Earnings Call Transcript - GIS Q3 2025

Operator, Operator

Good morning, and welcome to General Mills' Third Quarter Fiscal 2025 Earnings Conference Call. All participants are in a listen-only mode. After the speakers' remarks, we will conduct a question-and-answer session. As a reminder, this conference call is being recorded. I would now like to turn the call over to Jeff Siemon, Vice President of Investor Relations and Corporate Finance. Please go ahead.

Jeff Siemon, Vice President of Investor Relations and Corporate Finance

Thank you, Julianne, and good morning. Thanks to everyone for joining us today for our Q&A session on our third quarter fiscal '25 results. I hope you all had time to review our press release, listen to our prepared remarks and view our presentation materials, which were made available this morning on our Investor Relations website. Please note that in our Q&A session, we may make forward-looking statements that are based on management's current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here with Jeff Harmening, our Chairman and CEO, and Kofi Bruce, our CFO. So let's go ahead and get to the first question. Julianne, can you please get us started?

Operator, Operator

Our first question comes from Andrew Lazar from Barclays.

Andrew Lazar, Analyst

Great. Thanks so much. Good morning, everybody. Jeff, you mentioned in the prepared remarks the sharp focus right on accelerating organic growth as you move into fiscal '26. And you highlight the at least 5% HMM savings, the additional $100 million in cost saves on top of this. And I think you've said previously you plan to reinvest the 53rd week as well. So I guess my question is, with the sizable step-up in investment planned for fiscal 4Q, how do we think about the incremental investment that you think is needed for fiscal '26 beyond what you're already doing in the fourth quarter this year? And in thinking about those investments, I guess, what does the balance of spend look like or the mix between work that still needs to be done on price points specifically versus, let's say, innovation, in-store activity and media expense?

Jeff Harmening, Chairman and CEO

Yes. Thank you, Andrew. Really, really fair question. Let me give you a couple of pieces of context and then answer your question more because I think the context is important. The first is that coming into this year, we thought the consumer environment would improve as the year got on and that hasn't really been the case. And consumers are still seeking value as much or more than they had when our fiscal year began. And if you look at the most recent confidence indices, they indicate that consumer confidence is actually below where it was three months ago and about where it was in 2008. And so the situation we find ourselves in is different than we thought coming into the year. And so consumers are seeking value, which you can see in the categories they're pursuing in many ways. The other thing I would tell you is that as we think about our investment going forward, we've kind of looked at what's worked for us over the last year. And when you look at Blue Buffalo, we were having a similar conversation a year ago, and we sharpened our price points. We got really focused on the things that mattered. We improved our marketing, our new products, and we've gotten to a place where we're competing effectively on Blue Buffalo. The same would be the case on Pillsbury. So we talked about last quarter what we need to do. And yes, we sharpened our focus there on value, but also we have good new products there, and our marketing is really good. The focus on value actually allowed our marketing to work better. The same would be true of Totino's. Again, we've got the value in line, and our marketing is really good on Totino's. As we look at those things or how we compete with Haagen-Dazs globally, we know that getting the value in the right zone and then adding on top of that really good innovation and improved marketing is the way to go. So that's the context. As you look at our fiscal fourth quarter, obviously, we're stepping up investment. We're investing some more in pricing, particularly in the fruit snacks area where consumers are really looking for value. That's very clear. But also we're stepping up our marketing double digits. We're doing that on some of our biggest brands. We think our marketing is really good. You'll see that on Blue Buffalo, you'll see that on Pillsbury, and you'll see that in Cereal. So as we look at next year, it'll be a year of reinvestment for us, and it'll be a combination of getting our value right. The place where you'll see that the most is in snacking, particularly fruit snacks, and no need to wait until fiscal '26. So we started in the fourth quarter. The other is that on pricing, we are lapping a lot of pricing we've done in the back half of this year into the first half of next year. But in terms of kind of incremental activity, we need to take on the value that fruit snacks provides as the incremental value. Beyond that though, we're going to improve our marketing on our core as we've done in some of the categories I've told you more broadly. We're going to increase our marketing spend, and we have some really good new products coming in the first half of next year. In fact, part of the investment we're making in the fourth quarter is the R&D resources necessary to get those products to market as well as the supply chain. So what we're looking at next year is to reinvest our HMM savings, reinvest in the 53rd week as well as these efficiencies to get back to growth. That is the job to do. The rest of our P&L looks great and will look even better once we get back to growth. My expectation is that our competitiveness will improve starting in the fourth quarter with the actions we've taken, and we'll look to carry that over into the first quarter, second quarter, third, and fourth of next year.

