Ladies and gentlemen, thank you for standing by, and welcome to the General Mills Second Quarter F '12 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, December 20, 2011. I would now like to turn the conference over to Ms. Kris Wenker, VP Investor Relations with General Mills. Please go ahead, ma'am.

Thanks, operator. Good morning, everybody. I'm here with Don Mulligan, our CFO; and Chris O'Leary, Executive Vice President and Head of our international operation. Ken Powell, our CEO, is traveling, but he's participating by phone. I'm going to turn the call over to the 3 of them in just a minute, but first, I'll cover my usual housekeeping item. Our press release on second quarter results was issued over the wire services earlier this morning. It's also posted on our website. We've posted slides on the website too that supplement today's prepared remarks. These remarks will include forward-looking statements that are based on management's current views and assumptions. The second slide in today's packet lists factors that could cause our future results to be different than our current estimates. Let me also observe here that we're going to conclude this call promptly on time, because I know a number of you want to listen to ConAgra. So let's do one question per person, please. No voice. With that, I'll turn you over to my colleagues, beginning with Don.

Thanks, Kris. Hello, everyone. Thanks for joining us this morning. As you've seen from our financial results release this morning, General Mills continues to deliver stellar performance in a tough operating environment. We posted broad-based net sales growth, reflecting our international Yoplait acquisition and strong levels of price realization and new product activity across our base business. Despite significant input cost pressure and a high single-digit increase in media investment, our earnings were generally in line with year ago levels. We expect to deliver strong sales and earnings growth in the second half of the year. So in total, General Mills is on track to deliver our full year sales and earning targets for 2012. Slide 5 summarizes our results for the quarter. Sales totaled $4.6 billion, up 14%. Segment operating profit grew 2%. Net earnings attributable to General Mills totaled $445 million, and diluted earnings per share were $0.67 as reported. These results include changes in the mark-to-market valuations of certain commodity positions as well as integration expenses from the international Yoplait acquisition. We're also lapping a net benefit from certain tax matters in the year ago period. Excluding these items, adjusted diluted EPS would be $0.76, in line with our year ago performance. Slide 6 shows the components of our net sales growth on an as-reported basis, which includes a full 3 months of results from Yoplait International. Pound volume contributed 10 percentage points of growth in the quarter. Sales mix and net price realization added 3 points of sales growth, and foreign exchange added one percentage point to our sales growth rate. So on an as-reported basis, net sales increased 14%. Excluding the impact of Yoplait International, net sales grew 6%. Price mix drove this underlying performance, contributing 10 points of sales growth. As expected, pound volume…

Thanks Don, and good morning, everyone. I appreciate the opportunity to update you on General Mills' International business. Last month marked the 10th anniversary of our acquisition of Pillsbury, which really opened the door for General Mills' expansion to international markets. Remember that back in 2001, General Mills reported only $300 million in international sales, and most of that was Canada. The Pillsbury acquisition transformed our international profile. We doubled our business in Canada, and we picked up great brands like Häagen-Dazs, Wanchai Ferry, Old El Paso and Green Giant that gave us a foundation to build on in many other markets. Today, we have a decade of growth under our belts. Including pro forma sales estimates for Yoplait, our international net sales now exceed $4 billion. It might surprise some of you that half of General Mills' total employees now work outside the United States. We have 30 manufacturing locations outside the U.S and sales in over 100 countries. With Yoplait included, our International segment generates 25% of General Mills' reported net sales. Fiscal 2012 is shaping up to be another year of strong growth for our International business. Through the first half of the year, net sales and operating profit expanded by more than 40% on an as-reported basis and increased at double-digit rates in constant currency. Now those figures obviously include strong contributions from Yoplait. But even if Yoplait is excluded, our sales and profit are growing at double-digit rates. Slide 20 shows the components of our International sales growth in the first half. Sales, as reported, increased 43%. The addition of Yoplait with the lower price per pound is the driver of the lower price and mix you see here. Net sales excluding Yoplait were healthy as well, with pound volume, pricing and mix and foreign…

