General Mills, Inc.

Greetings and welcome to the fourth quarter fiscal 2019 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press the star zero. As a reminder, this conference is being recorded Wednesday, June 26, 2019. It is now my pleasure to turn the call over to Jeff Seaman, VP, Investor Relations. Please go ahead, sir.

Thanks, Tanya. And on behalf of General Mills, thanks, everyone, for joining us this morning. I'm here with Jeff Harmoning, our Chairman and CEO, and Don Mulligan, our CFO. In addition, John Newdy, who leads our North America retail segment, is joining us for the Q&A portion of the call. I'll hand the call over to them in a moment, but before I do, let me cover a few different housekeeping items. Our press release on our Q4 and full year fiscal 2019 results was issued over the wire services earlier this morning, and you can find the release and a copy of the slides that supplement this morning's remarks on our investor relations website. I'll remind you that our remarks this morning will include forward-looking statements that are based on management's current views and assumptions. The second slide in today's presentation lists factors that could cause our future results to be different than our current estimates. And with that, I'll turn you over to my colleagues, beginning with Jeff.

Thank you, Jeff, and good morning, everyone. In fiscal 2019, we executed well, successfully transitioned Blue Buffalo into our portfolio, and delivered on our financial commitments. We met our sales growth guidance, and we exceeded our guidance for profit, for earnings per share, and for cash flow. We also delivered double-digit top-line and bottom-line growth for Blue Buffalo, as we said we would at the beginning of the year. And while we're pleased with these results, we know that there's still room for improvement. Turning to fiscal 2020, we'll continue to pursue our consumer-first strategy and our compete, accelerate, and reshape growth framework. We'll drive innovation and invest in our brands and capabilities to accelerate organic sales growth. We'll continue to execute our HMM and strategic revenue management, or SRM, programs, and maintain our strong margins, and we'll continue our cash discipline to reduce our leverage. On slide five, you can see the key financial performance metrics for our fourth quarter and the full fiscal year. For the fourth quarter, net sales totaled $4.2 billion, up 9% in constant currency. Organic net sales declined 1%, driven by lower volume. Adjusted operating profit grew 5% in constant currency, driven by the addition of Blue Buffalo and strong HMM savings, partially offset by higher inflation and other supply chain costs. It should be noted that this profit performance compared against by far our strongest quarter of growth last year, when adjusted operating profit was up double digits. Adjusted diluted earnings per share totaled 83 cents and grew 6% in constant currency. For the full year, net sales totaled $16.9 billion, up 9% in constant currency. Organic net sales were in line with year-ago levels, with growth in Asia and Latin America and convenience stores and food service segments offsetting declines in North America retail and Europe and Australia. Adjusted operating profit for the year totaled $2.9 billion, up 10% in constant currency, due to the addition of Blue Buffalo. Full year adjusted diluted EPS totaled $3.22, an increase of 4% in constant currency. A year ago, we laid out three key priorities for fiscal 2019. Grow the core, transition Blue Buffalo, and deliver our financial commitments. Let me spend a few minutes summarizing our performance against each of these priorities over the past year. We outlined five keys to growing the core in 2019, including improving our U.S. yogurt and emerging market businesses, strengthening our innovation, stabilizing distribution in the U.S., and increasing benefits from price mix. I'm pleased to say that we made measurable progress against each of these areas. At the same time, we experienced challenges in a few other areas, most notably U.S. snacks, which held us back from fully realizing our top-line ambitions. We have plans in place to improve our organic sales growth in fiscal 2020, and you'll hear quite a bit more about those plans at our Investor Day in two weeks. We competed more effectively in fiscal 2019 as measured by our market share performance. We held or grew share in seven of our top 10 U.S. categories, which represent roughly 85% of our Nielsen-measured sales, thanks to solid innovation and brand building, proactive execution of our SRM initiatives, and improved distribution trends. This included encouraging share gains in some of our largest categories, including cereal, yogurt, and refrigerated dough. Of the three categories where we lost share, soup was down just 10 basis points after a year where we delivered strong share gains. On fruit snacks, we were capacity constrained in a growing category in fiscal 19. We