Ladies and gentlemen, thank you for standing by. Welcome to the Fiscal 2015 Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, March 18, 2015. I would now like to turn the conference over to Kris Wenker, Senior Vice President, Investor Relations. Please go ahead.

Thanks, operator. Good morning, everyone. I'm here with Ken Powell, our CEO; Don Mulligan, our CFO; and Bethany Quam, who's President of our Convenience Stores and Foodservice segment. Before I turn the call over to them, I'll cover my usual housekeeping items. Our press release on third quarter results was issued over the wire services earlier this morning. It's also posted on our website if you still need a copy. You can also find slides on our website that supplement this morning's remarks. Our remarks will include forward-looking statements based on management's current views and assumptions. And the second slide in this morning's presentation lists factors that could cause our future results to be different than our estimates. So with that, I'll turn you over to my colleagues, starting with Don.

Thanks, Kris, and good morning, everybody. Thank you for joining us today. Slide 4 summarizes our results for the third quarter. Net sales totaled $4.4 billion, down 1% due to foreign currency effects. On a constant-currency basis, we posted 3% growth in net sales. Segment operating profit totaled $698 million, up 1% as reported and up 3% in constant currency. Net earnings decreased 16% to $343 million, and diluted earnings per share were $0.56 as reported. These reported results include $0.07 per share of restructuring and project-related charges, a $0.05 decline in mark-to-market valuation of certain commodity positions, $0.01 of acquisition integration costs and a $0.01 charge related to Venezuela currency devaluation. Excluding these items affecting comparability, adjusted diluted EPS was $0.70, up 13% from $0.62 a year ago. Constant currency adjusted diluted EPS increased 15%. Slide 5 shows the components of total company net sales growth. Pound volume reduced sales by 1 percentage point while mix and net price realization added 4 points of sales growth. Foreign exchange was a 4-point drag on reported net sales growth. The Annie's acquisitions -- the Annie's acquisition contributed 1 point of volume growth and 1 point of sales growth in the quarter. Let's turn to segment results. Slide 6 summarizes U.S. Retail performance. Net sales were up 1% led by double-digit gains in Snacks and Yogurt. Net sales for our Cereal business essentially matched last year's level while Meals and Baking Products were lower for the period. Annie's sales, which are included in the Snacks and Meals totals, contributed 2 points of net sales growth for the segment. U.S. Retail operating profit increased 1% in the quarter to $521 million. We continue to see excellent growth in our Convenience Stores and Foodservice segment. As you can see on Slide 7, net sales…

Thanks, Don, and good morning. I'm pleased to give you an update on our Convenience Stores and Foodservice segment. On Slide 19, you see that U.S. consumers spend more than $1.3 trillion every year on food and beverages. Nearly half of that is food eaten away from home. In recent years, as unemployment has moderated and consumer confidence has slowly improved, food-away-from-home has captured an increasing share of food spending. Technomic is forecasting this share to hold steady in the years immediately ahead. So you can see this is a great market for our U.S. food brands. Now when you think of food service, you probably think first about restaurants, but our business is much broader than that. We sell to multiple channels from schools to health care to convenience stores. These are some of the fastest-growing channels within the food service industry. In total, General Mills delivers products to more than 1 million U.S. locations, where people eat food away from home. Over the past 10 years, we've taken many actions to sharpen our portfolio, focusing on the highest-margin businesses and divesting lower-margin performers, things like bread concentrates and frozen pie shells. Since fiscal 2005, we've trimmed our number of SKUs by 65%. We've also streamlined our supply chain network and now operate just 8 high-performing manufacturing facilities. And we are reaping the benefit of a direct sales force that is solely focused on our product line. The results of our actions is a portfolio that is leveraging our company's well-known consumer brands. More than 80% of our sales come from products that are branded to consumers or the food service operator. As we've transformed our portfolio and divested businesses, our overall sales trend has been essentially flat over the past several years. However, net sales are up 4%…

