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

Hi, thank you, Julianne, and good morning to everyone. We appreciate you joining us today for our Q&A session on our first quarter fiscal ‘25 results. I hope you had time to review our press release, listen to our prepared remarks, and view the presentation materials which we made available this morning on our investor relations website. Please do note that in our Q&A session we may make forward-looking statements that are based on our current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here this morning with Jeffrey Harmening, our Chairman and CEO; and Kofi Bruce, our CFO. So, Julianne, we can go ahead and get to the first question. Will you please open it up?

[Operator Instructions] Our first question comes from Matt Smith from Stifel. Please go ahead. Your line is open.

Hi, good morning. I believe when you initially provided fiscal ‘25 guidance, you weren't assuming much improvement in your categories with more emphasis on your competitiveness. Does the shift in more at-home food consumption give you more confidence in the organic sales outlook or are you seeing that benefit muted by continued value-seeking behavior?

Good morning and thanks for the question. First, I would say that the quarter played out from a macro environment kind of as we had anticipated and we thought we'd see gradual improvement in our categories throughout the year and we saw an improvement in our categories. In fact, if you look at our North America retail categories, they're up a couple percent, a mix of a little bit of volume and a little bit of pricing in the categories. And so it's played out kind of as we expected. And for us, as we said in the fourth quarter, the key for us is to keep improving our competitiveness. And we made a step in the right direction in that in the first quarter and we have some more work to do across our portfolio. And so the job for us to do for the rest of the year really is to keep improving. We did see a slight uptick in food consumption at home in the quarter. We did anticipate that might be the case as we see consumers seeking value. And the fact is that now food at home is four times less expensive than food eating out on average. And so eating at home is a great value for consumers and consumers still economically stress. So that played out the way we thought. And as we look at the rest of the year, I wouldn't say that our guidance is predicated on our category's continued improvement. What it's predicated on is our continued improvement in competitiveness, which we're confident we can do, even got a continuing momentum into the second quarter here because we've got really great news on all of our billion-dollar brands.

Thanks, Jeff. And as a follow-up, I appreciate that your investments span both innovation and some couponing and promotional activity. But on the couponing and promotional investments, can you talk about the receptivity from consumers to your investment spending? Are you seeing incremental purchasing behavior from those consumers and is the return on those investments in line with what you had expected?

Yeah, I think this kind of gets back to this question of value. I would -- first I would tell you that, consumers see value in a lot of different ways. And we did couponing, we increased our couponing, we saw good returns on those in line with what we would expect. But consumers also look for brands and products they trust. Life Protection Formula continues to grow. It's up mid-single digits for Blue Buffalo because we talk about ingredient superiority and what that brings. We launched advertising on Wilderness and that business has kind of halved the losses on that business in a quarter and sees some continued momentum. And in cereal, we launched Fruity Cheerios. It's the top turning new cereal in the category because consumers trust Cheerios and they want something a little bit different. And so whether it's couponing, whether it's new products, or whether it's advertising, messaging, or pack sizes and getting those in the right place, there are a lot of ways to create value for consumers. I would say especially, I think probably underappreciated, when consumers feel a little bit economically stressed. The one thing they can't afford to do is throw away food. And so they have to bring something home that their family is going to love and that's where our brands come in and making sure that we have relevant messages in the right package in the right place. But to your point, I feel good so far. What I feel even better about is the majority of the news that we have on our brands actually takes place in the second quarter because it kind of starts in the second quarter because if you think about our portfolio, we have a lot of baking items, a lot of seasonal items, even treating for pets is a little bit seasonal in the second quarter. And so you combine that with some improvements we're seeing on Blue Buffalo and some receptivity from our pet specialty channel on Wilderness, we feel like we'll see a step-up in the second quarter because we've got more good news coming.

Thanks, Jeff. I'll pass it on.

Our next question comes from Andrew Lazar from Barclays. Please go ahead. Your line is open.

Great. Thanks. Good morning.

Good morning.

Good morning.

