Earnings Call Transcript - GIS Q4 2024

Operator, Operator

Good morning and welcome to General Mills Fourth Quarter Fiscal 2024 Earnings Conference Call. All participants are in a listen-only mode. After the speakers' remarks, we will have a question-and-answer session. As a reminder, this conference call is being recorded. I would now like to turn the call over to Jeff Siemon, Vice President of Investor Relations and Treasurer. Please go ahead.

Jeff Siemon, Vice President of Investor Relations and Treasurer

Thank you, Julianne, and good morning, everyone. Thank you for joining us today for our Q&A session on our Fourth Quarter and Full Year Fiscal '24 Results. I hope everyone had time to review our press release, listen to our prepared remarks, and view our presentation materials, which we made available this morning on our Investor Relations website. It's important to note that in our Q&A session, we may make forward-looking statements that are based on management's current views and assumptions. So please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which we may be discussing on today's call. I'm here this morning with Jeff Harmening, our Chairman and CEO; and Kofi Bruce, our CFO. So I think we can go ahead and get to the first question. Julianne, can you please get us started?

Operator, Operator

Certainly. Our first question will come from Ken Goldman from JPMorgan. Please go ahead. Your line is open.

Kenneth Goldman, Analyst

Hi. Thank you very much. I appreciate it. I wanted to understand the dynamics in International. It's a bit of a specific question to start, but the commentary in the prepared remarks about consumer challenges might indicate that volume would have been more pressured than price-mix, but it was the latter that was down by a greater degree. So I'm just curious if you can walk us through the dynamic there and if there were any unusual puts and takes this past quarter. And then I have a broader follow-up.

Kofi Bruce, CFO

Ken, thanks for the question. This is Kofi. So as you know, our organic sales were down 10% in International in Q4. A bit more than half of that came from a reclassification from net sales to cost-of-goods-sold in Q4, an adjustment that was immaterial to the company's full year results, but obviously important in the quarter for the segment. The rest of the decline in International was really a function of the difficult market conditions in both Brazil and China. Our Brazil performance, specifically both the consumer environment and value challenges at the shelf as well as the customer environment where customers were reducing inventory levels pretty significantly versus last year. And then China, after a strong start to the year, we saw a real downturn in consumer sentiment in the quarter that had a negative impact on our shop traffic for Haagen-Dazs and our premium dumpling business. So that's the bulk of it.

Kenneth Goldman, Analyst

I'm sorry, Kofi. Thank you. I'm stepping on your words, I apologize, but I appreciate that. The follow-up is, and thank you for all the detailed guidance you always provide from top-to-bottom in the P&L every year. I'm curious if you could break out for us a little bit of the cadence of the top-line and EPS growth this year and in particular if there's any considerations as we think about modeling the first quarter.

Kofi Bruce, CFO

Yeah, I think we won't get too detailed, other than to just note that our Q1 results, we would expect to trend below the balance of the rest of the year, primarily driven by higher levels of investment as we step into the year with a focus on improved volume, and then obviously, the comparison against our strongest quarter performance in fiscal '24.

Operator, Operator

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

Andrew Lazar, Analyst

Great. Thanks. Good morning, everybody.

Jeff Harmening, Chairman and CEO

Good morning.

Kofi Bruce, CFO

Good morning, Andrew.

Andrew Lazar, Analyst

Maybe, Jeff, to start off, I know in the prepared remarks you discussed sort of a clear mission to drive better volume results through reinvestment, which I know is contemplated in your outlook for '25. And you mentioned prominently the need to improve the value equation for consumers, even mentioning optimizing price points in certain areas, a 20% increase in coupon spending as examples. And I know the consumer measures value in lots of different ways, not just price, so I was hoping to get maybe a better sense of how the mix of incremental spending for '25 is sort of broken out across what would you consider higher-quality, brand equity building versus, let's say, more trade or price-oriented spend, particularly as this is such a hot-button topic among investors right now.

