Q4 2021 General Mills Inc Earnings Call - Pre-Recorded Remarks

In the fourth quarter and full year fiscal 2021 earnings.

Later this morning, we will hold a separate live question and answer session on today's results, which you can hear via webcast on our Investor Relations website.

In a moment I'll turn the call over to Jeff Harmening, our chairman and CEO and Kofi Bruce our CFO, but before I do let me first touch on a few items.

On our website, you'll find our press release that posted this morning, along with a copy of the presentation and transcript for these remarks. Please.

Please note that today's remarks include forward looking statements that are based on management's current views and assumptions.

The second slide in today's presentation lists several factors that could cause our future results to be different than our current estimates.

And with that I'll turn it over to Jeff.

Thank you, Jeff and good morning, everyone.

During today's presentation I'll provide a summary of our fourth quarter and full year performance share. How we are reshaping our portfolio and organizational structure to drive stronger and more profitable growth and outline our priorities and guidance for fiscal 'twenty..2 then.

Then kofi will walk through our fiscal 'twenty, 1 financial performance in more detail as well as provide some color on the assumptions that frame our expectations for fiscal 'twenty 2.

Let's begin with today's key messages on slide 4.

Since the onset of the pandemic, we have seen dramatic changes in consumer behavior. These changes, including how we shop, where we eat and work how often we travel and more have required us to adapt.

Throughout this time, we focus on what is most important prioritizing the health and safety of our people and our consumers above all else.

I am proud of our team's focus and perseverance not only to deliver for our consumers and our communities, but also to achieve our fiscal 'twenty 1 priorities.

Now as we emerge from the pandemic. It is clear that consumer behaviors are not returning to what they once were.

The rapid growth in e-commerce, the likelihood that many office workers will have some degree of remote work and the increased depreciation consumers have gain for cooking and baking over the past 18 months will have lasting impacts Andrew will create opportunity.

Simply put we are ending 1 period, a significant consumer disruption only to start another.

As we look ahead to our fiscal 'twenty 2 we will continue to execute our accelerated strategy focusing on 3 priorities that will be critical to our success.

Continuing to compete effectively.

Successfully navigating the dynamic cost environment, and executing our portfolio and organizational reshaping efforts without disruption.

Slide 5 summarizes our headline financial performance metrics for fiscal 2020, what we.

We delivered strong performance for the full year, including 4% organic net sales growth, 2% constant currency growth in adjusted operating profit and 4% growth in adjusted diluted EPS in constant currency driven by our ability to meet the strong demand for food at home find new solutions for our away from.

Home customers and outperform our competition.

Our fourth quarter results were slightly ahead of our expectations, though down versus last year's unprecedented fourth quarter that included the initial surge in at home food demand. The 50 <unk> week for our legacy segments and an extra month of results for our pet segment relative to fiscal 19th fourth quarter, which did not have.

The same unusual comparisons.

Our 2 year compound growth was up 4% on organic net sales.

Up 1% on constant currency adjusted operating profit and up 4% on constant currency adjusted diluted EPS.

It is absolutely clear from these results that general Mills will exit the pandemic a stronger company than we entered it I'm extremely proud of our team for their tireless work and making that happen.

Looking back at the year, we accomplished what we set out to do competing effectively everywhere, we play driving efficiency to fuel investments in our brands and capabilities and reducing our debt leverage our consistent focus on these priorities shaped our decisions throughout the year and were instrumental in driving our financial performance.

Yes.

Let me share briefly a few highlights for fiscal 'twenty 1 performance on each of these priorities.

As we outlined back in February 1 of the focus areas of our accelerate strategy is to win in our core markets and 5 global platforms, where we believe our competitive advantages will drive differential growth.

Our efforts in these areas are paying off we delivered broad based net sales growth in fiscal 'twenty, 1 in our largest markets, including the U S, Canada, France, the U K, China, and Brazil, we gained market share in all 5 of our global platforms, including our fourth consecutive year of share growth in the U S cereal.