Thanks, Chris, and good morning, everybody. You just heard about the strong growth we're seeing in our international businesses, so let me give you a quick update on our other 2 business segments, beginning with Bakeries and Foodservice. Through the first half of this year, our sales in this segment are up 12%. That growth has been led by price and mix, but pound volume also is up 1% year-to-date. We are continuing to outperform foodservice industry trends by focusing on the most resilient customer channels. Our sales with Foodservice Distributors grew 8% driven by good performance on our hot breakfast products like Pillsbury Mini Pancakes and French Toast. Our sales in convenience stores were up 10%, led by recent new product launches in the channel like Nature Valley Recharge bars and Fiber One Brownies. And our good growth in bakeries and national restaurant accounts reflects particularly strong performance from in-store bakery items. We continue to innovate for our Foodservice customers, and we'll launch a variety of new products in the second half. For example, we're adding mini waffles to our successful hot breakfast line. In convenience stores, we'll launch several new items, including Nature Valley Granola Thins and new Fruit Twists, which is a gluten-free snack. We continue to expect good sales growth for Bakeries and Foodservice for fiscal 2012 in total. We still expect a mid-single-digit decline in segment operating profit as planned, because we are lapping particularly strong levels of grain merchandising earnings last year. Turning to our U.S. Retail segment. Net sales were up 3% through the first half, with price and mix contributing 9 points of growth. As we mentioned in our press release, pound volume reduced net sales growth by 6 points, primarily reflecting lower shipments of heavier items such as flour, dessert mixes,…

The first question comes from the line of David Driscoll with Citi Investment Research.

Great. I wanted to talk a little bit more, Ken, about the Greek yogurt segment in the United States and U.S. yogurt overall. We've done a lot of analysis on this market. The Greek segment looks like it's doubled in size in the last 12 months. It's now about 25% of the U.S. yogurt category. General Mills, according to our numbers, has just about a 5% share, and distribution points in our food, drug and mass data look flattish, maybe even down slightly. I guess the heart of the question here is what's your confidence level that you can really penetrate this market, the Greek yogurt segment? And can you talk a little bit in more depth about your plans to do so? How do you go up against Chobani, which looks like it has a fairly significantly lead at this point?

So thanks for the question, David. And obviously, the -- your numbers on the impressive growth of this segment are -- we're well aware of those. And the way we look at it is as follows. First of all, the yogurt category is -- it's an enormous segment. It's the second largest segment we compete in, and it's showing a tremendous growth right now, as you all know, driven by Greek. So it's big, and it's growing, so it's exciting. We do not have our fair share of that segment or of the growth right now, and we're obviously very determined to get that. We are very pleased with the performance that we've had from Yoplait Greek in the first half. That's played out very much as we thought it would, and so that product grew about 50%. We now have more capacity, and we're advertising that we're introducing extensions to that line, so we think that, that will continue to grow very rapidly in the second half, and we're pleased with that. Beyond that, the only thing I want to say is that I think that you're going to see a very high level of innovation in the yogurt category generally and in Greek yogurt specifically over the next 6 to 12 months. I'm certain that, that will happen. We have other initiatives that we're working on. We're very committed to getting our fair share of that segment. And while we're very pleased with Yoplait Greek and we believe that's going to continue to grow, again, I think you will see a very high continuing level of innovation in the category generally and in Greek yogurt, and we're very committed through that innovation to build and get our fair share of that segment.

One quick follow-up on yogurt. Do you expect the original and light segments to grow in the second half? Or will they continue to decline? When does the pressure abate in those big segments?

Yes. We're very committed to stabilizing the performance in those segments. And so we think that, for instance, the lactose-free product that we're launching, that's a very good idea. There are lots of consumers out there who need to avoid lactose, and we're the first player to really take that segment seriously in yogurt. And so we think that, that will help. And we have other initiatives that we're working on, on those core cup brands that we think will strengthen their appeal to consumers. So we think that the performance will improve in the second half.

