeing great growth in the top line and we are growing share. So, the renovation work continues. I think we have gotten smarter and I think we will continue to benefit as we move forward as a result.

Thank you. And then quick follow-up; you highlighted the normal capital allocation strategy, you mentioned share repurchases. Barring a deal, should we expect your repo to accelerate reasonably quickly, I know you are not or no food company necessarily is super happy with their stock prices given what their fundamentals have been. So, I am just curious how your outlook is or your appetite is for that right now?

Yes, so this is Kofi. Thanks for the question. Look, our job that we declared at the beginning of the year on the balance sheet was really to get our debt to leverage back to below 3x to restore the strategic flexibility of the balance sheet. As you can imagine coming off of last year, we would expect a little bit of sort of choppiness in the cash flow. So, I think our first point of confidence is really to restore dividend growth and continue to make progress on de-leverage. We will assess the other capital allocation priorities based on the progress we make throughout the year.

Thank you.

You bet.

Our next question is from the line of David Driscoll with DD Research. Please proceed.

Great. Thank you, and good morning.

Thank you.

I wanted to ask about the pet business, the 6% sales growth, perhaps understates the true strength in this business. Can you guys talk a little bit about what’s happening in pet? And just your expectations on a go-forward basis; I would note that there is significant live animal sales, I mean we think live animal sales are surging at pet stores, your e-commerce operations, pursuant to your comments just a few weeks back, sound like they are doing terrific in pet. And then because pets eat at home every day, I am hoping this allows you to be a bit more free with your forward comments and really explaining, that 6% again, the core of it is I think that’s understanding the true strength of growth within that operations but would appreciate your insights?

Yes, David, this is Jeff, and thanks for your question. Appreciate that. First, I would say we are actually quite pleased with our pet growth in the first quarter and ended up almost exactly where we thought that it would end up. A couple pieces of context: first, you are right that growth that you are reporting net sales growth does understate our growth for the quarter as it relates to pet sales, because recall that in the fourth quarter of last year, there was a big stock-up, and we actually saw that flow through to June. Our retail sales out in June were probably low single-digits, and they accelerated dramatically in July and August to high single-digits. So, that tells us that de-stocking – the stock-up the consumers had in the fourth quarter is actually now behind us, and that it did have an impact on our first quarter and were it not for the impact from the fourth quarter and the carryover, we probably would have seen – certainly seen high single-digit sales of our pet food business on a reported basis in the first quarter. So, they are understated by a little bit for reasons that we will understand from before. The other I would say is that our like-for-like comparison to growth from a year ago was actually 16%. The question is, can we grow once we have distribution at least one quarter in as we feel good about our answer to that which is yes. We have grown through growing same-store sales, where we already are, we have grown through our e-commerce business. The drag from pet specialty has actually reduced from where it was before. So, we feel very good. We have also grown share in segments we competed in cat and dog, whether it’s a dry cat food or wet dog food or treats, we have actually grown in every sub-segment. So, we feel very good about our pet business. I would think that in the second quarter, we will see strong growth in pet.

If I could just sneak in one follow-up; the cereal business seems to have shown the deceleration in sales growth in the reported Nielsen data. I am curious if you guys have any explanations about just the summertime and cereal sales and if you think that the rate of growth in the cereal category and your cereal business will pick up during the final portion of the calendar year here. But I am thinking that there are some quirks that happened in August in back-to-school. I don’t know if Jon has any comments or explanation there, but it would be very helpful. Thank you.

Jon, go ahead – why don’t you go ahead and field that one?

Yes, sure, David. Thanks for the question. So, let me start by just saying we feel really good about how we competed in cereal through Q1. So category was up 4, so it did decelerate. I will get to that in a second. We were up 6. We grew about 50 basis points a share, and it was actually the 21st straight month that we gained share in the category. We now have four of the top five brands in the category. We had share increases on six of our top seven brands, with the top three new items in the category, with Cheerios Oat Crunch and the Cheerios and Trix Trolls. We really like our marketing; our Heart Health messaging on Cheerios continues to work. Cinnamon Toast Crunch continues to really rock behind a great candid message and we have a new partnership with Chrissy Teigen and John Legend on Chex Mix. We love the fundamentals of the business. To your question, the category definitely decelerated from Q4, where we saw growth in the 20% range. As we really dug into it, one of the things to keep in mind is the comp. So, if you think about last summer, kids were at home. This summer, they were as well. As we move into the fall, we know that only about 25% of kids are actually back in school full time. We know that when kids are at school, they tend to eat breakfast and lunch, in many cases, at school. We would expect the category to pick up as a result in Q2. We are starting to see that in the early days of back-to-school period here, and we will continue to watch that very closely. But again, we do expect the category to accelerate as we move through Q2.

