Q3 2024 General Mills Inc Earnings Call
Yeah.
Audra: Good morning, my name is Audra, and I will be your conference operator. Time I would like to welcome everyone to the general mills third quarter and fiscal year 2024 earnings conference. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise.
Audra: Good morning, My name is Audra and I will be your conference operator today at this time I would like to welcome everyone to the general Mills third quarter in fiscal year 'twenty 'twenty four earnings call.
Audra: Today's conference is being recorded.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question answer session. If you would like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad.
Audra: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1. At this time, I would like to turn the conference over to Jeff Siemon, Vice President of Investor Relations and Treasurer. Please go ahead. Thank you, Audra, and good morning to everyone.
Audra: I would like to withdraw your question Press Star one again.
Audra: At this time I would like to turn the conference over to Jeff Siemon, Vice President of Investor Relations and Treasurer. Please go ahead.
Jeff Siemon: Thank you Andre and good morning to everyone. Thank you for joining US this morning for our Q&A session on our third quarter fiscal 2024 results.
Jeff Siemon: Thank you for joining us this morning for our Q&A session on our third quarter fiscal 2024 results. I hope everyone had time to review the press release, listen to our prepared remarks, and view our presentation materials, which we made available this morning on our Investor Relations website. It's important to note that in our Q&A session, we may make forward-looking statements that are based on management's current views and assumptions. Please refer to this morning's press release for factors that could impact such forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here this morning with Jeff Harmening, our Chairman and CEO, and Kofi Bruce, our CFO. So, let's go ahead and get right to the first question. So, Audra, could you get us started? And, as a reminder, please press star 1 if you have a question. We'll go first to Andrew Lazar.
Jeff Siemon: I hope everyone had time to review the press release and listen to our prepared remarks and view our presentation materials, which we made available. This morning on our Investor Relations website.
Jeff Siemon: Note that in our Q&A session. We may make forward looking statements that are based on management's current views and assumptions.
Jeff Siemon: Please refer to this mornings 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.
Jeff Siemon: I'm here this morning, with Jeff Harmening, our chairman and CEO Kofi Bruce our CFO.
Jeffrey L. Harmening: Go ahead and get right to the first question. So Andre if you can get started please.
Andre: Yes, and as a reminder, please press star one if you have a question. We'll go next Oh, sorry, we'll go first to Andrew Lazar with Barclays.
Andrew Lazar: Great, thanks very much. Good morning, everybody. Morning Andrew.
Andrew Lazar: Great. Thanks, very much good morning, everybody.
Andrew Lazar: Good morning, Andrew.
Jeffrey L. Harmening: Hi Jeff, in your prepared remarks, you mentioned the expected impact in the fourth quarter in terms of reported results from the lapping of the trade expense benefit last year. If we put that aside, which sort of seems like more of a mechanical question, how do we think about momentum for the company in the fourth quarter in terms of what you'd expect in terms of in-market performance and consumption, right, as the company looks to really build momentum going into fiscal 25? Would you expect sort of an acceleration from what we saw in fiscal 3Q or something similar to 4Q? Yeah, yeah, thanks, Andrew.
Andrew Lazar: Jeff in your prepared remarks, you mentioned you expected impact in the fourth quarter.
Andrew Lazar: In terms of reported results from the lapping of the trade expense benefit last year, if we put that aside.
Which sort of seems like more mechanical how do we think about momentum for the company in the fourth quarter in terms of what you'd expect in terms of end market performance in and consumption right as the company looks to really build momentum going into fiscal 'twenty. Five would you expect sort of an acceleration from what we saw in fiscal <unk> or something similar to <unk>.
Speaker Change: Yes, Thanks, Andrew I would agree with you the timing of the trade phasing is more mechanical in nature. So I think youre right about that more broadly I would say is I mean, we're encouraged by the by the third quarter results and the improvement that we saw in underlying performance, particularly at the level of competitiveness in North America retail and an improving.
Jeffrey L. Harmening: And I would agree with you that the timing of the trade phasing is more mechanical in nature. So I think you're right about that. More broadly, I would say we're encouraged by the third-quarter results in the improvement that we saw in underlying performance, particularly the level of competitiveness in North America retail and the improvement we saw in PET. And as we said, you know, said kind of going into the quarter, in the back half of the year, we thought there'd be three external factors which would, you know, play a role in our performance. The first was lapping pricing of last year. We thought, you know, we'd see a benefit from doing that. And we are seeing that benefit in the third quarter.
Speaker Change: We saw in <unk>.
Andrew Lazar: And Pat and as we.
Kind of going into the quarter.
Andrew Lazar: In the back half of the year that we thought there'd be three external factors, which would play a role in our performance. The first was lapping our pricing of last year, we thought we'd see a benefit from doing that and we're seeing that benefit in the third quarter.
Jeffrey L. Harmening: The second is that, you know, lapping the reduction in SNAP benefits from a year ago, which we said we'd probably start to see in March and April. And there's a little bit of evidence to suggest that we're starting to lap that and see a little bit of benefit. And then the third would be lapping on self-availability.
Andrew Lazar: And is that lapping the reduction in snap benefits from a year ago. As we said, we'd probably start to see in March and April and there was a little bit of evidence that suggests that we're starting to lap that and see a little bit of benefit and then the third would be lapping on shelf availability and so those are the three factors. We've seen the first play out a little bit in our third quarter results. So we are encouraged.
Jeffrey L. Harmening: And so those are the three factors we've seen the first play out a little bit in our third quarter results. So we are encouraged. You know, I would say that, outside of the trade phasing kind of mechanical issue you referenced, we're assuming that our fourth quarter in terms of sales would look about like the third quarter in terms of year over year performance. And it's hard to say exactly because we have inventory movements and things like that. But our expectation would be that it would look pretty similar to the third quarter.
Andrew Lazar: I would say is that outside of the trade phasing kind of mechanical issue you referenced.
We're assuming that our fourth quarter in terms of sales, but look about like the third quarter in terms of year over year performance.
Andrew Lazar: It's hard to say exactly because we have inventory movements and things like that but.
Andrew Lazar: But our expectation would be that it would look pretty similar to the to the third quarter, Ed, but I would also say that there are a lot of moving pieces right and in the fourth quarter and we'll just have to see how those moving pieces play out in terms of the external environment.
Jeffrey L. Harmening: But I would also say that, you know, there are a lot of moving pieces, right, in the fourth quarter. And we just have to see how those moving pieces play out in terms of the external environment. And then obviously, that was a significant source of upside to organic sales versus at least sort of street expectations. But what really drove the outperformance?
Ed: Got it got it and then obviously that was a significant source of upside to organic sales versus at least sort of street expectations.
Ed: What really drove the outperformance and I guess more importantly, do you see this as sustainable.
Jeffrey L. Harmening: And I guess more importantly, do you see this as sustainable? I didn't know if you had an all channel consumption number for PET this quarter and whether you see that sort of continuing to improve sequentially from here? Or, or should we not get ahead of ourselves based on what we saw in 3Q? Thanks so much.
I don't know if you had like an all channel consumption number for this quarter and whether you see that sort of continuing to improve sequentially from here or should.
Speaker Change: Should we not get ahead of ourselves based on what we saw in <unk>. Thanks, so much.
Jeffrey L. Harmening: Yeah, well, the third quarter PEP results were pretty good, which is to say that they're better than maybe even we expected. The movement was a little bit better and, you know, paced by life protection formula, which was up but also tasty our cat dry business, which also showed some improvement as well as an improvement in our wet business. We still have a lot of work to do in PEP, and we know that, particularly with regard to wilderness and specific channels, what I feel good about the third quarter is that it shows that the area that we put emphasis on, you know, we And certainly improvement, which tells us that the Blue Buffalo equity is good and that we're working on the right things. And, you know, on wilderness, we kind of know what the challenges are, and we know what to do to get it back on track. You know, but it's not going to take a month or two to get that back where you want it.