Thanks, Bethany, and good morning to everybody. We think our Convenience Stores and Foodservice business is an underappreciated source of sales and profit growth for our brands in the U.S. You'll hear more about this business and the new growth we see ahead at our Investor Day in July. So now let me give you an update on our 2 operating segments -- our other 2 operating segments, starting with U.S. Retail. Third quarter net sales performance for U.S. Retail showed a clear inflection from our first half trends. Annie's contributed to Snacks and Meals results, and the base Snacks and Meals businesses, Yogurt and Cereal, all posted sequential improvement in net sales growth rates in the quarter. We have a broad portfolio of U.S. Retail categories, and it's a rare year when all of them are growing share. As you see in Slide 34, dessert mixes and frozen vegetables are 2 categories where we're seeing more significant share declines this year, and we have work to do to fix these businesses. But we are gaining share in our priority categories of Snacks, Yogurt and Cereal, and our year-to-date share is up in categories representing over 2/3 of our measured sales. Our innovation and marketing focus is on putting the Consumer First to drive new growth. Nowhere has this been more successful than in our U.S. Yogurt business, where investment in core brand renovation, new products and consumer marketing has driven strong performance this year. This strength is broad-based with growth across almost all of our segments. More and more consumers are discovering the great taste of our Greek yogurts. Retail sales for our Greek varieties were up 43% in the third quarter, behind the continued success of Yoplait Greek 100 and the introduction of new Greek 100 Whips!, which…

[Operator Instructions] And our first question comes from the line of David Palmer with RBC Capital Markets.

Two questions. First, Annie's, when it was independent, had concept tested a variety of categories that moms would be open to having an Annie's version of that category. How broad do you think Annie's can go? Do you think this brand can be in almost any of your Meals or Snacks categories from soup to toaster pastries?

David, this is Ken. So you're right. They -- that team -- that Annie's team had been working quite hard over the years to identify other areas where the brand could be extended. And I think one of the many benefits of the combination that we're seeing as we move to the integration is to see how General Mills' innovation and formulation and manufacturing capability complements so well the desires of the Annie's team to extend the brand into new areas. Prior to the combination, it was very difficult for them to go into some of these areas because they're technically difficult. And so we think that the combination of the 2 companies is really going to open up the scope for expansion into new areas. I think some of you have read that we showed a line of soups at the recent natural food conference, and so that was a very high priority area for Annie's. But they were really unable to find the right way to do that. Obviously, we have lots of capability in that area, and we'll be launching that line of product this summer. I will tell you there are a number of other very high potential areas that the brand could be extended to, and we'll talk more about those when we review our plan with you in June.

And then second and lastly, you talked about changes in how you're going to bring products to market and how you're going to be working on your innovation pipeline, perhaps bringing products to a select group of retail stores, listening to the consumer more. I'm wondering if that is a fundamental change that you're going to be making broadly across your entire pipeline. Or is this more of a select type of thing? Could you give us a sense of how much of a fundamental change you're making on your innovation as a company?

Okay. So and David, is the question with respect primarily to Annie's or it's a general question about innovation across the company? Or...

Well, I was thinking that perhaps this was something of a learning you got with perhaps some of the more entrepreneurial businesses that you've acquired and how they were doing things. But perhaps this was being brought as a best practice to your overall company. I'm wondering if this is -- how broad that is and how much more of a local market testing tinkering approach, consumer-centric approach you're taking in your overall business or if that's more specific to some of these smaller brands.