Oh, good gains and snack bars, pet food and ice cream and more than a point of share growth for old El Paso Mexican food and.

And relative to the pre pandemic period, we've grown household penetration and increase repeat rates across 7 of our top 10 U S categories.

This gives us confidence that as consumers transition to their new normal they will continue to seek out the general mills brands, They know and trust.

We also successfully achieved our second priority was supposed to drive efficiency to fuel investments in our brands and capabilities.

We delivered another strong year of holistic margin management productivity savings at 4% of cost of goods sold which enabled us to increase brand building investments, even as we dealt with higher cost of service elevated demand.

In fact, we increased our media investment at an 11% compounded rate over the past 2 years, including strong support for differentiated campaigns on branches, just curious nature Valley old El Paso, Blue Hagen Dazs, Pillsbury and many more.

We also continue investing in strategic capabilities that will be critical to our future success income.

Leading digital data and analytics ecommerce H M M and strategic revenue management.

These investments are already paying off as evidenced by our continued outperformance in E Commerce, which now makes up 11% of our worldwide net sales.

Our E Commerce net sales were up 45 per cent for fiscal 'twenty, 1 and we continue to see our brands holding higher market share is online than in brick and mortar outlets.

Finally, our strong financial discipline allowed us to further reduce our leverage to 2.9 times net debt to adjusted EBITDA at the end of fiscal 'twenty 1 with.

With our balance sheet and a solid position, we were able to activate each of our long term capital allocation priorities during fiscal 'twenty, 1, including continuing healthy levels of capital investment in the business to fuel growth and drive H M M cost savings, increasing our quarterly dividend rate by 4 per cent per share in the second quarter.

Announcing in May the acquisition of the Tyson pet treats business, which will be our first acquisition. Since the addition of blue Buffalo in fiscal 18.

And resuming share repurchase activity by buying back $301 million of stock in the fourth quarter.

Looking ahead, we will continue to use our balance sheet as a strategic asset by investing to improve our growth profile, while returning cash to shareholders through dividends and share repurchases.

In addition to delivering on our key priorities in fiscal 'twenty..1 we also announced a few important actions that will be critical to enhancing our future growth in line with our accelerate strategy.

They include 2 portfolio reshaping transactions that will enhance the growth and margin profile of our enterprise.

First as we mentioned on our third quarter earnings call, we entered into a memorandum of understanding in March to sell our interest in our European Yoplait operations to sodium <unk>, a leading French dairy cooperative and our current joint venture partner in the business in exchange for full ownership of Yoplait, Canada and to reduce royalty on our north.

American yogurt licenses.

On this proposed transaction is going as planned and we remain on track to sign a definitive agreement and close the sale by the end of calendar 2021.

More recently in May we reached an agreement to acquire Tysons pet treat business strengthening our position in a fast growing U S pet food category.

<unk> portfolio, which includes the nudges true choose and top 2 brands is a leader in natural meat treats and is highly complementary to our existing pet treat portfolio under the Blue brand annual net sales for the Tyson pet treat business totaled more than $240 million and have grown up nearly a 20% compounded rate over the past.

3 years.

We see significant opportunities to drive future growth by expanding awareness and availability of these products and we expect to unlock production and other cost synergies with the rest of our pet business all of which will result in substantial value creation.

We have now cleared nearly all of the key closing conditions for this transaction, including HSR review should we expect the deal to close shortly.

These 2 transactions represent significant steps in our effort to reshape our portfolio to drive faster and more profitable growth at the same time. There is still more work to do and we'll look for additional opportunities to further reshape our portfolio through acquisitions <unk> divestitures.

In addition to our portfolio actions, we recently announced a significant initiative to reshape our organization to better align with our accelerate strategy and ensure we can deliver on the consumer behavior changes that were established or accelerated during the pandemic.

We're making meaningful changes to simplify and streamline parts of our structure to bring our functions and capabilities closer to the business.