And the next question comes from the line of Andrew Lazar with Barclays Capital.

Just a quick follow-up on your comment on the distribution gains that you had in your Soup business. Just so I'm clear on it, is the -- some of the SKU rationalization that you talked about that retailers have done, has that taken away sort of shelf space from the overall soup category? Or has it just kind of resulted in a shifting, if you will, competitively in space that you've been able to pick up?

Andrew, it wasn't so much of a -- I wouldn't describe it as a competitive shift. Really I would describe it more as a focus on what are the top turners and making sure that they had a good representation of those turners. So just as an example, the Rich & Hearty portion of the Progresso line, which is -- these are really sort of full-flavor robust soups. Think Italian wedding, these kinds of products. Those are very, very high turners. And as we did our analysis of the category, we saw the products -- that many of those, as an example, Rich & Hearty products, were underrepresented even though they continue to be very, very popular with consumers and very high turning. And some of the space in the category had moved to some of the newer items, some of the simplicity items and which turn but don't turn as well as some of the core items. So I think what we're seeing is kind of a return to what are the top items. Let's organize the category around turns. And as they've done that, we've certainly seen our performance improve. We've gained a significant amount of distribution, for instance, around that Rich & Hearty line, over the last 3 or 4 months.

And the next question comes from the line of Eric Katzman with Deutsche Bank.

I guess I wanted to kind of delve into the issue of the weight versus the units or volume. And I guess not so much specifically, Ken, kind of like tracking it from General Mills' perspective but kind of how do we think about that within the context of the consumer and the retailers? Is it -- like is that a -- like an economic issue that consumers are, I don't know, going towards products that, I don't know, maybe less expensive or less density? Or how do I interpret that because that's -- I don't remember you referencing that kind of differential in terms of your volume numbers. So perhaps you could just kind of go into that a bit more.

Well, let me -- Eric, let me take a shot at it, because I think it is complicated and a little bit confusing, and I'll give you my take on it and then I suspect that Don will want to jump in. We look at both weight, literally gross weight pounds, which is I think a common industry measure. Obviously, we also focus on units. And units are what we produce in our plants, and they are what consumers buy, and they're what retailers sell. So I think you have to keep in mind both measures. As you look at our portfolio this year and the way it's performed -- and I apologize for going through this in a little bit of detail, but it might be worthwhile just to sort of run it down for you. Cereal, up 3% or 4%, that one's fine. Grain, way, way up. Everything is working -- our Pillsbury division, everything's working pretty well there and good baseline on those core products and our -- several of our core businesses in the Meals Division. So soup, for instance, baselines and distribution, as we were just commenting, quite strong there. Old El Paso, quite strong. In the Meals Division, it's really the heavier products, which are our canned vegetable and our frozen vegetable products, that are seeing bigger declines. And they're seeing those declines because those products saw the highest inflation or very high inflation relative to the rest of our business. And so high inflation logically corresponds to a bit tougher volume picture, and these happen to be heavy products. So I think it's a very logical link of inflation leading to differential elasticity on the volume in products that just happen to be heavy. It's a very similar case in Baking, where those products, flour, cake mix, primarily wheat based and grain based and as a result, those products had differentially higher inflation and slightly bigger volume declines. By the way, very much expected by us, given the work that we do around elasticity. They also happen to be heavy products. And then yogurt, with the issues that we've talked about there, yogurt is a heavier product. So higher inflation leading to higher pricing for a couple of the segments and leading to bigger declines in products that happen to be heavier. So hopefully, that is somewhat helpful. I think our, obviously, consumers and our retail partners are focused on unit sales. And there, we commented that those are down 2%, and what I would say there is that is very, very much in line with what we modeled and what we expected. And so we're pretty much -- Eric, we're pretty much where we thought we would be given the level of inflation and the level of pricing that we took at the beginning of the year. Don, would you add anything to that?