Operator, Operator

Our next question comes from Ken Goldman from JPMorgan.

Ken Goldman, Analyst

Hi, thank you. Just to build on Andrew's question, I was hoping we could run through a quick very broad exercise of kind of the tailwinds and headwinds into next year, just on a general basis, not looking at any numbers. And I'm wondering if I'm missing anything here. So as I think about the tailwinds, you've talked about a little more trade, better marketing in general that should help volume. Innovation, your tone is great there. Maybe you have some easier laps from some of the trade destocks. Obviously, you have a little more HMM maybe, and you have those new cost efficiencies you talked about. And then as I think about the headwind side, excuse me, obviously a little more trade than you initially expected, although you talked about some easier laps there, some investments in brand communication, maybe a bit more slotting than you have tariffs, stock-based comp, Yoplait dilution. I'm running through these very quickly obviously and I'm putting you on the spot, but is there anything obvious that I'm missing there? Because honestly you talked about how your job is to get back to growth. It seems that those headwinds are a little stronger than the tailwinds and that's kind of what we're hearing from the buy-side today. So I really wanted to push a little bit on that if I could.

Kofi Bruce, CFO

Okay. And I think broadly you've actually hit almost all the elements we want you to be tracking. I think Yoplait, obviously, we don't know exactly when that's going to close. That will be a significant probably about 5-point headwind that we want to make sure you have visibility to. We flagged that at CAGNY and it's starting to present as a 5-point headwind on profit. I think you've got kind of the texture of the rest of this. There'll be some annualization impact from the investments we've made this year that are important to factor in. We are building flexibility just in terms of our posture for next year for additional investment. I think we're very committed to getting the job done on improving growth trends both in the categories and our own competitiveness. So to the extent that we go into next year, we want to make sure we have flexibility to do that. So I think we'll obviously give you a little bit more perspective on where the commercial investments are going as we step into our Q4 and give guidance. I think you've placed the fence post about right though.

Operator, Operator

Our next question comes from David Palmer from Evercore ISI.

David Palmer, Analyst

Thanks, and thanks for those comments on innovation. I wanted to follow up on that. I've seen some data that in general in the food space there's been less innovation that the innovation in the category in general packaged food has not really recovered to pre-COVID levels. It's been slow to essentially ramp back up. You're certainly ramping up innovation heading into fiscal 2026. I wonder if you could sort of characterize for us the level of innovation activity into 2026 and how it will compare to 2025 and maybe you sound optimistic about it like what are the ways you're changing the types of innovation, the messages that you think will work perhaps better per activity and marketing dollar next year?

Jeff Harmening, Chairman and CEO

Yes, David, good questions. I will give you as much context as I can without giving away exactly what we're going to be doing. First, you're right in that new product innovation as a percentage of sales is still lagging where it was pre-pandemic. That's also true for us, although we're up significantly in our new product innovation as a percentage of sales this year compared to last year. So we are up, but still below where we were pre-pandemic. I hope that's clear. It's clear in my mind when I say it. I hope it's clear to those listening on the line. As we look at next year, I think there are two things that we need to do. The first is that the types of innovation we have probably need to be supported more robustly. We've had some good new product innovations like Cheerios Protein. We just talked about Pitmaster and what we've done with Old El Paso and soup. We've got stick bars coming in Asia and Europe that are really good. Nature Valley Granola protein is off to an amazing start. We need to support those robustly, which we intend to do and then I think the theme for next year is probably going to be fewer, but bigger. We have a few big innovations that we'll talk about in June that I would love to discuss now, but we're not going to, that are going to come in the first half of next year, in addition to some of the things we already talked about. So fewer and bigger, I guess, would be the strategy and then making sure we support well the good ideas that we have—we have some innovative ideas.