Jeff Harmening, Chairman and CEO

Thank you, Andrew. That's correct. Improving value is our top priority to enhance competitiveness. Looking back at the past year, our categories showed an improvement in volume and comparable performance during the first half, with a decrease of 2.4% in volume shifting to an increase of 0.5% in the fourth quarter. This is significant because, as we discussed earlier, there were several factors in the latter part of our fiscal year that we believed would enhance category performance, and they did gradually come through. This was due to the effects of pricing lapping from a year ago, the ending of SNAP benefits, and increased availability of private-label and smaller brands. Now, our challenge is to boost our competitiveness. Inflation has persisted longer than anticipated for most, although food inflation is declining. However, in the wider macroeconomic landscape, we continue to see inflation in the range of 3% to 4%. Therefore, our task is to create more value for consumers, which can be achieved in various ways. I want to start with brand communication, where we plan a significant increase in our consumer spending next year. Our productivity levels exceed inflation rates, so gross margins should remain stable. It's crucial that we allocate this budget wisely, beginning with brand communication. We are excited about new advertising in pet food, particularly for Wilderness, which we're rolling out next week. The advertising looks fantastic. We have already seen growth in Life Protection Formula and Tasteful, so now it's Wilderness's turn in the pet segment. In cereals, a key global area for us, we have exciting taste updates set for our cereal category, highlighted by the Kelsey Brothers in the first quarter, with more content coming in the second and third quarters. We're reintroducing the Doughboy, a unique asset that private-label does not offer. Alongside this, we have great developments like flakier crusts. We're also sponsoring the Olympics in several countries, and Totino's is gearing up with effective marketing strategies. We're confident in our brand investments. Additionally, we are launching around 40% more new products this year, which is a significant increase from last year. Taste remains a crucial factor in our categories, with innovations like flakier biscuits, cheesier Andy's Mac and Cheese, fudgier Betty Crocker brownies, and healthier options in our K through 12 cereals. We also have exciting new products like Fruity Cheerios, Mott's breakfast bars, allergen-free Nature Valley Lunchbox, and Totino's breakfast rolls. We are implementing more ways to deliver value, including variety packs, and we plan to boost our couponing by about 20% at the start of the year. Our first-party data gives us a unique advantage, allowing us to target effectively with good returns on investment, which not many manufacturers can do. In sum, we are committed to enhancing our coupon spending because our research shows this approach is highly effective. We recognize that some price points need adjustment, particularly in areas like wet pet food, but we're optimistic about the value we can create for consumers, which is our primary focus for the upcoming year.

Andrew Lazar, Analyst

Thank you for that. Kofi, regarding HMM for fiscal '25 and the impact of cost of goods inflation, it seems, as Jeff mentioned, there is some gross margin flexibility for reinvestment. Considering the significant reinvestment plans, not just in SG&A but also impacting gross margin, do you expect to at least maintain or slightly increase gross margins for the entire year? Or is there a possibility of facing continued gross margin pressure throughout the year, given the necessary actions across both trade and consumer? Thank you.

Kofi Bruce, CFO

Great question. Appreciate the question, Andrew. So I would say we've got enough flexibility that we would see a modest amount of gross margin expansion even with the levels of investment. And the key here is, as we look at the business, we're going to play flexibly with an eye towards investing in growth-driving activity, some of which Jeff did an eloquent job of listing off.

Operator, Operator

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

Bryan Spillane, Analyst

Hi. Thanks for the introduction. Good morning, Kofi. Good morning, Jeff. I have one question that has been asked in different ways this morning. Essentially, have you set your guidance low enough for fiscal '25? I ask this considering the increased investment suggested in your plan for this year. Looking back at the past four quarters, we've been anticipating a significant change, not just with General Mills but across the entire industry. It seems there's more uncertainty in business planning this year compared to previous years, and given the chance to create more financial flexibility or to allocate additional funds for spending, why not seize that opportunity now?

Jeff Harmening, Chairman and CEO

Thank you for the question, Bryan. You've mentioned increased volatility and uncertainty. I've noted that for the past five years, so I'm looking forward to a year without such volatility. The market continues to change, and I believe we've created a sufficient cushion without being overly cautious. The market does continue to evolve, as you've pointed out. However, we have robust marketing support, new product offerings are on the rise, and there’s positive news regarding our core brands. I expect to see an improvement in our volume performance this coming year, especially since it was down 3% this past year. Each of our operating segments, including North America, retail, foodservice, international, and pet, is dedicated to enhancing volume performance and increasing competitiveness. I'm confident that our ongoing activities and positive developments will enable us to achieve this, especially with gross margins already returning to pre-pandemic levels. Our productivity exceeds current inflation levels, allowing us to reinvest some of that for growth. We are not relying solely on changes in the environment to fuel our growth; rather, it depends on enhancing our competitiveness, something we can control. We feel positive about our capability to achieve these goals.