Speaker Change: Yeah, well the third quarter pet results were pretty good I mean, which as I say that are better than maybe even we expected. The movement was a little bit better and paced by life protection Formula, which was up but also tasteful as our cat dry business, which also showed some improvement as well as well as an improvement in our web business.
Speaker Change: We still have a lot of work to do on pad and we know that and particularly with regard to wilderness in specific channels.
I feel good about the third quarter is what it shows that the area that we put an emphasis on we've seen with that.
And certainly improvement was tells US blue Buffalo equity is good and Theyre working on the right things and on wilderness, we kind of know what we know what the challenges are and we know what to do to get it back on track, but it's not going to take a month or two to get that back where you want is going to take a couple of quarters. So I'm not going to get ahead of myself I don't think its time to declare victory on pad.
Jeffrey L. Harmening: It's going to take a couple quarters, so I'm not going to get ahead of myself. I don't think it's time to declare victory on PET, even if we're encouraged that the things that we have done have seemed to work the way we wanted to. I would note the other thing about PET is that, you know, we drove some good profitability increases in the quarter. Our productivity levels are quite high in PET, and we had a lot of disruption costs during the pandemic that we've had to get out. And we're in the process of doing that. And you see that in the results for the third quarter. And so we're really pleased with that. We're kind of getting our feet undressed from an executional standpoint.
Speaker Change: Even if we are encouraged that the things that we have done have seemed to work. The way. We wanted to I was I would note. The other thing on Pat is that we drove some good profitability increases in the quarter, our productivity levels are quite high and Pat and we had a lot of disruption cost during the pandemic that we've had to get out and we're in the process of doing that.
Speaker Change: And you see that in the results in the third quarter and so it really pleased by by that were kind of getting our feet on dress from an execution standpoint, so while I'm encouraged by the the third quarter I think it's probably a little bit early too.
Jeffrey L. Harmening: So while I'm encouraged by the third quarter, I think it's probably a little bit early to say kind of what's going to happen from here on out. But we do see some green shoots in PET. Thank you so much.
Speaker Change: So is that kind of what's going to happen from here on out, but we do see some some green shoots in pet alright.
Speaker Change: Great. Thank you so much.
Kenneth B. Goldman: Yeah. We'll move next to Ken Goldman at JPMorgan. Hi, thank you.
Speaker Change: Yeah.
Speaker Change: We'll move next to Ken Goldman of Jpmorgan.
Kenneth B. Goldman: Hi, Thank you.
Jeffrey L. Harmening: You know, with the understanding it's too soon to quantify or really even discuss next fiscal year, I just wanted to clarify something at first, and that's that at Cagney, I believe you said you were hoping for a year, even though it's too early, that was relatively benign. And with the understanding, again, no numbers at this time, I assume, what does relatively benign mean in the context of your longer-term algo? And I'm asking because you have easy comparisons in PET, and you're hopefully still performing well in the market. You said previously you'll have HMM savings above 4%, or you hope to. Inflation should be, you know, disinflationary, for lack of a better word. You're going to get help from dipping into SNAP.
Kenneth B. Goldman: With the understanding it's too soon to quantify or really even discuss next fiscal year I just wanted to clarify something at first and that's at Cagny.
Kenneth B. Goldman: I believe you said you were hoping for a year, even though it's too early that.
That was relatively benign and with the understanding again no numbers at this time I assume what does relatively benign mean in the context of your longer term algo and I'm asking because you have easier comparisons and Pat you hopefully still performing well in market. You said previously you'll have <unk> savings above 4%.
Kenneth B. Goldman: Two inflation should be.
Kenneth B. Goldman: Disinflationary for lack of a better word or youre going to get help from lapping snap I could reel off a lot of potential positives into next year, but you weren't yet ready to kind of say it would be an algo and I'm just trying to get a better sense. If a month later than cagny, a year and a little bit of a better position to be somewhat more specific about how to think about maybe some of the puts and takes for next year.
Jeffrey L. Harmening: I could reel off a lot of potential positives into next year, but you weren't yet ready to kind of say it would be on algo. Well, Kenya, you picked up a lot of things we said at Cagney. I was so pleased to hear that. And you're right, when I say, you know, the benign environment, what we hope to be, I guess it would with regard to a couple things, you know, hopefully, with regard to inflation. We still see an inflationary environment. It's 4% now, it was, you know, double digits last year, and, long term, it's been kind of two to 3%. And so hopefully, we're headed in the long term direction. As we look at next year, we'll certainly give guidance in June on what that exactly looks like.
Well, Ken Yeah, you reeled off a lot of things, we said at Cagny. So hopefully it pleased to hear that and Youre right. When I say the benign environment, what we hope to be I guess with regard to a couple of things hopefully with regard to inflation and we still see an inflationary environment.
Kenneth B. Goldman: 4% now.
Double digits last year and long term, it's been kind of 2% to 3% and so hopefully we're headed in the long term direction as we look at next year, we'll certainly give guidance in June on what that exactly looks like but.
Jeffrey L. Harmening: But to the extent we can have a more benign inflationary environment and a supply chain environment, we don't see the disruptions we've seen, combined with good productivity, that's it, that's a good start. And I think then the question for us, which we still really haven't answered yet, even even a month after Cagney is how are how exactly are some of these external factors going to play out in the fourth quarter as we lap SNAP and as we lap on shelf availability, availability of private label, and, and some of our smaller competitors, those things are a little bit, I would say too early to call, but I will say the third quarter played out, you know, largely as we expected, and the benefits of lapping pricing paid played out as we expected.
Kenneth B. Goldman: To the extent, we can have a more benign inflationary environment in our supply chain environment, We don't see at the dress disruptions, we've seen combined with good productivity. That's a good start.
Kenneth B. Goldman: Then the question for Us, which we still really haven't answered yet even given a month after cagny as Howard how exactly are some of these external factors going to play out in the fourth quarter as we lap snap and as we lap on shelf.
Kenneth B. Goldman: Availability of private label and some of our smaller competitors those things are a little bit I would say too early to call, but I will say the third quarter played out largely as we expected and the benefits of lapping pricing played out as we expected and so.
Jeffrey L. Harmening: And so it may be completely unsatisfactory, but I'm not going to comment on f 25. At this time, other than to reiterate, your productivity is good, we've seen inflation slowing, although there still is inflation, and we'll know a lot more about what to expect out of the top line performance in a couple of months. I knew going in that I'd be partially unsatisfied, but that was helpful.
Kenneth B. Goldman: And maybe completely unsatisfactory, but im not going to comment on that 25% at this time other than to reiterate.
Kenneth B. Goldman: Yes productivity is good we've seen inflation slowing although theres still as inflation, we'll know a lot more about what to expect out of the topline performance and a couple of months.
Kenneth B. Goldman: I knew going in it'd be partially unsatisfied, but that was helpful. Thank you and then quick quick.
Jeffrey L. Harmening: Thank you. And then, quick follow-up, you mentioned that, and just now again, you mentioned SNAP reductions coming in the U.S. In a number of states, you know, a decent chunk of those reductions have already been implemented. I don't know if your data would show this, but I don't mean to put you on the spot, but is it fair to say that you've seen improvements in these states, or is it just a little more complicated than that? I'm just trying to get a sense because so much of, you know, what you're talking about depends on a little bit of that macro and how consumers react. Yeah, the short answer is yes and yes. And I'll explain.
Kenneth B. Goldman: Follow up you mentioned that and just now again, you mentioned snap reductions coming in the U S. In a number of states a decent chunk of those reductions have already been lapped. It I don't know if youre data would show this but and I don't mean to put you on the spot but is it fair to say that you have seen improvements in these states or is it just a.