Operator, Operator

Our next question comes from Michael Lavery from Piper Sandler.

Michael Lavery, Analyst

Thank you. Good morning. Just looking at you called out value and price gaps quite a bit and obviously that's a focus. Looking at Dough and Totino's where you kind of had the test cases already, it's maybe a little harder on Totino's to see how much it's coming through because it looks like it picked up kind of later in the quarter or into 4Q. But Dough had sales growth up, I think, around 4% with volumes up around 8%. I guess maybe in those categories, how do you understand or figure out what the right price adjustments are? And then really how does that translate more broadly? I guess the kind of endpoint of the question is, how do you know that as you've got your—it sounds like your '26 plans are broadly set. How do you know the price investments you're anticipating are enough? And how do you think about just you said maybe you can be nimble there. Is that part of how you plan for it as well?

Jeff Harmening, Chairman and CEO

Yes. So you mentioned dough, which are refrigerated Dough and Totino's. You also have Blue Buffalo in that mix of things that we have executed well and opened some price points but also improved our marketing. That's another key piece to this—getting the marketing right, whether it's new product innovation and marketing behind that or marketing behind the core, which is also important. As we look at that, the new piece, we're looking at the same price, but we've got great brands. When we talk about that value piece, really, it's about getting into the zone and price differentials and that sort of thing. It doesn't mean we have to price equally to everybody else; we just have to get into a zone where our pricing will work. We consider all the elements of our marketing mix, and we use the remarkable experience framework to do that. We go category by category to say, what are the aspects where we are good? Where are we missing elements? We follow that throughout the entire company. I'm confident as we head into the fourth quarter and then to fiscal '26, we have a much better handle, category by category, on what jobs need to be done. In some cases, that's about value, in others it's marketing on the core, and in some cases it's about innovation. Fruit snacks probably requires all three of those things. That's the way we look at it, and we have confidence because we've done it several times now in some big businesses—Blue Buffalo, Totino's, and Pillsbury—all of which are $1 billion-plus brands, and we've executed effectively there. We just need to make sure we expand that to the rest of our portfolio, which we have been working on and will start to manifest in Q4. In fact, I expect our Cereal business to come back in Q4, and I would expect our soup business as well to show improvement in Q4 as we get the marketing into a good place and ensure the value is also in the right spot.

Michael Lavery, Analyst

That's great color. Would it be fair to assume that that evaluation exercise you talked about, have you completed that across the company or is there still some brands or categories that maybe under review, so to speak?

Jeff Harmening, Chairman and CEO

We have completed that across the company, which has led to some of the improvements that you've seen so far. Some things take longer than others, and that work has already begun, and you'll see that in the fourth quarter and it will bleed into next year as well. But I would also say it's an always-on capability because context changes, and the environment around those changes. One of the things—yes, I feel good that we understand brand by brand what we need to do, but I also know that the context changes and that we have to be agile enough to change with the world around us.

Operator, Operator

Next question comes from Alexia Howard from Bernstein.

Alexia Howard, Analyst

Can I start by talking about snacks? In past economic slowdowns, like the financial crisis, snacks performed relatively well as an affordable treat. However, this time seems different; consumers are more focused on value when it comes to discretionary spending. Could the increased use of GLP-1 drugs or growing concerns about the healthiness of indulgent snacks be contributing factors? I'm curious about the data you're analyzing to understand the underlying causes of weakness in this category.