have capacity coming online in early fiscal 20 that will unlock growth for our brands in that segment. And our biggest opportunity is clearly in U.S. snack bars. At Investor Day, John Newdy will go into more depth on our plans to improve Nature Valley and Fiber One performance in fiscal 2020. With that as a background, let me spend a bit of time summarizing our Grow the Core performance in fiscal 19 on our large global platform, starting with Cereal. We are encouraged by our continued positive momentum in cereal across U.S. retail, convenience stores and food service, and our cereal partners worldwide joint venture. In U.S. retail, the cereal category has sequentially improved for eight consecutive quarters. We grew our retail sales for the second year in a row, and we extended our leading market share position through good brand building and very good innovation. On Lucky Charms, compelling consumer news and refreshed advertising helped drive a second consecutive year of retail sales growth, and we had a great year on innovation, led by Cheerios O' Crunch, Cinnamon Toast Crunch Cheerios, and Fruity Lucky Charms. In fact, five of the seven largest new products in the category in fiscal 19 were Big G cereals. We're encouraged by early results of our April launch of Blueberry Cheerios and look forward to another strong year of innovation and brand building in fiscal 2020. Beyond U.S. retail, we drove strong performance on our cereal platform in the convenience stores and food service segment in 2019, with net sales up low single digits. We saw good results on bowl pack cereals in K-12 schools and bulk cereal in colleges and universities. In our CPW joint venture, constant currency net sales increased low single digits for the year, with broad growth in Asia, the Middle East, continental Europe, the U.K., and Australia. I'm also pleased with the improvements we made in our U.S. yogurt business in fiscal 19. As you can see on slide 10, we've improved our trends significantly over the past two years. We also grew share for the full year of first since fiscal 2015. We improved our core yogurt business, which represents more than 50% of our retail sales and includes brands such as Go-Gurt and Original Style Yoplait. All family messaging on equity flavors such as Sour Patch Kids drove mid-single-digit retail sales growth on yogurt. And original-style Yoplait stabilized behind more real fruit news. We continue to post impressive retail sales growth in the Simply Better yogurt segment, including a 48% increase on WE and contributions from YQ. In fiscal 20, we expect further improvements in U.S. yogurt as our strong consumer marketing plans and innovation continue to drive growth, while the declines in our Greek and light product lines are less a drag on our results. Shifting to our Accelerate platforms, Haagen-Dazs, Old El Paso, Snack Bars, and Natural & Organic, we grew retail sales on three of the four platforms in 2019. Haagen-Dazs retail sales were up double digits as we broadened distribution of mini cups and stick bars across Europe and Asia and launched compelling innovation, including our new barista line of coffee-inspired flavors, as well as peanut butter pints and stick bars. Old El Paso retail sales grew low single digits, led by strong performance in North America. Our U.S. retail sales were up 6% behind our Anything Goes campaign, as well as in-store taco stand displays, which showcase a variety of offerings to make taco night easy. Retail sales results continue to vary across geographies for snack bars. Fiscal 19 results in the U.S. underperformed our expectations with retail sales down mid-single digits. Fiber 1 declined significantly in fiscal 19 as we fell out of step with modern weight managers. And on Nature Valley, our innovation and in-store execution did not meet our objectives. On a positive note, Epic and Larabar continued to increase availability. And retail sales for our treat bar product line were up 50% as we expanded into more stores and offered incremental pack sizes. Importantly, we continued to drive strong performance on snack bars outside of North America, with retail sales up 30%. In Europe and Australia, we posted 26% retail sales growth. And even more impressive, we posted retail sales and share growth across all markets. Retail sales for bars in our Asia and Latin America segment were up 47%. Asia drove outsized growth behind distribution gains and portfolio expansion on Nature Valley and Sweet Treat snack bars. On our natural and organic platform, retail sales were up low single digits in F19, as decline from our exit of some tail offerings and channel-specific product lines were more than made up for by strong growth on our core products, including Annie's Mac and Cheese, Bunny Graham's, Muir Glen Tomatoes, and Epic Meat Bars. We'll continue to invest to accelerate growth across these four platforms in fiscal 20, and you'll hear more from our segment leaders about those plans at our investment