Bryan Spillane, Analyst

Thanks, Jeff. Maybe just a quick follow-on that is, as you've planned this year, what's your expectation on competitiveness? Meaning do you expect competitors to make similar moves? And just how are you anticipating how the competitive environment would set up this year again, given just how dynamic things are?

Jeff Harmening, Chairman and CEO

Certainly, I can't speak for my competitors, but we are all seeking more growth. What's been interesting is that the environment has remained quite rational, and I find it difficult to envision this changing. The reason I feel this way is due to the ongoing inflation, which is currently between 3% and 4%. In such an environment, unless there are significant productivity improvements like ours, it leads to a continuing rational atmosphere. Over the past year, promotional spending has increased, frequency has risen slightly, and the depth of discounts has also grown modestly compared to last year. However, if we look back prior to the pandemic, we are essentially back to that level of promotional activity. As I mentioned earlier, regarding the question about value, there are numerous ways to deliver value to consumers, and I believe our competitors recognize this as well. Therefore, we will utilize all possible strategies to ensure that consumers understand the value of our prominent brands. Much of this relies on marketing, product innovation, and other related efforts.

Bryan Spillane, Analyst

Okay. Thank you.

Operator, Operator

Our next question comes from Steve Powers from Deutsche Bank. Please go ahead. Your line is open.

Stephen Powers, Analyst

Yes. Hi. Good morning and apologies if you hear construction. There's someone who started drilling as this call started behind me. I guess the question I have to start is you talk about a roughly equal contribution from price and volume through the year at the company level, which I take to mean sort of flat to slightly positive in each case. I guess, is there any deviation from that as you think about the sequencing through the year or across the different business segments or do you expect that sort of roughly equal contribution to be representative kind of across the totality of the enterprise?

Jeff Harmening, Chairman and CEO

As we analyze the situation, I can't hear any drilling in the background, but I want to emphasize that when we discuss price and volume, we consider them relatively the same as price mix, with the mix aspect being quite significant. I don’t foresee any large differences in performance among our segments. We're not particularly expecting high demand for one product in one segment and low demand in another. Our primary focus is on achieving volume growth across various segments. There are even opportunities for growth within foodservice, which has performed well, as well as across the board. Regarding the first quarter of the previous fiscal year, noted for its high sales growth and substantial pricing, we will be comparing against that as we move into the upcoming year. This will likely affect our price mix in the first quarter, which, as Kofi mentioned, coupled with some reinvestment, will make our first quarter the most challenging compared to the other quarters in the year. I anticipate a gradual improvement in our sales and profitability throughout the year.

Stephen Powers, Analyst

Thanks for the clarification. Kofi, going back to what you and Ken mentioned at the start of the call regarding international markets, could you share your insights on the challenges in Brazil and China? What are your expectations for the development of these regions as the year progresses, particularly in terms of their contribution in 2025?

Kofi Bruce, CFO

We are expecting volume improvement in all of our segments, but for international markets, Brazil is crucial for us. We see improvement compared to this year's performance and expect similar progress in China, along with continued strength in our EU, AU, and GEMS markets, which did really well this past year.

Stephen Powers, Analyst

Thank you very much.

Jeff Harmening, Chairman and CEO

You bet.

Operator, Operator

Our next question comes from Alexia Howard from Alliance Bernstein. Please go ahead. Your line is open.

Connor Cerniglia, Analyst

Hello. Good morning. This is Connor Cerniglia stepping in for Alexia Howard. Jeff, I'd like to ask about your ready-to-eat cereal segment. Measured channel data suggests you've experienced a bit more challenged market share dynamics at a time when promotional spend has increased at one of your competitors. Can you talk about how you think about this segment in 2025? And do you continue to see rational pricing behavior or is there a concern on this front? Thanks. And I'll pass it on.

Jeff Harmening, Chairman and CEO

We've observed rational behavior in the cereal market, and I anticipate this will persist. Our main focus is on our brand and our competitors. We genuinely believe we have the best brands in this category, and our priority in cereal is to return to our core strategies. Last year, we had successful new product innovations, including the top-five new products. In fact, I believe some of our innovations this year are even stronger than last year. I mentioned Fruity Cheerios earlier, and we have promising new products coming in the second half. More importantly, there's exciting news related to our core brands, which I discussed with the Kelsey Brothers. Additionally, I am looking forward to our big program with Box Tops during the back-to-school period, as well as some updates on major brands that I can't reveal right now but am enthusiastic about. Our goal is to refocus on achieving growth for our significant cereal brands while continuing to innovate. Our innovations last year were strong, and I believe the upcoming year's innovations have the potential to be even better, with early results indicating promising outcomes.