At the same time, we're establishing a new strategy and growth organization focused on advancing our accelerate strategy with responsibility for areas, including M&A strategy consumer insights brand experience strategic revenue management, and our 301, a minority investment arm.

This change is not simply a cost cutting exercise, it's allowing us to free up resources to continue to invest in growth facing capabilities are priority areas include digital data and analytics ecommerce SRM strategy M&A and other capabilities that are critical to our future success.

Overall, we expect these changes to our portfolio and organization will result in stronger more profitable growth, enabling us to better deliver on the goals of our accelerate strategy.

As we turn to fiscal 'twenty 2.

We reiterate our 3 key priorities that will be critical to our success. This year outlined on slide 12.

First we will continue to compete effectively prioritizing our core markets global platforms and local Gen brands and leveraging our brand building innovation strategic capabilities and force for good work to deliver competitive performance.

Second we will successfully navigate the dynamic cost environment, leveraging our H M M productivity program SRM pricing actions and other efficiency efforts to address input cost inflation and other cost headwinds and.

And third we will execute our portfolio and organization reshaping actions without disrupting our base business.

We know we must meet consumers, where they are and with the products they want to be successful in fiscal 'twenty 2.

Our key initiatives for this year are aligned with our accelerated strategic pillars, including continued investment behind bold brand building campaigns.

For example, cheerios is celebrating 80 years of putting heart healthy oats on millions of breakfast tables every morning by reintroducing its original name and packaging curios.

The retro limited edition box will be hitting store shelves in July and will be asking fans to enter into a contest by sharing their favorite cheerios memories on social media.

Also our Hagen Dazs mix. It up campaign is live across Europe, and Asia now highlighting the combination of contrasting flavors and textures to create an elevated taste experience.

Finally, as our tasteful cat food line enters its second year, we're making sure pet parents know about its superior taste with an integrated 1 taste is all it takes campaign.

We're also investing in exciting and relevant renovation and innovation news for consumers. For example, we're launching new flavors and textures with Hagen Dazs twisting Crunch in Asia, and Latin America, and nature Valley Softbank Muffin bars in the U S.

A doubling down on successful losses from last year with new additions to those product lines, including new multi packs on ratio keto yogurt and kits for old El Paso tortilla pockets in Europe.

And increasingly these initiatives are also weaving in our force for good efforts, including new and is composed of all Mac and cheese cabs, which you can find on shelves today.

The next few months will be especially critical for our brands as the world transition to a new normal.

As consumers reestablish routines, it's important that we deliver solutions for lunchtime and away from home snacking, leveraging trusted brands like nature Valley, Goga, Dunker, Roos and Annie's.

We will also continue investing in strategic capabilities across our business in fiscal 'twenty, 2 to better enable us to compete including digital data and analytics strategic revenue management connected commerce, and our holistic margin management program.

Fiscal 'twenty 2 is expected to bring the highest level of input cost inflation that we've seen in 10 years.

The combination of our H M M productivity program and broad based SRM initiatives will be required to offset this level of inflation and protect our profitability in fiscal 'twenty 2.

In fact, we've taken SRM actions across the vast majority of our categories and in all of our core markets around the world leveraging all for elements of our SRM toolkit for list pricing mixed management pack price architecture changes and promotion optimization.

In addition, as we see consumers increasingly move online we are ramping up our connected commerce efforts with some exciting initiatives coming out. This year for example, our Hagen Dazs, China business, we're expanding unsuccessful connected commerce initiatives that we kicked off in fiscal 'twenty 1.

Inc. Digital engagement, our shops network and other omni channel interactions to strengthen our connections with consumers and accelerate our growth.

Our pet segment, we are launching a new initiative later this year that will allow pet parents to connect with each other and with the Blue brand in a differential way.

And we'll continue to leverage our existing assets, including box out for education, Pillsbury Dot com and Betty Crocker Dot com to cultivate that connected ecosystem for consumers online.

