Welcome to the General Mills third quarter fiscal 2010 results conference call. (Operator Instructions) I would like now to turn the conference over to Kris Wenker, Vice President Investor Relations at General Mills.

Good morning everybody. I’m here with Ken Powell our CEO, Don Mulligan our CFO, and Jeff Harmening, who leads our Big G Cereals division. I’ll cover my usual housekeeping items quickly and then turn the microphone over to them. Our press release on third quarter results was issued over the wires earlier this morning. It’s also posted on our website if you still need a copy. We’ve posted slides on the website also. They supplement our prepared remarks for this morning and these remarks will include forward-looking statements based on management’s current views and assumptions. The second slide in today’s presentation lists the factors that could cause our future results to be different than our current estimates. With all that I’ll turn you over to my colleagues, starting with Don.

Thanks Kris, and good morning everyone. Thanks for joining the call and for your interest in our company. At General Mills we’re now nine months through the fiscal year and our portfolio of leading brands continues to perform very well. The results we released this morning reflect another quarter of high quality performance. Our sales are growing even as we lapped robust prior year increases. Our margins improved reflecting lower input costs, favorable mix, and continued benefits from holistic margin management, or HMM. We continue to reinvest in marketing and merchandising programs to fuel momentum for our brands in the fourth quarter and into fiscal 2011. And our earnings per share increased at a strong double-digit rate. Slide five summarizes our third quarter results. Net sales grew 3%, that’s on top of 4% sales growth last year. Price and mix contributed two points of growth and favorable foreign exchange added one point. Segment operating profit rose 8% including a double-digit increase in media spending. Net earnings totaled $332 million, and diluted earnings per share increased $0.96. Our reported results include several items effecting comparability. Third quarter 2010 earnings included net reduction related to mark-to-market valuation of certain commodity positions in grain inventories. That reduction totaled $0.01 per share this quarter bringing our adjusted earnings to $0.97 per share. In last year’s third quarter we recorded a $0.13 gain from mark-to-market valuation. Our year ago results also included $0.08 gain for insurance proceeds related to a plant fire in Argentina, and a $0.15 reduction due to the impact of a court decision on an uncertain tax matter. Excluding these items effecting comparability in 2009 and the mark-to-market effect in both years, diluted earnings per share grew 23% in the third quarter. Top line growth continues to be an important driver of…

Thanks Don, and good morning everyone. I’m pleased to report that the US cereal market is healthy and growing and our Big G business is on track to deliver a third straight year of sales and earnings growth. Big G had a strong third quarter, sales increased 6%. We delivered pound volume growth of 4% and we continued to invest in strong levels of brand building support with media spending increasing at a double-digit rate in the quarter. We’re seeing our fasted growth in non-measured channels where cases sold grew at a double-digit rate for the period. In Nielsen measured channels, several of you noted that we gave up some share in February. That was really due to our own very tough comp. Last year’s February share was up more than two points driven by a significant merchandising event that’s running in March this year. You’ll see that reflected in measured channel data this month. Baseline sales were up for the quarter and we increased distribution of Big G cereals. For the fiscal year end total we expect to lead growth in the category and modestly increase our share of cereal sales consistent with our long-term goal. Leading growth in this category in particular is a great place to be. Retail sales for ready to eat cereals totaled nearly $10 billion in the latest 52 weeks across measured and non-measured channels. It’s a high penetration category with more than 90% of US households buying cereal each year. That makes an important category for our retail partners driving good traffic in their stores and delivering a nice margin. And most importantly the category is healthy and growing. Retail sales have increased between 2% and 4% annually in the last few years and we expect that trend to continue. And because of…