Okay. Thank you, David. And so the answer to the question is that really over the last half dozen years, we have been looking very closely at the entrepreneurs that we compete with, the smaller companies that we compete with, and we have studied in detail how those kinds of small companies develop and bring their products to markets. And we've learned a lot from doing that. And I would say a couple of the key lessons that we've learned is that the entrepreneurs who develop those products are very, very, very close to the ultimate consumer who will buy the product. Sometimes, the consumer is themselves or family members. And so that learning has really underscored our desire to put our marketeers and our consumer research specialists in the homes of the people who will be buying our products. This is so-called consumer empathy. We think it's really, really important. And in many ways, it's replacing big and broad-scale tests that we used to do, which, in a way, moves our marketeers out of the process and distances the consumer from them. So we've got a very high premium on getting our folks right next to the consumers who were going to buy these new products. The other area where we've really focused is rapid prototyping of the idea so that we can get a tangible representation of a new product in front of consumers very early in the process and learn directly from the consumer very rapidly. And these are lessons that we're learning from these small companies. And when you do them the right way, the result is you go fast, you make decisions rapidly. You're very connected to the consumer, and so you're more on target more often. So I could go on for another 20 minutes. I won't, but we have changed quite a bit the approach that we take to new product development, very much learning from small companies and entrepreneurs.

Our next question comes from the line of Alexia Howard with Bernstein. Alexia Howard - Sanford C. Bernstein & Co., LLC., Research Division: So can I just ask 2 questions? The first one is around the negative mix that you mentioned on the gross margin. Could you just help us out, understand what product categories are causing that negative mix shift? What's growing? What's shrinking?

Sure, Alexia. This is Don. The mix with Yogurt was actually -- Bethany's business in C & F is a lower gross margin business but obviously doesn't have the same kind of advertising support. So from an operating profit standpoint, still very competitive with the rest of our businesses. Those will be the 2 that I would point out in the quarter. Alexia Howard - Sanford C. Bernstein & Co., LLC., Research Division: Okay. Great. And then at CAGNY, you were referring to the long-term earnings growth algorithm. I mean, it seems as though you've been pushing really hard on the cost-cutting front this year with the $400 million in savings. You've got a lot of innovation coming to the pipeline. Your advertising spend is being cut a little bit it seems. And at the moment, the volumes are still down on an underlying basis. So I guess the question that comes as we look out over the next couple of years, how confident are you in that there is a return path to that long-term earnings growth algorithm? And really, just what do you think pulls you around the corner back onto that?

Thanks, Alexia. So we very much believe in the long-term growth model that we outlined at CAGNY. And even in a period of -- where our category is a little bit softer, I mean, the reason that we continue to believe very strongly in that model is because where we effectively are meeting the consumer where they're at today with the right kind of innovation, we see very striking growth. And so for us, it's a question of continuing to focus very much on the consumer, bring the right pipeline of innovation and restore the growth momentum on our businesses. And we've given you a number of great examples of how that's working for us this morning. The Convenience and Foodservice success that Bethany outlined for you is almost entirely driven by innovation that has resulted from a very high focus on the consumers in that channel. We've talked at length about Yogurt, and when you look back over the last couple of years, the renovation and innovation that we brought to that product line, it's not surprising that we're now seeing very good growth. So we just intend to apply those principles where we have businesses that are not growing to our satisfaction. And we think as we do that, we'll return our businesses to on-model performance.

Our next question comes from the line of David Driscoll with Citi Research.

Two quick questions. First on dairy. I was just curious how stable are yogurt prices given the decline in dairy cost? And how price sensitive do you see the Yogurt category?

You want to take that?

Yes, the pricing in Yogurt, looking at the U.S. in particular, has been very stable. We made -- about 1 year ago, we made some tactical price moves. But since that time, it's been very stable even with the movement in dairy. So we think that's a very rational -- rationally priced category right now.

Okay. And then just go ahead.

Well, I would just add, I think that consumers are still very focused on value in this economy, and so as Don just said, the prices have been stable through periods of higher dairy prices and periods of lower dairy prices. I think the industry as a whole has worked very hard to maintain relatively stable prices.

Back in November, you guys called out kind of 3 issues that affected your year: just kind of overall slowdown in category growth, the baking mix and kind of frozen vegetable promotional issues and I think some inventory destocking. Can you just give us a quick update on those 3 factors, and how they're trending today?