With clear priorities and a strong set of plans we've outlined goals for fiscal 'twenty..2 that we expect will represent competitive performance in the context of a changing demand and cost environment.

We expect that consumer demand for food at home in fiscal 'twenty, 2 will decline from elevated fiscal 'twenty, 1 levels as more vaccines, our distributed offices and schools reopen and the broader economic recovery continues Conversely, we expect our away from home food demand to be above last year.

But we do not expect either at home or away from home demand to return to pre pandemic levels.

And with roughly 85 per cent of our net sales and at home food occasions. We anticipate these dynamics will result in lower aggregate consumer demand in our categories in fiscal 'twenty 2.

For this demand outlook, we expect organic net sales to decline 1% to 3%.

We expect adjusted operating profit declined 2% to 4% in constant currency Ann.

And we expect adjusted diluted earnings per share to range between flat and down 2% from the base of $3.79 earned in fiscal 'twenty 1.

And we expect free cash flow conversion to be approximately 95 per cent of adjusted after tax earnings importantly, when compared to pre pandemic fiscal 19 levels of <unk>.

Mid point of our fiscal 'twenty, 2 guidance ranges equate to a 3 year compounded growth rates of approximately 2% 2 per cent and 5 per cent, respectively for organic net sales constant currency adjusted operating profit and constant currency adjusted diluted EPS.

This level of top line growth represents a meaningful step up from our performance in the prior 3 years ending in fiscal by team.

I want to be very clear, but I am excited about where general mills is today and where we're headed.

We view fiscal 'twenty 2 is a continuation of the momentum we built in fiscal 'twenty, 1 by making food the world loves and needs, we will emerge a stronger company with exciting opportunities to accelerate growth and create sustainable value for our shareholders with that I pass it over to coffee.

Thanks, Jeff and Hello, everyone.

I'll be providing more details on our fourth quarter financial performance, starting with our enterprise results on slide 17.

Net sales of $4.5 billion for down 10%, including the impact to reported net sales from the 50 <unk> week in last year's Q4.

Organic net sales were down 6% in the quarter, reflecting a tough comparison to the 16% organic net sales growth a year ago. When we saw the initial surge in pandemic driven at home demand as well as the extra month of results in our pet segment.

Adjusted operating profit decreased 18% in constant currency, driven primarily by lower net sales and higher input costs, partially offset by lower SG&A expenses adjusted diluted earnings per share totaled 91 cents in the quarter and were down 19% in constant currency driven by lower adjusted operating.

Getting profit, partially offset by a lower adjusted effective tax rate.

Given the unusual nature of last year's fourth quarter. We've also included a 2 year compound growth rate across these measures.

Which reflect the comparison against pre pandemic levels in fiscal 19 on a 2 year compound growth basis fourth quarter organic net sales were up 4% adjusted operating profit increased 1% in constant currency and adjusted diluted EPS grew 4% in constant currency.

Slide 18 summarizes the components of our net sales growth in the fourth quarter.

Organic net sales were down 6%.

Driven by lower organic pound volume.

Foreign exchange added 2 points of growth in the quarter and the comparison to the 50 <unk> week last year was a 5 point headwind to net sales.

Now, let's turn to segment results, beginning with North America retail on slide 19.

Fourth quarter organic net sales decreased 13%, reflecting the comparison against the pandemic driven surge in consumer demand in Q4 of last year.

On a 2 year compound growth basis fourth quarter organic net sales were up 6%.

Fourth quarter constant currency segment operating profit was down 31% driven by lower net sales and higher input costs, including fixed cost deleverage in the supply chain.

For the full year, North America retail organic net sales were up 4%, including broad based growth in U S meals, and baking, Canada U S cereal and U S yogurt.

We grew or held market share in roughly 50% of U S retail sales and we drove strong share gains in Canada.

Fiscal 'twenty 1 segment operating profit was flat to last year, driven by input cost inflation cost to secure incremental capacity and higher media and other SG&A expenses offset by H M M cost savings and higher volume.