Thank you.

Thank you.

Our next question is from the line of Nik Modi with RBC. Please proceed.

Yes, thanks. Good morning, everyone. Just wanted to get behind some of the category growth assumptions that you laid out for the upcoming quarter, what is kind of the backdrop or the premise of how you think the mobility trends or how the pandemic is going to affect that particular number? So just wanted to kind of understand how you are thinking about how this is going to play out through the end of the year? And then just kind of piggybacking on that, just with all the news in Europe and more lockdowns and national shutdowns, is there any perspective you can provide us on any early impact that that’s having on your business? Thanks.

Let me answer it from a macro perspective then Jon Nudi, if you have any perspective from the U.S. or the U.S. point of view, I think what you are seeing in Europe right now and what you are seeing in the U.S. goes to the trickiness of trying to be predictive during the pandemic, as situations change pretty significantly and pretty quickly over time, which is why we haven’t given guidance. Certainly, we would expect holistically demand for food at home to be elevated for a period of time exactly how much it’s going to be elevated globally is uncertain, but particularly in the U.S. and Brazil, where we have big businesses and even in Europe, we think food-at-home demand will remain elevated. In China, it’s a little bit different and the at-home consumption is still growing, but away-from-home consumption continued to get better as witnessed by our double-digit growth in China this quarter, due to the fact our Haagen-Dazs shops have improved. What I would say holistically, it’s really hard to determine what’s going to happen, but we do think that food-at-home is going to be elevated for a period of time, perhaps longer than had been originally anticipated. Given that our business at least pre-pandemic was about 85% at home and 50% out of home, that would bode for an extended period of growth for our business holistically, even if there are some segments like our convenience and foodservice, which will feel the pressure of that over time. Jon Nudi, any thoughts that you have about the U.S.?

No, I generally agree with your global thoughts. The thing that we are seeing is that the general direction of categories remains unchanged. So, baking and soup in categories like those remain elevated. Snack bars remaining has headwinds at this point given the away from home nature of that product. While we see the growth rates change a bit between Q4 and Q1 as we head into Q2, I think the general direction of those categories are the same. As Jeff mentioned, until we get a vaccine at scale, we would expect continued growth across many of our categories, and again, our job now is to compete effectively. We can’t control the category growth rate. What we can control is how we compete in the categories, and that’s what we are laser-focused on at this point.

Super helpful. Thank you, guys.

Thank you.

Our next question from the line of Faiza Alwy with Deutsche Bank. Please proceed.

Yes. Hi, thank you. So, I wanted to ask a little bit about e-commerce and some of your investment spending there. So, you have previously talked about investment in enterprise capabilities like e-commerce, the data analytics, digital category management, and customized basket? I was wondering if you can talk about where you are in terms of those capabilities at the moment. I know you have also talked about how you have been able to accelerate some of that spending. As we look out into 2021 or even further like how much of these costs do you expect to continue and how do you think about measuring a return on these investments? Is it immediate or is it more sort of longer term? And as part of that, I was hoping you can talk about what you saw in e-commerce this quarter, what percentage of sales are now online, particularly in the U.S. outside of that? Thanks.