Jeff, you talked a bit about obviously the expectation of continued sort of progress around market share and competitiveness as you go through the year. I guess would you anticipate being in a position to sort of hold share across your NAR segment for the year or maybe does the more gradual start make this sort of outcome perhaps still a bit overly optimistic? And then, Kofi, I think last quarter you mentioned expectation for an equal contribution from volume and price/mix for the year. Is that still how you sort of see things playing out at this stage? Thanks so much.

Yeah, thanks, Andrew. I mean, I think the theme of the day is probably progress and continued work to do, which we intend to do to improve our competitiveness throughout the year. That is certainly true for NAR, it's also true for Blue Buffalo. I would say the first quarter kind of played out as we anticipated for both of those segments. We improved our competitiveness in NAR, but there's still market share gains to get. And we fully expected that, especially as our first quarter sales comp was probably the toughest of the year and Q2 gets quite a bit easier from a sales standpoint. And we talked a lot about our great news on our biggest brands, but most of that starts to hit in the second quarter. So, Andrew, I would say I'm not going to predict where we end up at the end of the year. It's a long year. My belief is that we'll keep getting better as the year progresses starting in Q2 with our competitiveness and that's what I would expect given the first quarter played out as we thought and the news that we have introduced seems to be landing the way we want it to.

And I would -- second question. We continue to be focused on and expect gradual improvement as we move through the year and total sales -- and to the point of our expectations for the full year, there's nothing that tells us we're broadly off mark in expecting equal contributions from volume and price/mix as we work our way through the year towards our guidance.

Thanks so much.

You bet.

Our next question comes from Michael Lavery from Piper Sandler. Please go ahead. Your line is open.

Thank you. Good morning. When you talked about some of the continued market share improvement, you cited one of the drivers as improved customer service levels. Can you call out maybe where that still has been an issue and what the kind of roadmap is or timing for improvement there?

So we have seen improved customer service gradually across most of the portfolio, acutely so in our Foodservice business, our pet business, in particular those who have been aided by, I would say, bigger changes in the service levels. But in aggregate, service levels are moving close to where they were pre-pandemic.

So, it's not any one particular category, it's just broad improvement for that.

Say, specifically with our Foodservice portfolio and our refrigerated and obviously across our pet portfolio, both our internal and external supply chain reliability has improved service levels across all the formats.

Okay. That's helpful. And on pet, you said that it's -- the quarter kind of you're seeing progression. It's as you had expected. Can you give a sense of a little bit more what's ahead and maybe specifically on Wilderness, even if the declines are moderating, do you have an idea of when actual growth is expected and how we should be -- what we should be looking for there?

Yeah, that's a good, very fair question. Yeah, I was pleased by our improvement in Q1 on pet, particularly the, on the sales front, I mean, we were down 1%. I think we lost 0.1% market share, I forget. And our dry pet food business, wilderness and Life Protection Formula and actually Tastefuls and cat actually gained shares. We kind of gained share on 60%. It's a good improvement but not one is clearly not the goal. And even if Wilderness improved, it did not improve all the way that we want. So I'm really pleased with the direction and the momentum and I think there's -- I think there’s more to come on Wilderness specifically. We just turned on the advertising at the end of the first quarter, this new advertising which shows the protein relative to our nearest competitor. We've seen the gains we've fought for, but those take a little while in the feeding cycle of pets. I would also say starting in the second quarter, so we're going to have to get up on advertising in the second quarter. But in addition, you're doing a couple of other things on wilderness that will help us. The first is that we're reintroducing some grain-free products. So we have some grain-free products adding back to the Wilderness portfolio as we had a few years ago. The other is that we're adjusting sizes, making some smaller sizes, again, in this current economic environment, smaller bags of dog food tend to do better. So we're reintroducing those. And we have commitments from a couple of our pet specialty customers to improve the way that they feature wilderness in store. And so we're working with our retail customers, all those things hit in the second quarter. So, my expectation is that we continue to see improvement on Wilderness and pet into the second quarter, and we'll see what that yields. So I'm not going to give a number for how much it's going to improve, but looking for improvement on our pet business in the second quarter and on Wilderness.