Kenneth B. Goldman: A little more complicated than that I'm, just trying to get a sense because so much of what you are talking about depends on a little bit of that macro and how consumers react.
Yeah. The answer to your question, Yes. The short answer is yes, and yes, and I'll explain I mean, the first yes is that yes, we have seen a small benefit in the states where.
Jeffrey L. Harmening: I mean, the first yes is that, yeah, we have seen a small benefit in the states where we've left the SNAP benefits in place. And so we have seen that. But I think it's important to remember a couple of things. One, it'll take a while to play out.
Kenneth B. Goldman: We've lapped the snap benefits and so we have seen that it I think it's important to remember a couple of things one that will take a while to play out it's not as if there is one is that just kind of it happens in theirs.
Jeffrey L. Harmening: It's not as if there's one event and it just kind of happens, and there's a cliff change. The other thing is that the benefit is not huge. I mean, there is some benefit, but it's just not a huge benefit.
Kenneth B. Goldman: Cliff change the other is that benefit is not huge I mean, there is some benefit but it's just not a it's not a huge benefit the other yes. As you said there were some complicating factors and yes of course, I mean, because we're lapping pricing and pretty soon we'll have on shelf availability changes. So there's just a lot of factors in the environment that make it a little bit noisier than a perfect correlation but.
Jeffrey L. Harmening: The other yes, as you said, oh, there's some complicating factors. And the answer is, of course, I mean, because we're lapping pricing and, you know, pretty soon we'll have on-shelf availability changes. So there are just a lot of factors in the environment that make it a little bit noisier than a perfect correlation. But the short answer is that we're seeing a little bit of benefit in the places where we've already lapped SNAP so far. Thank you so much.
Kenneth B. Goldman: The short answer is we're seeing a little bit of benefit in the places where we've lapped the snap so far.
Speaker Change: Thank you so much.
Max Andrew Stephen Gumport: Yep. We'll move next to Max Gumport at BNP Bear. Hey, thanks for the question. First, on PET, it looks like the action plan discussed for the pet segment last quarter is starting to bear fruit, so on wet pet, I think you inflected from a minus double-digit decline in 2Q to growth in 3Q. I was hoping you could talk about any early signs of success you might be seeing with these more value-oriented multi-packs and how they may or may not inform your view of what the 24-pound bag could be doing for wilderness over the coming quarters in pet retail. Yeah, I would say on the wet pet food side, we certainly have seen improvements. You know, whether it's all the way back to growth or not, I mean, I'm not sure it And importantly, we've seen improvements in that in the wet pet food business, in places where we got our price points back in line with what we thought would be beneficial. So that's good. We haven't got We haven't gotten them back everywhere yet.
Speaker Change: Yes.
Speaker Change: We'll move next to Max Gunther at BNP Paribas.
Max Gunther: Hey, Thanks for the question so first on <unk> it looks like the action plan.
Max Gunther: You discussed for the Pet segment last quarter are starting to bear fruit.
Max Gunther: Typically.
Max Gunther: <unk> infected from minus double digit decline in <unk> growth in Q I was hoping you could talk about any early signs of success you might be seeing with these more value oriented multi packs and how they may or may not inform your view of what that 24 pound bag could be doing for wilderness over the coming quarters and at retail.
Max Gunther: Thanks.
Speaker Change: Yes, I would say on.
Speaker Change: On the wet pet food side, we certainly have seen improvements whether it's all the way to back to growth or not I mean, I'm not sure. It's all the way back to growth, but it's but we certainly have seen improvements and we importantly, we've seen the improvements in that in the wet pet food business and the places where we got our price points back in line with with what we thought would be beneficial. So that's good.
Speaker Change: We haven't gone, we haven't gotten them back everywhere, yet so that's still a work in process and I think that will play itself out in the fourth quarter, but we are encouraged that the actions that we that we took that we thought would have a benefit of having the benefit that we thought and so.
Jeffrey L. Harmening: So that's still a work in progress, and I think that'll play itself out in the fourth quarter. But we are encouraged. That the actions that we that we took that we thought would have a benefit or have the benefit that we thought and so some like Yogi Bear there, but that is so that that feels good. How that relates to 24 pound bags of wilderness, you know, I guess I would say on wilderness, I think it's gonna be more complicated than just that.
Speaker Change: Sounds like Yogi Berra, there, but that is so.
Speaker Change: That feels that feels good how that relates to 'twenty four pound bags of wilderness I, just I guess I would say on wilderness I think it's going to be more complicated than just that I mean, we need to do we need to get back to advertising wilderness with a message that's going to resonate to consumers. We have some ideas on that we're working on that now that'll be important and then working with the past.
Jeffrey L. Harmening: I mean, we need to do, we need to get back to the advertising wilderness with a message that's going to resonate with consumers. We have some ideas about that. We're working on that now. That'll be important.
Jeffrey L. Harmening: And then working with the pet specialty channel, in particular, where wilderness has had a challenge, they want to work with us; we want to work with them. And so that's positive. But we have some more work to do in that channel. And then there, you know, there's some SKUs we need to bring back. So I wish it was as simple as getting 24 pound bags in, but I think it's going to be a little bit more complicated than that and take a little bit longer. But we are encouraged by the fact that what we have diagnosed in wet pet food and then the actions we have taken have largely played out the way that we thought. Max, this is Jeff Seaman.
Speaker Change: The channel in particular.
Speaker Change: Wilderness has had a challenge and they want to work with us and we want to work with them and so that's positive, but we have some more work to do in in that channel and then.
Speaker Change: S to use and we need to bring back so I wish I wish wilderness were as simple as getting 24 pound bags, and but I think it's going to be a little bit more complicated than that and take a little bit a little bit longer but we are encouraged by the fact that what we have what we have diagnosed on wet pet food and then the actions. We have taken have largely played out the way that we thought.
Speaker Change: This is Jeff Siemon I'll just add.
Jeff Siemon: I just add a point on the, you mentioned net sales on wet food were up and that we did. We didn't include that in our prepared remarks. That was true. They're up modestly. There are some inventory differences as you look at the individual sub lines. So retail sales on wet food are still down. But they're moving.
Jeff Siemon: A point on the you mentioned.
Jeff Siemon: Net sales on wet food were up and that we did we didn't include that in our prepared remarks that was true they are up modestly.
Jeff Siemon: There is some inventory differences as you look at the at the individual sub lines. So retail sales on where food are still down there.
Jeff Siemon: They're better, but they are, but we still have some work to do to get them all the way to bright. But you were right that from a net sales standpoint, they were up slightly in the second quarter. Yes, I think I saw that in the slide deck, and then one follow-up would be, given the clean-up sheet and the continued emphasis on portfolio reshaping. Yeah, I think it's safe to assume you're actively looking at equity. Past commentary would suggest you're focused on snacking and pet food categories and also businesses that play in your eight core geographies. That said, I'm just curious, given some of the recent industry news, how you might view ice cream, especially knowing that it is one of your global platforms. Thanks.
Jeff Siemon: They are moving they are better, but there, but we still have some work to do to get them all the way to bright but you are right that from a net sales standpoint, they were up slightly in the quarter.
Speaker Change: Yes, I think I saw that in the slide deck, and then one follow up with the <unk>.
Speaker Change: Given the clean balance sheet and the continued emphasis on portfolio reshaping, yes, I think it's safe to assume you're actively looking at acquisitions.
Speaker Change: Past commentary would suggest youre focused on snacking and pet food categories.
Speaker Change: Also businesses that play in your eight core geographies.
Speaker Change: I'm just curious given some of the recent industry news, how you might view ice cream.
Especially knowing that it is one of your global platform. Thanks, I'll leave it there.