So, this is Jeff. Let me – you have a number of really good insightful questions. I could probably take the next half an hour going through all of those. So let me just try to give a shorthand version and then ask Jon Nudi to comment on the U.S. piece. Just in terms of our business through e-commerce for the company globally, it’s about 9% right now, whereas a year ago, it was about 5% and the simple math says we have almost doubled the e-commerce business due to a change in consumer behavior. While that growth rate may or may not continue over the next year, we think it will continue, which is why we continue to invest in it. It’s important that we invest in e-commerce ahead of the curve, especially getting consumers on e-commerce for the first time, because it tends to be relatively sticky. Once you have Honey Nut Cheerios in your basket, you tend to go with Honey Nut Cheerios, and so being first in the basket is certainly something important with e-commerce. It’s also important to note that the economics for us for our business going through e-commerce channels versus just grocery stores is about the same predominantly, because most of our sales to e-commerce actually still go through grocery stores. The investments that we have to make are not really in physical infrastructure or distribution centers or packaging changes; they really have to do with more digital capabilities and the payback on those tend to be relatively fast. So with that, Jon, would you like to add to that?

The only thing I will add is just the facts around North America retail business, so that prior to the pandemic, about 4% of our sales were from e-commerce; today, this is about 8%. So again, saw the similar acceleration doubling that Jeff mentioned. We like, again, the consumers that are coming in, in e-commerce; we know that they are satisfied and we expect this to continue to grow. As Jeff mentioned, we do have over-index versus bricks and mortar. We know that big brands work. So, we are going to continue to invest both in capabilities as well as marketing and retention of these consumers as we move forward.

Great. Thank you so much.

Our next question from the line of Jason English with Goldman Sachs. You may proceed.

Hey, good morning, folks. Congrats on another strong quarter. I guess my questions are going to be on cost and margins. First, on the margin front, I know you have signaled the second quarter down, just simple math for the rest of the year, your full year margins to be sort of flat implies with down around 60 bps for the next three quarters combined. Is that how we should think about it? The next three quarters down in that magnitude or is it going to be outsized compression in the second quarter?

Jason, thanks for the question. This is Kofi. Let me just start by kind of harking back to the principles we said at the beginning of the year. I think Jeff said it while we come in with an expectation of keeping flexibility in our operating model in an eye towards keeping our margins roughly in line year-over-year for the full year. Look, if we are in a sustained higher demand environment, we are going to be in a position where we will invest to capture the incremental sales. We will drive higher dollar profit even if the percent margins maybe don’t expand significantly. I think the thing to frame up here is that there are kind of four headwinds that will play out, and I will get to Q2 versus Q1 after I lay these out. The first in order of magnitude would be we expect COGS inflation to be about 3%, which is about a point off of lower than it was last year. We expect some significant cost to capture the elevated demand, specifically some things around external supply chain and manufacturing premiums as well as internal capacity. The external supply costs are ones that we can shed if the demand doesn’t materialize. A brand and capability investments is third, and then health and safety costs will continue this year even if as we see the run-rate tapering off of what we saw in Q4. As we get to Q1 versus Q2, what we are seeing is and expect to see is a significant step up in external manufacturing costs in Q2 and that specifically as we go into key season on meals and baking businesses that were significantly constrained in U.S. and Europe. As we are stepping into those key seasons, we will need a lot more external capacity to rebuild supply for the demand levels we expect. The other thing I would note is our comparison for adjusted operating profit margin is much more challenging as we get into Q2. The comp was 17% versus last year on Q1, and it’s about 150 basis points more difficult as we look at our Q2 versus last year’s Q2 where it was 18.3%. We had a number of timing benefits that helped us last year specifically as we were building some inventory in advance of labor negotiations and a little bit of shipment timing on some of our other businesses. As a last note, just to help you kind of on the balance or the year, I note that in Q4 we are going to be having an extra month of pet results to comp the 53rd week, both of which were favorable to our operating margin. The posture I’d say is, we will know a lot more, Q2 will be critical to your point for our assessment on the balance of the year, and we will be able to make a call once we see the amount of elevated demand and how the ESC costs play out in Q2.

Okay. I will follow-up with Jeff offline to see if he can help. But once you didn’t list in that was freight cost. I know they kind of get you guys a couple of years ago, spot rates are moving up pretty hard. Remind us how big is that of a percentage of spend is that for you? And where do you stand in terms of contracts and spot? Should we be concerned that there is a step up on that cost basket field in the coming quarters here, etcetera?

Sure, sure. So, we have about 95% of our freight going through at contract rates, which are below spot prices, and the remaining 5% are at market rates. So, that’s what we are seeing at this point. Obviously, this is an environment where we are going to need to proactively keep monitoring freight, but at this point, we are continuing to execute most of our freight needs through contract levels.