Okay, great. Thanks so much.

Our next question comes from Max Gumport from BNP Paribas. Please go ahead. Your line is open.

Hey, thanks for the question. Jeff, last quarter you discussed your intent to return excess cash to shareholders in the form of share repurchases if you couldn't find attractive acquisition candidates. So I think the initial read of the intent to use all the proceeds from the yogurt investiture suggested there might not be attractive M&A out there. It seems like in today's prepared remarks, you had a bit more pointed commentary about focusing on deals that are more bolt-on in nature, specifically in that $1 billion to $2 billion transaction size range. So I think that helps to provide more clarity on the reason for why you're returning the proceeds to shareholders. I'm curious what you're seeing in the current environment that has made you focus on finding the next Annie's or Tyson pet foods business rather than the next Blue Buffalo. Thanks.

Yeah, so thanks for the question. I appreciate that. And first I was kind of back up and say, in the last fiscal year, we did exactly what I said, which is we didn't find any acquisition candidates that we really liked. And so we returned money to the shareholders in the form of share repurchases. So, we actually did what we said we were going to do in the last fiscal year. When it comes to this year, our balance sheet is in a great place. And so with this divestiture of our American yogurt businesses, we felt it important to make sure that all of our investors know what we intend to do with those proceeds. And as we look at the environment, you're right, I got a little bit more specific in this release, and it really is kind of what we see in the near term as the kinds of things that might be available to us in terms of bolt-ons. And similar to what we had done in Annie's or similar to what we had done in Tyson. I mean, certainly if something bigger came along that we don't see now, we could entertain the notion. But for us, it seems like our focus right now and what we see in the marketplace really is probably more availability of smaller sized assets that we could bolt-on that would enhance our growth, so still enhancing our growth, but bolted on to businesses we already own. And importantly, I mean I know that you know this because you've been following this for a while but for those who haven't been maybe, we're able to do these bolt-on acquisitions and repurchase shares at the same time. We did it with Tyson, we did it with Annie's, we've done it for a long period of time. And so we got a little bit more specific on the near term only because that's the way it looks to us and looks to be our focus over the coming time. And we have the balance sheet to be able to do both of those things at the same time, add on bolt-on acquisitions and do this yogurt investiture as well as repurchase shares.

Thanks. And then with regard to improving your competitiveness, which is clearly a focus for this year, it is nice to see the progress in the first quarter. And I recognize you're far from declaring victory on that front just yet. But I'm wondering if you think investors will be making too much of a big deal out of the last month or so of data, which would suggest you took a step backwards. I realize it's just a quad week and there can be volatility, but looks like in cereal, refrigerated dough, snack bars, fruit snacks, there was a bit of a step backwards. It does sound like you have more product news coming later on in 2Q. So just curious how you think we should all be reading that latest quad week of data. Thanks.

Yeah, so your question says commentary on Q1 is right. I mean, we didn't make progress. There's no victory being declared, but I would say that we're confident in that, the first quarter played out the way we thought both in terms of the macro environment and our improved competitiveness. And we understand that there's a job left undone, which is to kind of get back all the way to share growth and absolute growth. I mean, down one is not the goal. But we're confident we can get there given what we see coming up on the horizon in terms of our initiatives. Over the last four-week period, I'm not sure the angst of investors flew over the last four week period, but I can tell you it's entirely due to a timing of merchandising shift from one period to another. So it's really a couple of big merchandising programs that shift in timing. So I am not worried about what you see in the scanner data for the last month.

Thank you very much. I’ll pass it on.

Thanks.

Our next question comes from Rob Dickerson from Jefferies. Please go ahead. Your line is open.

Great. Thank you so much. I guess you touched on kind of price and couponing a little bit earlier, but I am just curious, as we think through, I guess Q2, and then by also, I guess back half of the year, like, is there a scenario that kind of plays out such that North America price/mix could actually be positive this year? I mean, clearly, there's a lot of discussion around promotional needs and what we're doing on pricing and the value-based consumer, et cetera. But at the same time, there's a comment in the prepared remarks that spoke to like selling the right pack size and the right channel at the right price, but then also maybe there is some price/mix benefit on some of those shifts. So just trying to get a sense of kind of the price/mix outlook for the year.

