Q1 2026 General Mills Inc Earnings Call

Speaker #1: Good morning and welcome to General Mills' first quarter fiscal 2026 earnings conference call. All participants are in a listen-only mode. After the speaker's remarks, we'll conduct a question-and-answer session.

Operator: Good morning and welcome to General Mills' first quarter fiscal 2026 earnings conference call. All participants are in a listen-only mode. After the speaker's remarks, we'll conduct a question-and-answer session. To ask a question at this time, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Jeff Siemon, Vice President, Investor Relations and Corporate Finance. Thank you. Please go ahead.

Speaker #1: To ask a question at this time, you'll need to press * followed by the number 1 on your telephone keypad. As a reminder, this conference call is being recorded.

Speaker #1: I would now like to turn the call over to Jeff Siemon, Vice President of Investor Relations and Corporate Finance. Thank you, please go ahead.

Speaker #2: Thank you, Julianne, and good morning, everyone. Thanks for joining us today for this Q&A session on our first quarter fiscal 2026 results. I hope everyone had time to review our press release, listen to our prepared remarks, and view our presentation materials, which we made available this morning on our Investor Relations website.

Jeff Siemon: Thank you, Julianne, and good morning, everyone. Thanks for joining us today for this Q&A session on our first quarter fiscal 2026 results. I hope everyone had time to review our 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 this 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 forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here with Jeff Harmening, our Chairman and CEO, Kofi Bruce, our CFO, and Dana McNabb, Group President of North America Retail and North America Pet. Now, let me turn it over to Jeff for some opening remarks. Jeff, go ahead.

Speaker #2: It's important to note that in this 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 forward-looking statements, and for reconciliations of non-GAAP information, which may be discussed on today's call.

Speaker #2: I'm here with Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Dana McNabb, Group President of North America Retail and North America PEP.

Speaker #2: Now, let me turn it over to Jeff for some opening remarks. Jeff, go ahead.

Speaker #3: Yeah, thanks, and good morning, everybody. Before we start the call today for questions, I’d just like to share a few thoughts summarizing some of our key messages.

Jeff Harmening: Yeah, thanks and good morning, everybody. Before we start the call today for questions, I'd just like to share a few thoughts summarizing some of our key messages. I think it's pretty evident there's a lot of change in the world, a lot of uncertainty. The same could be said of the food category. There's even a lot of change within our business as you unpack the first quarter results and the Yoplait divestiture, which we're executing well, as well as a Whitebridge acquisition, which we're also executing well. There's a lot of change. What I want you to hear from me is that amidst all of this, we are staying laser-focused and clear on our strategy, which is returning to profitable organic growth as the best way to create value for our shareholders. Importantly, we are increasingly confident that our approach is working.

Speaker #3: And I think it's pretty evident there's a lot of change in the world, a lot of uncertainty. I mean, the same could be said of the food category.

Speaker #3: And there's even a lot of change within our business as you unpack the first quarter results and a yield plate investiture, you know, which we're executing well, as well as a whiteboard acquisition, which we're also executing well.

Speaker #3: So there's a lot of change. But, you know, what I want you to hear from me is that amidst all of this, we are staying laser-focused and clear on our strategy.

Speaker #3: Which is returning to profitable organic growth as the best way to create value for our shareholders. And importantly, we are increasingly confident that our approach is working.

Speaker #3: And I'll take you back as a reminder to Q3 of last year, when we told you we were going to make some significant investments to address price cliffs and gaps.

Jeff Harmening: I'll take you back as a reminder to Q3 of last year, when we told you we're going to make some significant investments to address price cliffs and gaps. We said we're going to do that on Pillsbury and Totino’s, and we saw really good results. That gave us more confidence so that in Q3 of last year, we told you that we would expand that to the cereal category, as well as soup and fruit snacks. Again, we saw pound share growth on that and a line or ahead of what we expected. Coming into this year, we had a heightened degree of confidence that our approach is working. At the same time, while addressing price is important, especially in this environment where consumers are looking for value, it's not sufficient to generate long-term growth.

Speaker #3: And we said we were going to do that on Pillsbury and Totino's, and we saw really good results. That gave us more confidence, so that in Q3 of last year, we told you that we would expand that to the cereal category, as well as soup and fruit snacks.

Speaker #3: And again, we saw pound-share growth on that, and line are ahead of what we expected. And so, you know, coming into this year, we had a heightened degree of confidence that our approach is working.

Speaker #3: And, you know, at the same time, while addressing price is important—especially in this environment where consumers are looking for value—it's not sufficient to generate long-term growth.

Speaker #3: And so, coming into this year, we also said we are going to invest significantly in innovation and new product news, new brand campaigns, and renovation across all of our top categories.

Jeff Harmening: Coming into this year, we also said we are going to invest significantly in innovation and new product, new brand campaigns, and renovation across all of our top categories. We're going to support this with industry-leading cost savings and transformational benefits. The question is, how is that playing out? The reason we're increasingly confident is it's playing out the way we thought that it would. So far, so good. We strengthened our pound share in eight of our top 10 categories in North America Retail. We're holding pound share in Pet. We're continuing strong competitiveness in food service. As you probably saw, we've increased our growth and competitiveness in international all at the same time. On the P&L, we expected our profit results in Q1 would be pressured significantly by our increased investment profile, but also by the impact from the yogurt divestiture in a few phase-in comparisons.

Speaker #3: And that we're going to support this with industry-leading cost savings and transformational benefits. And so, you know, the question is, how's that playing out?

Speaker #3: And the reason we're increasingly confident is playing out the way we thought that it would. So, so far so good. We've strengthened our pound share in eight of our top ten categories, and now we're holding pound share and PEP.

Speaker #3: And we're continuing strong competitiveness in food services. As you probably saw, we've increased our growth and competitiveness internationally all at the same time.

Speaker #3: On the P&L, we expected our profit results in Q1 would be pressured significantly by our increased investment profile, but also by the impact from the yogurt investiture and, you know, a few phase-in comparisons.

Speaker #3: And then we think that'll continue into Q2, but importantly, it'll improve in the back half of this year, certainly in Q4, but throughout the back half of the year.

Jeff Harmening: We think that'll continue into Q2. Importantly, it'll improve in the back half of this year, certainly in Q4, but throughout the back half of the year. I want you to know, from my perspective, just stepping back just a little bit, we're really encouraged by the early signs or improvements we're seeing. We have great initiatives for Q2. I'm sure we'll talk about fresh pet food, but that's not the only thing. I mean, our new product volumes already up 25%. We have some other good new products coming in the second quarter, also backed up by really strong plans in baking and soup. The fall and winter are key seasons for that. We plan to improve, continue our positive momentum in food service and international.

Speaker #3: So, I want you to know, from my perspective, just stepping back a little bit, we're really encouraged by the early signs of improvements we're seeing.

Speaker #3: And we have great initiatives for Q2. I'm sure we'll talk about fresh pet food, but that's not the only thing. I mean, our new product volumes already have 25%.

Speaker #3: We have some other good new products coming in the second quarter, also backed up by really strong plans in baking and soup.

Speaker #3: And the fall and winter are key seasons for that. We plan to continue our positive momentum in foodservice and international. And so, again, with Q1 now in the rearview mirror and in line with what we expected, we have increased confidence and reaffirmed our fiscal 2026 guidance.

Jeff Harmening: Again, with Q1 now in the rearview mirror and in line with what we expected and increased confidence, we reaffirmed our fiscal 2026 guidance. With that, Jeff, let's open up the Q&A.

Speaker #3: So, with that, Jeff, let's open it up for Q&A.

Speaker #2: Great, thanks. Julianne, I think we can go ahead with the first question. Thank you.

Jeff Siemon: Great, thanks, Julianne. I think we can go ahead with the first question. Thank you.

Speaker #1: Thank you. Just as a reminder, to ask a question, press * followed by the number 1 on your telephone keypad. Our first question comes from Andrew Lazar from Barclays.

Operator: Thank you. Just as a reminder, to ask a question, press star followed by the number one on your telephone keypad. Our first question comes from Andrew Lazar from Barclays. Please go ahead. Your line is open.

Speaker #1: Please go ahead, your line is open.