Thanks a lot Jeff, Big G led our growth this year, but we’ve seen good performance from the rest of our businesses as well. So I’ll share a brief review of each of our operating segments beginning with US Retail. In total year to date sales for this segment are up 4%. As you can see on slide 39 most of our divisions are growing at or above that rate with two exceptions. Baking sales through nine months were up 1%, lapping very strong pricing in the year ago period. And Meals sales matched last year’s levels as disappointing soup sales offset gains on other meals items including particularly strong growth on Old El Paso Mexican products. As we look to the fourth quarter we’ll continue to build momentum on the products we’ve launched this year, especially our January launches of Chocolate Cheerios, Wheaties Fuel, Yoplait Greek Style Yogurt Simply [Gogurt], and Dark Chocolate Nature Valley Granola Bars. We’ll bring some excitement to our categories with two in-store events. In March we have a spring savings event that will offer savings on items across our portfolio as well as product sampling and recipe books. And in April and May we’re partnering with the new Shrek Forever After movie with in-store displays, coupons, sampling and in pack premiums. We’re increasingly turning our attention to fiscal 2011 and have strong marketing support in place to keep our momentum going into next year. Our advertising and media support will be up in the fourth quarter for US Retail. So we expect good sales growth for this business segment in the fourth quarter on a comparable [week] basis. For the year in total targeting low single-digit sales growth and high single-digit operating profit growth as reported. And as we look to 2011 and beyond…

(Operator Instructions) Your first question comes from the line of Terry Bivens – JPMorgan Terry Bivens – JPMorgan: Couple of quick questions on the interface with retailers, one of the things we hear is that a certain I guess large retailer down south is contemplating some pretty aggressive pricing action and I wanted to ask you if you’ve seen that. I know you don’t like to talk about specific customers, but more of a broad question, are you seeing any pressure to take your pricing down.

Well as you’ve said we never comment prospectively on our pricing. I think what I will say is we still haven’t reached the end of the year but as we look to next year we do expect to see some return to an increase in input inflation and clearly that’s going to be factored as we all plan for next year. Terry Bivens – JPMorgan: And then again there seems to have been a move I think perhaps too far by some retailers to streamline their SKU count and its our understanding that certainly in a couple of cases you are actually getting some space back particularly in the cereal aisle. Maybe if I could get Jeff to comment on that.

Well cereal is a very important category for our customers and they realize the importance of it and so as we look at the cereal category specifically we haven’t seen any decrease in distribution for the category as a whole and in fact what we are seeing are an increase in facings on the biggest brands because they really help drive the growth for our retailers and make it easier for consumers to shop and we feel great about our prospects in that environment because we have a lot of the top turning SKUs in the category. So we’re seeing increased distribution but also increased facings in addition to the number of items. So for us we really don’t see SKU reduction by retailers having been, its really not been a negative factor in the category performance.

I would just add that [inaudible] to cereal but I would say those comments are generally applicable across our portfolio. Just look at our distribution, it has been consistently up 2% and 3% over the past really 12 to 24 months.

Your next question comes from the line of Ed Aaron – RBC Capital Markets Ed Aaron – RBC Capital Markets: I wanted to ask about just the trade off from promotional in terms of promotional spending, rather you do it more from consumer marketing versus trade. I think some of your peers have started to shift those dollars more into trade and your numbers still do suggest a much heavier focus on the marketing side but you did hint at some expectations for higher merchandising spending in the fourth quarter and I know that HMM allows you to do some of both but I’d just be curious to get your perspective on how you think about the trade off between the shorter term pop that you might get from higher trade spending versus the more sustainable longer term benefits from focusing more on higher consumer marketing spending.

I think you’ve partly answered the question, our primary focus is on building baselines and we build baselines through effective advertising and sampling and the kind of innovation that really drives fundamental and sustainable category growth and you saw that again this quarter with very significant increases and effective increases in marketing support. Not only in the US but a very strong increases in our international markets as well. So really the focus of the organization continues to be on very high quality, baseline driven top line growth. As we’ve said as we look at the competitive environment and monitor what’s going on from a merchandising standpoint we do want to be competitive and so as we’ve said in selected categories we have increased some merchandising there to remain competitive. Its selective. Its tactical. And designed really to just keep us competitive.

I would add just a couple of points on the merchandising, its more about the frequency that we’re in the market as opposed to the depth as well, that’s an important note to make. The other is that on the advertising side as we’ve been saying for the past year we have kept our new product pipeline very robust and so much of that advertising is against new product launches which have been very successful more broadly and I think that’s a differentiator of our activity in the marketplace versus the broader market. Ed Aaron – RBC Capital Markets: When you were talking about the increase in inventory you mentioned that part of it was due to some sales weakness in certain parts of the business, were you referring only to soup, or was there anything else that might have caught you by surprise in the quarter.