Okay. I'll start, David, and I'm sure Don will want to jump in. But in terms of this -- the category momentum, it's a little better on our core categories. I know you guys have your own data, but as we looked at the Nielsen, the Cereal category, if you look at the last 12 months, was down around 4%. Last quarter or last 3 months, it's been down around 2%. This is on a dollar basis. It's still down, but that's a little better. Obviously, we have more to go, but we believe we're seeing some moderation there. The Yogurt category last 12 was up 3%. That's accelerating as we look at the last 3 months. It's up a little over 4%. So we like that. The Snack category on the last 12-month basis was actually down a little bit, I think 0.5%. That has turned over the last 3 months to be, I think, up between 1% and 2%. So in our core categories, we're seeing some positive momentum, and we like that but still more to go, particularly in the Cereal category, where we're very focused, and we have a very good pipeline of innovation coming. On the baking mix issue, there really are 2 components for us there. One is that we launched a very extensive line of Hershey's branded products a year ago, and there was lots of pipeline build around that launch. Some of those items have done well and sustained. But as we've lapped what was a fairly big launch, we've just been down versus that launch. And then as we've said, there are some promotional pricing issues selectively in that category, and we continue to position ourselves to address those. So that's still very much a work in progress. And your last -- I think your last point was what, David?

Inventory destocking by retailers.

Okay, inventory, yes. I think it's -- we don't really see that. It was down a little. I think there was some destocking. It might have been up a little bit this quarter. I mean, it's -- at the end of the day, over any 12-month period, sales through stores and our deliveries match very, very closely, and so we don't really overly focus on that.

Yes. And David, just to -- we've -- since we changed our guidance in November, we've held to it. Obviously, there's some puts and takes. Ken touched on a couple of those, but the couple of things I'd highlight is we've had some businesses that have performed better. Bethany's Convenience Stores and Foodservice business has continued to strengthen as the year unfolded. Our U.S. Yogurt business, as Ken overviewed, has performed better as the year has played out. Our developed markets internationally, Europe has continued to be strong. We've seen a little bit of rebound in Canada as you saw in the sales numbers this quarter. The Annie's acquisition has come in as expected. Our tax rate has improved a bit, and that's really due to the earnings mix internationally. So that's something that we think we'll sustain. On the downside, as we said, the emerging markets have tempered the growth a little bit, plus we had some service issues in our Brazil business. So that's been a little bit more of a headwind than we expected. And on the gross margin, it's been a little -- it took a little longer than we expected to pullback on all the trade spending, but we have been seeing that, and you saw that come through in our price mix this quarter. And quite honestly, the ForEx movement has hurt us a little bit from a transaction standpoint on our gross margin a little bit more than anticipated. So again, there's puts and takes, but if you list them, there's a lot of positives to look at as the year has played out.

Our next question comes from the line of Jason English with Goldman Sachs.

I think you guys touched on this a little bit, but I was hoping we can go a little bit deeper on gross margins. I think for most of us who are modeling this, it's been an area of disappointment this year, particularly as we look at some of the input cost trends out there. So maybe you could talk a bit about what you're seeing from just a raw input cost, aside from some of the investment you're making whether it be in process or product. And then touch a little bit more deeply in terms of the portfolio mix issues, I think, you referenced in the press release. What's driving some of the compression? And how enduring that may be?

Well, Jason, yes, it's a very fair question given that gross margin hasn't performed the way we expected -- hasn't played out the way we expected this year. A couple of factors, I'll dial through them. Trade, in terms of pulling back on some of the inefficient trade that we started talking about last summer. It has taken a little bit longer than we anticipated, but as I mentioned, we're starting to see the positive impact of that as we look at our price mix this quarter, but that has been a drag as the year's unfolded. Mix, as I alluded to, the growth in our Yogurt business has been very encouraging, but it is slightly dilutive from a gross margin standpoint, as is the C & F business. We've seen negative volumes in our U.S. business, and so there's been some deleverage there. And then a smaller piece would be the FX and the translation impact. But the first 3 are the primary drivers as the year unfolds. It is not higher inflation. Matter of fact, as the year plays out, we think our inflation, by the time we close the books, could actually round down to 2% versus the 3% we had been tracking. And HMM is very much on track. So those 2 pieces we feel good about. I think what's important to remember also is that we're undertaking a large Project Century to optimize our North American supply chain. None of those benefits have been played through yet in our gross margin. We would expect to start seeing some of those in F '16.