Speaker #4: Great, thanks so much. Jeff, maybe picking up on your comments, you know, the ongoing debate in the food space, right, continues to be whether or not the current sort of challenging volume environment is, you know, more structural this time around than it has been in the past.

[Analyst]: Great, thanks so much. Jeff, maybe picking up on your comments, the ongoing debate in the food space continues to be whether or not the current sort of challenging volume environment is more structural this time around than it has been in the past, or whether more of it is just a result of the significant pricing the industry was required to take, combined with sort of a consumer that's under pressure. I realize it's super early in your efforts, but as you've gotten some of the key price points in the right place and the other marketing levers can kind of start to work, as you said, you're starting to see some volume share improvement in a bunch of categories more recently. Yet, I guess if we look at North America Retail, volume did not yet improve sequentially from fiscal Q4.

Speaker #4: Or, you know, whether more of it is just a result of the significant pricing that the industry was required to take, combined with sort of a consumer that’s under pressure.

Speaker #4: And I realize it's super early in your efforts, but, you know, as you've gotten some of the key price points in the right place and the other marketing levers can kind of start to work, as you said, you're starting to see some volume share improvement in a bunch of categories more recently.

Speaker #4: Yet, I guess if we look at NAR, right, volume did not yet improve sequentially from fiscal Q4. So I guess what I'm wondering is, do you think recent results sort of support the thesis that while there are some external factors for the industry, maybe some of them are a little bit structural, there's still a lot more that is in the industry's control and your control in terms of getting sort of volume back to bright?

[Analyst]: What I'm wondering is, do you think recent results sort of support the thesis that while there are some external factors for the industry, maybe some of them are a little bit structural, there's still a lot more that is in the industry's control and your control in terms of getting sort of volume back to bright?

Speaker #2: Yeah, Andrew, I think

Jeff Harmening: Yeah, Andrew, I think it's a really good question and a really fair question. You know, we believe it's largely in our control. I mean, if you look at the last year or so, volumes in our category are about flat, which is about 50 basis points below what we've seen historically, but not too far behind. There are a number of factors for that. Probably the most important we believe is that we saw a decade's worth of inflation in a couple of years. Consumers are still recovering that as wages have not yet caught up with all that inflation. We think that's the biggest driver. I mean, GLP-1 has a small, we think, has had a small impact so far. Consumers seeking value and a stressed consumer may be a little bit, but again, it's a 50-point gap versus what we have seen historically.

Speaker #3: it's a really good question and really fair question. And, you know, we believe it's largely in our control. I mean, if you look at, if you look at the last year or so, you know, volumes in our category are about flat, which is about, which is about 50 basis points below what we've seen historically, but not too far behind.

Speaker #3: And we, you know, there are a number of factors for that. You know, probably the most important, we believe, is that we saw a decade's worth of inflation in a couple of years.

Speaker #3: And so, consumers are still recovering, as wages have not yet caught up with all that and the inflation. We believe that's the biggest driver.

Speaker #3: I mean, GLP-1s, you know, has a small, we think has had a small impact so far. And, you know, consumers seeking value in a stressed consumer may be a little bit, but again, it's a 50-point gap versus what we have seen historically.

Speaker #3: The bigger gap is actually in price mix, and historically we see some price in mix. But in this environment that we are in, where the consumers are feeling the way they are, that's actually the more difficult piece rather than the volume piece.

Jeff Harmening: The bigger gap is actually in price mix. Historically, we see some price in mix. In this environment, where consumers are feeling the way they are, that's actually the more difficult piece rather than the volume piece. Volumes are pretty stable. As we look at our year, we need to be able to hold share in our categories to achieve the results we suggested for the year, but we don't need to gain massive amounts of share to hit the guidance that we already said and get back to flat or a little bit of growth. We think it's mostly up to our control. Consumers, their habits change over time. We've been really good at changing with them. I'll give you an example. Like I mentioned, GLP-1 was a little bit of a headwind. As a result of consumers looking for that, they want more protein.

Speaker #3: So volumes are pretty stable. And as we look at, as we look at our year, you know, we don't, we need to be able to hold share in our categories to achieve the results we suggested for the year, but we don't need to gain massive amounts of share.

Speaker #3: The guidance that we already said and get back to flatter a little bit of growth. And so, we think it's mostly up to our control.

Speaker #3: You know, look, consumers, their habits change over time, and we've been really good at changing with them. You know, give you an example: like, I mentioned GLP-1s was a little bit of a headwind, but as a result of consumers looking for that, they want more protein.

Speaker #3: And there's a reason why Cheerios Protein is off to such a great start. Or Progresso Pitmaster, which is high in protein, is off to a really good start that we, you know, we introduced Nature Valley Creamy Protein and, you know, we like what we've seen with that so far.

Jeff Harmening: There's a reason why Cheerios Protein is off to such a great start. Or Progresso Pitmaster, which is high in protein, is off to a really good start. We introduced Nature Valley Creamy Protein. We like what we've seen with that so far, or that our granola business is doing well. Even though you can see something in a structure, you can maybe say, okay, is that a structural headwind? Companies who are focused on the consumer, right, we are right now, have means to seek opportunities in that. That's what we're doing.

Speaker #3: Or that, you know, our granola business is doing well. And so, even though you can see something in a structure, you can basically... is that a structural headwind?

Speaker #3: There, you know, companies that are focused on the consumer, right? We are right now seeking opportunities in that, and that's what we're doing.

Speaker #4: Great, thanks so much.

Jeff Siemon: Great, thanks so much.

Speaker #1: Our next question comes from Robert Moscow from PD Cowan. Please go ahead, your line is open.

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

Speaker #5: Hi, good morning, Jeff. So a couple of questions. One is, I just want to make sure I understand the path back to volume growth.

[Analyst]: Hi, good morning, Jeff. A couple of questions. I just want to make sure I understand the path back to volume growth. Are you still expecting that to happen by the fourth quarter of this year? I'm also trying to reconcile, if your category volume is flat, but you're holding or gaining share in eight out of 10 categories, why is your volume reported down negative one? It would seem just optically that you would be a little bit above category volume growth, not a little bit below. That's my question.

Speaker #5: Are you still expecting that to happen by the fourth quarter of this year? And I'm also trying to reconcile. So if your category volume is flat, but you're holding or gaining share in eight out of ten categories, why is your volume reported down negative one?

Speaker #5: It would seem, just optically, that you would be a little bit above category volume growth, not a little bit below. That's my question.

Speaker #3: Yeah, so let me, let me have Dana McNabb kind of take that math question from you, which is probably an important one.

Jeff Harmening: Let me have Dana McNabb take that math question from you, which is probably an important one.

Speaker #5: All right. Well, good morning, Rob. Thanks for the question. It is true what you're saying in terms of our volume, but if you look at our top 10 categories, the volume improved by about a point in Q1 versus Q4.

Dana McNabb: All right. Good morning, Rob. Thanks for the question. It is true what you're saying in terms of our volume. If you look at our top 10 categories, the volume improved by about a point in Q1 versus Q4. The total didn't, and that is because flour and desserts were down, and they significantly over-indexed on pounds, not on dollars. What's important, I think, is that where we're putting the price investments, we're encouraged in almost every case that we're getting the volume response we expected. This is particularly on categories in Q1, like refrigerated dough, on fruit snacks, on salty snacks. I'd also call out our snack bars. Even though we're comping a period where our competitor lost distribution, the elasticities we've seen on the investments are at or ahead of model. We, again, are feeling very confident that these investments are working.

Speaker #5: The total didn't. And that is because flour and desserts were down, and they significantly over-index on pounds, not on dollars. What's important, I think, is that where we're putting the price investments, we're encouraged that in almost every case we're getting the volume response we expected.

Speaker #5: And this is particularly on categories in Q1, like refrigerated dough, fruit snacks, salty snacks. I would also call out our snack bars.

Speaker #5: Even though we're comping a period where our competitor lost distribution, the elasticities we've seen on the investments are at or ahead of models. So we, again, are feeling very confident that these investments are working.

Speaker #5: Now, there are a few places where we still have work to do. Our Tino's business volume was down a little bit in Q1, but we are in the middle of a price pack architecture change right now where we're moving from a bag to a box.