Jason, this is Jeff. Just getting into the first part of that question, so about 11% or 12% of our overall cost of goods would be freight, either the logistics that’s shipping our products to our customers, but also the freight component of inbound raw materials and packaging materials.

Got it. Super helpful. Thank you, guys.

Thank you.

You bet.

Our next question is from the line of Ken Zaslow with Bank of Montreal. Please go ahead.

Hey, good morning, everyone.

Good morning.

On the cereal category, as consumers are shifting towards eating breakfast at home, what do you make of the need for merchandising and promotion? I guess I am surprised by the extent that the category is becoming promotional in merchandising as aggressively, it seems like consumers want to eat cereal, and it seems like you are able to price at a more full price level and not need to merchandise, but the category seems to have become a little bit more promotional than I would have thought. Can you give me your thoughts on that? That would be helpful.

So, Jon?

Yes, I am sorry. I figured that was coming my way. So, thank you, Ken. A couple of things: One is as we look at the category, again, we see some every quarter we see promotional levels change; we don’t see anything dramatically different. We still think the category is generally rational. What I would say as you look at the category and think about pricing is not just promotion price really, we are leveraging your entire strategic revenue management toolbox and really focused on pack price architecture. If you get into the category, you see a lot more cereal sold in larger sizes and we think that’s a really important way to drive price in the category. We work with our retail partners; obviously, it’s a big category; it’s $9 billion that drives a lot of people into the center of the store. Our retailers do want to promote cereal; it’s important for them. We will continue to work with them. The important thing is that we do believe the category is rational. At the end of the day, all of the competitors in that space are marketing and innovating. The category tends to do well and we are starting to see some good marketing and good innovation really across all the major competitors in the category. At this point, we are not seeing anything differential from a promotion standpoint.

Great. Just another just very small question is when does the freight cost contract get renewed? What’s on the year, and how do we think about that? Just that part of it; I guess that you are 95% contract, I just want to know when the contracts get renewed and how do I think about that, and then I will leave it there, and I appreciate it?

Ken, our contract tend to run on our fiscal year. So, it would kind of start in June and in May, roughly that timing.

Perfect. Thank you, guys. Congratulations on a good quarter. Thank you.

Thank you.

Our next question is from the line of John Baumgartner with Wells Fargo. Please go ahead.

Good morning. Thanks for the question.

Hi, John.

Jon, I wanted to touch on North America execution and specifically the concept of non-price promotion. To what extent has it been activated at this point? What sort of forms is it taking? And how are you thinking about its contribution moving forward? Is there anything worth pointing out in terms of maybe how that specific execution differs from your competitors and to what extent does it maybe enable you to sustain this market share success going forward? Thanks.

Thanks, John. So just to clarify, are you speaking about marketing and e-commerce and the other non-price drivers, is that your question?

I think more so just the bricks and mortar sort of non-price promotion, whether it’s – I have seen, I guess Pillsbury refrigerated coolers in the aisles, anything kind of in that bucket holistically?

Yes. It really runs the gamut. If you think about the North American retail and compete in 25 different categories. One of the things we have been really trying to do is again understand our consumers in each category and understand what our retailers are looking for in each of those categories. It runs the gamut, if you think about refrigerated baked goods, I couldn’t be more pleased with how that business is performing up again north of 30% in Q1 off a very strong Q4. On that one, we know that taste matters. We have spent the last few years renovating the product, actually putting some fat back into our business to make them taste better and we are seeing our sales increase. Our retailers have limited space; so that is an area that having extra display space be a bunker makes a lot of sense. We are working with retailers to put the right promotional plans in place as well as the right vehicles in-store at the right times of the year. It really – one of the things we have been trying to focus on is being granular and again getting to truly understand who our consumers are in each category and getting what retailers are looking for. When you think about cereal, it’s a different category and that’s really been about driving it via strong marketing and partnerships. We think that’s a Heart Health message on cereals, and we had a tough run for a couple of years on cereals. Now, we are growing share month after month, but we don’t know what turns the dial. I can’t speak to one broad thing across all of our categories. What I would say is that the teams are doing a really good job of deeply understanding our consumers, the problems that they have and what they are looking for. I think we have done a better job really working in category by category with the retail partners as well and we will continue to do that. The last thing I would say is I don’t think we have some great capabilities. So, we mentioned in the prepared remarks about pillsbury.com and bettycrocker.com, two of the top five food websites for recipes. We are leveraging those differently than we have in the past. We are really talking about how we bring simple meals together teaching consumers how to cook during this time, which I think is important. Finally, in terms of first-party data box that’s for education is something that we are really excited about. We take the program that’s been really successful for over 20 years, we have given almost a $1 billion to schools, but frankly, I was losing some relevancy. So, we digitized it. The data that we are getting is absolutely incredible. We have over 25 million receipts. We get a full scan of the receipt. As you can imagine that data is very valuable as we build personalized relationships with our consumers serving them up offers to keep them in our products, at the same time understand how it might be able to move them from some competitive items over time as well. It runs the gamut and it’s really about understanding consumers and then partnering with the retailers.

