Ladies and gentlemen thank you for standing by. Welcome to the General Mills’ Second Quarter 2016 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder this conference is being recorded Thursday, December 17, 2015. I would now like to turn the conference over to Jeff Siemon, Director of Investor Relations. Please go ahead, sir.

Thanks, Melanie and good morning, everybody. I’m here with Ken Powell, our CEO; Don Mulligan, our CFO; and Chris O’Leary, Chief Operating Officer for International Segment. I’ll turn the call over to them in just a minute, but first let me cover our usual housekeeping items. A press release on second quarter results was issued over the wire services earlier this morning and is also posted on our website. You can find our slides on the website that supplement this morning’s presentation. Our remarks will include forward-looking statements that are based on management’s current views and assumptions. The second slide in today’s presentation lists factors that could cause our future results to be different than our current estimates. And with that I’ll turn it over to my colleagues, beginning with Don.

Thanks, Jeff. Good morning and happy holidays to everyone. Thank you for joining us today. As noted in our press release, General Mills’ first half financial results were in line with our expectations. After a strong first quarter, constant currency net sales declined low single digits in the second quarter due in part to the divestiture of our North American Green Giant business. We delivered another quarter of margin expansion helping drive a mid-single digit increase in constant currency adjusted diluted earnings per share. We’re increasing our cost savings targets to $500 million by fiscal 2018, driven by incremental savings from Project Century and we’re updating our full year fiscal 2016 growth targets to include the impact of the Green Giant sale. Excluding the Green Giant impact, we remain on track to deliver our original fiscal 2016 growth goals. Slide five summarizes our results for the second quarter. Net sales totaled $4.4 billion down 6% as reported and down 2% in constant currency. Total segment operating profit totaled $839 million, 2% above the prior year on a constant currency basis. Net earnings increased 53% to $530 million and diluted earnings per share were $0.87 as reported. These results include a one-time gain of $199 million related to the Green Giant divestiture, $99 million of restructuring and project related expenses as well as mark-to-market valuation effects. Excluding these items affecting comparability, adjusted diluted EPS was $0.82, up 2% from last year’s second quarter. Constant currency adjusted diluted EPS increased 5% compared to a year ago. Slide six shows the components of total company net sales growth. Pound volume reduced sales by 3 percentage points. Positive sales mix and net price realization increased sales by 1 point, while foreign exchange reduced sales by 4 points. The Annie’s acquisition and the Green Giant…

Okay well good morning, everybody and thank you, Chris for that review of our International business. So I’m going to spend a few minutes now providing an update on our other two segments starting with U.S. Retail. Our U.S. Retail net sales and segment operating profit performance are in line with our expectations through the first half of fiscal 2016. Net sales totaled $5.3 billion matching prior year levels. Year-to-date segment operating profit is up a robust 15% driven by lower promotional and SG&A expenses. Retails sales for our aggregate categories in the U.S. are up 1% in the first half of fiscal 2016 after being flat in 2015. This improvement has been driven by better unit volume performance and we continue to see positive net price realization across our categories. The largest driver of improved performance has been in cereal, where category declines of 3% in fiscal 2015 have moderated to less than 1% thus far this year. We like the improvement we’re seeing in our categories in the U.S., but our retails sales performance did not keep pace in the first half. We’re encouraged by the early returns we’re seeing on our snacks and cereal renovation news, but those gains were more than offset by lower merchandising levels in the first half. Part of that was driven by our continued effort to reduce inefficient trade spending and we’re making progress. Our lifts were up in the first half and outpaced our categories. The other factor driving lower merchandising was a broad based reduction in display across our customer base a situation which was particularly acute at a large customer. In Yoghurt, the decline in dairy prices this year has coincided with increased competitive activity. This led to reduce merchandising and lower market share for Yoplait in the first…

Thank you. [Operator Instructions]. Our first question comes from the line of Chris Growe with Stifel. Please proceed.

Hi, good morning.

Hey, Chris good morning.

Hi. I just had two quick questions for you. I want to ask first in relation to the retail -- your U.S. Retail sales performance, do you expect growth in the second half of the year for that business and I guess in relation to that I just want to get a sense of where inventories stands. Is that could be an effect on your reported sales growth in the second half as you see it today?

Yeah, so it will improve - we expect it to be flat in the second half Chris behind the activity that I talked about, which we can go into in later questions. But there is quite a bit more renovation, new products in the second half and so based on that there is more promotional event oriented promotional activity and there is also stronger media support. So we do expect that consumer movement to improve in the second half based on the phasing of our activities. Chris O’Leary: And Chris just to confirm, Ken is referring to the comparable sales obviously in U.S. Retail the second half will suffer from not having Green Giant and not having 53rd week as you’re modeling it.