Jeffrey L. Harmening: I'll leave it there. Sure, thanks. I appreciate the question. Yeah, on portfolio shaping. We really haven't changed our approach to portfolio shaping. We're pleased with what we have done and the 20% change we've made so far. But we also know there's more to do both in terms of acquisitions and divestitures to get back to the growth levels that we're looking for. But we've been looking for a while.
Speaker Change: Sure. Thanks I appreciate the question yeah on portfolio shaping we really havent changed our approach to portfolio shaping we were pleased with what we have done and that the 20% change. We've made so far we also know there's more to do both in terms of acquisitions and divestitures to get back to the the get to the growth levels that were that were looking for but we have been looking for a while and it's important to note.
Jeffrey L. Harmening: And it's important to note that we have been and will be very disciplined when it comes to looking at acquisitions. And we're only going to do things that make sense for the shareholders, not just to chase a growth goal. And we will remain disciplined about that over the years. And the places we're looking at are things that will be growth accretive. And certainly, you know, PET is a place that we like.
Speaker Change: That we are we have been and will be very disciplined when it comes to looking at acquisitions and we're only going to do things that make sense for the shareholders not just to chase a growth go on we remain disciplined over that over the years in the places we're looking at things that would be growth accretive and certainly that is a place that we like you mentioned snacks or some categories, we like as well.
Jeffrey L. Harmening: You mentioned snacks. There are some meal categories we like as well. And so there are a number of places where we could go that would be either in categories we're in or tangential to categories and geographies where we feel like we've got some competitive advantages. You know, I'm not going to talk about the recent announcements in ice cream specifically. I'll leave that to our competitors. I don't I don't talk about M&A and particular deals.
Speaker Change: So there are a number of places where we.
Speaker Change: A week ago that would be either in categories were entered tangential to categories and geographies, where we feel like we've got some competitive advantages.
Speaker Change: Im not going to talk about.
Speaker Change: The recent announcements in ice cream, specifically I'll leave that to our competitors I don't I don't talk about M&A in particular deals we like our ice cream business Hagen Dazs is a great brand and it's a super premium brand and it is growing nicely. It's good in Europe, It's really good in Asia and so it's one of our five global platforms. So we obviously like that.
Jeffrey L. Harmening: We like our ice cream business. I mean, Haagen-Dazs is a great brand and it's a super premium brand, and it's growing nicely. It's good in Europe.
Jeffrey L. Harmening: It's really good in Asia. And so, you know, it's one of our five global platforms. So we obviously like the category, but particularly we like Haagen-Dazs and that it's a super premium brand playing in growth spaces. And we feel very good about that. Next, we'll go to Chris Carey at Wells Fargo. Hey, good morning.
Speaker Change: That category, but particularly we like Hagen Dazs and that is a super premium brand is playing in growth spaces, and we feel very good about that about that brand.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yes.
Next we'll go to Chris Carey at Wells Fargo.
Speaker Change: Yeah.
Christopher Michael Carey: Hey, good morning, So just one follow up and another question. Jeff You mentioned in response to Andrew's question that fiscal Q4 revenues should look similar to Q3 were you referring to.
Christopher Michael Carey: So just one follow-up and another question. Jeff, you mentioned in response to Andrew's question that fiscal Q4 revenue should look similar to Q3. Were you referring to consumption?
Sumption.
Jeffrey L. Harmening: or actual organic sales growth in the quarter. I was referring to consumption growth because, because of the timing of some of our expense phasing, they're probably about a three point headwind on what we report. But I was what I was referring to was consumption, which is really the most important piece of the others.
Christopher Michael Carey: Or actual organic sales growth in the quarter.
Christopher Michael Carey: I was I was referring to the consumption growth because.
Jeff: As we look at it because of the timing of some of our expense phasing there will probably be about a three point headwind on what we were up yard.
Jeff: What I was referring to was the consumption, which is really the most important piece of the others now that is not important but it is an accounting is the accounting catch up and it kind of mechanical in nature as Andrew suggested so what I was referring to was the sales out if you will.
Kofi A. Bruce: Not that it's not important, but it's an accounting catch-up and kind of mechanical in nature, as Andrew suggested. So what I was referring to was the sales out, if you will. Yeah, perfect. Okay, that's what I thought.
Jeff: Yes, perfect. Okay, that's what I thought and Kofi just on.
Kofi A. Bruce: And Kofi, just on, you know, clearly sales were better than expected. Gross margins, I think we're a bit light relative to street expectations. Namely given positive pricing, easing inflation, and strong productivity. Can you just expand a bit on maybe some of the key factors in the quarter that offset some of those positives? I think, you know, inventory workdown, and volume deal leverage relative to year ago and year ago growth. It's just some context on those items and how durable they might be into your Q4 and potentially a bit more medium term. Thanks.
Jeff: Nearly sales were better than expected gross margins I think we're a bit light relative to street expectations, Dave will give a positive pricing easy inflation strong productivity.
Jeff: Can you just expand a bit on maybe some of the key factors in the quarter that offset some of those positives I think inventory work down the volume deleverage relative to the year ago.
Jeff: Year ago growth. It just any context on those items and how durable they might be to your Q4 and potentially a bit more medium term. Thanks.
Kofi A. Bruce: Yeah, sure. I appreciate the question, and I think you've got the plot on the key drivers.
Speaker Change: Yes sure I appreciate the question.
Speaker Change: <unk> got the plot on the on the key drivers there.
Jeffrey L. Harmening: The only thing I think would be helpful to add, just to give you some additional perspective, is that the inventory absorption, which was, frankly, one of the side benefits of supply chain stabilization, we've been able to take down our levels of inventory recurring. And while that was a benefit to working capital and cash flow, it was about a 70 basis point headwind on gross margin, which I think would probably close most of the gap that you're referring to. Okay, perfect. I'll leave it be. Thank you. Bye. Next is Rob Dickerson with Jeff.
Speaker Change: Only thing I think would be helpful to add just to give you. Some additional perspective is that the inventory absorption.
Speaker Change: Which was frankly, one of the side benefits of supply chain stabilization as we've been able to take down or our levels of inventory, we're carrying and while that was a benefit to working capital and cash flow. It was about a 70 basis point headwind on gross margin, which I think would probably close most of the gap.
Speaker Change: Are you referring to.
Speaker Change: Yeah.
Speaker Change: Okay perfect I'll leave it there thank you.
Speaker Change: You bet.
Speaker Change: Okay.
Speaker Change: Next is Rob Dickerson with Jefferies.
Speaker Change: Yeah.
Robert Frederick Dickerson: Great, thanks so much. This might be just kind of a broader question, you know, I know within NAR, I guess, kind of calling out a little bit more pressure on the foods, let's say meals and baking and snacks, then maybe there's a little bit more strike in other areas. So I'm just kind of curious, like, broadly speaking, right now that we've kind of gone through what we would all consider a fairly material pricing phase, you know, have you seen any kind of like general shifts, let's say, in this category consumption, you know, like, consumers seem to be kind of consuming more, a little bit more here than they used to, relative to other areas? I'm just trying to kind of, Thanks.
Robert Frederick Dickerson: Great. Thanks, so much.
Robert Frederick Dickerson: So.
Robert Frederick Dickerson: This is maybe just kind of a broader question.
Robert Frederick Dickerson: I know within our I guess kind of calling out a little bit more pressure, let's say meals and baking in snacks.
Robert Frederick Dickerson: And then maybe there's a little bit more strength in other areas. So I'm just kind of curious like broadly speaking right now that we've kind of gone through.
Robert Frederick Dickerson: All considered fairly material.
Robert Frederick Dickerson: Pricing.
Robert Frederick Dickerson: Fees.