Well, I think you captured the drivers very well. The only thing that I would add is that while this is a particularly wide gap between units and the weight volume measures, we have had it before, a couple of years ago kind of in this -- it was either in Q2 or Q3 during soup season, we had a similar gap. So it has -- it does happen from time to time, and that's why we try to point it out, because to Ken's main point is it's the units that really matter from a retailer and a consumer standpoint and from, in fact, a leverage standpoint.

And then, Don, does this then -- like should we think about this reversing as some of like the baked goods products kind of fall off seasonally and that this reverses in the second half to get to your full year view?

Yes. You will see less -- because those products are seasonal, obviously, it goes a little bit into our Q3 as well, you will a lessening of that impact in the back half. Yes.

And you'll also, Eric, see us -- I mean we'll begin comping periods where -- I mean, remember, we began taking our pricing in the early spring of last year in February, so as we start comping the period where our pricing was really starting to hit retail. Then as you said, we see that comp, and the pressure should moderate here somewhat.

And the next question comes from Alexia Howard with Sanford Bernstein. Alexia Howard - Sanford C. Bernstein & Co., LLC., Research Division: So I wanted to ask about your plans for taking Yoplait into China. I think I've seen reports over the last week that Danone has decided to close one of its China plants on the yogurt side and most of the reports cite intense local competition as one of the reasons for that. I know you've talked about wanting to take Yoplait into China, and I guess this may be a question for Chris. But how does that news affect the way that you think about entering that yogurt market in China and just making sure that you're using cash as wisely as possible as you do so?

Yes. Chris, I think that one's yours.

Okay. So thanks, Alexia, for that question. The first thing I would say is yogurt is a big category in China. It's about $4.5 billion, growing double digit, and we clearly see that not stopping. So that is the first thing. I think to succeed in China, you need a combination of the right product and the right local team to execute against those plans. As you know, we have a very strong team in China, some 4,000-plus employees, mainly local Chinese, who have done a great job on brands like Häagen-Dazs and Wanchai Ferry. And with regards to the success of our likely, we haven't announced plans to go into China, but we are looking at it. Yes, we have to be mindful of all the considerations to make it a successful launch. So do we have the right product? Do we have the right dairy sourcing? Do we have the right cold chain distribution system and relationships with the retailers? So that's obviously all factored in. I won't specifically comment on Danone's success or failure there. Although I will say we have had tremendous success thus far in China in our other categories, and if we do launch yogurt, it would be a very mindful, very planful launch.

One thing I would add. Yes, one thing I would add to that, Alexia, is that I think one of the secrets to our strong success in China is that we've really proven out business models in small geography before we've expanded. And so anything that we do there has been -- really prove it out, learn about the consumer reaction and dynamics and then expand. So that's been a conservative model, but it's worked very, very well for us.

And the next question comes from the line of Ken Zaslow with BMO Capital Markets.

Just on pricing. Have you taken all the pricing that you're required to take to offset the higher commodity prices? And is the implication that once February comes around that there will be a greater than your long-term growth in terms of the margin expansion opportunity given that commodities have seemingly stabilized? Can you just talk to that a little bit?

Hey, Don, will you take that one?

Sure. Well, Ken, as you know, we don't talk prospectively about our pricing. But as we've been clear, we began taking pricing last really end of the third quarter, but more in our fourth quarter of fiscal 2011 in anticipation of the inflation that we saw coming in 2012. And so that pricing impact has built as this year has unfolded. One of the reasons that we point to better profit growth in the second half is -- one of the factors will be that we will have that pricing fully in place. But we're not going to talk prospectively about any pricing actions that we may or may not take.

Is there a point in time though with the price -- with the commodities leveling off that you would actually -- how would, I guess, General Mills react to a potentially deflationary commodity environment if that comes out next year?