Sure, yeah, okay that’s great. And just a quick question then on yogurt and just it sounds like that’s got a little bit more competitive in that category, is there a matter of getting sort of your key price points lower. And I was curious if that also -- if that true across Greek as well as conventional; is there one that’s more getting a little bit more aggressive in terms of price competition.

Yeah, well it’s a little bit of both; it’s some price point adjustments and some frequency. I mean we found as the promotional environment got a little hotter in the first half and as you heard in response to lower milk prices, there was just an increase in the pace of activity; frankly we were, just because of the timing of when various things can happen, we were blocked out of certain windows. And so as we’ve moved forward and to adjust our price points and adjust our frequency both on Greek, Chris, and a little bit on core cup as well we know that our promotional frequency and quality will be improved in the second half. Chris O’Leary: The other thing I’ve mentioned Chris is just given the dairy prices and that adds more benefit to the Greek business so that uses more milk. It was also skewed to promotions focused on Greek and clearly our share in Greek is not as high as in the traditional yogurts. So as that evens up in the second half of the year, we think that we’ll get a greater share of the merchandising windows in Yogurt in the back-half.

I see that makes sense. Okay, thanks so much for your time and happy holidays. Chris O’Leary: Thanks, Chris, you too.

Our next question comes from the line of Andrew Lazar with Barclays. Please proceed.

Good morning, everybody.

Hey, Andrew.

Just two quick things from me, one is at your Analyst Day in Boston I think you mentioned that General Mills would look to reinvest roughly one-half of the sort of incremental cost saves that you would generate this year and I am just trying to get a little update is that the pace that company is tracking at? And if so just are you getting the sort of return through the first half on that sort of reinvestment that you would have expected? Chris O’Leary: Yeah, Andrew I think we remained largely on pace for that same kind of mix of reinvestment as Ken alluded to some of the planned merchandising in the first half didn’t happen we’ll see that in the second half. So I would say we’re probably a little lighter in some of that reinvestment in the first half of the year. And as we said we opened the year with a stronger profit performance than we expected in the first quarter and that holds through the first half. And so we’ll see I think a greater portion in plan of our reinvestment in the back half, but I think you’ll see that in advertising, you’ll see it in merchandising and you’ll see it in improved top-line performance as well.

And then…

Just to -- Andrew, maybe just to build on that a bit our media spend was down in the first half and will be in the U.S. and will be flat in the second half, our merchandising spending was down low-single digits in the first half, will be up in mid-single digits in the second half. So there is a significant phasing component to the way that year was planned and will unfold and we expect to see those second half activities give us a good return and some stronger consumer movement.

Yeah, let me -- actually it’s a great point; let me just build on that a little bit on advertising because I’m sure that minus 15 in the quarter might popped up some folks and what I would say is that quarterly advertising expense can be variable. It was minus 10 for the first half, but that includes the ForEx impact and as you can see on sales ForEx has been about 5 point impact. So in constant currency advertising is not down as much as it was looking on a reporting basis. Now it was planned to be down due to Forex, but also because of some choice we’ve made on our value oriented brands. As Ken alluded to it will be up in the back half on a comparable basis. And even on a reported basis we expect it to be about flat and that’s taking into account Forex and the 53rd week and it will clearly be up on our priority businesses in the U.S. cereal, yogurt across Christmas businesses in International and we expect for the full year that advertising will move in line with sales growth and again up on the full year on those priority businesses.

Thank you for that. And then I think on the last call you had mentioned gross margin expansion for the full year of roughly 50 to 100 basis points was probably a reasonable place to land. Any significant changes one way or the other on that expectation based on what you saw in the second quarter?

Yeah first half came in at 170 basis points better we obviously lap some things in the first quarter on merch from F’15; we’ll continue to see expansion in the second half, but it will be less than in the first half where it’s still benefit from strong HMM, but will begin lapping some of the inefficient merchandising we took out last year and as we said we phased some of our merchandising to the second half of this year and inflation will increase in the second half from the first half. So the range of 50 to 100 is still the right guidance I would say coming out of first quarter, but frankly we’re probably moving more toward the high end of that range.

Okay, thanks very much.

Our next question comes from the line of David Palmer with RBC. Please proceed.

Thanks.

Hey, David.