Segment operating profit margin of 23, 9% was 100 basis points ahead of the pre pandemic result in fiscal 19.

Organic net sales for our pet segment declined 20% in the fourth quarter driven by the comparison to the extra month of results in last year's Q4, as we align the segment to our May fiscal year end as well as the comparison against the pandemic driven stock purchases, we saw a year ago.

As you can see on the chart on slide 20, Q for fiscal 'twenty was a significant outlier in terms of net sales and except for that quarter net sales for our pet segment have generally been on a strong upward trend.

<unk> retail sales for blue in the fourth quarter were up mid teens in measured channels, reflecting the underlying strength of our business on.

On the bottom line the pet segment's fourth quarter operating profit declined 24% driven by lower volume and higher input costs, partially offset by lower SG&A expenses and positive price mix.

For the full year pet's organic sales were up 2% driven by the comparison to the extra month of results in fiscal 'twenty.

On a 2 year compound growth basis pet segment organic net sales were up 10%.

In fiscal 'twenty, 1 blue generated double digit retail sales growth and grew market share in measured channels for brand also drove further household penetration gains and increased pet parent awareness with our omni channel growth model.

Full year operating profit for the Pet segment was up 6%, primarily driven by higher net sales and lower SG&A expenses, partially offset by higher input costs segment operating.

Operating profit margin was up 100 basis points to 24 per cent of net sales.

Turning to convenience stores and foodservice segment results on slide 21.

Fourth quarter organic net sales grew 33%, primarily driven by the comparison to significantly reduced away from home food demand a year ago.

We have seen sequential improvement in consumer traffic to away from home food channel, including schools restaurants, and lodging throughout fiscal 'twenty 1.

On a 2 year compound growth basis, Q4, organic net sales declined 3%.

Fourth quarter segment operating profit increased 143 per cent in the quarter driven by higher net sales and lower SG&A expenses for.

For the full year convenience stores and foodservice organic net sales declined 3% driven by reduced demand in away from home food channels amid the pandemic.

Segment operating profit was down 9%, primarily driven by lower net sales and higher input costs, partially offset by lower SG&A expenses.

In Europe, and Australia fourth quarter organic net sales declined 2% driven by the comparison to pandemic driven increased at home food demand a year ago.

On a 2 year compound growth basis.

Fourth quarter organic net sales grew 1% for.

Fourth quarter segment operating profit decreased 16% in constant currency, driven by higher input costs and lower net sales, partially offset by lower SG&A expenses for.

For the full year organic net sales increased 3%, primarily driven by old El Paso, Mexican food and Hagen Dazs ice cream. We competed effectively in fiscal 'twenty, 1 growing market share in ice cream and snack bars.

Full year segment operating profit increased 24%, primarily driven by higher net sales and lower SG&A expenses, partially offset by higher input costs.

In Asia, and Latin America organic net sales grew 22% in the fourth quarter due to pandemic driven at home food demand in Latin America, and improved away from home demand in Asia, driving strong growth in Hagen Dazs shops.

On a 2 year compound growth basis organic net sales increased 7% in the fourth quarter.

Segment operating profit totaled $23 million compared to a loss of $24 million a year ago, driven by higher net sales and lower SG&A expenses, partially offset by higher input costs.

Full year organic net sales were up 15% in fiscal 'twenty 1.

Net sales growth was broad based including double digit growth in Latin America, driven by strong at home demand for Yoki meals, and snacks and Kitano seasonings in Brazil amid the pandemic.

Net sales were also up double digits in Asia in the full year led by China, and India with notable growth for Hagen Dazs ice cream and Betty Crocker dessert mixes.

Full year segment operating profit was up $67 million to $86 million.

Primarily driven by higher net sales and favorable foreign currency exchange, partially offset by higher input costs.

Slide 24 summarizes our joint venture results.