That's helpful. And I want to ask another question. It's somewhat related but not in a big way. It stems from some of the press reports out there and I don't -- about potentially divesting Green Giant. I don't expect you to comment specifically on Green Giant, but I would like just to ask a question more broadly about how you're thinking about your portfolio. You've got some on-balance growth. Some high-margin businesses are anchoring you down. Some lower-margin businesses are driving your growth. You talked about that on gross margins. You clearly have been trying to accelerate some of the growth of some of the lower-margin stuff because it's where the growth is, and you've demonstrated willingness to sort of buy in to transform the portfolio. Are you willing to examine some of the maybe high-profitable, high-cash generative assets that don't have much growth or potentially growth anchors and consider unwinding them or divesting them on a go forward?

Jason, I think the only thing to say is what we've said in the past, that -- which is that we do continually review the portfolio and looking for opportunities to strengthen or alter. And so we're constantly doing that, and I don't really think that I would have anything to add to that.

Our next question comes from the line of Robert Moskow with Crédit Suisse. Robert Moskow - Crédit Suisse AG, Research Division: I know you don't want to talk about fiscal '16 yet, but the trends in gross margin do continue to fall below our expectations, but you have this big shelf of savings coming through also. So I guess, can we think conceptually about fiscal '16 being a stabilization year for gross margin? Or should we think, "Boy, there's a lot of product renovation you still have to do. Shifting the mix still has an impact." And is there another year of potential erosion ahead? And then secondly, the SG&A savings, how big can those savings be for fiscal '16? I know you've quantified some of it, but can you give us a sense for '16?

Well, first of all, Rob, we'll give you -- as we always do, we'll give you a good level of detail on what we're anticipating for inflation, and HMM and these sorts of things when we meet with you in June.

July.

Or July. I beg your pardon. I stand corrected. So we'll come on to that then. We've given you, I think several times now, how we expect the savings from our various projects to accumulate over the next 3 years, and I think every time we see you, we update those. Those will be quite significant in F '16, both from the restructuring side, administratively, and we'll start to see supply chain savings come through as well. And we've given you those numbers and actually updated them, I think, a couple of times. So those are going to start to come through. So -- and will be positive. So I guess the way I would leave it is just to say we'll give you a good level of detail here in a couple of months. Robert Moskow - Crédit Suisse AG, Research Division: Okay. I mean, there's some you've quantified already. But then there's other projects you've added on top. So I wanted to know if there was going to be more. Maybe you can just say if there going to be more savings on top of what you've already quantified, well, [indiscernible] July.

Yes, Rob. We've already -- yes, we've already provided an overview of the 3, Project Century, Project Catalyst and the other overhead policy and practices changes that we're making, and those will accumulate to more than $350 million in savings by F '17: $260 million to $280 million next year, and that's obviously an increase from the $40 million plus that we'll get this year.

And you'll have another year of HMM next year.

Yes, as Kris mentioned, we'll have another year of HMM on top of that.

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

I guess one kind of management question and then one specific. Why don't we deal with the specific one first. If I look at, Don, if I look at corporate expense, unallocated corporate over time, this quarter was the lowest you've had in many years. And even if I look at the last couple of quarters, you're kind of on a run-rate basis, let's say, I don't know, $150 million, call it, and that's well below what you've been reporting. So I know it's a tough number to forecast, but is there -- how should we think about that kind of going forward with the impact of the restructuring action, which, I assume has some impact on unallocated corporate, not just the segments.