Two questions. Good morning, first, scanner data looks to be pointing to a decline in promotion in merchandising activity in your Cereal business and back in the summer we could have imagined lot more activity behind the gluten-free repositioning for Cheerios, and I realized that Walmart itself might be part of this change, but was the lower promotion activity always the plan or was there perhaps a change in course a little bit after the recall, any color would be helpful?

Thanks for that David. So yes lower cereal promotion was part of the plan; we do have as you said gluten-free renovation, which is very important news for us which came on into the second quarter and that will continue very strongly into the second half, we have a couple of more events, but lower promotion was planned; we had fewer new products in the first quarter compared to some important new product launches a year ago and so there was less merchandising activity there. I would say the thing that we anticipated but came out at us a little bit harder was decline in promotion in our largest customer and I think you’re well aware of clean store initiative and just trying to get their stores more focused on the most important merchandising activities. We anticipated that the impact was a little more than we expected and that resulted in a significantly less display there. And also we anticipated this as well but a little more than we thought just adjustment of inventory as they move towards that policy. So, that was an area that we did expect, but was a little more a deeper impact than we had planned for.

And related to the gluten-free reformulation, if you look at some -- I am sure you see panel data that gives you some insight in terms of trial and repeat and awareness on gluten-free and maybe the uptick. Is this working out like you would have thought and it’s different at all from the consumer response perspective that would be helpful. Thank you.

Sure. The consumer response has been very positive the baseline turns and so full priced non-promoted, sort of just true core baseline turns have been up very nicely through the first three months of that period even with that one week impact from the recall they’re up between 3% and 4%. So we’re quite pleased with how that has worked out for us so far I mean obviously the recall was a stumble, but the fundamental consumer reaction is in line if not a little bit better than we anticipated at this point. And we’re going to continue to support that initiative quite heavily in the second half with more merchandising folk events and continued very good advertising.

Thank you.

Our next question comes from the line of Robert Moskow with Credit Suisse. Please proceed.

Hi, thank you. I wanted to know if you could help us tease out the gross margin expansion a little bit more 60 basis points in the quarter, but it also was a pretty easy comp to a year ago. And I wanted to get a sense of what were the cost saves component of that 60 basis points and how much was the easy comp? And then also is there any kind of dilution to gross margin or accretion that we should expect because of Green Giant divestiture?

Yeah, Rob. As I said the inflation flow this year is a little bit reverse from last year was higher in the first half last year and then decelerated as the year went on this year is kind of reverse of that. So we are certainly benefiting this year in the first half from lower inflation. Our productivity the $400 million it tends to be fairly stable throughout the year, so there is not really facing to the productivity savings. So the result we’re seeing this year that we’re seeing greater kind of net inflation if you will productivity less inflation that we saw a year ago. And as I said we’re rolling over the merchandising changes that we implemented starting in the second half of last year. So as the year unfold, we will start lapping that piece of it we’ll start seeing inflation accelerate a bit in the back half. Green Giant was a lower gross margin business; its operating margin was actually fine but it’s a lower gross margin business so that will have a little bit of accretive impact on our business as the year unfolds. And there has been a lot of work at our International business and actually if you look in the quarter international was a significant contributor to our gross margin expansion and Chris I don’t know if you want to add a few words on what we’re doing from a margin stand point on our International business. Chris O’Leary: Obviously, it’s a combination of good strong HMM efforts focusing on product mix obviously developed markets growing faster and emerging is contributing to part of that mix effort. But it’s really get solid execution I guess the fundamentals.

Okay. And then maybe just is there any kind of dilution in these numbers for all the reformulation and ingredient upgrades that are going on Don, is there a way to quantify that?

Yeah well there is part of our investment. It was a smaller piece of our reinvestment. But the other thing that take into effect Rob as we’ve talked about is that you drive a little bit of volume in the businesses from those reformulations and you can see gross margin expansion and I think that you’ve heard Jeff Harmening talked before about our experience with Cinnamon Toast Crunch where as we increase the Cinnamon content we did see higher cost per unit on a variable basis, but even the volume increases and sales increases it were high single to double digits. You leverage the fixed plan and you see gross margin expansion. So really is a case-by-case basis, but we do see reinvestment we often times don’t see a gross margin percentage impact because of the leverage that you get on the plants.

Yeah and the only thing I would add to that is those margin moves around product renovation are they’re obviously there, but in the context of our ongoing HMM programs and the restructuring initiatives we have underway and the zero based focus we have on administrative spending. I mean they’re relatively minor in the larger picture and that sort of explains our conviction around our gross margin expansion goals.