In the fourth quarter constant currency net sales for cereal partners worldwide were down 2%, reflecting the comparison to elevated pandemic driven demand a year ago.

Hagen Dazs, Japan net sales were up 12% in constant currency in the quarter driven by successful new product launches and strong growth on the core.

For the full year CPW constant currency net sales were up 5% driven by broad based volume growth led by Brazil, Turkey, Russia and Mexico.

Hagen Dazs, Japan net sales were up 6% in constant currency, primarily driven by positive category trends and strong new product offerings.

Fiscal 'twenty 1 combined after tax earnings from joint ventures increased 29 per cent to $118 million driven by net sales growth for both CPW and Hagen Dazs, Japan.

Turning to total company margin results fourth quarter, adjusted gross margin and adjusted operating profit margin were roughly in line with our expectations at down 160 basis points and down 140 basis points respectively.

Driven primarily by fixed cost deleverage and the supply chain.

As we compared against significant volume leverage a year ago. During the initial surge in pandemic related demand.

For the full year adjusted gross margin decreased 40 basis points, primarily driven by input cost inflation cost to secure incremental capacity and higher logistics costs, partially offset by a came in cost savings and fixed cost leverage in the supply chain.

Fiscal 'twenty, 1 adjusted operating profit margin increased 10 basis points, driven by favorable price mix and lower admin expenses, partially offset by higher input costs.

Slide 26 summarizes other noteworthy Q for income statement items on.

Unallocated corporate expenses, excluding certain items affecting comparability decreased $53 million in the quarter, driven by lower compensation and benefits expenses.

Fourth quarter net interest expense decreased $16 million from a year ago, driven by lower rates and lower average debt balances. The adjusted effective tax rate for the quarter was $18.5 per cent compared to $19.1 per cent a year ago, primarily driven by certain nonrecurring discrete tax benefits.

And average diluted shares outstanding were flat in the quarter with our share repurchase activity offsetting the impact of option exercises.

Our full year fiscal 'twenty 1 results are summarized on slide 27.

Net sales of $18.1 billion were up 3% driven by higher organic net sales and 1 point of favorable foreign currency exchange, partially offset by a 2 point headwind from the extra week of results and last year's fourth quarter organic net.

Net sales increased 4%, reflecting strong execution and broad based market share gains amid elevated at home food demand for.

Full year adjusted operating profit of $3.2 billion increased 2% in constant currency, primarily driven by higher constant currency adjusted growth profit dollars, partially offset by higher SG&A expenses, including increased investment in media and capabilities.

'twenty 1 adjusted diluted earnings per share totaled $3.79, and grew 4% in constant currency driven by higher adjusted operating profit lower net interest expense and higher after tax earnings from joint ventures, partially offset by a higher adjusted effective tax rate and higher average diluted shares outstanding.

On a 2 year compound growth basis.

Relative to pre pandemic levels in fiscal 19 organic net sales were up 4% adjusted operating profit increased 4% in constant currency and adjusted diluted EPS grew 8% in constant currency.

Turning to the balance sheet and cash flow.

Full year operating cash flow totaled $3 billion down 19% from last year, primarily driven by a change in current assets and liabilities, partially offset by a change in deferred income taxes and an increase in net earnings as a reminder, operating cash flow in fiscal 'twenty, including timing benefits related to pandemic driven volume increase.

In last year's fourth quarter, which we expected to unwind in fiscal 'twenty 1 realm.

Relative to fiscal 19 pre pandemic results fiscal 'twenty, 1 operating cash flow was up 6%.

Our core working capital balance increased 6% from a year ago, driven by an increase in inventory balances, partially offset by an increase in accounts payable.

Capital investments of $531 million increased $70 million from a year ago, including higher spending on growth capital.

Full year free cash flow totaled $2.4 billion in free cash flow conversion was 103 per cent for the year.

Total cash returned to shareholders increased 29% to $1.5 billion, including $1.2 billion in dividends and $301 million in share repurchases.