So, you mentioned a lot of these one-off successes that you accumulate, but you have been investing in data for the last couple of years. Is there a way to think about where you feel you are right now in terms of collecting data, scraping data versus actually making sense of it and putting it in market? It seems like you are there now, but is it still kind of early days in terms of grasping understanding of it or is there kind of more evolved along that plan at this point?

I would say, we are probably still in the early innings. One of the things that Jeff did recently was hire a new Head of Data and Analytics for the company and Jaime is going to be a huge help in the short amount of time. One of the things that we are doing to is partnering externally, probably more than we have in the past with some big tech companies that are really helping in the space. When we think we have some really unique first-party data, I think we are getting after it more aggressively than we have in the past. A lot of the benefits are still to come.

Very good. Thanks for your time.

Thank you.

Our next question from the line of David Palmer with Evercore ISI. Please go ahead.

Thanks. Just looking out to fiscal ‘22 that might be, god willing, the first post-COVID year. It’s interesting to think about whether we should be thinking about higher sales and profit in that year than we would have thought for that year pre-COVID. So far, the Street profit estimates for that year have come up less than 1%, EPS more like 3%, presumably due to the reduced debt and the interest expense. I know you are not going to give out your guidance, but what are you thinking about the biggest legacy influences both positive and negatives from COVID for those out-year earnings?

Well, so thanks for the question. That’s the first fiscal ‘22 question I have received. My original instinct is to say, I just try to make it through Q2, but I appreciate the question, this is actually a good question. I think one of the reasons we highlighted what we are doing in terms of advertising and renovation and innovation and so forth is that we like you hope that COVID comes to an end in fiscal ‘22 notwithstanding that our sales have been higher during the pandemic. I mean, it will be great once we are – once this is behind us. One of the things that we are spending a lot of time on is making investments that will help maximize our growth in the future. Even if I can’t tell you what our growth is going to be, I would hate to sit here a year from now and tell you that we didn’t make the right investments in data and analytics, the right investments in marketing, the right investments in innovation or renovation, I feel like we are doing all those things. To Jon Nudi’s point earlier, we are really kind of going category by category and it’s not only in the U.S., but we are doing the same thing in China with Haagen-Dazs and Wanchai Ferry. We are doing the same thing in Brazil, with brands like Kitano in Europe with Old El Paso and Haagen-Dazs and Nature Valley. We are taking that same approach throughout the world. But even in places like convenience and foodservice where the business is down, we are making some investments in things like individually wrapped products, which we think are going to be around for a while. While we can’t tell you what fiscal ‘22 will bring in the absolute, what I can tell you is that we are doing everything we can now to sustain the growth momentum that we currently have. We do it in a way that’s going to be efficient and effective for long-term value for shareholders.

One thing, just a quick follow-up that I think is on people’s minds is that retailer digital connectivity with consumers, you have been among the highest in incremental digital engagement in your digital channel sales and you tend to be better indexed in terms of click and collect and in e-commerce. I think there is a concern broadly for food companies that the conductivity of retailers will lead to eroding pricing power in some way. That is at least another way for key retailers to extract promotion dollars in terms of data sharing and the like, what are your – how would you push back on that concern?