Robert Frederick Dickerson: Have you seen any kind of like general shifts, let's say in this category consumption like consumers seem to be kind of consuming more a little bit more here than they used to relative to other areas. So I'm just trying to kind of.
Robert Frederick Dickerson: Consider any types of shifts in kind of the value proposition with some of your brands and also just the category positioning.
Jeffrey L. Harmening: Yeah, I'll start with, let me start in a little bit different place. And I'll work my way back maybe to your question. I would say, you know, one of the shifts we've seen since the beginning of the pandemic is more food consumption at home. And so food consumption at home is a couple points higher than it was going into the pandemic. So roughly, about 86% of food is served at home. And the reason for that is because food served at home is such great value. And it's about four times less expensive to eat at home than it is to eat out at a restaurant, on average.
Speaker Change: Yeah, I'll start with let me start at a little bit different place and I'll work My way back maybe to your question I would I would say one of the shifts we've seen since the beginning of the pandemic is more food consumption at home and so food consumption at home is a couple of points higher than it was going into the pandemic.
Speaker Change: Roughly about 86% of food service at home and the reason for that is because foodservice home is such a great value.
Speaker Change: It's about four times less expensive to eat at home that has to eat out of the restaurants on average and so as Americans have felt the challenges with inflation part of the way they deal with value is that they they eat food at home rather than out and obviously, we are a great source of value when it comes to that Thats actually probably one of the.
Jeffrey L. Harmening: And so, as Americans have felt, you know, the challenges with inflation, part of the way they deal with value is that they eat food at home rather than out. And obviously, we are a great source of value when it comes to that. That's actually probably one of the biggest shifts. Interestingly, private label private label shares are about the same now as where they were before the pandemic. And the categories that we're in, private label is about 10% of the category. In fact, they're down 10 basis points from when the pandemic began, and overall food and beverage is about 19 points. And so we haven't actually seen a big shift when it comes to value. When it comes to specific categories, you know, one of the things I'm most pleased with our performance over the last few years is our ability to hold our gross share and half our categories over that time. So that's why it's broad based.
Speaker Change: The biggest shifts interestingly private label private label shares are about the same now as where they were before the pandemic and the categories that were in private label is about 10% of that category in fact, theyre down 10 basis points from when the pandemic began and overall food and beverage is about 19 points and so we haven't actually.
Speaker Change: Seen a big shift when it comes to value there when it comes to specific categories and one of the things I'm. Most pleased with our performance over the last few years is our ability to hold or grow share in half of our categories over that time and so that's so it's broad based and and we've seen some big gains in our business like Pillsbury refrigerated dough, which has done quite.
Jeffrey L. Harmening: And, and, you know, we've seen some big gains in our business, like Pillsbury refrigerated dough, which has done quite well in meals and baking over time. The same with fruit snacks; both of those businesses are up 60% over the last few years. And, and we've consistently gained market share in those businesses. Obviously, we haven't gained market share in Pillsbury this year because private label is getting back on the shelf, but over the course of time.
Speaker Change: Well and meals and baking overtime, the same with fruit snacks both of those businesses are up 60% over the last few years and we have.
It's not like gained market share in those businesses, obviously, we haven't and Pillsbury. This year because private label is getting back on shelf, but over the course of time.
Jeffrey L. Harmening: So, we feel really good about that. We've had some struggles in bars, as you well know, but I can say, you know, one of the things I'm pleased with, as we look at our business now, you know, Nature Valley is back to growing share. And it was even before one of our competitors had a big recall. So it's not a recall-induced kind of activity.
Speaker Change: So we feel we feel really good about that we've had some struggles and in bars as you well know.
Speaker Change: But I can say you're going to one of the things I'm pleased with as we look at our business now.
Speaker Change: Valleys back to growing share.
Speaker Change: And it was even before one of our competitors had a big recall, so it's not a recall on kind.
Speaker Change: Kind of activity, we've had some good new product innovation and nature Valley, our marketing is working and nature Valley I think we shared some of that at Cagny and so that's one category of where we're.
Jeffrey L. Harmening: We've had some good new product innovation in Nature Valley. Our marketing is working in Nature Valley. I think we shared some of that at Cagney.
Jeffrey L. Harmening: And so that's one category where we have struggled, but we feel like we're getting a little bit of momentum. And then on yogurt, too, it's an area where we have struggled as well. But we have done well. We've got Yoplait Protein out there right now, which is off to a nice start.
Speaker Change: Where we we had struggled where we feel like we're getting a little bit of momentum and then and then on yogurt to is an area, where we have struggled as well, but you know we has done well we've got yogurt yoplait protein out there right now which is off to a nice start and so but broadly speaking I would say, we haven't seen huge changes cattle.
Jeffrey L. Harmening: But broadly speaking, I would say we haven't seen huge changes category by category in consumption. All right, fair enough. And then just quickly, you called out in your prepared remarks, just a little bit of pressure from the consumer in China and also Brazil, maybe just kind of give us a quick kind of state of the union, what you're seeing in both countries. And that's all. Thank you so much.
Speaker Change: Worry about category and consumption.
Speaker Change: Alright fair enough and then just quickly.
Speaker Change: All out in the prepared remarks, just a little bit of pressure.
Speaker Change: Consumer in China, and also Brazil.
Speaker Change: Just kind of give us the quick.
Speaker Change: What youre seeing in both countries. That's all thank you so much.
Jeffrey L. Harmening: Yeah, sure. And, you know, in China, the biggest factor in our, we did say that the biggest factor in our China business is, I think it's important to note, is that our Wanchai Ferry of frozen dumplings was a year ago, Chinese consumers were kind of on lockdown. And so, there was a lot of at-home consumption. So we're lapping that. And so the comparisons are very, very difficult on and on.
Speaker Change: Yes sure.
Speaker Change: In China, the biggest factor in our and we did say that the biggest factor in our China business I think it's important to note is on our Wanchai ferry frozen dumplings, where a year ago.
Speaker Change: Changed consumers are kind of on lockdown and so.
Speaker Change: So there was a lot of at home consumption. So we're lapping that and so the comparisons are very very difficult and that's the biggest driver of R. R.
Jeffrey L. Harmening: That's the biggest driver of our, our challenges in China, if you will. The other, the other driver, though, is that we have found that store traffic in China is down a little bit from where it had been before. And I think that's probably a function of the Chinese consumer feeling the pinch of an economy that has slowed down over the past year. And so, but the bigger driver is actually the Wanchai Ferry dumplings.
Speaker Change: Our challenges in China, if you will the other the other driver though is that we have had the store traffic in China is down a little bit from from where it had been before and I think that's probably a function of the Chinese consumer feeling the pinch of an economy that is has slowed down over the past year and so but the bigger driver is actually the one side.
Speaker Change: Top line and then Brazil is kind of similar to the U S where the point now where we're lapping pricing from a year ago and our hope is we start to see the Brazilian our Brazilian business start to stabilize here over the coming over the coming quarter or two that's been a big that's been the big challenge that I've seen huge commodity price increases.
Jeffrey L. Harmening: And in Brazil, it's kind of similar to the US, where at this point now, we're lapping pricing from a year ago. And our hope is we start to see our Brazilian business start to stabilize here over the coming quarter or two. That's been the big challenge; they've seen huge commodity price increases in Brazil. And so our input costs have gone up quite a bit in Brazil. And we're lapping those now in Brazil, kind of as we are here in the US. And my hope is that as we head into our fourth quarter, we start to see our comparisons kind of ease a little bit. All right, great. Thank you so much.
And Brazil, and so our input costs have gone up quite a bit in Brazil, and we're lapping those now of Brazil kind of mine as we are here in the U S and my hope is that as we head into our fourth quarter that.
Speaker Change: Do we start to see our comparisons kind of use all of it.
Alright Super Thank you so much.
Speaker Change: Yeah.