Jeff Harmening, Chairman and CEO

Let me give you a couple of thoughts. As we look across salty snacks, grain snacks, and fruit snacks, quarter-on-quarter, there's about a negative gap on the category between what was happening before and what is happening now. Our view is that a lot of that has to do with consumer confidence. Yes, GLP-1 use is increasing; it's about 10% of the adult population now—about 5% or so used for weight loss, which is up significantly from the year before. But it didn't change that much quarter-to-quarter. We've also seen the same kind of activity in dog treats. To my knowledge, there are no GLP-1s for dog treats, so I don't think that—while we take the GLP-1 kind of trend seriously, and as you see, we have a lot of protein coming in our new products and macro nutrients and fiber are going to be important along with portion size and lower sugar, that's really not what we see in this environment. Regarding the slowdown, you're right; in past recessions, like in 2008, we didn't see this. Our view would be that food at home is now elevated compared with what it was in 2008. Pre-pandemic food-at-home consumption was about 83% of occasions, which is now 87% and has been 87% for a long time. What has changed is that in price increases like we're experiencing now along with diminished consumer confidence, we had a lower percentage of people eating at home. This level has already increased. Our belief is that consumers have become much more value-conscious, which not only determines what happens in the category but also affects what happens in the rest of the store. If you look at the grocery store, you'll see that staple items are growing faster than discretionary ones. Staples like baking staples, for example, and some items on the store perimeter are growing faster because they provide more value. The same would be true of why restaurant occasions are down slightly. We think it's much more about value now, and that's the main concern versus what we saw in past recessions.

Operator, Operator

Our next question comes from Peter Galbo from Bank of America.

Peter Galbo, Analyst

Jeff, just a couple of questions. If we can dig in a little bit more on the snacks business. The first would be just around fruit snacks. I'm assuming when you're talking about kind of the value piece of it, you're talking more math relative to Gushers. I think you had like actually expanded Gushers' capacity about a year ago. So I just wanted to clarify on that. And then the second piece is just if you can expand a bit more on the remediation plans, I guess, in snack bars; you have a competitor who was off-shelf and is now back on-shelf. Maybe regarding salty snacks as well, just to the same level of detail you provided around fruit snacks would be super helpful.

Jeff Harmening, Chairman and CEO

Yes. Let me start with fruit snacks a little bit. You're right. I mean Gushers' capacity came back up in Q2, and we feel good about the trajectory of that business. When we look at the category, the fruit snacks category is down, and part of that is from the discretionary issues we discussed, but we also haven't distinguished ourselves in share front either. A couple of our big retailers introduced private label during that period, so there's no question that the job on fruit snacks is to ensure our value is in the range while also getting back to innovation. We've talked a little about Harry Potter fruit snacks and what we're doing there as well as marketing on the core. I liken what we have to do with fruit snacks a bit to what we had to do with a couple of items on Blue Buffalo where a year ago, our pricing was good on life protection formulas. All we had to do is market it better, and we started doing that, and that has been the job. That's probably analogous to Gushers. When we look at other items, like wet pet food and treats, we had to improve the marketing to do better, which we are now doing, and it took a little longer, but we eventually got back on track. That being said, I think the bars business is in a tough quarter because a competitor was off shelf a year ago. But I feel good about our bars business. The innovation coming on bars is exciting. We didn't mention cereals or protein bars, I don't think on this call, but it's coming up. We feel good about that. Nature Valley has good marketing, and I think our bars business will rebound probably more quickly than fruit snacks, but fundamentally, we're in a decent place on that. Yes. Regarding salty snacks, there is certainly a value play, although salty is a relatively small part of our portfolio relative to fruit snacks and Nature Valley. The consumers are very much looking for bold flavors, and our ability to introduce new products with bold flavors will be part of our success in the salty snacks segment.

Operator, Operator

Our next question comes from John Baumgartner from Mizuho Securities.