I guess, I would say that we plan on winning in any environment, including the one you just described. We have done a good job so far with e-commerce, but it’s a moving target, which is why we hired someone externally for our digital and technology program, which is why we continue to invest in it, which is why we have programs like our own data like bettycrocker.com and pillsbury.com with 7 million unique visitors a month. While we are building a Box Top for Education digitally, we had access to our own data. In e-commerce, we are all just like retailers and manufacturers; there will be winners and losers and we intend to be on the winner part of that equation, which is why we are investing. As I said, we are pleased with what we have done so far, but we are not arrogant, because it’s a moving target and we will need to continue to invest and make progress against that if we are going to win into the future. While we are pleased with what we have done so far, rest assured that we are not resting on our laurels, because there is a lot more work to do.

Thank you.

Maybe time for one more?

Our next question is from Michael Lavery from Piper Sandler. Please go ahead.

Thank you. Good morning.

Good morning.

Good morning.

Two-part question on brand spending and just how you are executing that, first, just trying to understand a little bit of what’s new and what’s changing. I know you have talked about the website traffic being up in the Cheerios, Heart Health and Box Tops and some things that have been pretty well established, but it sounds like you are making some spending increases. What else is in the mix there that we should be looking for? A little bit related that the second part is just how do you know how much is enough? It sounds like it’s a pretty significant swing factor in the margin outlook for the year, how do you think about the returns and just knowing where the right level is versus letting some of the what might be upside fall down to the bottom line instead?

Yes, so one of the things that I can assure you as we are always measuring return on investment. When we say we are investing in our brands, we are not just spending on our brands, I see investing and when you are investing that would indicate that you are getting a return on that investment. Otherwise, it’s just spending. I want the people listening to know that when we are spending on our brands, we are making investments and we are working behind things that are working that are going to drive growth for our business both in the short-term and long-term. That’s true of Haagen-Dazs in China; that’s true of Caetano in Brazil; and that’s true of Old El Paso in Europe, just as it is with Cheerios here in the U.S. And so first, we are always measuring what our spending is. The second is that we went even though we are growing our consumer spending double-digits in the first quarter and we look to have our marketing spending grow faster than sales this year, there were a few years where that wasn’t the case. We are really rebuilding our marketing spending and we are not at levels we weren’t even probably 5 years ago. I really don’t think we are spending too much. We feel like we are being prudent and spending more on the right things on things that drive the business that are really important and we prioritize the brands we are spending on, and you will see that. I feel we are changing the channel and the way we talk to consumers to become an active part of culture. Jon Nudi gave some examples of that of what we are doing in the U.S., but I can tell you what we are doing that in the Middle East as well. We feel as if the spending is going in the right places; we are able to measure it. As long as we can keep driving growth on our business, we will keep standing behind our brands. We feel we have got particularly good marketing at this point.

That’s helpful. Is it fair to think that you are assuming some top line deceleration over the course of the year that if that held up similar to 1Q levels you could see some margin upside come through?

Yes, we will see the – I am going to be a little evasive here, but only because we don’t know what the next three quarters are going to bring in terms of upside demand, because of the nature of that pandemic would indicate that it’s going to be uncertain. We feel that demand is going to be elevated as more than it was pre-pandemic, so we are pretty confident of that, at least for the next couple of quarters. How much that is, and how that will not last, I mean, we will have to see. I think Q2 will be a pretty good indicator. We will know a lot more after the second quarter, primarily because for us, it’s a big quarter for us. We have a lot of seasonal business in that quarter. After the second quarter, I think we will be able to give more color for the rest of the year of how we think the rest of the year will play out. It’s really a hard environment to predict. I hate to project certainty in such an uncertain environment. With clarity, what I can tell you is we are really pleased with how we are competing. We fully intend to do that for the rest of the year, and we do think that the demand will be elevated.

Okay, thank you very much.

Thanks.

Okay. I think that’s all the time we have. I know we didn’t get quite to everyone. So please feel free to follow-up with me over the course of the day to cover any additional questions, but thanks. Thanks to everyone for your interest and your time and attention, and I look forward to talking again next quarter. Have a great day.

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.