Robert Bain Moskow: We'll move next to Robert Moskow at TD Cal. Good morning, everyone. This is Jacob Akin-Phillips on for Rob.
Speaker Change: We'll move next to Robert Moskow at TD Cowen.
Robert Bain Moskow: Good morning, everyone. This is Jacob on for Rob two quick ones.
Jeffrey L. Harmening: Two quick ones. So, I understand the trade timing 3% impact this year in 4Q, but last 4Q, you talked a lot about inventory reduction headwinds, and you said about 3% then. So, did you ship ahead in 3Q, or are there some other factors that we're missing? Yeah, in the in, let me answer that to the best of my ability. But if I didn't get the question exactly right the first time, ask it again. And that could be because I'm not trying to avoid it.
Jacob: So I understand the trade timing, 3% impact this year in.
Jacob: <unk> Westport <unk> talked a lot about inventory reduction headwinds and you said was about 3%. Then so did you ship ahead in <unk> or is there. Some other factors that were missing.
Speaker Change: Yeah, and the and let.
Speaker Change: Let me answer that to to the best of my ability, but if I didn't get the question exactly right ask it again and that could be there because I'm not trying to avoid it I would say in the in the third quarter.
Jeffrey L. Harmening: I would say in the third quarter. We had billed inventory a year ago, and this year was pretty benign, I would say. If you looked at our Nielsen data in North America retail, you see a two-point difference. Some of that is due to the fact that for unmeasured channels, we're growing faster than measured channels, and only the balance of it is inventory growth. So our inventory is in a good position as we head out of the third quarter. And as we look at the fourth quarter, it's tough to say what's going to happen.
Speaker Change: We had built inventory a year ago and this year was pretty benign I would say.
Speaker Change: Or if you looked at our Nielsen data in North America retail you see a two point difference some of that is due to the fact of a unmeasured channels were growing faster than measured channels and only the balance of it is inventory growth. So our inventory is in a good position as we head out of the third quarter and as we look at the fourth quarter, it's tough to say, what's going to happen Youre right last year we.
Jeffrey L. Harmening: You're right, last year we bled inventory, several points' worth of inventory in the fourth quarter last year. And so you may ask, well, does that mean you're going to build it this year or not? The answer is, I'm not really sure.
Speaker Change: Blood inventory several points worth of inventory in the fourth quarter last year and so you may ask what does that mean, you're going to build out. This year are not the answer is I'm not really sure it's really difficult to predict inventory changes what I would say is that we feel like we're in a good place as we ended the third quarter with our retail customers, whether that's in North America retail or whether that's in <unk>.
Jeffrey L. Harmening: It's really difficult to predict inventory changes, but what I would say is that we feel like we're in a good place as we end the third quarter with our retail customers, whether that's in North America retail or whether that's in PET. We don't have too much inventory, but I think we have enough. And so we're not expecting any change in the fourth quarter. And to the extent there is a change, we think it would be modest, but we'll let that play itself out. Oh, yeah. You got the question. Thank you.
Speaker Change: We don't have too much inventory, but I think we have enough and so what we're not expecting any change in the fourth quarter.
And you know to the extent there is a change we think it would be modest but.
Speaker Change: Well, let that play itself out.
Speaker Change: Oh, Yeah, Yeah, you've got the question. Thank you and then.
Kofi A. Bruce: And then another one is, so reduction in incentive comp. I know you have the trade timing headwind in 4Q, but are there any changes to your expectations of investing in media or in the brands going into 4Q? Or is it just how you expected last quarter? Now, I think I appreciate the question. I would say one of the things that's working really well, and I want to make sure doesn't get lost in the strong profit performance in the quarter, is that we have continued to invest behind our brands at a mid single-digit rate. I wouldn't expect that to change as we go into Q4, even as we're driving better than expected profitability in a year in which we've seen, obviously, some top line pressure. So, from where I sit, I think what you're hearing is we'll continue to keep our foot on the pedal. I don't expect a material change. So, I'd expect around the year out somewhere in the mid single-digit range of increase on our media, which will put us comfortably ahead of our top line experts. Thank you so much.
Speaker Change: Another one is so reduction in incentive comp I know you have the the trade timing headwind in <unk>, but are there any chance changes to your expectations of investing in video or in the brands going into <unk> or is it how you were expecting last quarter.
No I think.
Speaker Change: The question I will.
Speaker Change: I'd say one of the things Thats.
Speaker Change: We're really well and I want to make sure it doesn't get lost in the.
Speaker Change: The strong profit performance in the quarter is that we are continuing to invest.
Speaker Change: Behind our brands.
Speaker Change: At a mid single digit rate I wouldn't expect that to change as we go into Q4.
Speaker Change: Even as we're driving better than expected profitability in a year in which we've seen obviously some some top line pressure so.
Speaker Change: From where I said I think what you are hearing is we'll continue to keep our foot on the pedal I don't expect a material change.
Speaker Change: So I would expect around the euro out somewhere in the mid single digit range of increase on our media, which will put us comfortably ahead of our topline expectations.
Speaker Change: Thank you so much.
David Sterling Palmer: [inaudible] We'll take our next question from David Palmer at Evercore ISI. Hi, a question on North American retail and what you're looking to see from that segment as you think about fiscal 2025. Obviously, that's a key, high-margin segment, and there are some big categories that make a lot of money for you in that segment. And I'm wondering, for those of us that are watching the scanner data and thinking about how you'll be thinking about the business and whether you can be sort of on algo for fiscal 2025, what should we be looking for that will give you that confidence? For example, do you need to see volume approach flat year over year? Are there a couple categories that you're reviewing a little bit more closely than others?
Speaker Change: You bet.
Speaker Change: We'll take our next question from David Palmer at Evercore ISI.
Speaker Change: Okay.
David Sterling Palmer: Hi question on North America retail and what you are.
David Sterling Palmer: Looking to see from that segment as you think about fiscal 2025.
David Sterling Palmer: Obviously, that's a key high margin segment and there is some big categories that make a lot of money for you in that segment.
David Sterling Palmer: I'm wondering for those of us that are watching the scanner data and thinking about how youll be thinking about the business and whether you can be sort of on our go for fiscal 'twenty five.
David Sterling Palmer: What should we be looking for that will give you that confidence.
David Sterling Palmer: For example.
David Sterling Palmer: Do you need to see volume approach flat year over year are there are a couple of categories that you're reviewing a little bit more closely than others.
Jeffrey L. Harmening: It was, you know, on, you know, without giving guidance for fiscal 25, but still trying to, you know, kind of answer the tone of the question, I, you know, I guess I would say, we'll look for continued improvement in North America retail, and hopefully, we'll see it in pet too. But North America retail, since you asked about that, you know, hopefully continued improvement, we saw a little bit in the third quarter, and we'll see about what happens in the fourth quarter, particularly in volume. Volume improvements. And we'd hope to see that reflected broadly. I mean, of course, we always look at the cereal category and what we're doing there and snacks and Mexican, you know, some of our big, our big categories.
Speaker Change: Yes, it was.
Speaker Change: Without giving guidance to fiscal 'twenty, five, but still trying to you know kind of answered the tone of the question I guess I would say we will look for continued improvement in North America retail and hopefully we will see it in pet too, but North America retail associates since you asked about that.
Speaker Change: The continued improvement we saw a little bit in the third quarter and we'll see about what happens in the fourth quarter, particularly in volume volume improvements.
Speaker Change: And we would hope to see that broadly I mean of course, we always look at the cereal category and what we're doing there in snacks and Mexican you know some of our some of our big.
Speaker Change: Our big categories.