Dana McNabb: There are a few places where we still have work to do. Our Totino’s business volume was down a little bit in Q1, but we are in the middle of a price pack architecture change right now, where we're moving from a bag to a box, and we need a little time to sort through that. Of course, our cereal business, we did see an improvement second consecutive quarter of pound share growth. Really good momentum behind Cheerios Protein. Our granola business is up double digits. Our Cinnamon Toast Crunch business, when you get remarkability right and have great advertising and great product news, it works. The pounds in that category were down. Our performance was still down, and we have a little more work to do.

Speaker #5: And so we need a little time to sort through that. And then, of course, our cereal business, we did see an improvement second consecutive quarter of pound-share growth, really good momentum behind Cheerios protein, our granola business up double digits.

Speaker #5: Our Cinnamon Toast Crunch business, when you get remarkability right and have great advertising and great product news, it works. But the pounds in that category, we're down.

Speaker #5: Our performance was still down, and we have a little more work to do. But again, what we're encouraged by is that in our top 10 categories, pounds have improved.

Dana McNabb: What we're encouraged by is that in our top 10 categories, pounds have improved, and we believe our plans get better each quarter through the year.

Speaker #5: And we believe our plans get better each quarter through the year.

Speaker #4: Maybe, Rob, I’d just add one more point. If you get beyond North America Retail, we did see a shipment timing headwind in PETS.

[Analyst]: Maybe, Rob, I'd just add one more point. If you get beyond North America Retail, we did see a shipment timing headwind in Pet to the tune of about 4%. You know, that's worth a little bit, almost a full point to the company, about a little bit more than 0.5% to the company. That also weighed on total company pounds in the quarter.

Speaker #4: So the tune of about four points, you know, that's worth, you know, a little bit, you know, almost a full point to the company.

Speaker #4: You know, about a little bit more than half a point to the company. So that also weighed on total company pounds in the quarter.

Speaker #5: Okay, I'll leave it there. Thank you.

Jeff Harmening: OK, I'll leave it there. Thank you.

Speaker #1: Our next question comes from Leo Jordan from Goldman Sachs. Please go ahead; your line is open.

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

Speaker #6: Thank you. Good morning. Just seeing if you could provide more detail on your trends in dog food. I guess, what do you attribute the slowdown in Wilderness to?

[Analyst]: Thank you. Good morning. Just seeing if you could provide more detail on your trends in dog food. What do you attribute the slowdown in Wilderness to? How are you thinking about your ability to drive an improvement there? I was also curious on trends on pet treats, excluding the Whitebridge acquisition, given the discretionary nature. Thank you.

Speaker #6: And how are you thinking about your ability to drive an improvement there? And then I was just also curious about trends on pet treats, just excluding the White Bridge acquisition, given the discretionary nature.

Speaker #6: Thank you. Yes, so if I think about, thanks for the question, our Blue Pet business, our core pet business, our results in Q1 were generally in line with where we were last year.

Dana McNabb: Yes. If I think about, thanks for the question, our Blue Buffalo pet business, our core pet business, our results in Q1 were generally in line with where we were last year. We held our pound share in Q1. Our dollar share was down just a little bit, about 15 basis points. In terms of what is working, we're really encouraged by our Blue Life Protection Formula business. That's our biggest business. It grew dollars and pounds. We have the value right. We have really good comparative advertising and strong in-store execution. Our cat feeding business is actually doing really well. Blue Tastefuls, mid-single-digit growth. We have a really good taste preference claim and the Kibble and Gravy new product. That's working well for us. Our Tiki Cat retail sales were up double digits.

Speaker #6: We held our pound share in Q1. Our dollar share was down just a little bit, about 15 basis points. In terms of what is working, we're really encouraged by our Blue Life Protection Formula business.

Speaker #6: This is our biggest business. It grew dollars and pounds. We have the value right. We have really good comparative advertising and strong in-store execution.

Speaker #6: Our cat feeding business is actually doing really well. So, Blue Tastefuls is experiencing mid-single-digit growth. Again, we have a really good taste preference claim and the kibble and gravy new product.

Speaker #6: That's working well for us. Our Tiki Cat retail sales were up double digits. We have good nutrition and a science formula that's launched across different cat life stages.

Dana McNabb: We've got good nutrition, a science formula that's launched across different cat life stages, really good omnichannel excellence. These big businesses are working really well for us. Our treats business has been a challenge that inflected to some positive volume growth in Q1. There are some things that we're really encouraged are working well on our Blue Buffalo business. The two areas that you rightly referenced that we need to see improvement on are our Wilderness business. This business, we have to improve our total product proposition. We're coming with protein news and new products, comparative advertising, stronger in-store execution. We have to get better there. We believe our plans are much stronger this year. More work to do. Our pet specialty channel continued to be a challenge. This year, we're bringing Edgar and Cooper. That's the super premium business that we had in Europe.

Speaker #6: Really good omnichannel excellence. So, these big businesses are working really well for us. And then our treats business has been a challenge. That inflected to some positive volume growth in Q1.

Speaker #6: So there are some things that we're really encouraged are working well on our blue business. The two areas that you rightly referenced that we need to see improvement on are wilderness business.

Speaker #6: And this business, we have to improve our total product proposition. So we're coming with protein news and new products, comparative advertising, and stronger in-store execution.

Speaker #6: We have to get better there, and we believe our plans are much stronger this year. But again, there is more work to do. Additionally, our pet specialty channel continues to be a challenge.

Speaker #6: And this year we're bringing Edgar and Cooper. So that's the super premium business that we had in Europe. We're launching an exclusive partnership with PetSmart.

Dana McNabb: We're launching an exclusive partnership with PetSmart. That's already in market in Q1. Our turns are in line or a little bit ahead of expectation. There's a lot that we like about our pet business that's working and two areas that we know we need to get better. We're encouraged by the plans that we have in place.

Speaker #6: And that's already in market in Q1, and our turns are in line or a little bit ahead of expectations. So there's a lot that we like about our pet business that's working.

Speaker #6: And two areas that we know we need to get better, and we're encouraged by the plans that we have in place.

Speaker #1: That's very helpful. Thank you. And then I just wanted to step back and I have a higher-level question. There just seems to be a bigger debate around the industry.

[Analyst]: That's very helpful. Thank you. I just wanted to take a step back. I have a higher-level question. There just seems to be a bigger debate around the industry, you know, scale versus complexity and what's the right balance. You sound confident in the plan that you're putting forward today. You've been battling a number of fronts over the last few quarters. How do you think about what's the right balance? As you go through driving better remarkability across your portfolio, what have been advantages or disadvantages with your portfolio mix today? Thank you.

Speaker #1: You know, scale versus complexity and what's the right balance. I mean, you guys sound confident in the plan that you're putting forward today.

Speaker #1: But you've been battling a number of fronts over the last few quarters. So, just maybe, how do you think about what's the right balance?

Speaker #1: And as you go through, you know, driving better remarkability across your portfolio, what have been the advantages or disadvantages with your portfolio mix today?

Speaker #1: Thank you.

Speaker #3: Yeah, I think, you know, the... well, I'm going to turn the question a little on its side. So, which is to say the most important thing is to focus on the consumers and what they're looking for and what they want.

Jeff Harmening: I think the most important thing is to focus on the consumers and what they're looking for and what they want, and then delivering that to them. Whether that's through better advertising or product news or new products or whatever the case may be, that is the most important thing. Whether you're in one category or 15, that's the most important thing to do. Scale has some advantages for us. It's allowed us to invest in our capabilities like digital and technology, digitizing our supply chain and SRM, and doing bundling consumer offerings across categories of store, especially in the fall and back to school, are really important for us. We do see some scale advantages from that, especially working across categories.

Speaker #3: And then they're delivering that to them. Whether that's through, you know, better advertising, product news, new products, or whatever the case may be, that is the most important thing.

Speaker #3: Whether you're in one category or 15, that's the most important thing to do. Scale—scale has some advantages for us. It's allowed us to invest in our capabilities like digital and technology, digitizing our supply chain and SRM.

Speaker #3: And doing bundling—bundling consumer offerings across categories and stores—especially in the fall and back to school, you know, is really important for us.