I’m willing to try Cinnamon Yoplait if you want to give it a shot.

Remind me. So we’ll do a special one just for you when you next come out here.

Good, thanks.

Thanks Rob see you next month.

Thank you.

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

Hi, good morning happy holidays everybody.

Hey, Eric.

Couple of questions I guess, why don’t we start with the earnings per share guidance, Don I just want to be clear. So if we start with the 286 base and we go let’s say up 1% to 3% and then adjust for the currency headwinds. You’re getting to like a 280 to 286 range let’s say. And I’m just -- I guess I’m not following because I think consensus was kind of closer to 90 or so going into this earnings report and you’d already I guess given the heads up as to $0.05 to $0.07 dilution from Green Giant. So I’m wondering is -- I know you can’t control consensus but I’m wondering is there something that investors or the analyst community was getting wrong because there is -- it’s not a huge difference, but it seems like there is maybe a nickel or so of difference between what you’re saying is no change versus where the analyst community was.

Well I’ll just start with just to reaffirming your point that I can’t control the consensus I can try to influence it, but I can’t control it. We started the year with mid-single digit expectations in our underlying business it’s going to deliver that. We have seen the $0.09 ForEx headwind; I think we started the year with $0.04. So we saw that increase as the year unfolded I’m assuming that the consensus has that factored in appropriately. We gave a range of $0.05 to $0.07 for Green Giant for this year and ends up being $0.07 I’m not -- again I don’t know in the 290 if people were using $0.05 or $0.07. So it’s just -- I don't what peoples’ assumptions were or inputs were on those two measures. And then I think the other thing frankly we had a strong first quarter and I think people might gotten ahead of what the full year was going to look like. And as we said again in the first quarter we had three quarters to go we saw the business performing as we expected. And we’re still on track to deliver what we said back in July.

Okay, thanks for that. And then I guess again a full year question maybe for Ken. I mean do you expect in terms of your volume, will volume do you think can that be flat this year is that part of I know you don’t always get into the details of your top-line other than the consolidated number. But can we start with all this ramp up of merchandising in the second half, new products you’re talking about the categories maybe being a little better in some cases. I mean does your forecast assume that volume is flat this year?

Yeah flattish, yes.

Okay. And then -- thanks for that. And then I guess the last question is maybe just on yogurt from both the U.S. and a global perspective I mean it seems like that the company after getting struggling with the Greek phenomenon there’s just so many brands that you’re going to market with now and I’m just wondering if that is part of the issue here that you got Annie’s, you’ve Plenti, you’ve got Yoplait, you’ve got Liberté, I can’t keep track of all of them anymore and I’m just wondering if that’s do you think that that’s part of the issue that you don’t have the scale you used to when it was just basically Yoplait?

No I think I’ll come on to your brand comment I think the issue is in the first half is primarily this kind of change in the merchandising context in the category that’s clearly what happened driven by these dramatic declines in milk prices and as you know very-very well I mean we want to be in the zone on promotion, but that’s not how we try to win. And so -- but we did see ourselves lagging the market there and we’re going to adjust very carefully as we move into the second half and our performance will strengthen, but that was clearly the reason for what happened in the category in the first half and well beyond that. To your comment on the brand portfolio we have now that’s a really good thing you should like that we’ve got great core cup equity obviously in Yoplait, we’ve come on very effectively over the last couple of years with our Greek varieties, but actually products like Liberté which have a different positioning and naturalness and this sort of thing they are participating in another high growth segment of the market now and they are doing really well and the organic sector of the yogurt market is growing double digit and Annie’s is a fantastic brand to put into that segment and that was a long held desire of Annie’s when it was an independent company, but they didn’t have the capability. So actually the fact that we have brands tailored to different consumers and different segments some of which are very high growth that’s a tailwind for us right now we like that.

Okay, all right thank you for that happy holidays again.

Yeah, thank you.

Our next question comes from the line of Matthew Grainger with Morgan Stanley. Please proceed.

Hi, good morning everyone.

Hi Matthew, good morning.

Thanks. Just on the International business so I guess a broader question on the portfolio, but given some of your recent steps to optimize the U.S. portfolio with Green Giant the addition of Annie’s just wanted to get your expectations for bolt-on M&A going forward and specifically how you’re thinking about the emerging markets portion of your business? We’ve seen your key competitor become more opportunistic and talk about the attractiveness of making a few acquisitions recently when sentiment and valuations are bit a lower, so just curious how you’re assessing that dynamic?

