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. 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.

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 that 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?

Our first question comes from Matt Smith from Stifel. Please go ahead. Your line is open.

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?

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 eaten out on average. And so eating at home is a great value for consumers, and consumers are still economically stressed. 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 continuing momentum into the second quarter here because we've got really great news on all of our billion-dollar brands.

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?

I think this touches on the question of value. First, I want to emphasize that consumers perceive value in various ways. We have increased our couponing efforts, which have yielded good returns as anticipated. However, consumers also seek brands and products they can trust. Life Protection Formula continues to grow, with Blue Buffalo seeing mid-single-digit increases due to our focus on ingredient superiority. We launched advertising for Wilderness, which has significantly reduced its losses this quarter and is showing ongoing momentum. In cereals, Fruity Cheerios has emerged as the top new cereal in the category because consumers trust Cheerios and are looking for something fresh. Whether through couponing, new products, advertising messages, or ensuring the right pack sizes are in the right locations, there are many methods to provide value for consumers. This is especially important when consumers might feel economically strained, as they cannot afford to waste food. They need to bring home products their families will enjoy, and that's where our brands play a crucial role by delivering relevant messages and products. Overall, I feel good about our position, and I'm even more optimistic because most of our brand news will emerge in the second quarter. Considering our portfolio includes numerous baking and seasonal items, and even pet treats tend to be a bit seasonal in this period, combined with the progress we're seeing with Blue Buffalo and positive feedback from our pet specialty channel regarding Wilderness, we anticipate a significant uptick in the second quarter with more good news on the horizon.

Thanks, Jeff. I'll pass it on.

Our next question comes from Andrew Lazar from Barclays. Please go ahead. Your line is open.

Great. Thanks. Good morning.

Good morning.

Good morning.

Jeff, you talked a bit about 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.

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.

We continue to be focused on and expect gradual improvement as we move through the year in total sales. Regarding our expectations for the full year, there is nothing indicating that we are broadly off mark in anticipating equal contributions from volume and price/mix as we progress toward our guidance.

Thanks so much.

You bet.

Our next question comes from Michael Lavery from Piper Sandler. Please go ahead. Your line is open.

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?

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.

So, it's not any one particular category, it's just broad improvement for that.

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.

That's helpful. Regarding pet, you mentioned that the quarter is progressing as expected. Can you provide more details about what lies ahead, particularly concerning Wilderness? Even if the declines are slowing, do you have an idea of when actual growth is anticipated and how we should be assessing that?

That's a good question. I was happy with our improvement in the pet segment during Q1, particularly in sales. We were down by 1% and I believe we lost a tiny bit of market share. However, our dry pet food brands like Wilderness, Life Protection Formula, and Tastefuls actually gained market share, with an overall improvement of 60%. While it's a positive step forward, it’s still not our ultimate goal. Even though Wilderness showed some improvement, it didn't reach the level we want. I'm optimistic about the direction we're heading and believe there's more potential for Wilderness. We just launched new advertising at the end of Q1 that highlights the protein content compared to our closest competitor. These gains take time to materialize in the pet feeding cycle. Also, starting in Q2, we'll increase our advertising efforts. Additionally, we're reintroducing grain-free products to the Wilderness lineup, similar to what we offered a few years ago. We're also adjusting the sizes of our bags, introducing smaller sizes that are more suitable for the current economic climate. Moreover, we've partnered with some of our pet specialty retailers to enhance the visibility of Wilderness in stores. All these initiatives will be effective in Q2. Therefore, I expect to see continued improvement in Wilderness and our pet business during the second quarter, but I won't specify an expected growth number. We're looking for progress in our pet segment and specifically with Wilderness in Q2.

Okay, great. Thanks so much.

Our next question comes from Max Gumport from BNP Paribas. Please go ahead. Your line is open.

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 divestiture 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.

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 divestiture as well as repurchase shares.

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 backward. I realize it's just a quad week and there can be volatility, but it looks like in cereal, refrigerated dough, snack bars, and fruit snacks, there was a bit of a step backward. It does sound like you have more product news coming later on in Q2. So just curious how you think we should all be reading that latest quad week of data. Thanks.

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.

Thank you very much. I’ll pass it on.

Thanks.

Our next question comes from Rob Dickerson from Jefferies. Please go ahead. Your line is open.

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.

Let's analyze what has transpired this year in our categories, where both rate and mix, as well as rate and volume, have contributed equally. This trend has continued throughout the year, similar to what we observed in the first quarter. Looking at our business, our price/mix decreased by 1%, which was solely driven by mix—actually, it was more than just mix. Predicting mix can be quite challenging. Moving forward, while we don’t provide specifics on pricing or promotional strategies, it's significant to highlight that our categories remain quite stable. Input costs and inflation have moderated but are still projected to be around 3% to 4% for the year. As we look ahead, we notice rational categories and a slight presence of inflation. I am encouraged by the productivity savings we have, which can effectively counterbalance these factors. Our focus now is on driving growth, and we will monitor what happens with price/mix in the upcoming quarters, but it has unfolded as we expected thus far this year.