John Baumgartner, Analyst

To the consumer and this interaction between value-seeking and Mills, as mentioned, a functional ingredients and a functional innovation set against the broader focus on RFK and ingredients. How do you assess, Jeff, the willingness and ability for consumers to pay up for healthier ingredients and better quality? I think in the past, the ability to extract premium pricing for premium ingredients, that compact being just sort of take to remain competitive. Do you see it changing on that front in terms of pricing power and premium mix at this point?

Jeff Harmening, Chairman and CEO

Consumers are still going to seek value in various ways. Part of that is pricing, but the benefit aspect is also important. We see that playing out in proteins. We highlighted a lot of protein innovation we have coming now, whether that's Cheerios Protein or Progresso Protein, which is doing well. You'll see that. The key for us is that we're seeing a lot of value players, but we're seeing some things at the high end as well so it’s kind of bifurcating. For us, value doesn't mean racing to the bottom on pricing or matching up with private labels; it's making sure we have the gaps correct. After a period of record inflation for the last three years, those pressures can take their toll. So it's truly about getting the value right. Beyond that, it is important to communicate the benefits of our products. Sometimes that means functional benefits like protein, and in other places, like Pillsbury biscuits, it involves how flaky they are or the great chocolate taste of Betty Crocker. It depends on the brand; people ultimately want items that taste good. If we can combine a good taste with functional benefits, as in the case of Cheerios Protein, that's an even bigger win.

Operator, Operator

Our next question comes from Chris Carey from Wells Fargo.

Chris Carey, Analyst

So 1 slight clarification and then a bigger picture question. Just on the clarification, with the savings targets for next year, is there a message today that the savings targets between HMM and the incremental $100 million are there to be fully reinvested back into the business? Or is the message today simply that we're putting forth strong savings such that we can invest as we see fit, but the plans are still developing or something of the sort? So that's just a kind of clarification. And then, the bigger picture question is, if I look at your category growth rates, the categories in which you compete are actually growing, which is really positive because that means you can close category gaps and get back to growth. When you assess why your portfolio is not growing in line with category, what are the major diagnoses? Is it value, the innovation agenda, the marketing messaging? I think we all acknowledge that value is key here, to invest in price and trade, and that will drive the improvement. But when you reflect on the portfolio and why there’s relative underperformance, what are the buckets that stand out the most to you?

Jeff Harmening, Chairman and CEO

Yes, let me take the second part of your question first, and then I'll pass it over to Kofi to take the first part of your question second. You make a really important point on category growth, which is that our categories are growing about 1%. This is below the kind of 2% to 3% growth we expect for the future. The biggest delta really comes from price mix. As we look at volumes, they are roughly in line with what we'd expect for a 2% to 3% top line growth, but there's not much price mix in this environment. Given what we've said about the consumer, that aligns. So our categories are growing. The most important job we have to do is to get back to being competitive, which we'll look to do largely in the fourth quarter. We have lots of areas where we are currently competitive. If I look at Foodservice, if I look at Haagen-Dazs internationally, if I look at Blue Buffalo or what we've done with Pillsbury or Totino's, there are places where our market shares are increasingly good. Our job is to expand that more broadly, probably beginning with volume share first; ultimately, the final measure is dollar share, but volume share is the priority as we realign our value. To get back to our algorithm, we need a little bit of price mix on top of that, which we are not expecting in the near term, though we're confident that it will eventually come. Now I will probably turn it over to Kofi to talk a little bit more about the reinvestment profile and what we're expecting there.

Kofi Bruce, CFO

Just kind of picking up on what Jeff left off, to the extent that we see the path ahead next year, really focused on driving improved growth and competitiveness. The purpose of the $100 million plus in additional cost savings, the net HMM above inflation, is to free up resources to reinvest for growth. The efficiencies are necessary to drive that growth. We're not trying to drive specific improvements in margin. Obviously, if we have additional flexibility above that $100 million, you can expect our dial to be tilted probably towards reinvestment back into the business. We'll talk more about specifically where and the nature of that investment in a bit more detail as we go into Q4 and provide guidance for the next year.