We mentioned soup and Green Giant shelf stable vegetables, were probably the two primary one. But again the inventory, that was a piece of it, but we also have seen increase in grain prices and we’re also prepping for some [merch] that we had planned this month that we build inventory for last month and so we’re starting to see that pull through.

Your next question comes from the line of David Palmer – UBS David Palmer – UBS: When we look at the data for just even the measured channels and it seems like this is also true on some of the non-measured retailers, these retailer brands are and overall packaged food losing share now. I was wondering as a leader in the space what’s the lesson here of this last year about what’s going on with regard to brands versus the retailer brands. Is this one of those sort of short lived blips and you see this kind of turning in a few months time where retailer brands start to get to easier comparisons and they get momentum again and what are some of the reasons for the ebb and flow on these shares.

I think you’re right, we are seeing that growth moderate, and just to give you some perspective over the last year, the last 52 weeks, retailer brands in aggregate in our categories were up a share point. The last quarter they’ve been up about 20 basis points and then in February I think as you just alluded to they were down slightly and you heard Jeff Harmening just comment that there’s a slight decline as well in cereal. And so I think part of it may be explained by a consumer who’s a little bit more confident. We wouldn’t say we’re out of the woods yet but we are seeing some, we think that is a sign of some increase in consumer confidence. On the restaurant, the food away from home, just as another data point we still see food away from home sales declining but at a rate that’s moderating. And so maybe we’re seeing a few signs there that the consumer is a little bit more confident. And so I think it could be a sign of improving confidence and for our part we’ve had very strong innovation on our business and so that’s driving good performance in cereal for example where we’re up and we’re starting to see some private label decline. So I think it’s at least in part a combination of confidence and also good competitive response by branded competitors in many of the categories. David Palmer – UBS: Its interesting about what you said about the food away from home we’re seeing that too with February and March doing a lot better on food away from home but it also, when I talk to industry folks in packaged food space in CPG, they’re seeing a little bit better traction on that side in February and March particularly versus a rough January. I wonder if we often think about the give and take between these two channels and maybe the consumer environment feeling a little bit better would be better for multiple channels. Any thoughts on that.

I think that could well be the case although I would say we’re in the very early stages of the recovery and this is sort of a case of I think two or three swallows not making a spring, but we are encouraged by the moderating trends in food away from home and we think we’re going to continue to have great opportunities in our categories in the grocery store.

Your next question comes from the line of Eric Katzman – Deutsche Bank Eric Katzman – Deutsche Bank: I guess my question is on the $48 million charge or however you want to clarify it in cost of goods, can you just help me understand that a little better, is that a kind of a year to date catch up on the change in how you’re capitalizing these repairs or is this going forward its going to be a similar level of charges, just help me with that.

This change in the capitalization threshold has been on our radar screen all year. We’ve been working on upgrade to our parts management system in the plant, that gave us information that we needed to set the threshold at the right level. As background, up until this change we had capitalized all spare parts regardless of the individual cost, they were then expensed when they were put into service. We’ve now changed that capitalization rate to $500 so any item that is less than that is expensed when purchased. And our reason for doing this is just it really does help enhance what is already a strong capital discipline at our plants and we think it puts the right balance if you will between the P&L, the balance sheet management in our operating plants. And so what you saw in the quarter was the charge to the P&L of all the current inventory less than $500. Eric Katzman – Deutsche Bank: So basically to break it down because I’m just a simple guy, if somebody buys a hammer before you would have taken, you would have capitalized it and now you’re expensing it.

If you buy a replacement part for a machine that is less than $500 we would have capitalized that, otherwise or inventoried it, and then when it was actually put into service in the machine in the line, we would have expensed it then. Now we’re saying is as soon as you buy that piece whether you put it in service or put it on the shelf, you expense it. Eric Katzman – Deutsche Bank: So the $48 million is basically a catch up of what the inventory you had and now going forward its going to be the less than $500 rule applies.