Yeah. We could see some modest improvement mix as we work our way forward. But to Jeff's point, it is hard to predict.

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.

I'll provide a little bit of color but maybe not as colorful as you're.

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.

Alright, super. Thanks guys.

Thanks.

Our next question comes from Bryan Spillane from Bank of America. Please go ahead, your line is open.

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 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.

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.

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.

Yes, we anticipate that there is some stranded overhead that will require time to resolve. We expect this process to take about two years or less to eliminate that stranded overhead from our cost structure. This is contributing to the dilution we are experiencing.

Okay. Are there any TSAs also we should be aware of?

Yeah, there will be TSAs as part of the terms of both of the sale agreements with Sodiaal and Lactalis.

Okay, but not very material?

Yeah, I would not consider them material to the dilution and accretion.

Alright, cool. Thank you.

You bet.

Our next question comes from Leah Jordan from Goldman Sachs. Please go ahead. Your line is open.

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?

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.

And about time to spend, I mean, we have had, I think, pretty consistent plans 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.

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?

Sure. Regarding our international business, I was really pleased with our results in Europe. Although it wasn't mentioned, I want to highlight that we saw growth in our European and Australian business, which is encouraging since it's a significant profit contributor. I'm happy with our competitive stance in Europe. In Brazil, we did see top-line growth in the first quarter, showing much improvement from the previous year. It's an area where we've dealt with considerable inflation over the last few years, and we probably didn't utilize our strategic revenue management tools effectively. However, we've adjusted pricing in Brazil, and it's one of the areas where we recognized the need for those adjustments. We're already seeing positive outcomes from those changes, so I'm satisfied with our performance in Brazil. The main challenge we face is in China. We have two businesses there, Wanchai Ferry dumplings and Haagen-Dazs, which are roughly equally split. Wanchai Ferry is performing well, and Haagen-Dazs is doing reasonably well in retail and e-commerce too. However, we are experiencing decreased foot traffic in Haagen-Dazs shops. As you've likely heard from others in the market, consumers are pulling back, which affects shop traffic. Looking ahead for the rest of the year, while we hope to see improvement in that trend, we are not relying on it to meet our guidance. Overall, I feel quite good about our international operations, with China being the challenging area. The issues we face there are more related to macroeconomic factors rather than execution on our part. The margins in shops are low, but the fixed costs are high, impacting profitability. We're not expecting significant economic improvement in the near term, so this will be something we have to manage throughout the year.

Thank you.

Our next question comes from Robert Moskow from TD Cowen. Please go ahead. Your line is open.

The situation in China presents a macroeconomic challenge for the shops. The margins are low while fixed costs remain high, affecting profitability. We do not expect the economic conditions to improve in the near term, so this will be an ongoing issue for us throughout the year.

Sorry, Rob. We can't hear you. We heard just a tiny little sound.

How's this? I'm sorry.

That's good. Perfect.

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?

The answer, Rob, is much more the latter. There's not a broad category of strategy for yogurt and cereal. Both are significant in morning occasions, sharing similarities in taste and health benefits. However, there aren't broader implications for our retailers or on insights. We have insights specific to that operating unit, as well as in North American retail that cover a wider area. From a business and manufacturing perspective, these two categories can be relatively easily separated, and I don't anticipate any impact on cereal from the divestiture.

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?

I would say that instead of covering all four categories, the two most significant ones are dough and snacks. In the refrigerated dough segment, we have some exciting advertising planned for the second quarter featuring the Doughboy, along with several product launches. I expect our dough business to improve in the second quarter. Regarding market share, we're currently at approximately 75%, and the goal is to continue growing that share. I'm confident in our strategies moving forward, and I believe our dough business will perform well. As for fruit snacks, we’re adding additional capacity in the second quarter, particularly for our Gushers line, which has faced capacity constraints. We also have some excellent new products for Gushers coming out this quarter. I anticipate improvement in our fruit snacks segment throughout the year, although it may not all occur in the second quarter. Overall, while we’ve made good progress across many categories, these two are the ones where we need to continue focusing on growth.

Got it. Thank you.

Our last question today will come from John Baumgartner from Mizuho Securities. Please go ahead. Your line is open.

Good morning. Thanks for the question.

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?

When we consider innovation, we view it in a broad sense. It can occur through various avenues such as new product development, marketing messages, and packaging sizes. Many focus solely on new products. While our new product innovations are solid, they will represent only 5% of our business this year. The remaining 95% is crucial for driving profitability, growth, and household penetration. It’s important for us to ensure our innovations are relevant to each category. This might involve messaging, new ideas, the right packaging, or new products. Looking ahead to the second quarter, I feel confident about our new product innovations within our billion-dollar brands. We are also increasing our advertising efforts, including exciting campaigns for Totino's in the second quarter, new offerings from Old El Paso, and updates on our core products like our flakier biscuit. All of these represent innovations tied to our major brands. Strong ideas associated with big brands typically yield better outcomes, and we feel we have particularly strong ideas for our leading brands, including Blue Buffalo, which extends beyond just the North American retail market.

Thanks, Jeff.

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.

This concludes today's conference call. Thank you for your participation. You may now disconnect.