Jeff Harmening, Chairman and CEO

Kofi, let me come back to the second part of Chris' question, which I think I forgot the first time. Being competitive is not solely about price. We need to get the pricing back in the appropriate range, but it's about value holistically. The recipe for success as a CPG company is relatively simple, even if it's challenging to execute: you need good marketing on your core, strong new product innovation, and value must be synchronized so the marketing can work. This has been true for decades and we've proven it again in categories I've mentioned earlier. We'll begin to show success in other areas as well. You will see improvement in Cereal in the fourth quarter, where we have good value and a double-digit increase in media. You'll see it on soup, where we have good new products to market. Yes, we need to get our pricing roughly in line, but it can't be only about that. We've got the best brands in our categories. It is essential to market them effectively, including marketing the core and new product innovations. We'll ramp both as we look at the year ahead, starting in Q4.

Operator, Operator

Our next question comes from Leah Jordan from Goldman Sachs.

Leah Jordan, Analyst

I just wanted to go back to cereal. I know that's been a big area of concern for investors recently. With the mid-single-digit decline in U.S. retail in the quarter, I'm curious if you could provide more detail on that, how it compared to your internal expectations? And going back to what gives you the confidence to drive improvement in the fourth quarter? Additionally, how are you thinking about the durability of the category longer term?

Jeff Harmening, Chairman and CEO

Yes. As we look at the third quarter, and as we assess this more deeply, our cereal performance wasn't great in the third quarter, but it was about what we expected. We knew we had a little inventory built up from the second quarter. We talked about timing and that related to a few categories in our second quarter earnings call. Cereal is certainly one of those. Additionally, we had a competitor off-shelf in the third quarter of the year, and we faced a bit less media and merchandising investment. The reason why I am confident it will get better in the fourth quarter is that we have increased media investment. We do not face the overhang from the inventory, and our merchandising is now in a much better state. We have a strong promotion in the fourth quarter. Just like we did last year, we expect to perform well. The key to longer-term growth is honestly giving consumers more of what they want. As we look at Cheerios Protein, we see that we just launched Go Cereal, which has performed well. Moreover, our Nature Valley Granola Protein has also performed surprisingly well. It truly comes down to providing solutions for consumers' needs. So while these follow functional benefits might drive innovation, many still look for great taste, like that found in our magically delicious cereals or the best tasting Cinnamon Toast Crunch.

Operator, Operator

Our next question comes from Max Gumport from BNP Paribas.

Max Gumport, Analyst

With regard to the unexpected portion of retailer inventory headwinds in North America retail and Pet, can you provide a bit more color on what drove it? Is this an industry-wide phenomenon, or is it specific to some of the categories you compete in or your product specifically? Additionally, what's informing the view that there won't be any material changes in retailer inventory levels in the fourth quarter?

Jeff Harmening, Chairman and CEO

First, in Pet, it was across some of our biggest retailers. Pet inventory through the six years or so that we've owned this business has always been more volatile than the rest of our business, primarily due to the e-commerce nature of the business. So there's a 5-point drag on Pet this quarter from retail inventory; a lot of that was dry pet food, which led to the results in dry pet food, especially in dry dog food. Our inventory levels weren't high before; they're even lower now. For the year, our inventory is about flat compared to where it was at the beginning of the year. This gives us confidence that we won't experience another significant drawdown in inventory for the rest of the year. As whether that's an inventory trend—an industry trend or specific to us, I'll leave others to discuss their trends. I can only comment on ours.

Jeff Siemon, Vice President of Investor Relations and Corporate Finance

Julianne, thank you—we’re going to wrap up here, given that we can hit the time allotted. Thank you for your attention and time this morning. We're available all day for follow-ups as usual. We look forward to connecting in the next few days, and we'll be back to discuss Q4 when we get to June. Thanks so much.

Operator, Operator

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