That's highly speculative and hypothetical at this point. Again, as you know, when we look long term at input cost, we expect them to average inflation in the mid-single digits based on world demand. And we haven't come off that, and we certainly haven't given any specific guidance for F '13 yet.

The only -- the thing I'd add to that, Ken, is remember, we're only halfway through our fiscal year. So we've got 6 months to go, which in these commodity markets has proven to be a lifetime over the last several years. So what we will do for you at our -- around our June meeting, as we always do, is we will give you our best forecast of pricing for -- or I'd beg your pardon, of inflation for our coming year. And so we'll do that about 6 months from now.

And the next question comes from the line of David Palmer with UBS.

Last inflation cycle, General Mills volume held up really well, probably the best in the industry, and that was in spite of a rapid price pass-through environment. The domestic retail business has fallen off in terms of volume more this time. Aside from yogurt, and we obviously talked a little bit about the weightier products, why do you think the inflation cycle has been different for Mills in this inflation cycle? And relatedly, I'm wondering how volume might set up for fiscal '13. Do you think as input cost maybe abates somewhat, you might be able to promote a little bit more than you've been doing and stabilize volume as you exit this year?

So the key factor, going back to that last big cycle, David, is that if you'll recall, that was the period of time where we saw consumers move away in a pretty measurable way from Food-Away-From-Home, so we saw quite a bit downward adjustment in meals at restaurants, meals at home. And that volume ended up in the grocery store and gave us the cycle that you described, which was not only strong pricing in an inflationary environment but that volume tailwind that we got from Food-Away-From-Home. So this go-around we are seeing so far this year anyway, really over the last 12 to 18 months, we've seen that Food-Away-From-Home sector basically moving sideways. So we're not getting nearly the same level of contribution from that kind of change. So I think that accounts for what we're seeing this time, which is a more sort of classic response based on elasticity around price increases. And as we move into our next fiscal year, which again, 6 months down the road, we'll comment more fully on how we see volume pricing inflation, that sort of thing then.

And the next question comes from the line of Eric Serotta with Wells Fargo.

Wanted to touch upon your inflation outlook. I was a bit surprised that it didn't change much from the 10% that you spoke about previously given the moderation in some commodities that we've seen. Are you guys using options as one of the tools in your hedging? And if so, why not a little bit of a pullback in the inflation that you're expecting?

Hey, Don, would you take that?

Sure. Eric, our inflation expectations for the year are -- have been, obviously, pretty consistent things since we first announced them last summer. As we sit here today, we're about 90% covered. And so we have a pretty good line of sight over the year. We'll come in from an inflation standpoint. And as always, we use a number of tools for that coverage, which gives us pretty good line of sight on where the costs are going to come in. To say we've had any pullback, obviously, that's taken into account in our estimate. But again, for many of our core products, prices are still up year-over-year on a spot basis.

And the next question comes from the line of Chris Growe with Stifel, Nicolaus. Christopher Growe - Stifel, Nicolaus & Co., Inc., Research Division: I just wanted to ask you, I guess, a bit of a follow-up on Eric's question. Your first half or second half cost inflation, I'm not sure if you've talked about that in any more detail. I didn't catch it if you did. But how much of a factor or less of a factor is cost inflation in the second half of the year versus the first half of the year?

Don, why don't you just keep it going?