Sure so just a reminder internationally we focus on five global platforms cereal, ice-cream, yogurt, meals and snacking and you know we’ve been focusing our efforts on emerging markets first China, Brazil and then EMEA trying to broaden out our footprint. With regard to bolt-on acquisitions we are open to that and looking for that. The thing that the key difference between our businesses in the emerging world versus U.S. and Canada is we are not very broad. So we believe we can find -- if we can find the right bolt-on acquisition because our strategy has been to build first and foremost infrastructure and pipes in places like China, Brazil and India and then to start filling it out with those platforms. So I think we are looking I mean as part of our strategy but then obviously we can’t control the pace because it’s really what’s available and what we like with.

Okay so Chris from your perspective has anything changed in terms of the quality of assets available or the expectations of sellers? Chris O’Leary: No I wouldn’t say, fundamentally no obviously the environment is changing, but I wouldn’t say there’s a sea change of difference out there but we continue to mine.

Okay. And Chris actually if -- I wanted to see if you could provide a bit more detail on the margin progress in International, I know you touched on this, but constant currency profits were up nearly 20%, margins were the highest for discrete quarter that they’ve been in years and you mentioned favorable mix, but can you talk about within the sub-regions maybe where you’re seeing more progress on the margin side versus where you’re investing more heavily and given the margins that we saw this quarters is that potentially indicative of a step up in absolute margins now that the cost savings is starting to come through? Chris O’Leary: Well, I’ll get into much more detail in February, so suffice to say we are focused on this. We had a 19% growth in the quarter you got to remember there is also favorable dairy in there and there is a bunch of factors in there. But we are focused on this and we’ve got more levers now that we are firing on, we’ve got HMM, we’ve got Century, we’ve got Compass which will start flowing through. So, I’ll give more details when I see you guys in Cagny.

Alright. Look forward to it. Thanks. Chris O’Leary: Thanks.

Our next question comes from the line of Ken Goldman with JPMorgan. Please proceed.

Hi, thanks for the question. Ken, on the first quarter call Rob Moskow asked that we should I think expected pretty short uptick in the next few months, in terms of Nielson, top-line and you said yes, that’s what you expect to see. I mean you sighted back-to-school falling in 2Q, you talked about the solid line up of merchandising on soup, baking and meals on a whole bunch of things. And the message that I took away and the message that I think a lot of investors took away was the things were going to get incrementally better on the top-line in 2Q because of timing not the opposite. So I am just trying to reconcile sort of what those words say with sort of what I am picking away today which is that the timing actually hurt you in 2Q for a couple of items maybe I just misunderstood what was said previously.

No, I think so thanks for the question Ken. So and just to your point on soup and baking, I mean we shouldn’t lose the plot those are kind of doing what we wanted them to do and going to have a good soup season there and the baking business has substantially improved. And in cereal and snacks, we did of course have some good news in the second quarter particularly gluten-free Cheerios, which has been very important news and as I said there the baseline movement has been very much what we expected and we really like how that is developing and so that’s been really good. The story for us in the second quarter is that our merchandising just what didn’t have the total impact that we had planned for it to have. So I would say event-by-event as we bring more focus and precision to our merchandising, our lifts were actually little bit higher than we planned, but just the frequency and the overall quantity was less than we thought with some very particular and deep reductions in our largest customer. And so that, we did not anticipate and that caused the underperformance in the second quarter versus what we might have expected, fully expected. And just continuing intense promotional environment in Yoghurt and so as we’ve said now we believe that we have addressed those as we go into the second half and as a result performance will improve.

That’s helpful. Can I ask a very quick follow-up the warm weather, RTS soup that looks so great right now, is that properly reflecting sort of what you’re seeing I know you’re not really talking necessarily about 3Q, but just a general sense soup sales are they disappointing to you right now?

Well, I mean I think you put your finger on it I mean that’s very much cold winter is tend to be good for us and so far it’s been an unusually warm season and we think that that’s a key factor with sort of overall market right now. Chris O’Leary: But I mean in the last quarter our retail movement was still up and we gain share. So we’d like to see the category movement better, but we’re pleased that the effectiveness of our programs are working.

Thank you so much.

Hey, thanks a lot Ken.

Melanie, I think that’s probably all the time we have.

Okay, thank you.

Okay well I know we didn’t get to everyone’s question. So I’m on the phone all the day so please feel free to give me a call if you have follow-ups. Thanks very much everyone.

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