Correct. Eric Katzman – Deutsche Bank: So it seems to me that that $48 million is kind of a one-time item and its about Chris told me earlier its about $0.09 a share.

Yes. Just to clarify we view this move similar to restructuring to put it pretty broadly in terms of changes that we make in our practices to better position ourselves going forward and again this is one where we believe that it enhances what is already a strong capital discipline in the plants which is the reason we include it in our earnings as we do our restructuring. Eric Katzman – Deutsche Bank: And then can you just, you made some comments about the deflationary benefits to gross margins starting to anniversary in the fiscal fourth quarter and I’m just kind of wondering one, can you talk either broadly or specifically year to date in terms of your gross margin expansion, how much has been the result of lower inputs and then does the extra week kind of play into how we should view the fourth quarter of gross margin change as well.

That’s a good detailed question and Don is happily going to attempt to answer, just to clarify a few things, we didn’t see deflation in Q4 last year, we just saw a decelerating inflation in Q4. Year to date fiscal F10 we have seen deflation. If you look at our COGS year over year on a year to date basis which is the best way to look at it, it is down from last year. About half of that decline is due to mark-to-market which as you know runs through COGS. About 40% is due to rate mix which is a combination of both, we saw the bit of deflation we’ve seen in the strong HMM activities we have in play and the remaining piece about 10% is due to the divested businesses. As we look at Q4 the extra week is not going to have a material impact on our margin percentage. What’s going to impact the margin percentage more is the fact that we’re rolling over a quarter where we had a 500 basis point margin expansion because it was the first quarter we started to see the deceleration of our COGS inflation. Eric Katzman – Deutsche Bank: So can you just kind of frame, is the, if you’ve been running I don’t know what its been like let’s call it 400 basis points of gross margin improvement year to date, is the, if roughly let’s call it 20% or something is due to the inflation does that completely go away or do you still get some benefits year over year.

For the full year we’re still expecting, we’re not expecting inflation for the full year so we think it will be relatively, as we go into Q4 we don’t expect inflation to be a material factor but we will continue to see the impact of HMM and I think the comparison to do in terms of year to date versus last year I guess what I would keep in mind is year to date we’ve been running as you were saying 400 plus basis points better than a year ago. We’re starting to lap a quarter where we saw 500 plus basis point expansion. So you kind of draw the line on those and you get a pretty good understanding of where the quarter will end.

Your next question comes from the line of Andrew Lazar – Barclays Capital Andrew Lazar – Barclays Capital : I guess just two things, one any way to get a sense of what the year over year shift was in sort of promotional spending as it would impact the top line. I know obviously overall pricing or overall price mix was positive and I’m just trying to get a sense of how much even directionally was netted against that in terms of year over year change in promotional spend.

We’re giving each other puzzled looks. Maybe you could clarify the question. Andrew Lazar – Barclays Capital : You used to break out the year over year shift in promotional spend as it was netted against the top line, just to get a sense of what the trade spend either increase or decrease was year over year and I know you don’t break that out specifically any more and a lot of food companies don’t but I’m trying to get a sense of whether that was a meaningful change one way or the other to the top line on a year over year basis.

The way I would answer that is that last year I think our trade spend was a little bit more loaded to the front part of the year. I guess as background one of the things that we have been doing very practically over the last couple of years is try to smooth our trade spend out so its not as front loaded than it has historically been, last year it was still a little bit more front loaded than back loaded. This year its probably a little bit reversed so it will be a little heavier in the back half. If you think of our total spend and where it will fall, but we’re talking about percentage points not 10 or 15 percentage point swings. So I hope that answers your question.

Maybe the other bit of perspective is that we do expect for 2010 our all in cost per case on trade spend, it will be a little bit higher than 2009, but it will still be less than 2008 so we’re talking about pretty modest moves here. Andrew Lazar – Barclays Capital : On that one slide that Jeff was talking about in terms of the top 10 fastest turning cereals, its an interesting slide, its pretty fascinating to me and obviously Cheerios SKUs are the top five, top six out of or six out of the top seven, and I’m just trying to get a sense of if we were to look at that sort of statistic maybe a couple of years ago, is it typical that you’ve got that many SKUs of one brand in the top 10, is that a more recent phenomenon having to do with just people shifting to more of an all family brand. Because what I’m getting at is, I’m trying to get a sense of the sustainability because the growth obviously in that franchise in Cheerios has been great and that’s really profitable within the context of a really profitable category. So that’s sort of what’s behind the question.