Jeffrey L. Harmening: But I would say that, broadly speaking, that's what we're looking for. So we'd like to get back to a position of growth as a company, and we're going to continue to invest in that, to make sure we invest in marketing to make sure we grow. And so in a year where we hope productivity is still strong, as we talked about earlier, and inflation is still there, but hopefully relatively benign, hopefully we can reinvest some of that productivity back into marketing spending so that we can continue to grow the top line of the business. Because we've been very good at the middle of the P&L. The biggest challenge, obviously, this year has been growth.
Speaker Change: But I would say that would be broadly speaking that's what we're looking for.
We'd like to get back to it we'd like to get back to a position of growth as a company and we're going to continue to invest to do that to make sure we invest in marketing to to make sure we grow and so in a year, where we hoped productivity is still strong as we talked about earlier and inflation is still there, but hopefully relatively benign hopefully we can reinvest some of that productivity.
Speaker Change: <unk> backend marketing spending so that we can we can continue to grow the topline of the business because we've been very good in the middle of P&L biggest challenge. Obviously this year has been has been with growth and so it was really important for us as a company and <unk> in particular, but everybody really to get back to growth.
Jeffrey L. Harmening: And so it's really important for us as a company, and NAR in particular, but everybody really, to get back to growth. And then you were talking about early signs of a SNAP, or lack of SNAP subsidy headwind, I should say. What are you seeing?
And then you were talking about early signs of the snap.
Speaker Change: Lack of snap.
Speaker Change: The headwind I should say.
Speaker Change: What are you seeing is there is that it.
Jeffrey L. Harmening: Is there, is that, you know, is that something you've just seen in the last week or two? Is it specific to certain categories that you think are a little bit more family-oriented or meal-oriented? I mean, what are you seeing there?
Speaker Change: Is that something youre seeing in the last week or two is it specific to certain categories that you think are a little bit more family oriented or meal oriented.
Speaker Change: What are you seeing there thank you.
Jeffrey L. Harmening: Yeah, the first thing, a couple of important points about SNAP. I said them earlier, but I'm going to reiterate them because I think they're important. The first is that we have seen a little bit of a benefit, but it's not going to be a step change. It's not going to come in, frankly, week by week. And it'll roll in over time, and the benefits we're going to see from it are going to be modest. I mean, they may be, we think they'll be a benefit, but I think they're going to be modest in nature. The other thing, I guess the other context I would add, and I'm not going to go category by category, but the benefits do accrue category by category, and so they're not going to be even from one category to the next. And so as we look at it, yes, we'll aggregate them because that's the easiest way to do it, but some categories are different than others. And certainly, when you're serving families, as we do for our portfolio, those are categories that tend to benefit from SNAP benefits more than others. Thank you; I will go next.
Speaker Change: Yeah. The first thing a couple of important points about snap I saw them earlier, but I'm going to reiterate because I think they are important and the first is that we have seen a little bit of a benefit but it's not going to be a step change is not going to come in and frankly week by week and at a roll in overtime and the benefits we're going to see from those are going to be modest I mean.
Speaker Change: We think there'll be a benefit, but I think theyre going to be modest in nature. The other thing I guess, the other context I would add it I'm not going to go category by category, but the benefits do accrue category by category and so theyre not going to be even from one category to the to an accident and so as we as we look at it yes, we'll aggregate them because that's the that's the easiest way to do it but but some.
Speaker Change: Categories are different there than others and certainly when youre serving families. As we do some for our portfolio those are categories that tend to benefit from snap benefits more than more than others.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: We will go next Pamela Kaufman of Morgan Stanley.
Pamela Kaufman: Pamela Kaufman at Morgan, Hi, good morning. Morning. Just in thinking about some of the headwinds that may be abating over the couple of quarters, do you have an estimate of how much you think that the recent snap may have impacted your overall growth or industry growth? And also just the improvement in on-shelf availability? How much of a tailwind can that be?
Hi, good morning.
Pamela Kaufman: Good morning.
Pamela Kaufman: Yes.
Pamela Kaufman: About some of the headwinds that maybe abating over a couple of quarters do you have an estimate of how much do you think that snap may have impacted your overall growth or industry growth and also adjust that.
Pamela Kaufman: Whose names and on shelf availability, how much of a tailwind cannot be.
Jeffrey L. Harmening: to your growth outlook. Yeah, I think, you know, Pam, I'm not going to be unsatisfactory, so I apologize, but I'm not going to try to quantify either one of those two things only because there are so many moving pieces we've got, you know, we are lapping pricing as well in the external environment. But I would say this: the SNAP benefits are pretty modest. They're there, but they're pretty small.
Pamela Kaufman: To your growth outlook.
Speaker Change: Yeah I think.
Speaker Change: Pam.
Speaker Change: Is it be unsatisfactory, so I apologize, but I'm not going to try to quantify either one of those things only because there are so many there are so many moving pieces. We've got we are lapping pricing as well in the external environment, but I would say this the snap benefits are pretty modest there.
Speaker Change: But they're pretty modest but look I'll take a modest benefit at this point.
Kofi A. Bruce: But look, I'll take a modest benefit, you know, at this point. The on shelf ability, and on shelf availability should also provide a modest benefit to us. But again, that will be over time, and it won't be a one-time event. And that'll really start kind of the end of April, beginning of May; we will start to see the benefits of that in our first quarter. And so I think as we talk to you in June, hopefully, we'll give a little bit more satisfactory answers about kind of what we're seeing, because we will have seen both of these things play out for a period of time. Okay, I understand.
<unk> ability on shelf availability should also provide a modest benefit to us, but but again that'll be over time and it won't be a one time event and that are really start kind of at the end of April beginning of May we would start to see the benefits of that in to our into our first quarter and so I think as we as we've talked to you in in June hopefully we'll.
Speaker Change: To give a little bit more satisfactory answer about kind of what we're saying because we will we have seen in both of these things play out.
Speaker Change: For a period of time.
Speaker Change: Okay understood and then just on the corporate expense pretty notable reduction year on year, what's contributing to that.
Kofi A. Bruce: And then just on corporate expense, a pretty notable reduction year on year. What's contributing to that? And, you know, should we be extrapolating these levels going forward? Pam, I appreciate the question. The primary driver in the quarter was a reduction in our incentive-based comp accrual as we obviously are tracking the lower top line performance and comping last year, where we had to increase it pretty sizably by outstripping our top and bottom line performance last year. So I expect this to be a benefit that we'll see specific to the quarter. The other item is related to our recall insurance recovery, which we booked in the quarter. So those are specific to the quarter, and I wouldn't expect them to be part of the base expectation going forward. Okay, thank you.
Speaker Change: S&P be extrapolating each lateral skull seller.
Speaker Change: I appreciate the question the primary driver in the quarter was was reduction in our incentive based comp.
Accrual as we as we obviously are tracking to lower topline performance and Comping last year, where are we.
Speaker Change: We had to increase its pretty sizeable.
Speaker Change: Outstripping, our top and bottom line performance last year. So I expect this to be a sustained benefit that we'll see specific to the quarter.
Speaker Change: Other item is as it related to recall insurance recovery, which we booked in the quarter. So those are those are specific to the quarter and I wouldn't expect them to be part of the base expectation going forward.
Speaker Change: Okay. Thank you.
John Joseph Baumgartner: You bet. Now we'll go to the next question from John Baumgartner at Mizzou. Good morning, thanks for the question. Jeff, I want to come back to value. And in North America retail, the areas where volumes have still been lagging, you look at cereal, dough, and frozen snacks, where category pricing is up, you know, a third to 50% in 2019. What can you do at this point? Any levers left to maybe enhance the volumes that are a bit more independent of the macro? I mean, can you go to the pack changes as you do in PET?
You bet.
Speaker Change: Yeah.
Speaker Change: Well go to the next question from John Baumgartner at Missoula Securities.
John Joseph Baumgartner: Good morning, Thanks for the question.