Operator, Operator

Our next question comes from Tom Palmer from Citi. Please go ahead. Your line is open.

Thomas Palmer, Analyst

Good morning, and thanks for the question. I appreciate based on your earlier comments, you might not want to be overly specific here, but I guess I'll give it a try. If we exclude the inventory reductions and trade accrual, I think organic sales growth was down around 2%. Should we look at this as kind of a starting point as we enter the year? Or are there other considerations we should be thinking about as we move into the first quarter?

Kofi Bruce, CFO

Yeah, I appreciate the question. So let me see if I can step back and just, if you will, give me a point of privilege here. I'll try to give you a little bit broader perspective starting at the enterprise and then drilling down to pet and North America Retail. While we saw the slowdown in organic net sales, I think the critical thing here is we look at our measured retail sales; they're pretty consistent as we move from Q3 to Q4. So as you rightly noted, the big point on the front is three points of headwind from the comparison on the trade expense phasing from Q3 or Q4 of fiscal '23. At the enterprise level, we also saw a modest decline in retailer inventory in NAR and Pet in Q4 versus Q3, where we had a net tailwind. And then I think third and importantly, I'd reference again the point I made on International that, in Brazil, we had an adjustment to net sales that moved to COGS, which was worth about a point of drag on its own. So in aggregate, about five points of drag from those three factors as you peel it back. And then as you look at it on a segment basis at NAR, that trade expense comparison is about four points of drag. We also saw retailer inventory adjustment impacting NAR at about a point of tailwind flipping to or a point of tailwind in the quarter of Q4 versus a point of headwind in Q4. Then we also benefited in Q3 from some weather patterns in NAR. Then as we look at Pet, we had about two points of headwind from the trade expense comparison. We also saw retailer inventory reductions in Q4 versus Q3. And then we did have a modest amount of headwind as well from SKU losses in a few key places. So, in aggregate, that kind of gets you the picture. I think the critical thing here is the read-through for you as you're thinking about how to look at the quarter. Nielsen's Q3 to Q4, roughly in line.

Thomas Palmer, Analyst

Got it. Thank you. In the presentation, M&A was listed as a higher priority than share repurchase regarding capital allocation. I have two questions. First, to what extent does the 3% decline in share count guidance assume that free cash flow over the dividend is used for share repurchase instead of other options? Second, I know you've been asked about this frequently over the past year, but could you provide an update on your M&A criteria and appetite in terms of size? Thank you.

Kofi Bruce, CFO

Sure, sure. So I think I'd first start by acknowledging that our capital allocation priorities have been pretty evergreen. So I think the first is, clearly, we want to make sure we have and allocate investment for capital spending internally for growth that's roughly 4% is kind of the top number, and we average around 3.5% if you look at the last handful of years. Second, that we are allocating capital for increasing our dividend, roughly in line with our after-tax earnings, and again we paid a dividend uninterrupted for 125-plus years. And then third, as you rightly pointed out, M&A. And again, M&A is both episodic and it's not something we built into the plan. But generally, as you look at our M&A patterns, unless we've done something big, which is pretty rare, the last big acquisition was Blue Buffalo; most of the acquisitions we do are kind of in that $1 billion to $1.5 billion price range, which we can easily accommodate with a modest adjustment in our share repurchase patterns. So share repurchase remains the most discretionary element, and obviously, we will make changes to our share repurchase expectations as we identify and act on M&A opportunities. To your second point around criteria for M&A, obviously, the critical filter for us that we start first with our strategic priorities, which leads us to look at critical occasions, which would get us to priorities around breakfast and convenient meals and snacking, as well as obviously pet food. I think the criteria for us anchor around places where we can add value. Leverage points around our capabilities that will allow us to unlock faster growth, but also improve margins as we execute transactions. So we've been candidly working with our always-on M&A capability throughout the cycle. We continue to look aggressively at opportunities. At the same time, we've remained very disciplined and have very strong filters in terms of both returns and value creation.

Thomas Palmer, Analyst

Right. Thank you.

Operator, Operator

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

Matthew Smith, Analyst

Hi. Good morning. I wanted to dive in a little bit on the profitability or the profit performance in the Pet segment. You were solidly in the mid-20s even with the volume decline in the quarter. I know you talked about some increased investment behind wilderness as you try to stabilize that business and get it back to growth, but is this a sustainable margin performance in the fourth quarter that we should look to as we look at fiscal 2025?