Yes, well, last year, I think if you strip out the mark-to-market and other items, make comparables around $250 million in corporate unallocated. This year, we'll kind of zero in around that same level, and you're seeing the benefit -- we'll start seeing the benefit this year of the -- of Project Catalyst. In both years, you saw the impact of lower incentive payment given the performance. So assume we get back to the performance we expect, I would hope actually corporate items would go up a little bit, but you'd see that being paid for by higher operating profit as well.

Okay. All right. And then I don't know if I asked this, Ken, the last time, but I'm just trying to understand why we should be comfortable with Small Planet Foods being basically broken up and put into the various other, let's say, conventional food segments? I mean, right? Isn't that...

Yes, yes. No, you did ask that, but it's okay.

At least I'm consistent.

Yes, it's okay. Actually, I think you've asked it twice. But it's a good question, and the reason that we made that change, first of all, remember we've been selling marketing and learning about these categories for 10 years now, over 10 years. And what we noticed for particularly the snacking area, think products like LÄRABAR and Food Should Taste Good, we were coming into -- see, some of our -- these large major customers, are -- we were coming in with a snack presentation and an overview and thoughts on growth for Snacks 2 to 3x depending on what the product was. And these products are -- they're growing. They are -- I wouldn't necessarily say yet, that they are mainstream, but they are certainly in the process of mainstreaming. And so our belief is that we are better off going in and telling the Snack story once with all of our brands, whether they're Nature Valley or Food Should Taste Good or LÄRABAR, getting our sort of holistic view of that category and how it's going to grow one time, one story to these customers. And what we're seeing in the early days of that is very positive. So for instance, LÄRABAR had a terrific quarter. And so I guess I would tell you we really believe that this is the right approach. And don't worry about it. I will also tell you that we have some centralized marketing capability around these Natural & Organic snacks that we've retained because they use sort of a, in many ways, a different and more -- a person-to-person marketing model, and we've maintained that capability. So that exists centrally for all those brands to call on. I will also tell you that Annie's has a very powerful natural channel sales capability that is unique and differential to what General Mills had. And so while we will be using our divisional structure and our centralized U.S. Retail sales focus to expand distribution into traditional channels, all of the products that I mentioned in my remarks, LÄRABAR, Food Should Taste Good, Immaculate Baking, we're going to funnel the selling for those brands to the Natural channels through Annie's. And that -- so there are a number of ways to -- and there's great synergy there, and they're very, very good at that channel. And our growth will accelerate in that channel as a result. So there's a little bit of detail and texture behind what we've done, but we're doing these to accelerate sales and accelerate our impact with retailers. And the early signs, so far, are quite positive on it.

Our next question comes from the line of Todd Duvick with Wells Fargo.

Yes. Don, I guess this is probably for you. The way we calculate it, your leverage is a little elevated compared to where it has been, and I know Annie's probably added to that. But can you talk broadly about your leverage. Where you are today? And if you maintain a target leverage range, and also a target credit rating?

Yes. Happy to, Todd. That's something that, obviously, we look at very, very rigorously. And we are a little above our targeted leverage ratio. It's driven primarily as you know, by Annie's. We do expect that as we go into F '16 to improve. Our target ratio was probably a turn or 2 lower than where we are today. And our target credit rating is a BBB+, where we're pleased that we're a notch above that from Moody's perspective. But we've been maintaining that same guidance in terms of the leverage and the credit rating for a number of years now, and that has not changed.

Okay. That's helpful. And then with respect to your short-term debt balance, it is also elevated. Should we expect to see you in the market terming out a portion of that? And I guess related to that, do you have kind of a target in terms of how much floating rate debt you have versus fixed rate debt?

Yes, we would typically look at floating to be, say, 1/3 -- 30% to 35% of our mix. And we will be terming out some of that debt certainly over the coming months.

Thanks, everybody. If there are folks still in queue, sorry we didn't get to you. Give me a ring, and we'll try and help you out. 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.