Yes. What we talked about, Chris, is that we expect gross margin compression to improve or lessen in the second half of the year. There's a number of factors. One is sales growth. We do expect volumes to improve in the back half. We talked about innovation. Our media will still be up strongly, and we'll be rolling over softer volume in last year's fourth quarter. Our pricing will be fully in place. That will help -- we'll have a little bit of plus for mix. But one of the other things that maybe isn't as apparent that I think is important to point out is our inventory management. You see it very strongly in the cash flow. We came into this year knowing our sales volumes would be down. We took a very proactive stance in terms of how we managed our inventory, and we brought our inventory units down as well, actually even slightly more than our sales. Volume has come down. You see that in our cash flow, where inventory has freed up about $300 million this year versus a year ago. One of the impacts that has is you have less production units to absorb the manufacturing cost. So you have more costs coming into your P&L and the time you're bringing inventory down, and we saw that in our first half. As we look at our second half, we have really taken down the inventory to the level that we wanted to, so we'll see less of that in the second half. And that was about -- probably about a 70-basis-point drag in our first half gross margins that will not reappear in the second half. It's about $30 million in total, so about $0.03 on our EPS. So that will not reappear in the second half, and so that's one of the reasons that we have confidence, again with sales growth and pricing in place, that we'll have improved gross margins in the back half versus the first half. Still down from a year ago because of that high inflation but less compression than we saw in the first half. Christopher Growe - Stifel, Nicolaus & Co., Inc., Research Division: And in that second half, Yoplait would still be roughly a 100-basis-point drag on the gross margin. Is that about right?

We'll still have the same relative impact in the back half, correct. Yes, Yoplait International.

And the next question comes from the line of Ed Aaron with RBC Capital Markets.

Great. I wanted to just ask a quick question on the Yogurt business. So for the -- a follow-up on the U.S. yogurt question from earlier. When do you expect that business to return to positive sales growth in the U.S.?

We are very focused on returning that business to sales growth as we move into our next fiscal year.

So a fiscal '13 event. And then on the -- on Yoplait International, can you give us -- and I apologize if I'm missed this -- the comparable growth rate for that business in the quarter?

Kris, do you have that?

Say that again?

Yes. Can you repeat the question, please?

Yes. I was just wondering how fast Yoplait International grew in the quarter on a comparable basis. I realize, of course, you've known it last year, but just wondering the -- where that business is tracking from a growth perspective.

Thank you. I can talk you through July, October. So is that close enough?

Yes, better than...

So anyway, the international side, France has started growing over that timeframe high single digit. U.K. is growing low single digit. The Liberté business in Canada is growing double digit. So strong growth across 2 to 3 segments.

And the next question comes from the line of Jonathan Feeney with Janney.

Just a quick one. I wanted to -- considering a lot of, I think, the data you've given us on this call, the order of presentation I think, certainly the Yoplait deal, seems like a greater international focus has been happening at General Mills, and I think that's indicative of the industry more broadly. Can you talk -- as you look forward -- I mean, certainly, you have your cash flow generative. You have room to borrow. Are international acquisitions rising in importance to General Mills as sort of the domestic environment so it doesn't become impossible to fix but maybe a little bit more challenging and a little bit more elastic in certain spots at the moment?

Well, I'd make a couple of comments on that, Jonathan. First of all, we love our U.S. business, and we've -- we think we're in great categories, and we clearly are in great categories. And where we have an issue right now in yogurt -- but it happens to be in a category that's absolutely terrific. And we will figure out how to -- through innovation, how to reaccelerate our growth in that category, and we just -- we love the outlook for healthy snacking in the U.S. We think the cereal category is terrific. We're getting great performance out of our Pillsbury brands, these -- really, these tried-and-true businesses that just keep knocking it out, very high margin, and so we really like the business in the U.S. And as we've said in many previous calls, we're always looking for businesses that we might tuck into that U.S. business, because we think that the profile of the business is so good. Obviously, we live an era of tremendous international expansion. And as you pointed out in your question, we're trying to capture that through these steps that we've taken. And as we've said many times before, we -- we're -- are looking for other ways to build and gain scale internationally. So I think the answer is yes, we're always looking. Now is a great time, as you've said, and we'll continue to do that.

But the priority hasn't really changed recently from the past 6 months?

Not really. I mean, we're really looking for ways to capitalize on the opportunities that we see both in the U.S. market which, as I said, we think is terrific and also outside the U.S. So we're really kind of broadminded in the way we're looking.

And we're going to stop there so that ConAgra can start on time. If you have follow-up questions, please give me a shout. Happy holidays, everybody.

Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.