Speaker #3: So we do see some scale advantages from that, especially working across categories. I mean, we kind of understand the consumer, I think more deeply than many others can, who are only in one category, because we see the consumer from many different angles.

Jeff Harmening: We kind of understand the consumer, I think, more deeply than many others can who are only in one category because we see the consumer from many different angles. Having said that, we've never been a believer in scale just for the sake of scale. I don't think that just because you have scale, it automatically accrues benefits. You have to be able to use the scale that you have to advantage and to make sure you're, through all of the complexity that you have, that you're staying focused on what the consumer wants in that particular occasion and that particular demand space, if you will.

Speaker #3: Having said that, we've never been a believer in scale just for the sake of scale. And I don't think that just because you have scale, it automatically accrues benefits.

Speaker #3: You have to be able to have to use the scale that you have to advantage and to make sure you're, you know, through all of the complexity that you have, that you're staying focused on what the consumer wants in that particular occasion and that particular demand space, if you will.

Speaker #1: That's very helpful. Thank you. Our next question comes from David Palmer from Evercore ISI. Please go ahead; your line is open.

[Analyst]: That's very helpful. Thank you.

Operator: Our next question comes from David Palmer from Evercore ISI. Please go ahead. Your line is open.

Speaker #5: Yeah, thanks. And thanks for the great commentary in the prepared remarks. You know, it looks like you continue to expect very strong growth from innovation and contribution to growth from innovation, but it also looks like there's a little bit more of an elongated timetable for the price promotion investments, stretching into the second half of fiscal 2026.

[Analyst]: Thank you for the great commentary in the prepared remarks. It looks like you continue to expect very strong growth from innovation and contribution to growth from innovation. It also looks like there's a little bit more of an elongated timetable of the price promotion investments stretching into the second half of fiscal 2026, perhaps more than you might have thought a few months ago. Where are the biggest changes in your reality when it comes to certain categories where the price promotions or investments are sticking around a little longer? What are the categories where you're seeing what you would hope to see, where you can get a little bit more balance with price versus volume? I have a quick follow-up.

Speaker #5: Perhaps more than you might have thought a few months ago. You know, perhaps where are the biggest changes in your reality when it comes to certain categories where the price promotions are investments that are sticking around a little longer?

Speaker #5: And perhaps what are the categories where you're seeing what you would hope to see, where you can perhaps get a little bit more balance with price versus volume? And have a quick follow-up?

Speaker #6: Thank you for the question. I think I'll start first with the price investment. And I think it's important to understand that initially, as Jeff said in his opening remarks, last year when we knew we had to improve value for the consumer, we had to move fast.

Dana McNabb: Thank you for the question. I think I'll start first with the price investment. I think it's important to understand that initially, as Jeff said in his opening remarks, last year, when we knew we had to improve value for the consumer, we had to move fast. The way we did that was we adjusted depth and frequency of promotion. We are encouraged by the positive response that we saw. As we shifted to this fiscal year, our focus has been on adjusting our base shelf price, trying to get below key cliffs or to make sure that we have a gap that's manageable to the competition. We need to do this across two-thirds of our portfolio. We got the majority of that done in Q1. Results are ahead of what we expected. We saw really good results on bars, on fruit snacks, on salty snacks.

Speaker #6: And so, the way we did that was we adjusted the depth and frequency of promotion. We are encouraged by the positive response that we saw.

Speaker #6: And as we shifted to this fiscal year, our focus has been on adjusting our base shelf price, trying to get below key cliffs or to make sure that we have a gap that's manageable to the competition.

Speaker #6: We need to do this across two-thirds of our portfolio, and we got the majority of that done in Q1. And again, results are ahead of what we expected.

Speaker #6: And we saw really good results on bars, on fruit snacks, and on salty snacks. We will complete the remainder of the base price adjustments in Q2.

Dana McNabb: We will complete the remainder of the base price adjustments in Q2. That is going to make sure that we have the right market-leading execution on our baking and on our soup season. All of this gives us a guidance that we're on the right track. As you pointed out when you started the question, price is just one element of remarkability. Once we get the price right, we're really focused on elevating our work on new products. We're moving from about 3.5% of net sales on new products to 5%. We feel really encouraged about the performance that we're seeing on things like Cheerios Protein or Mott's Bars. We have a lot of really good new products coming through the remainder of the year. This just gives us confidence that this focus on remarkability and getting the total proposition right is the right thing to do.

Speaker #6: And that's going to make sure that we have the right market-leading execution on our baking and on our soup season, and all of us give us guidance that we're on the right track.

Speaker #6: But as you pointed out when you started the question, price is just one element of remarkability. Once we get the price right, we're really focused on elevating our work on new products.

Speaker #6: We're moving from about 3.5% of net sales on new products to 5%. We feel really encouraged about the performance that we're seeing on things like Cheerios Protein and our Moth Bars. We have a lot of really good new products coming through the remainder of the year.

Speaker #6: And this just gives us confidence that this focus on remarkability and getting the total proposition right is the right thing to do.

Speaker #4: Great, thanks for that. And then just to follow up on PET, you mentioned the 5,000 coolers. Going into it initially, you know, some big competitor out there has well over 30,000.

[Analyst]: Great, thanks for that. Just to follow up on PET, you mentioned the 5,000 coolers going into initially. A big competitor out there has well over 30,000. How does that work where you get past this first step? Is it in the plans that this will continue to ramp? Or are you digesting this first sleeve of coolers, seeing how it goes, and we'll modulate the growth from there? I'll pass it on. Thank you.

Speaker #4: You know, how does that work where, you know, you get past this first step? I mean, do you, is this a, is it, is it in the plans that this will continue to ramp or are you, digesting this first sleeve of coolers, seeing how it goes, and will modulate the growth from there?

Speaker #4: And I'll pass it on. Thank you.

Speaker #6: Well, we are excited to be moving from the planning phase of the fresh launch to the execution phase. The plant production has started up really well.

Dana McNabb: We are excited to be moving from the planning phase of the fresh launch to the execution phase. The plant production has started up really well. Our initial products are looking really strong. As you mentioned, we're in the middle of installing coolers as we speak. We'll have 1,000 coolers in place by the end of this month, 5,000 coolers by the end of our fiscal Q2. Our plan is to ramp up that distribution into the next calendar year in 2026. So far, everything is going really well. We are encouraged by what we're seeing with the cooler distribution. I should remind you that we have over 50 years' experience in the refrigerated channel when you think about our Pillsbury business and our yogurt business. We feel like we have a very strong product and a measured plan for getting coolers that will increase.

Speaker #6: Our initial products are looking really strong. As you mentioned, we're in the middle of installing coolers as we speak, so we'll have 1,000 coolers in place by the end of this month.

Speaker #6: 5,000 coolers by the end of our fiscal Q2. Our plan is to ramp up that distribution into the next calendar year in 2026.

Speaker #6: So again, so far everything is going really well. We are encouraged by what we're seeing with the cooler distribution. And I should remind you that we have over 50 years of experience in the refrigerated channel.

Speaker #6: When we think about our Pillsbury business and our yogurt business, we feel like we have a very strong product and a measured plan for getting coolers that will increase. Again, we're feeling very good about this launch right now.

Dana McNabb: Again, we're feeling very good about this launch right now.

Speaker #1: Our next question comes from Matt Smith from Stifel. Please go ahead; your line is open.

Operator: Our next question comes from Matt Smith from Stifel. Please go ahead. Your line is open.

Speaker #4: Hi, good morning, Kofi. This is Just and Jeff. Kofi, I wanted to talk about the margin performance in the quarter. It was above your expectations. Can you provide a little more detail on the gross margin composition?

[Analyst]: Hi, good morning, Kofi. And Jeff. Kofi, I wanted to talk about the margin performance in the quarter. It was above your expectations. Can you provide a little more detail on the gross margin composition? I believe you called out the international timing benefit was about 3% of that segment's net sales. Is that like 50 basis points to the overall company? How should we think about the phasing of inflation investment through the year from here? Thank you.

Speaker #4: I believe you called out that the international timing benefit was about three points of that segment's net sales, or is that like 50 basis points to the overall company?

Speaker #4: And then how should we think about the phasing of inflation investment through the year from here? Thank you.