day in two weeks. Our second growth priority was to successfully transition Blue Buffalo while maintaining momentum on the business. I think we can confidently say that we delivered against this priority. We delivered our F-19 pro forma growth guidance with an 11% increase in the top and bottom line versus the prior year adjusted for purchase accounting. We continue the momentum on Blue with retail sales up high single digits, led by the food, drug, and mass, or FDM channel, and strong growth in e-commerce. And we significantly expanded distribution in FDM, reaching 65% ACV for the final month of the fiscal year. Every year today, retail sales for Blue were up high single digits, and we've continued to gain market share in the category. Looking at results by channel, Blue Retail Sales and FDM were up triple digits, and we continued to grow and gain share across customers in this channel. Perhaps most importantly, for customers where Blue has been in distribution for at least 12 months, retail sales grew nearly 30% in the fourth quarter versus last year. In the month of April, Blue was the market share leader in a number of FDM accounts and held double-digit market share at three large customers. In pet specialty, retail sales for Blue declined double digits in F19, consistent with our expectations. This channel remains important for Blue and will continue to partner with specialty customers to bring product variety, unique innovation, and education to serve pet parents in the channel. For example, we're launching Carnivora, a new super premium product line under the Blue banner in the pet specialty channel later this summer. In e-commerce, which makes up roughly a quarter of Blue Buffalo net sales, we saw category retail trends slow in the back half of the year. Still, Blue's retail sales continued to outpace the category, and we extended our market share leadership in this channel. E-commerce sales, retail sales for Blue were up 21% in fiscal 19, and we see more growth ahead as parents increasingly look for pet food online, where Blue is the number one brand. Overall, we're happy with Blue Buffalo's performance in year one, and we see a long runway of growth ahead for this important business. For our third fiscal 2019 priority, delivering on our financial commitments, I am proud to say that we did just that. We exceeded our guidance for operating profit, for earnings per share, and free cash flow conversion in F-19. We generated two points, the positive organic price mix by leveraging our enhanced SRM capability, including positive price mix in each of our segments. We also delivered record levels of HMM. And our strong cash flow focus allowed us to pay down $1.3 billion in debt, helping reduce our net debt to adjusted EBITDA ratio to 3.9 times. This was ahead of our initial F-19 goal and bolsters our confidence that we can reach our target of 3.5 times by the end of F-20. With a clear understanding of what worked in fiscal 19, and where we can still improve, we've outlined three priorities for fiscal 20, which can be found on slide 15. Our first priority is to accelerate our organic net sales growth. We'll improve growth in North America retail by maintaining momentum on cereal, continuing to improve U.S. yogurt, and improving U.S. snacks through sharpened execution, strengthened innovation, and increased capacity on platforms where we were constrained a year ago. We'll also see accelerated sales growth as we bring Blue Buffalo into our organic sales base, and we continue to drive strong growth for that business in F20. Blue Buffalo will shift to a May year-end to align with our corporate calendar, which will add an extra month of results in F20. On a like-for-like basis, we expect Blue Buffalo net sales to increase 8% to 10% in F20, and we're targeting double-digit growth on a reported basis. Our second priority is to maintain our strong margins. Benefits from our long-running HMM cost savings program and contributions from our SRM actions will continue to provide fuel to invest in brand building on our highest priority and highest return categories, including cereal, pet, our accelerated platforms, and U.S. yogurt. In addition, we'll invest to drive deeper data and analytics to support our e-commerce and SRM capabilities. And our final priority for F20, is to maintain a disciplined focus on cash to achieve our fiscal 20 leverage target. With these priorities in mind, we expect to deliver on the fiscal 2020 guidance laid out on slot 16. Namely, we expect organic net sales to increase 1% to 2%. We're targeting adjusted operating profit growth of 2% to 4% in constant currency. We expect constant currency adjusted diluted earnings per share to increase 3% to 5%, and we're targeting free cash flow conversion of at least 95% of adjusted after-tax earnings. I am confident in our strategies and our plans for F-20. With that, I'll turn it over to Don to review our F-19 financial results and the 2020 financial outlook in more detail.