John Joseph Baumgartner: Jeff I wanted to come back to the value seeking consumer and in North America retail the areas where volumes have still been lagging you'd look at and see real go frozen snacks category pricing is up 30% to 50% in 2019, what can we do at this point any levers left to maybe enhance the volumes that are a bit more.
John Joseph Baumgartner: Independent of the macro I mean can you can you go to the packaging as Youre doing in pet can you innovate or market consumers into higher prices or is it just that some categories overshot on pricing relative to what consumers can bear and now it's down either taking prices the other way or just waiting for it.
Jeffrey L. Harmening: Can you innovate or market consumers into higher prices? Or is it just that, you know, some categories overshoot on pricing relative to what consumers can bear? And now it's down to either taking prices the other way, or just waiting for consumers to grow into this level of financial. Yeah, thanks, Jon. There are a couple of things I would say. The most important thing I would start with is that what you see in all the categories you mentioned is a significant change in input cost inflation. So we've been the recipients of quite a bit of inflation over time, more than 30%. In fact, I think it's 32% over the past three years or so.
John Joseph Baumgartner: Pleasingly could grow into these level financially.
John Joseph Baumgartner: Okay.
Speaker Change: Yes, Thanks, John a couple of things I would say the most important thing I would start with is that what you see in all the categories. You mentioned is a significant change in input cost inflation. So we've been the recipients of a quite a bit of inflation over time more than 30% in fact, I think it's 32% over the past three years or so so so.
Jeffrey L. Harmening: So the cause of prices going up really has been input cost inflation and the prices that we receive. As we look category by category, we don't think we're out of line with where we were pre-pandemic, actually. And I think it's important that as consumers seek value, they seek it in a variety of ways. The most important way are the benefits that our brands provide. And so, you know, part of the reason that we continue to invest in media and marketing and will continue to do so is that, you know, our brands have value and what they provide. Cheerios provides heart health, and Pillsbury provides, you know, quick, easy, convenient meals at dinner time. And so that's the most important thing.
Speaker Change: Uh huh.
Speaker Change: Cause prices going up really has been input cost inflation in the prices that we that we received as we look category by category. We don't think we're out of line to where we were pre pandemic actually and I think it is important as consumers seek value. They seek in a variety of ways. The most important way are the benefits that our brands provide and so.
Speaker Change: Part of the reason that we continue to invest in media and marketing will continue to do so is that our brands have value and what they provide materials provides heart health and pillsbury.
Speaker Change: Pillsbury provides quick easy convenient meals at <unk>.
Speaker Change: Dinner time, and so that's the most important thing, but then more specifically consumers also look at value in different ways. When it when it comes to pricing and some somewhat of a buy in bulk and so it will be going to.
Jeffrey L. Harmening: But then, more specifically, consumers also look at value in different ways when it comes to pricing, and some want to buy in bulk. And so they'll be going to, you know, a mass store to buy, you know, big boxes of cereal, for example, for the lowest price per ounce, or they'll be buying, you know, 80 packages of fruit snacks at a time at a warehouse store. Otherwise, you know, they sort of feed the soccer team.
Speaker Change: Our mass store to buy big boxes of cereal for example for the lowest price per ounce or there'll be buying 80 packages of fruit snacks at a time at a warehouse store otherwise.
Jeffrey L. Harmening: And otherwise, they may be stopping off at a dollar store or a discount store to buy one pack at a time. And so, you know, there's not one monolithic consumer. Every consumer looks for value in their families in a variety of different ways, including trying to feed their families at home. So we don't think that, you know, our pricing has gotten ahead of inflation. In fact, it hasn't, and we feel good about where we are in the categories. I think what we have to do is lap some of the one-time on self-availability things we've seen now. We've beaten pricing. And once we do that, we feel good about our ability. I think you will see that in the third quarter.
Speaker Change: FIFA soccer team otherwise they may be stopping off at a at a dollar score store a discount store to buy a one pack at a time and so.
Speaker Change: Theres not one monolithic consumer every consumer looked for value and their families.
Speaker Change: A variety of different ways, including trying to feed their families at home. So we don't we don't think that.
Speaker Change: Our pricing has gotten ahead of inflation in fact, it hasn't and and we feel good about where we are in the categories. I think we have to do is lapsed some of the the onetime on shelf availability of things, where you've seen that we've lapped pricing and once we do that we feel good about our ability I think you'll see that in the third quarter.
Jeffrey L. Harmening: We, in North America retail, grew market share in about 45% of our categories in the third quarter, which is a significant improvement from what we had seen in the quarter before. And hopefully, as we address some of these other factors snapping on self-availability, we'll see continued improvement. Great. Thanks, Jeff. [inaudible] Okay, I think that's all the time we have.
Speaker Change: In North America retail, we grew <unk> market share in about 45% of our categories in the third quarter, which is a significant improvement from what we had seen in the quarter before and hopefully as we lap some of these other factors snap on on shelf availability will see continued improvement.
Speaker Change: Okay. Thanks, Jeff.
Speaker Change: Mhm.
Speaker Change: Okay, I think thats all the time we have.
Jeff Siemon: Before we wrap up here, I think I'll pass it back to Jeff for some closing comments. Yeah, so well, thanks everyone for their time this morning. I guess I would start by saying we're encouraged by our third quarter results, particularly improvement and competitiveness in our categories. We're competing effectively, and we thought that we would, and a lot of this is driven by lapping some pricing from a year ago and our ability to continue to execute well. We have innovated well. We have grown distribution. We're executing our plan well. As we look to the fourth quarter, there are some timing issues, as we talked about, with the timing of expenses. But broadly speaking, we would expect our third quarter sales to kind of play out to the same magnitude that we saw in the third quarter.
Speaker Change: Before we wrap here I think I'll pass it back to Jeff for some closing comments.
Jeff: Thanks, everyone for the time this morning, I guess I would start by saying, we're encouraged by our third quarter results, particularly improvement in competitiveness in our in our categories. We're competing effectively and we thought that we would and a lot of this is driven by lapping some pricing from a year ago and our ability to continue to execute well we have innovated.
Jeff: Well, we have grown distributions we have we've done we're executing our plan well as we look to the fourth quarter. I mean, there are some timing issues as we talked about with expense the timing of expenses, but but broadly speaking, we would expect our third quarter and sales to kind of play out in the same magnitude that we saw in the in the third quarter and.
Jeff Siemon: And our goal really now is to regain some top-line momentum as we continue to be very disciplined in the middle of our P&L. And we think that combination of factors will serve us well. We'll see how it plays out. There are a number of factors in the coming months, including this lapping of the SNAP benefit, as well as self-availability.
Jeff: Our goal really now is to gain is to gain some top regained some topline momentum as we continue to be very disciplined in the middle of our P&L and we think that combination of factors will serve us well, we'll see how it plays out there are a number of factors in the coming months, including the lapping of the snap benefit as well on shelf availability.
Jeffrey L. Harmening: And we'll be able to come to you in June with a clear picture of what we expect in fiscal 25 and what some of those benefits are that will ripple over the coming couple of months. Great, so we'll wrap it up there. Thanks, everyone, for the time this morning. Feel free to reach out if you've got follow-up questions throughout the day. Have a good day, everyone. Thanks. And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Jeff: We will be able to come to you in June with certainly a clear picture of what we expect in fiscal 'twenty five and what some of those benefits are that will lap over the coming couple of months.
Speaker Change: Great. So we'll wrap it there thanks, everyone for the time this morning feel free to to reach out if you've got follow up questions throughout the day.
Speaker Change: Good day, everyone. Thanks.
Speaker Change: And this concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Yeah.
Speaker Change:
Speaker Change:
Yeah.
Speaker Change: Yeah.
Speaker Change:
Speaker Change: Yeah.