Speaker #3: Sure, sure. I appreciate the question, Matt. So I think, as you rightly pointed out, we did flag that our profit performance in the quarter was a little bit better than expected on operating profit EPS.

Jeff Harmening: Sure. Appreciate the question, Matt. I think, as you rightly pointed out, we did flag that our profit performance in the quarter was a little bit better than expected on operating profit and EPS. Some of that coming through gross margin. The first factor, probably in slightly heavier measure, was that our inflation phasing was a little bit lighter than we expected in the quarter, probably closer to 2% and a little bit below the annual run rate of 3% that's sitting in our annual guidance. That factor first, followed by the trade expense timing benefit in international, which would put it at about $20 million on the top and the bottom line. We expect both of these to kind of unwind largely in Q2.

Speaker #3: Some of that coming through gross margin. The first factor, probably in slightly heavier measure, was that our inflation phasing was a little bit lighter than we expected in the quarter.

Speaker #3: Probably closer to 2% and a little bit below the annual run rate of 3%. That's sitting in our annual guidance. So that factor first, followed by the trade expense timing benefit in international, which would put it at about $20 million on the top and the bottom line.

Speaker #3: We expect both of these to kind of unwind largely in Q2. So, given that these are timing-related items, as we see them unwind in Q2, I'd expect our operating profit to be down more in Q2 than in Q1.

Jeff Harmening: Given that these are timing-related items, as we see them unwind in Q2, I'd expect our operating profit to be down more in Q2 than in Q1. I expect that doesn't change our outlook for the sort of first half, aggregate profit looking roughly in line with Q4 of fiscal 2025. We do think just as we look at the Q2 profit decline, it's important to think that supply chain phasing costs on inflation, I'd expect Q2 to be a little bit higher, probably maybe even above the annual run rate as we step into some of the inflationary pressure plus some inflation or some inventory absorption headwinds. It's important to note we won't have any contributions from yogurt in the quarter as well. This quarter, we had one month of sales and profit in our results from the recently divested U.S. yogurt business.

Speaker #3: And I expect that, you know, that doesn't change our outlook for the sort of first half aggregate profit looking roughly in line with Q4 of fiscal 2025.

Speaker #3: We do think, as we look at the Q2 profit decline, it's important to consider that supply chain phasing costs and inflation; I'd expect Q2 to be a little bit higher.

Speaker #3: Probably, maybe even above the annual run rate as we step into some of the inflationary pressure, plus some inflation or some inventory absorption headwinds.

Speaker #3: It's important to note we won't have any contributions from yogurt in the quarter as well. This quarter, we had one month of sales and profit.

Speaker #3: In our results from the recently divested U.S. yogurt business, we'll start to see normalization of our comp and incentive comp benefits in Q2. And obviously, the international trade expense timing benefits will unwind.

Jeff Harmening: We'll start to see normalization of our comp and incentive comp benefits in Q2. Obviously, the international trade expense timing benefits along the line. There is a bit of a transitory effect here, both on margin and profit growth as you think about how to digest this.

Speaker #3: So, there is a bit of a transitory effect here, both on margin and profit growth as you think about how to digest this.

Speaker #4: Thanks, Kofi. As a follow-up, you called out that the trade expense phasing in North America Retail was about a point of drag in the first quarter.

[Analyst]: Thanks, Kofi. As a follow-up, you called out the trade expense phasing in North America Retail was about a point of drag in the first quarter. Is that similar as we get into the second quarter and then normalizes as we get into the second half? Thank you.

Speaker #4: Is that similar as we get into the second quarter and then normalizes as we get into the second half? Thank you. I'll leave it there.

Speaker #3: Yeah, yes. You'd have it largely right. I would expect it to be a big drag in Q1 and Q2 as we're comping last year, where we had Q1 and Q2 with effectively no trade expense, so it was a benefit relative to the other quarters in last year.

Jeff Harmening: Yes, you have it largely right. I would expect it to be a big drag in Q1 and Q2 as we're comping last year where we had Q1 and Q2 with effectively no trade expense. It was a benefit relative to the other quarters in last year, a modest headwind in Q3 last year, and a huge headwind in Q4. We expect those comps to turn favorable as we step into Q3 modestly, and a pretty significant tailwind in Q4.

Speaker #3: In modest headwind in Q3 last year and a huge headwind in Q4. So we expect those comps to turn favorable as we step into Q3.

Speaker #3: Modestly and in a pretty significant tailwind in Q4.

Speaker #1: Our next question comes from Michael Laverry from Piper Sandler. Please go ahead; your line is open.

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

Speaker #4: Thank you. Good morning. Can you touch on what categories or brands drove the household penetration gains? And maybe how broad that was and how much you feel like was driven maybe by pricing adjustments versus innovation or other factors?

[Analyst]: Thank you. Good morning. Can you touch on what categories or brands drove the household penetration gains, and maybe how broad that was, and how much you feel like was driven maybe by pricing adjustments versus innovation or other factors?

Speaker #6: Good morning. Thanks for the question. As you stated, we did see our household penetration grow overall for NAR for the first time since fiscal 2022.

Dana McNabb: Good morning. Thanks for the question. As you stated, we did see our household penetration grow overall for North America Retail for the first time since fiscal 2022, really encouraged by that result. In terms of where we saw penetration improvement, we saw it on bars, on fruit snacks, on salty snacks, on our cereal business. We do believe that getting our price value, and again, this is about getting below key cliffs on the shelf, making sure we have manageable gaps relative to the competition, that that was a driver of that penetration improvement. It is not a coincidence that where we had a great remarkability approach, where we had good advertising, really good new product innovation or product quality, price pack architecture, that is where we saw the best results.

Speaker #6: Really encouraged by that result. In terms of where we saw penetration improvement, we saw it on bars, on fruit snacks, on salty snacks, and on our cereal business.

Speaker #6: And we do believe that getting our price value, and again, this is about getting below key cliffs on the shelf, making sure we have manageable gaps relative to the competition, is a driver of that penetration improvement.

Speaker #6: But also, it's not a coincidence that where we had a great remarkability approach, where we had good advertising, really good new product innovation or product quality, and price pack architecture, that is where we saw the best results.

Speaker #6: We called out in the presentation Cinnamon Toast Crunch as a really good example. It has really good product news, great advertising, and we have the price right on that business.

Dana McNabb: We called out in the presentation Cinnamon Toast Crunch as a really good example, really good product news, great advertising. We have the price right on that business. We gained pound dollar share and penetration. We still have more work to do, but we believe that we are on the right track with these investments. We are confident in what we're seeing so far.

Speaker #6: And we gained pound-dollar share and penetration. So again, we still have more work to do, but we believe that we are on the right track with these investments, and we're confident in what we're seeing so far.

Speaker #4: Okay, that's helpful. And I just wanted to follow up on some of the comments in the prepared remarks around demand planning. I think it can be maybe an underappreciated challenge, but it sounds like you've got improvement there.

[Analyst]: OK, that's helpful. I just wanted to follow up on some of the comments in the prepared remarks around demand planning. I think it can be maybe an underappreciated challenge. It sounds like you've got an improvement there. Can you maybe elaborate on kind of how that worked and what some of the benefits are? It's maybe a little surprising that the human touch seems unhelpful. Can you just kind of bring that to life a little bit?

Speaker #4: Can you maybe elaborate on how that worked and what some of the benefits are? It's maybe a little surprising that the human touch seems unhelpful.

Speaker #4: Can you just kind of bring that to life a little bit?

Speaker #3: Yeah, so let me take that one a little bit, Michael. The, you know, I'm going to start by saying, I mean, we have a phenomenal supply chain.

Jeff Harmening: Yeah, let me take that one a little bit, Michael. I'm going to start by saying, we have a phenomenal supply chain, as you well know. During COVID, we showed that. We continue to show it. We showed it in Q1 this year, whether it's productivity or service or low cost. Our supply chain is fantastic. We've got a great marketing team, too. Over time, our forecasting has been pretty good. It's just taken us a lot to get to an accurate forecast. What you see us doing now is that we're using AI and leveraging technology to get to good forecasting much more efficiently. The importance of that is it frees up our marketing team to do better demand generation. I think that's why you're seeing some of these better ideas that we're talking about right now, because our marketers are having more time doing marketing than forecasting.