Yeah, I was -- let's look at kind of what's happened this year in our categories where you see kind of an equal contribution from rate and from mix or from rate and volume in our categories. And that's kind of what we see playing out for the year, kind of an equal contribution. And it's more or less what we saw in the first quarter. Then if you look at our business, you'll look at our price/mix was down 1%, it was entirely mix. In fact, more than entirely, more than entirely mix. And mix is a hard thing to really predict. As we look ahead, I mean, we don't comment on pricing or promotion plans as we look ahead, but I mean, I think it's important to note that our categories have remained very rational. And that what we see is input costs, inflation is certainly moderated. But it's still, still our forecast for us for the year is 3% to 4%. And so, as we look ahead, we see rational categories and we see a little bit of inflation. And what I'm pleased with is that we have the productivity savings that can offset -- that can really offset that. And so now our job is to drive growth. And so as we look at the coming quarters, we'll see what happens with price/mix, but it's played out exactly so far this year, kind of as we thought it would.

Yeah. We could see some modest improvement mix as we work our way forward. But to Jeff's point, it is hard to predict.

Fair enough. And then just on the M&A side, again, prepared remarks, you spoke to kind of bolt-on attraction, $1 billion to $2 billion transaction size on average. Simple question, kind of where you would like to go, right? Is this, kind of build up a little bit more international scale, maybe leading to pet some, just any color you could provide would be fabulous. Thank you.

I'll provide a little bit of color but maybe not as colorful as you're.

It's going to be things that kind of bolt-on to our existing categories. I would say specifically, our categories where you have a right to win, which, in a large degree are our global businesses. And so, you look at pet or you look at what we've done in acquisition in pet or snacking or what we've done in Foodservice. I would expect more of those both on the priority business, where we have a right to win and where we see growth. And it could be international, it could be domestic, so I'm not going to get into that level of detail, but really where we have a competitive advantage, where we see growth, maybe get a little synergies along the way, those are the places where we will continue to look.

Alright, super. Thanks guys.

Thanks.

Our next question comes from Bryan Spillane from Bank of America. Please go ahead, your line is open.

Hey, thanks operator. Good morning everyone. So two for me. One, just I think we've talked a little bit about kind of progress and trends. So maybe Kofi, could you just tie together, I think at the start of the year, we were kind of looking at more of a back-half loaded plan to begin with. So just as we're looking at the second quarter, you know, Will it look somewhat similar to 1Q? I know we've got -- the comps are kind of wonky in pet, but any color you can give us in terms of phasing I think will be helpful. And then I've got a follow-up.

Sure. So we would expect to see continued improvement off of this trend as we step into Q2. I think it would be fair to characterize the year as expecting gradual improvement in the top line as we work our way Q2 into the back half of the year, and then obviously profit a little bit more phase to the back half.

Okay. Thank you. And then the follow-up, Kofi, just on the divestiture and the dilution, is there stranded overhead incorporated in that? I guess underneath my question is just, is it dilutive initially, but then you work through the overhead and over time it actually isn't as dilutive.

Yes, our expectation -- you're exactly right, our expectation is that there is stranded overhead that will take us a period of time. We would expect that period to be about two years or less for us to get that stranded overhead addressed and out of the cost structure. So that is part of the drag in the dilution math.

Okay. Are there any TSAs also we should be aware of?

Yeah, there will be TSAs as part of the terms of both of the sale agreements with Sodiaal and Lactalis.

Okay, but not very material?

Yeah, I would not consider them material to the dilution and accretion.

All right, cool. Thank you.

You bet.

Our next question comes from Leah Jordan from Goldman Sachs. Please go ahead. Your line is open.

Good morning. Thank you for taking my question. I just wanted to follow up to the discussion on the more food at home trends supporting the volume lift. Is that a widespread lift versus your expected baseline across categories or any notable surprises to call out there? And has that demand shift impacted your view on how you're promoting or messaging in this current environment, including any update on how you're thinking about the timing of the spin throughout the year?