If you look, a couple of years ago you would have seen yellow box Cheerios, Honey Nut Cheerios still at the top of the turns ranking and so that has not changed over time, in fact, Honey Nut Cheerios in particular has been growing rapidly among a lot of different demographics which is the reason why it’s the number one cereal in the entire category now. What we didn’t show but what has changed to the positive for us over the past couple of years is that we have brands like Cinnamon Toast Crunch, if I would have listed the top 15 you would have seen Cinnamon Toast Crunch where you wouldn’t have seen that a couple of years ago. If I would have listed the top 25, you probably would have seen Lucky Charms and then you probably wouldn’t have seen that a couple of years ago. You would have seen, if I listed a few more of the top SKUs you would have seen Fiber One and MultiGrain Cheerios turning in a top third of the category and so while Honey Nut and yellow box have certainly stayed the same and we think its more than sustainable what we’re very pleased with is that some of our other big equities, we’ve really generated turns increases on those and it made those more productive and its being noted by our retail partners as well as they look to allocate shelf space and its really part of our strategy in growing our core businesses.

Something that I would add to that is are some comments that Jeff made in his presentation on the broader dynamics that are going on in the category right now. It really is for as big as the category is and as well developed in the US there are really many trends that are favoring the continued development of the cereal category right now. People are eating at home more. The boomer demographic segment, as we all, as more and more 50 plus, that is clearly driving some nice increases in cereal consumption and penetration and that’s a trend that’s going to be with us for a while. So overall as we look at the category right now we see it as having very healthy dynamics and of course as you just heard from Jeff, we’re very well positioned from a brand standpoint to capitalize on all segments of this nicely growing category.

Your next question comes from the line of Vincent Andrews – Morgan Stanley Vincent Andrews – Morgan Stanley: You had some transactional expense or hedging costs in the quarter and I remember that I think it was almost a year ago, to the next quarter, that you called out what it would be for the year, can you just remind us how much of that rolls off and as we look at it where rates are now how much of that will you get back in the coming quarters once you lap it.

We started the year with we estimate about a $0.15 drag from foreign exchange, the majority of which was transaction, the majority of that which was hedged. As the year has unfolded that position the translation piece has improved. It was probably down to a $0.11 or $0.12 drag before Venezuela came along and added a couple of cents back. So we’re kind of in the same ballpark we were when we started the year, maybe a penny or two better. And those hedges were put on for our fiscal year. We will give guidance in terms of FOREX impact next year when we release our overall guidance in July. Vincent Andrews – Morgan Stanley: Was there any positive impact from all the blizzards and so forth on the east coast in February, maybe you’re seeing March, can you just help us understand if there was any impact there.

I’m not aware of any impact really. Our categories, the penetration is so deep and consumers are in the grocery store so frequently, really on a weekly basis to consume our products that any blip that you might have seen over a one or two day period, they would have recovered those purchases very quickly so that really hasn’t been a factor. Vincent Andrews – Morgan Stanley: I was thinking more the other way, I just remember reading about lots of empty shelves during those multiple weeks where there was really terrible weather. So I thought maybe it would be positive.

Your next question comes from the line of Ken Zaslow – BMO Capital Markets Ken Zaslow – BMO Capital Markets: You discussed alternative channel growth for cereal can you talk about any notable growth in alternative channels for other categories.

I think at last quarter’s conversation, we discussed non-measured channel growth for all of our major categories and I’m just remembering what that slide said but what it said is we’re seeing very good growth across all of our categories in those non-measured channels, not just cereal and we have a very, everyone thinks of the big mass market channels that we’re all very well aware of and obviously we work very hard on our relationship there and to make sure we’re aligned with those strategies. But I would also tell you that we’re very, very focused on all those channels. We have very close partnership with the Club Stores. We see the Dollar channel as clearly a rapidly growing channel with very good opportunities for parts of our portfolio. We see other mass marketers increasing their focus on food and we think that that will be advantageous to us and so you’re really talking about nearly 40% of the sort of retail universe right now with a variety of shapes and formats and we’re focused on all of them very intently. I forgot to mention drugstores who are emerging now as an interesting growth opportunity for us. So there’s lots of opportunity there and we see good growth across our portfolio in those alternative or unmeasured channels. And we see many sustainable growth opportunities there. Ken Zaslow – BMO Capital Markets: But no specific categories you are seeing notable growth that we should be aware of.