Speaker #3: As you well know, during COVID, we showed that we continue to show— we showed in Q1 this year, whether it’s productivity, service, or low cost.

Speaker #3: I mean, our supply chain is fantastic, and we've got a great marketing team too. Over time, our forecasting has been pretty good; it's just taken us a lot to get to an accurate forecast.

Speaker #3: And so what you see us doing now is that we're having, you know, where you were using AI and leveraging technology to get to good forecasting, much more efficiently.

Speaker #3: And the importance of that, then, is it frees up our marketing team to do better demand generation. I think that's why you're seeing some of these better ideas that we're talking about right now, because our marketers are having more time doing marketing than forecasting.

Speaker #3: And then our supply chain people, they're not double-checking, you know, numbers that people give, and spending all their time in meetings looking at forecasts.

Jeff Harmening: Our supply chain people, they're not double-checking numbers that people give and spending all their time in meetings looking at forecasts. They're just trying to figure out, OK, making the right stuff at the right time in the right place. You see our waste elimination improve. We wanted to highlight that. It seems small, but it's actually quite large. It's a great way for technology to enable a little bit better accuracy, but a lot more efficiency. That frees up the talented people we have. We have a really talented team, really talented people to do what they do best. That's what we wanted to highlight in this particular case.

Speaker #3: They're just trying to figure out, okay, making the right stuff at the right time in the right place. And, you know, you see our waste elimination, you know, be improved.

Speaker #3: And so really what we wanted to highlight is that, it seems small, but it's actually quite large. It's a great way for technology to enable a little bit better accuracy, but a lot more efficiency.

Speaker #3: And that frees up the talented people we have. We have a really talented team, a really talented group of people to do what they do best.

Speaker #3: And that's what we wanted to highlight in this particular case.

Speaker #4: Very helpful, thanks.

[Analyst]: Very helpful. Thank you.

Speaker #1: Our next question comes from Alexia Howard from Bernstein. Please go ahead; your line is open.

Operator: Our next question comes from Alexia Howard from Bernstein. Please go ahead. Your line is open.

Speaker #5: Great, thank you very much

[Analyst]: Great. Thank you very much for the question. Good morning, everybody. Can I ask about your efforts on reformulation? You're obviously ahead of the game on the elimination of the artificial dyes, getting rid of those by next summer. There are other state-level legislations that have been approved. For example, in Texas, I think there's something that's already been ratified by the governor, gone through, that's about 44 additives. It's a broader list. First of all, I guess as you've gone through your remarkable efforts with some of these brands, are the ingredient lists and additives coming up as concerns for some group of consumers? Is that something that you're working through the portfolio to actively drive out, not just the dyes, but maybe other additives that people are concerned about?

Speaker #6: Good morning, everybody. Can I ask about your efforts on reformulation? You're obviously ahead of the game on the elimination of the artificial dyes.

Speaker #6: Getting rid of those by next summer. But there are other state-level legislations that have been approved; for example, in Texas, I think there's something that's already been ratified by the governor.

Speaker #6: It's gone through. That's about 44 additives, so it's a broader list. First of all, I guess as you've gone through your remarkable efforts with some of these brands, are the ingredient lists and additives coming up as concerns for some group of consumers?

Speaker #6: And is that something that you're working through the portfolios to actively drive out, not just the dyes, but maybe other additives that people are concerned about?

Speaker #6: Or are you going to wait until the regulations and the legislation settle, which could be a year or two down the line, and then you'll do it once everything's very, very clear?

[Analyst]: Are you going to wait until the regulations and the legislation settles, which could be a year or two down the line, and then you'll do it once everything's very, very clear? Just trying to get a sense for how aggressively you're going after that or whether it's really not something beyond the artificial dyes that you're focused on at the moment. Thank you.

Speaker #6: Or just trying to get a sense for how aggressively you're going after that, or whether it's really not something beyond the artificial dyes that you're focused on at the moment?

Speaker #6: Thank you.

Speaker #3: Yeah, Alexia, you know, I would start by saying we always do our best when we follow what the consumers are looking for. And that's kind of our North Star and why we have this remarkability framework.

Jeff Harmening: Yeah, Alexia, I would start by saying we always do our best when we follow what the consumers are looking for. That's kind of our North Star and why we have this remarkability framework. As you know, 10 years ago, we took some certified colors out of Trix, and that didn't work so well here in the U.S. By the way, it worked really well in Canada. If Haitian mom loved it, it didn't work as well here. That's because consumers in the U.S. weren't quite ready for it yet. 10 years later, the reason why we made the commitments we have is that consumers are more ready for this. An increasing number of consumers don't want the certified colors in some of their foods. That's why we look to remove those.

Speaker #3: And as you know, 10 years ago, we, you know, we took some certified colors out of tricks, and that didn't work so well here in the U.S.

Speaker #3: By the way, it worked really well in Canada. And, you know, Canadians' moms loved it. It didn't work as well here, and that's because consumers in the U.S. weren't quite ready for it yet.

Speaker #3: Ten years later, you know, the reason why we made the commitments we have is that consumers are more ready for this, and an increasing number of consumers don't want the certified colors in some of their foods.

Speaker #3: And so that's why we, you know, that's why we look to remove those. And we have better technology now than we did 10 years ago.

Jeff Harmening: We have better technology now than we did 10 years ago, and we can get consumers what they want, whether it's the colors they want or the shapes they want or the texture, what have you. That's why we're undertaking our efforts. When it comes to the regulatory environment, I'll start with a couple of things. One is that we've been around for 160 years, navigating global, federal, and state regulation for more than a century. I have high confidence we can do that now. When it comes to things like colors, 98% of our K through 12 school offerings don't have certified colors now, and 85% of our retail doesn't. We're talking about a relatively small sample. What I will say without commenting on any particular state is that there are a lot of state regulations being brought up now.

Speaker #3: And we can get consumers what they want, whether You know, when it comes to the regulatory environment, you know, I'll start with a couple of things.

Speaker #3: it's the colors they want or the shapes they want or the texture or what have you. And so, you know, that's why we're undertaking our efforts.

Speaker #3: One is that, I mean, we've been around for 160 years and, you know, navigating global, federal, and state, you know, regulation for more than a century.

Speaker #3: And so, if I have confidence, we can do that now. When it comes to things like colors, I mean, 98% of our K-12 school offerings don't have certified colors now, and 85% of our retail doesn't.

Speaker #3: So, we're talking about a relatively small sample. What I will say, without commenting on any particular state, is that there are a lot of state regulations being brought up now.

Speaker #3: And I think there's a challenge in that. And it's a challenge really for consumers because there's a cost associated with trying to do something state by state rather than at a federal level.

Jeff Harmening: I think there's a challenge in that, and it's a challenge really for consumers because there's a cost associated with trying to do something state by state rather than at a federal level. Ultimately, consumers will pay the cost for that, as well as confusion. How can something be good in one state and not good in another state? We've always been a believer of working at a federal level, working with Health and Human Services, as we have been, working with the FDA and the USDA to work on federal legislation and regulation that really makes sense for consumers. We believe that's the best approach that we have right now. We're confident we can navigate this environment. We're making really good changes, really good progress. I think there's a challenge for the whole industry with the state-by-state approach. It's certainly not just our challenge.

Speaker #3: And ultimately, consumers will pay the cost for that, as well as confusion. How can something be good in one state and not good in another state?

Speaker #3: And so, we've always been a believer in working at a federal level. Working with Health and Human Services, as we have been, and collaborating with the FDA and the USDA to shape federal legislation and regulation that really makes sense for consumers.

Speaker #3: And we believe that's the best approach that we have right now. So we're confident we can navigate this environment. We're making really good changes and really good progress.

Speaker #3: And, but I think there's a challenge for the whole industry, which is state by state approach and it's certainly not just our challenge. And ultimately, I think it, you know, it's better if we can get to something that's consistent on a federal level.

Jeff Harmening: Ultimately, I think it's better if we can get to something that's consistent on a federal level.

Speaker #6: Great. As a quick follow-up, thank you for that. You mentioned that the pace of innovation is stepping up, I think, 25%, I believe that was in North American Retail.