Kofi Bruce, CFO

Sure. Yeah, let me start. I think we benefited from both a more stable supply chain environment and our ability to drive higher-than-expected levels of HMM even in the face of the volume declines we saw. We continue to have and capitalize on opportunities both to internalize production that was previously external but also to drive HMM that was frankly less available when we were struggling with supply chain disruption. So we feel good about sort of the exit point. What I think is critical as we look at the business right now is we're very focused on driving improved volume trends. So I think profitability, very competitive, at the 20% plus level. I wouldn't expect that 24% is the level we would necessarily target. We continue to expect to be able to drive strong HMM, and much like we're doing at the enterprise, I would say our focus is going to be on reinvesting gross margin improvement back into the business to drive growth.

Jeff Harmening, Chairman and CEO

To support what Kofi mentioned, a year ago we faced challenges with our gross margin and sales growth. I am really impressed with the Blue Buffalo team and their efforts to restore the margin profile. Over the past year, we have worked hard to achieve margins of roughly 20%. Now, our focus is on improving our top-line performance, and we are optimistic about the progress made with the Life Protection Formula, which we plan to invest in further. Additionally, our Tastefuls cat business has shown growth after increased advertising last quarter, and we aim to continue supporting that. Next, we are focusing on the wilderness line, and we will ramp up advertising in July with strong messaging. If we can get Blue Buffalo back to growth, we believe everything else will follow smoothly. We have good productivity, but our main goal is to maintain these strong margins while boosting our top-line performance.

Matthew Smith, Analyst

Thank you. And just a quick follow-up. You talked about some distribution losses in the Pet division, any more detail to add to that? Is that something that remains a drag as we look at fiscal '25 that perhaps keeps volume growth a little tougher to achieve as we look into next year?

Jeff Harmening, Chairman and CEO

Yeah, we've had some distribution losses a little bit on trees and a little bit on Wet Pet Food. That was because during kind of the pandemic, there were some other competitors who couldn't supply as well that we couldn't, so we had some extra self-placement and that's rolling off, but it's really not our big flavors or our big customers. And so even with that, we've seen improved performance on increasingly good performance on our Blue Buffalo business in aggregate if you look at movement. Our expectation is for improved volume performance in the coming year for Blue.

Operator, Operator

Our next question comes from David Palmer from Evercore ISI. Please go ahead. Your line is open.

David Palmer, Analyst

Thanks. I'll follow up on Pet for a moment. I know one of the main areas of focus was the Specialty Pet segment, which clearly impacted the fourth quarter. You mentioned in the prepared remarks about revenue growth for Pet in fiscal '25. Do you also anticipate the Pet Specialty segment stabilizing and growing in fiscal '25?

Jeff Harmening, Chairman and CEO

I'm not going to go into details about each channel, but since you asked, I can share that I've noticed an improvement in that channel. Our focus now is on enhancing our own performance, particularly with wilderness, ensuring we get our sizing right and collaborating with retailers to boost wilderness's performance. The retailers are also committed to this goal. We all aim to enhance wilderness's performance, and I expect to see better results for us in the Pet Specialty channel. We'll find out how this unfolds over time, but I believe we have the right strategies in place to strengthen our performance in that channel, especially with wilderness, which is crucial for improvement.

David Palmer, Analyst

I have a question regarding the Baking segment, which performed well during COVID but seems to have significantly declined this quarter. I'm interested in your thoughts on that segment and consumer behaviors related to it. I hope this doesn't become a persistent issue for you in fiscal '25. How do you view that segment and the consumer trends surrounding baking and At-Home occasions that could influence it? I know it's a high-margin segment, and I'll hand it over to you. Thank you.

Jeff Harmening, Chairman and CEO

Yeah. So let me start with At-Home occasions. At-Home occasions are actually quite high, I mean, about 86% to 87% of food is now eaten at home, and given the challenges consumers are facing with inflation, we would expect that to continue. So I don't see a drag on category performance for At-Home eating occasions. The second is that the category itself in terms of volume has hung in there pretty well. It's our share position, particularly as we look at Pillsbury that has been the challenge, and after many years of remarkable growth, this past year, we saw a return of private-label to shelves, some smaller competitors, but mainly private-label. I think this past year is going to be an anomaly. The key for us is really not a change in the environment. The key for us is our change in level of activity. And I'll tell you our plans in Doughboy are quite good. As I talked about, we're bringing the Doughboy back, but also we've got product improvements, taste improvements on things like biscuits, which I think will serve us very well. We have variety packs coming in cookie dough with brands like Reese's and Oreo and Monster Cookies. So we have a really good plan and really good news to share on our Pillsbury business this year. It's really within our hands to get us back to growth on Pillsbury, and I feel good about our plans there.