No, its good solid growth across the portfolio. Ken Zaslow – BMO Capital Markets: Are there any categories or products that General Mills has yet to focus on in the last couple of years that we could expect to see more energy put forth for 2010, 2011, maybe some more subtle products.

Well I’d comment this way, we’re always, we seek to find product innovation and marketing messages that will allow us to increase consumer interest in our categories and drive growth. Recently over the last year for example we have a very robust Mexican food business under the Old El Paso brand. And we’ve advertized that during select periods of the year, during the last two or three years, but we’re finding marketing messages that resonate better with consumers and so we’re accelerating our investment in that category now as an example and we think that that’s a very good growth category. Another area is, another category where we’ve been experimenting with advertising is frozen vegetables, the Green Giant brand. Where again we’ve been experimenting with advertising, we have some very good messages now on the frozen being as good as fresh and the benefits and values of that category and we’re finding that advertising coupled with some very good innovation like for instance our steamers product which we launched last year which is a microwave in the bag vegetable product which has become a very big business for us. So nice innovation combined with what we think are some really good advertising messages are allowing us to steadily increase our investment in that category. So those would be a couple that would come to mind. Ken Zaslow – BMO Capital Markets: When you think about 2011 are you going to exclude or include the $0.09, I just didn’t understand which way you were talking about it when we think about your growth algorithm.

We will include the $0.09, the spare parts you’re talking about, that is part of our underlying EPS.

Your final question comes from the line of Chris Growe – Stifel Nicolaus Chris Growe – Stifel Nicolaus: We’ve had several quarters, a couple of quarters now at least where your pound volume has not been all that exciting but you’ve had strong unit growth and I guess I’d just like to get a better sense of how the pound volume being dragged down by maybe a little weaker performance in soup, I guess also canned vegetables, can you speak to that relationship perhaps in the quarter and maybe even year to date as well.

As we alluded to some of the products that have performed below our expectations especially more recently with soup and canned vegetables, you can imagine those are pretty heavy products, conversely we’ve had very strong performance in cereal as Jeff took us through today, a lighter product. So we do see some favorable mix pound to price mix in that trade off and so that’s an example of some of the shift or differences that we’re seeing. Chris Growe – Stifel Nicolaus: Is it possible to say how much maybe that was a weight on volume this quarter by chance. I know you make it up in the form though to be fair, correct.

Its kept in our mix number for the quarter. Chris Growe – Stifel Nicolaus: So perhaps revenue growth this quarter was a better metric to look at because of what constituted the volume.

Absolutely. Chris Growe – Stifel Nicolaus: The last couple of quarters you’ve been able to give a little bit more of a detailed breakdown of the gross margin, you’ve had just an outsized improvement in gross margin this quarter. It was even better than the last couple and, when you back out the charge, I was just curious if you can give a little bit more color on how the mix or the unit volumes, how those, maybe the lower input costs, how that’s all helping the gross margin this quarter.

I’d say its quite similar to what we’ve had in the previous two quarters, even three quarters if you go back to Q4 of last year. Very strong HMM, a little bit in this fiscal year, a little bit of deflation that’s helping and then again excluding any mark-to-market swings but those are the primary factors. Obviously as the year has unfolded we’ve had less of a price benefit. We saw it more last year as we fully lap any pricing action we took last year. But actually the mix has been pretty consistent across the quarters. Chris Growe – Stifel Nicolaus: Just a little bit more detail on the international profits this quarter, by our kind of quick back of the envelope math if you exclude the Venezuela charge and the divestitures, profits would have been up in the quarter, is that the right way to say it.

Yes.

Thanks everybody, if you have follow-ups give us a shout.