Yeah, as we look at a little bit of a shift from away from home to at home, first, it's a little bit of a shift. I mean, it's from like 86% of food at home to 87%. So that just to make sure we highlight that and don't overplay it. The second, I would say within the trend, it is broad based. And what we see is that the traffic at restaurants is down a little bit, and the traffic at what we call non-commercial outlets, so places like K through 12 schools, or colleges and universities, or healthcare, places like that, we actually see growth, which is where we over-index. And importantly, we see growth versus the prior year but neither are actually at pre-pandemic level. So it's growth off a base that was much lower than it was before but growth in this non-commercial space which we over-index which is why we have confidence in the growth of our Foodservice business. In terms of the impact on our retail business, it's actually been quite broad based across food and beverage. So it hasn't really impacted one category or the other significantly, because again, it's a 1 point change versus what we saw a year ago.

And about time to spend, I mean, we have had, I think, pretty consistent plans for, to increase our investment behind media and brands this year. We saw that in Q1, that'll actually be up even more in Q2. Jeff talked about some of the big seasonal initiatives that we have, whether it's on Pillsbury or soup or others. And so making sure we're supporting our brands through that period of time is important. So you'll see even a bit more of an increase in brand support here in the second quarter, and that will continue in the back half.

Okay, great. Thank you. And then for my follow-up, I don't think we've touched on international yet. Just seeing if you could provide more color on trends in that segment. I mean, it sounds like Brazil has improved from last quarter. What were the key drivers in that region? And then seeing if you could comment on China as well. I mean, that seems to still be challenged. How are things trending sequentially and any updated use on that region as we go throughout the year?

Sure. On our international business, I was really pleased, first of all, I was really pleased with our European results. You didn't mention that, but I'll tee up the question and answer it myself. We did see some growth in our European Australian business, which is good because it's a business that is a strong profit contributor. And so I like the way we're competing in Europe. In Brazil, you're right, we grew in the first quarter in Brazil on the top line and much improved from the year before. We -- it's one place, and we've talked about this before, it's one place where we saw lot -- quite a bit of inflation over the last few years and probably didn't fully utilize our strategic revenue management tools in the right way. And so we've adjusted pricing in Brazil. It's one of the places where we needed to adjust. We've made the adjustments. We're seeing the benefits of that. So pleased with how we performed in Brazil. The challenge for us really is China. And within China, we have two businesses, Wanchai Ferry dumplings and Haagen-Dazs, kind of equally split. Wanchai Ferry dumplings doing fine. And even Haagen-Dazs at retail stores and through e-commerce also doing pretty well. It's the Haagen-Dazs shops, the shop traffic is down. And much like you've seen, probably heard others in the market talk about the consumers pulling back and when they do, the shop traffic is down. And so as we look at the rest of the year, while we would like that trend to improve, we're not banking on that trend improving for us to hit our guidance for the year. And so as we look at international, I'm actually pretty pleased with most of it. And the one area that's challenging is China. It's not really an execution challenge on our part. It really is a more of a macroeconomic challenge with the shops. The margins on shops are low, but the fixed costs are high. So it has an impact on profitability. So that's what we're seeing a little bit in China. We're not counting on the economics to get better in the near term. So it's just -- it's something we'll continue to have to work with throughout the year.

Thank you.

Our next question comes from Robert Moskow from TD Cowen. Please go ahead. Your line is open.

[Technical Difficulty]

Sorry, Rob. We can't hear you. We heard just a tiny little sound.

How's this? I'm sorry.

That's good. Perfect.

Okay. To what extent does Morning Foods currently operate with an integrated cross-category strategy across cereal and yogurt? And does the divestiture of yogurt require you to alter your approach to the retailer or your consumer insights and are there any implications regarding scale in that regard or is it just like there's different buyers? Is it, there's a cereal buyer, there's a refrigerated buyer and it's very separate?