David Palmer, Analyst

Thanks for that.

Operator, Operator

Our last question today will come from Robert Moskow from TD Cowen. Please go ahead. Your line is open.

Robert Moskow, Analyst

Hey, thanks for the question. Good morning, Jeff.

Jeff Harmening, Chairman and CEO

Good morning.

Robert Moskow, Analyst

I wanted to ask, many companies like yours have started focusing more on volume, which I acknowledge is important. However, this approach feels different from the traditional strategy many consumer packaged goods companies have employed, where value was created through premiumization and convenience to enhance margins and product mix. Is it possible to pursue both strategies simultaneously? There's a lot of talk about volume today, and I'm curious whether consumers can still embrace more premium offerings in the current market.

Jeff Harmening, Chairman and CEO

Yeah, Rob, I don't see it as a trade-off between volume and premiumization. I think it's an and; I'll take our Blue Buffalo, which is a premium offering, but Life Protection Formula has done particularly well behind really good marketing. That's one when I talked about value earlier, getting back to really good marketing and really good messaging on our big brands is really crucial. I don't see a trade-off between getting back to volume and premiumization in the categories. I think it's an and. Pillsbury is another example where it's a premium offering in the category and we've got really good marketing against it. The reason you hear us talking about volume is obviously our volumes were down versus a year ago, and so that's really the job for us to do is to get back to that. But that doesn't mean that we can't premiumize. So those things are not mutually exclusive. And in fact, I think, in many cases, they go together. The key is to make sure that the value that we offer as we think about it is commensurate with the brand itself. That's why you heard me talking a lot about the news we have on our big core billion brands because that really is going to be the key to our success. And we talk about value; a lot of people immediately go to price and that certainly is a component, but it's not the only component. If you think about it, when consumers feel pinched, one of the most important things they have to do is feed their families, and what they can't afford is waste and the family has to really want it. So you hear us talking a lot about taste news and things like that in this environment. I appreciate the question. I think it's a really good one you hear us talking about volume because, obviously, if that's the most important job to do, but it is not the opposite of increasing premiumization at the same time.

Robert Moskow, Analyst

Great. Thank you.

Operator, Operator

Our last question today will come from Chris Carey from Wells Fargo. Please go ahead. Your line is open.

Christopher Carey, Analyst

Hey, thank you. I'll just wrap it up with a couple of follow-ups. So number one, Kofi, on gross margins, you said expansion for the full year. In the prepared remarks, you did highlight, however, that gross margin compares harder in Q1; you'll be doing more couponing in Q1. Should we expect gross margins to be down year-over-year to start the fiscal year, then improve as couponing becomes more balanced and comps get easier? Apologies if I missed that, but that would be number one. And then second, just the recurring debate throughout the Q&A this morning has been the sales reacceleration implied in the outlook. If you just think about SRM, couponing, and perhaps other items, how would you frame the relative contribution of these items to the acceleration that you're expecting in your outlook for the year? So thanks so much on those two.

Kofi Bruce, CFO

Okay. Let me begin. Regarding Q1, I am not ready to provide much more detail than I already have. Essentially, we anticipate a comparison of sales that will reflect the price mix component Jeff mentioned, and operating profit compared to the same quarter last year will be a net negative impact. Therefore, we expect Q1 to be weaker than the following quarters. I won’t go into too much more detail than that. Clearly, our guidance and expectations suggest that we will utilize all aspects of our SRM strategy. There is certainly significant emphasis on the pricing aspect, which is crucial in this environment, but we are also focusing on trade optimization and mix as we leverage our SRM tools. As we have progressed through this year, it has become evident that pricing and the price mix have been less influential on sales as we have cycled through last year's pricing. However, we intend to continue employing the complete SRM toolkit next year. I can't provide more specifics on the components or the overall situation at this time.

Christopher Carey, Analyst

Okay. Thank you.

Jeff Siemon, Vice President of Investor Relations and Treasurer

Okay. I think we'll go ahead and wrap it up there. I appreciate everyone's good questions and time and attention. And as always, we're available for follow-ups throughout the day if you have more questions that you need to get us. So I appreciate the time today and we look forward to catching up soon.

Operator, Operator

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