As Jeff said earlier, we ended the year with a leverage ratio of 2.9 times net debt to adjusted EBITDA.

Turning to our expectations for fiscal 'twenty 2.

We've outlined our key top line assumptions on slide 29.

1 of the largest factors impacting our performance this year will be the relative balance of at home versus away from home demand as consumers adjust to the new normal.

As Jeff mentioned, we continue to expect to compete effectively in fiscal 'twenty 2 within the context of this evolving demand picture, while the environment remains highly uncertain. When we provided our current assumptions for consumer demand across our key business segments. We expect our North America retail in Europe, and Australia segments will see head.

[noise] winds from lower consumer demand for food at home relative to fiscal 'twenty 1.

No we expect that demand will remain above pre pandemic levels. Conversely, we expect our convenience stores and foodservice segment to benefit from increased demand for away from home for relative to fiscal 'twenty, 1, though we don't expect demand to fully recover to pre pandemic levels.

Finally, we anticipate demand for pet and Asia, and Latin America segments will be up in fiscal 'twenty 2 on top of growth in the prior year.

In aggregate that translates into consumer demand headwinds across roughly 70% of our net sales pace with tailwind on the remaining 30% of our net sales.

Slide 23 summarizes our other key financial assumptions in fiscal 'twenty 2 on adjusted operating profit, we expect headwinds, including input cost inflation lower volume supply chain deleverage and continued growth investments in our global capabilities, our current assumption for input cost inflation across our <unk>.

Total cost of goods sold is approximately 7%.

This includes logistics costs up double digits, raw and packaging materials up high single digits and manufacturing costs up low single digits.

We are currently covered on roughly half of our raw and packaging material requirements for fiscal 'twenty 2 on the other hand, we expect tailwind to adjusted operating profit will include H M. M cost savings of roughly 4% cost of goods sold positive price mix from our SRM actions lower administrative expenses, reflecting a streamlined organizational.

Structure and a reduction in COVID-19 related expenses, including external manufacturing health and safety for us.

While these items reflect our current assumption.

It is important to acknowledge that this is a highly dynamic environment and we will need to stay close to the cost picture and ensure we're taking appropriate action.

Based on how the situation evolves over the course of the year.

From a phasing standpoint, we expect adjusted operating profit to be down in the first half of our fiscal 'twenty, 2 and up in the second half due to the comparison to the prior year with notably higher adjusted operating profit in the first half and due to the timing of net price realization relative to inflation.

Remember that we posted a first quarter adjusted operating profit margin of 19, 1% in fiscal 'twenty 1.

Nearly 200 basis points ahead of our full year result, driven by elevated demand and supply chain leverage.

Largely due to this difficult comparison, we expect constant currency adjusted day operating profit to be down double digits in the first quarter of fiscal 'twenty 2.

Looking below operating profit, we expect net interest expense to total approximately $370 million.

We anticipate an adjusted effective tax rate of 21% to 22% and we expect to reduce our average diluted shares outstanding by 1% in fiscal 'twenty 2.

Finally, we expect to fund capital investments of approximately 3.5 per cent of net sales.

Based on these assumptions slide 31 reiterate for fiscal 'twenty, 2 outlook that Jeff share earlier.

I'll note that this outlook does not include any impact from the proposed Yoplait Europe divestiture or the Tyson pet treats acquisition since those transactions have yet to close.

Let me close with a few thoughts.

The general Mills team has risen to the challenges presented by the pandemic, making food the world loves and needs.

Which is our fiscal 'twenty, 1 priorities and we're back to fully leveraging all of our capital allocation tools, including dividend growth strategic acquisitions and share repurchases.

As we look ahead, we expect to emerge from the pandemic, a stronger company well positioned to drive long term sustainable growth and shareholder value as we execute our accelerate strategy.

Thank you for your time. This morning. This concludes our prepared remarks, I invite you to listen to our live Q&A webcast, which will begin at 8 am central time. This morning, and will be available for replay at general Mills Dotcom.