[Analyst]: Great. As a quick follow-up, thank you for that. You mentioned that the pace of innovation is stepping up, I think, 25%. I believe that was in North America Retail. Are you able to say what percentage of sales are now coming from new products introduced over the last year or over the last three years? Where are you at in absolute terms on that front?

Speaker #6: Are you able to say what percentage of sales are now coming from new products introduced over the last year or over the last three years?

Speaker #6: Where are you at in absolute terms on that front?

Speaker #3: Yeah, I'm glad you asked. I'm really, I'm really proud of the way our entire team's innovating. And we're at about five, we're at roughly 5% of new products coming from new product innovation where we were at three and a half, you know, a year ago.

Jeff Harmening: Yeah, I'm glad you asked. I'm really proud of the way our entire team's innovating. We're at about 5%, we're at roughly 5% of new products coming from new product innovation, where we were at 3.5% a year ago. I think there are a couple of important things that lie beyond that, which I want you to know. First, it's not that we're introducing more things. It's that really what we're introducing, we think, has bigger and better ideas with more staying power, which is not only good for this year, but in years to come. That's true in North America Retail. When you look at Cheerios Protein, for example, some of the granolas that we're bringing to market, some of the Mott's fruit snacks that we're bringing to market, really good new product innovation.

Speaker #3: But I think there are a couple of important things that lie beyond that, which I want you to know. First, it's not that we're introducing more things.

Speaker #3: It's that really that what we're introducing, we think has our bigger and better ideas with more staying power, which is not only good for this year, but in years to come.

Speaker #3: And that is, that's true in North American retail. When you look at Cheerios Protein, for example, some of the granolas that we were bringing to market, and some of the new fruit snacks that we were introducing, we see really good new product innovation.

Speaker #3: It's true in our pet food business, bringing fresh pet food to the market and investing behind that. It's true in international where, I mean, look, we grew Häagen-Dazs retail double digits in China in the first quarter.

Jeff Harmening: It's true in our pet food business, bringing fresh pet food to the market and investing behind that. It's true in International, where, I mean, look, we grew Häagen-Dazs retail double digits in China in the first quarter. The reason we did that was because we introduced stick bars. Now we're taking that all over China. It's really working well. In Food Service, we picked up share in Food Service. We have continued great momentum there behind some biscuit innovation. What I'm pleased with is it's not just one part of the company that's innovating better. We have all of the segments innovating better. By better, I mean, I think bigger, more on-consumer trend ideas. We're supporting those with investment. That's what's exciting to me.

Speaker #3: And the reason we did that was because we introduced stick bars, and now we're taking that all over China, and it's really working well.

Speaker #3: And in food service, we have, you know, we again, we picked up share in food service and have continued great momentum there. Behind some biscuit innovation.

Speaker #3: And so, well, what I'm pleased with is it's not just one part of the company that's innovating better. We have all of the segments innovating better.

Speaker #3: And by better, I mean, I think bigger more on consumer trend ideas and we're supporting those with investment. And so that's what's exciting to me.

Speaker #6: Great, thank you very much. I'll pass it on.

[Analyst]: Great, thank you very much. I'll pass it on.

Speaker #1: Our next question comes from Megan Clapp from Morgan Stanley. Please go ahead; your line is open.

Operator: Our next question comes from Megan Clapp from Morgan Stanley. Please go ahead. Your line is open.

Speaker #7: Hi, good morning. Thanks so much. I have a quick follow-up and then another question for Kofi, if that's okay. So the first is just following up on some of the earlier line of questioning.

[Analyst]: Hi, good morning. Thanks so much. I have a quick follow-up and then another question for Kofi, if that's OK. The first is just following up on some of the earlier line of questioning. Jeff, I think you mentioned you don't need massive share gains to hit the guide. Based on some of the things I think Dana mentioned later, it sounds to me like maybe some category trends are softer than you expected. Can you just clarify how category performance has evolved thus far year to date relative to your initial expectations and whether we need to see improvement in areas like cereal, for instance, to deliver on the guide? Just related as well, since you brought it up, Jeff, can you maybe just expand a little bit on the GLP-1 comment in terms of what you're seeing in the data that you track? Thank you.

Speaker #7: Jeff, I think you mentioned you don't need massive share gains to hit the guide. But based on some of the things I think Dana mentioned later, it sounds to me like maybe some category trends are softer than you expected.

Speaker #7: So, can you just clarify how category performance has evolved thus far year-to-date relative to your initial expectations, and whether we need to see improvement in areas like cereal, for instance, to deliver on the guide?

Speaker #7: And just related as well, since you brought it up, Jeff, can you maybe just expand a little bit on the GLP-1 comment in terms of what you're seeing?

Speaker #7: In the data that you track. Thank you.

Speaker #3: Okay, I'm going to try to get to all your questions. You had a lot of good ones, and if I missed one, it's not because I'm trying to avoid it.

Jeff Harmening: OK, I'm going to try to get to all your questions. You had a lot of good ones. I found this one. It's not because I'm trying to avoid it. I just forgot. I would say that the year so far, it's played out as we thought it would. The consumer environment is what we thought it would be. In terms of how our progress looks in Nielsen, our top 10 categories in North America Retail are about a point better than what we expected. It's when you get beyond that, when you get to flour and Betty Crocker desserts and things like that, where you see a little bit softer. For those, key baking season starts in September. We'll see when the weather gets colder. What our top 10 are performing at are a little bit better, actually, a little bit better than what we anticipated.

Speaker #3: I just forgot. But you know, I would say that the year so far has played out as we thought it would.

Speaker #3: And the consumer environment is what we thought it would be. You know, in terms of how, you know, our progress looks in Nielsen, our top 10, our top 10 categories in North America Retail are about a point better than what we expected.

Speaker #3: And so it's when you get beyond that, when you like flour and Betty Crocker desserts and things like that, where you see a little bit softer.

Speaker #3: And look, for those key baking seasons, it starts in September. So, you know, we'll see when the weather gets colder. But our top 10 are performing at or a little bit better—actually, a little bit better than what we anticipated.

Speaker #3: So I would say broadly, you know, consumer sentiment is what we anticipated. The growth in our categories is about what we anticipated. And certainly our performance within those categories and growing share in NAR and food service and international and holding in pet is kind of what we anticipated.

Jeff Harmening: I would say broadly, consumer sentiment is what we anticipated. The growth in our categories is about what we anticipated. Certainly, our performance within those categories and growing share in North America Retail and food service and international and holding its head is kind of what we anticipated. I would say so far, so good. It's kind of as we expected. With GLP-1, there's been some impact on our categories, but not significant yet. I would expect GLP-1 usage will continue to grow. Everything I read says that it will continue to grow. With that comes reduced calories, obviously, clearly for those who are using GLP-1s. There is opportunity because we know that people taking those medications, we know a couple of things. One is that they are looking for more protein because people tend to lose muscle mass when they're reducing their calories.

Speaker #3: So I would say so far so good. It's kind of as we expected. With GLP, with GLP-1s, there's been some impact on our categories, but not significant yet.

Speaker #3: I would expect GLP-1 usage will continue to grow. Everything I read says that it will continue to grow. And with that, you know, comes reduced calories, obviously clearly for those who are using GLP-1s.

Speaker #3: But also there's opportunity because we know that people taking those medications, we know a couple of things. One is that they are looking for more protein because people tend to lose muscle mass when they're reducing their calories.

Speaker #3: And they need more macronutrients, things like fiber. And things like breakfast cereal are, you know, high in protein. That's why Cheerios protein, I think, is doing so well.

Jeff Harmening: They need more macronutrients, things like fiber. Things like breakfast cereal are high in protein. That's why cereal protein, I think, is doing so well. It's good in protein. It's high in fiber. By the way, oats is also high in fiber. Even though there's a macro trend of GLP-1 usage that we think will continue and will put some macro pressure on some categories over time, there's also a lot of opportunity in that. I want you to make sure that you hear that for us as well. One of the things, we're introducing a lot of new products that we think will meet this demand. We feel good about that.

Speaker #3: It's good in protein. It's high in fiber. By the way, oats is also, you know, high in fiber. And so even though there's a macro trend of GLP-1 usage that we think will continue and we'll put some macro pressure on some categories over time, there's also a lot of opportunity in that.