The answer, Rob, is much more the latter. There's not a vast category of strategy when it comes to yogurt and cereal. I mean, they both participate in a lot in the morning occasion. So that's things they have in common as well as kind of a combination of taste good and good for you. So they have that in common as well. But there's not really a -- there's not broader implication with our retailers. There's not a broader implication on insights. We have insights embedded in that particular operating unit, but also we have insights in North America retail that kind of span. So there, it's a business from that standpoint and frankly from a manufacturing standpoint that's relatively easily separable and I wouldn't see an impact on cereal from that divestiture.

Right. Okay, thanks. And a follow up, you said six of your 10 categories are flat or getting better. Can you comment on the other four? Like, is it snacks and dough? And what's the plan for accelerating the growth in those other four?

Yeah, I would say that rather than taking you to around the world of all four, I would say that the biggest one, the biggest one is dough and [Technical Difficulty] snacks. And so those are those are kind of the two biggest by far. And with refrigerated dough, I think we have some phenomenal advertising coming up in the second quarter using the Doughboy. We have lots of product news in that category, launching some new products. And so I would anticipate our dough business to get better in the second quarter. We'll see about share. Our market share in dough is already about 75% or so. So the key to dough, it really is to get to kind of grow it. And so I have a high degree of confidence in our plans as we look forward. We'll see what they yield, but our dough business I feel good about it. And then fruit snacks, a reminder -- you may not remember this, but we're bringing on additional capacity starting in the second quarter for our -- particularly for our Gushers business, which has been capacity constrained. We have some really good new products, especially on Gushers also coming in the second quarter. So that's a business where I would expect to see some improvement as we move throughout the year. It may not all happen in the second quarter, but as we move through the year, I would expect us to see improvement in our fruit snacks business. So those are those are the two biggest ones Rob of the one where we feel like, okay, we made a good progress on a lot of them, but those are two we need to continue to make progress.

Got it. Thank you.

Our last question today will come from John Baumgartner from Mizuho Securities. Please go ahead. Your line is open.

Good morning. Thanks for the question.

Good morning.

Good morning. Jeff, I wanted to come back to North America and the comments on competitiveness and the larger eating at home environment. Looking at recent innovation, it seems to appeal maybe a bit differently to the frequency of consumption, the Totino’s breakfast, the Taco Dessert Shells, the low sugar Betty Crocker. How do you assess your portfolio at this point in the frequency of consumption relative to its potential? Are there certain brands or categories where that gap is still significant? And in closing those gaps, what's the relative importance between even more innovation relative to making pack size changes or marketing differently against a business in its current state?

Yeah, when we think about innovation, we kind of think about it broadly. And it can happen in all the ways you identify, which is new product innovation. It can happen with -- through our marketing messaging. It can happen through pack sizes. It can happen through all those things. A lot of times people focus on just the new product innovation. And by the way, I think our new product innovation is good, but it's like 5% -- it'll be 5% of our business this year and the rest of the 95% is really what drives profitability and growth and household penetration. And so, I will -- so the key for us is to make sure we have innovation that's relevant category by category. And sometimes that's messaging, sometimes that's news, sometimes that's having the right pack sizes in place, and other times it's new product innovation. Fortunately, I've said it before, so I'm maybe at the risk of just repeating myself, but as we look broadly landing in the second quarter, I feel good that we have good new product innovation on our billion dollar brands. We also have stepped up levels of advertising. You'll see some, I think, some exciting advertising on Totino's coming here starting in the second quarter, as well as new products from Old El Paso and New Old El Paso soups that we've launched in the marketplace, as well as news on our [core like flakier] (ph) biscuit. So it really is, and I go category by category, but everything I just mentioned is innovation on a billion dollar brand. And I think that's the key when you have good ideas on big brands you tend to do better and I think we have differentially good ideas on big brands which by the way includes Blue Buffalo not just North America retail.

Thanks, Jeff.

Okay, I think that's all the time we have this morning. Appreciate everyone's engagement and we look forward to catching up over the course of the coming months. Please reach out with any questions through today and look forward to speaking with you again next month. Take care. Thanks. Julianne, over to you.

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