Speaker #3: And I want you to make sure that you hear that for us as well. And one of the things we're introducing a lot of new products that we can think will meet those demands.

Speaker #3: So we feel good about that.

Speaker #7: Great, that's super helpful. Thank you. And then just a follow-up for Kofi as we think about pet phasing into the second quarter, just because there seem to be a lot of puts and takes.

[Analyst]: Great. That's super helpful. Thank you. Just a follow-up for Kofi as we think about pet phasing into the second quarter, just because there seem to be a lot of puts and takes. Can you just help us understand a little bit how to frame these puts and takes just to keep in mind? There was lumpiness in Turkey last year. Wilderness is maybe a bit softer. You also have the fresh pet launch. I also think maybe the shipment headwind was a bit bigger in the first quarter than you had talked about last quarter. With all those things in mind, if you could just help us think about how to frame phasing in Turkey, that would be helpful.

Speaker #7: You know, can you just help us understand a little bit what these, how to frame these puts and takes just to keep in mind as there was lumpiness in 2Q last year?

Speaker #7: Wilderness is maybe a bit softer. You also have the fresh pet launch. I also think maybe the shipment headwind was a bit bigger in the first quarter than you had talked about last quarter.

Speaker #7: So, just with all those things in mind, if you could just help us think about how to frame phasing in Q2, that would be helpful.

Speaker #3: Sure. I think it's fair to say we expected the shipment timing issue in Q4 might be modestly larger than we expected. We're not anticipating a change to the overall outlook for the year.

Jeff Harmening: Sure. I think it's fair to say we expected the shipment timing issue in Q4 might be modestly larger than we expected. We're not expecting a change to the overall outlook for the year. I'm not going to get into businesses making quarterly predictions on pet just because I've said that multiple times. There is some volatility quarter to quarter in that business, just inherently in shipment timing. I think broadly, you have the contours right. We will start to see a modest contribution in revenue as we ramp up behind shipments on fresh pet. I think we're expecting some modest improvement as we step into Q2 and then into the back half of the year.

Speaker #3: And I'm not going to get in the business of making quarterly predictions on pet just because of sales at that multiple times. There is some volatility quarter to quarter in that business, just inherently in shipment timing.

Speaker #3: I think broadly, you have the contours right. We will start to see a modest contribution in revenue. As we ramp up behind shipments on Fresh Pet, you know, I think we're expecting some modest improvement as we step into Q2 and then into the back half of the year.

Speaker #7: Okay, that's helpful. Thank you.

[Analyst]: OK, that's helpful. Thank you.

Speaker #3: You You bet.

Jeff Harmening: You bet.

Speaker #1: Our last question will come from Peter Galbo from Bank of America. Please go ahead, your line is open.

Operator: Our last question will come from Peter Galbo from Bank of America. Please go ahead. Your line is open.

Speaker #5: Hey guys, good morning. Thanks for taking the questions. Kofi, maybe just one clarification. I think you said, based on the puts and takes on Q2, you know, operating profit in the first half of this year would be down kind of similar to Q4.

[Analyst]: Hey, guys. Good morning. Thanks for taking the question. Kofi, maybe just one clarification. I think you said based on the puts and takes on Q2, you know, operating profit in the first half of this year would be down kind of similar to Q4. I think that lands Q2 operating profit down like 25% ish. I just wanted to make sure that my math on that was correct.

Speaker #5: I think that lands Q2 operating profit down like 25-ish percent, but I just wanted to make sure that my math on that was correct.

Speaker #3: Yeah, I thank you, Matt. Largely works.

Jeff Harmening: Yeah, I think your math largely works.

Speaker #5: Okay, super. Thank you. And Jeff, maybe just a broader question. And this probably goes back to Andrew's first question. You know, Dana spent a lot of time talking about getting below certain price cliffs, driving value, and I guess what we haven't really talked about is, you know, your competition—not so much on the shelf at retail, but in the away-from-home channel—is getting a lot sharper in terms of price points and in terms of trying to drive value.

[Analyst]: OK, super. Thank you. Jeff, maybe just a broader question. This probably goes back to Andrew's first question. Dana spent a lot of time talking about getting below certain price cliffs, driving value. I guess what we haven't really talked about is your competition, not so much on the shelf at retail, but the away-from-home channel is getting a lot sharper in terms of price points, in terms of trying to drive value in their messaging and even in the pricing that they're charging, whether it's $5 boxes, $8 boxes. Is the industry or is the retail packaged food industry adapting fast enough, in your mind, to be able to compete effectively against away-from-home that, again, seems to be much more focused on driving a value price point? Have you noticed any share shift there that's become more pronounced as we've gotten just a plethora of these offerings?

Speaker #5: And they're messaging, and even in the pricing that they're charging, whether it's $5 boxes or $8 boxes, is the industry, or is the retail packaged food industry, adapting fast enough in your mind?

Speaker #5: To be able to compete effectively away from home, that, again, seems to be much more focused on driving a value price point. Have you noticed any shift there that's become more pronounced as we've gotten just a plethora of kind of these offerings?

Speaker #5: Thanks very much.

[Analyst]: Thanks very much.

Speaker #3: Yeah, as far as speaking for the whole packaged food industry, I probably won't speak for everyone, but I always like us to go faster rather than slower.

Jeff Harmening: Yeah, as far as speaking for the, I probably won't speak for the whole packaged food industry, but I always like us to go faster rather than slower. I would say that if I look at away-from-home eating, the traffic has been quite stable. Despite all the efforts of quick-serve restaurants and all, the traffic's been stable over time. If you look at it, what the trends that we see are that low and middle-income consumers, the traffic is declining. What we call the commercial channel or restaurants and high-income consumers, call it $200,000 or more a year, is growing. It nets out flat. The challenge that that particular portion of the business has with the value meals is that the inflation is growing faster than food at home, and quite a bit faster than food at home, driven by labor.

Speaker #3: But, you know, I would say that the, if I look at away from home eating, just, you know, the traffic has been pretty, has been quite stable.

Speaker #3: And despite all the efforts of quick serve restaurants and all to, the traffic has been stable over time. And if you look at it, what the trends that we see are that low and middle income consumers are traffic is declining.

Speaker #3: And what we call the commercial channel, or restaurants and high-income consumers, those earning $200,000 or more a year, is growing. And so it nets out flat.

Speaker #3: And, you know, the challenge that that particular portion of the business has with the value meals is that inflation is growing faster than food at home.

Speaker #3: And quite a bit faster than food at home, driven by labor. And so even though you may see a lot of advertising about value deals and so forth, just know that the traffic in commercial remains very flat.

Jeff Harmening: Even though you may see a lot of advertising about value deals and so forth, just know that the traffic in commercial remains very flat. There is growth in the non-commercial channel, which is where General Mills over-indexes in its food service business. We are very well positioned to capture the growth there. The non-commercial means things like K through 12 schools and hospitality and business and industry with people going back to work. Those channels are growing about 2% or so. We are gaining share. Any growth you would see would really be in that place. We are very well positioned through our food service business to take advantage of that growth. We are. That is one of the reasons why you see our food service business continue to perform well.

Speaker #3: There is growth in the non-commercial channel, which is where General Mills over-indexes in its food service business. And so we're very well positioned to capture the growth there.

Speaker #3: In the non-commercial means, you know, things like K-12 schools and hospitality and, you know, business and industry when people are going back to work.

Speaker #3: And those channels are growing about 2% or so. And we're gaining share. And so any growth you would see would really be in that place.

Speaker #3: And we're very well positioned through our food service business to take advantage of that growth. And we are. That's one of the reasons why you see our food service business continue to perform well.

Speaker #5: Great, thanks, Jeff.

[Analyst]: Great. Thanks, Jeff.

Speaker #3: Okay, Julian, I think we'll have to wrap it up there. Thanks, everyone, for the good questions and the good engagement. Our team is available all day for follow-ups.

Jeff Siemon: OK, Julianne, I think we'll have to wrap it up there. Thanks, everyone, for the good questions and the good engagement. Our team is available all day for follow-ups. We look forward to talking to you next quarter. Thanks.

Speaker #3: We look forward to talking to you next quarter. Thanks.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.