General Mills, Inc.

Greetings, and welcome to the first quarter fiscal 2020 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 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press the star 0. As a reminder, this conference is being recorded Wednesday, September 18, 2019. I would now like to turn the conference over to Jeff Seaman, Vice President of Investor Relations. Please go ahead.

Thanks, Melissa, and good morning, everyone. Thanks for joining us for the General Mills first quarter earnings call. I'm here with Jeff Harmoning, our Chairman and CEO, Don Mulligan, our CFO, and John Newdy, who leads our North America retail segment, who's here for the Q&A portion of the call. Before I turn it over to them, let me cover a few housekeeping items. Our press release on our Q1 results this morning was issued over the wire services, and you can find the release and a copy of the slides that supplement our remarks this morning on our investor relations website. Please note 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, let me turn it over to my colleagues, beginning with Jeff.

Thank you, Jeff, and good morning, everyone. Our first quarter net sales performance included encouraging improvement in North America retail and strong growth in our pet segment driven by good innovation and effective brand building investment. We got off to a slower start in our other segments, and we expect top-line improvement in those segments and for the company starting in the second quarter. On the bottom line, we deliver profit and earnings growth ahead of our expectations while continuing to invest in our brands and our capabilities. We remain on track to deliver our fiscal 2020 goals, including accelerating our organic sales growth, maintaining our strong margins, and reducing leverage. Slide 5 summarizes our first quarter financial results. Net sales totaled $4 billion, down 2%. Organic net sales declined 1%, with lower volume partially offset by a positive price mix across all operating segments. Adjusted operating profit grew 7% in constant currency, driven by a one-time purchase accounting adjustment in the pet segment in last year's first quarter. Adjusted diluted earnings per share totaled 79 cents and grew 13% in constant currency, driven by higher profit and below-the-line favorability. As a reminder, we outlined three key fiscal 2020 priorities on our Q4 earnings call. First, we'll accelerate our organic sales growth. We're working to improve growth in North America retail by maintaining momentum on cereal and improving U.S. yogurt and U.S. snacks. We're also focused on driving another year of strong growth on Blue Buffalo. We delivered solid results for these segments in the first quarter. The results in our remaining three segments were below our expectations. In a few moments, I'll share how we'll step up the company's organic growth rate starting in Q2. Our second priority is to maintain our strong margins, and we delivered positive results here in Q1. And our final priority for 2020 is to maintain a disciplined focus on cash to achieve our fiscal 20 leverage target, and we had a good start to the year on this measure as well. With these priorities in mind, I'll cover our Q1 segment results in detail, with a particular focus on the top line, before turning it over to Don to review our performance on margins and cash flow. Turning to the components of net sales growth on slide 7, organic net sales were down 1% from a year ago, driven by lower volume, partially offset by a positive price mix across all five segments. Foreign exchange was a one-point drag in the quarter. First quarter organic sales for North America retail were flat compared to the prior year, which was a two-point improvement on our fourth quarter trend. And we delivered net sales improvement across most of our operating units. In U.S. cereal, we maintain our positive momentum with net sales up 1%. We saw early traction in U.S. snacks with net sales down 1% compared to a 4% decline in fiscal 2019. U.S. yogurt net sales were flat to last year. And I'm happy to say that our strategic revenue management actions drove one point of positive price mix. Constant currency segment operating profit increased 2% in the first quarter, driven by benefits from HMM cost savings and positive price mix, partially offset by input cost inflation and higher brand building investments. Our in-market performance in North America retail also stepped up in Q1. As you can see on slide 9, we've driven a steady improvement in our two-year retail sales trend since fiscal 17. In the first quarter, our U.S. Nielsen measured retail sales were flat versus a year ago, and we held our grew share in five of our 10 largest categories, including cereal, refrigerated dough, and soup. We know we still have room to improve, including some key categories like yogurt and snacks, and we'll continue to focus there to strengthen our overall growth profile. Let's dive a bit deeper into our first quarter performance in North America retail, starting with cereal. We grew U.S. cereal retail sales in fiscal 18 and 19, and our results accelerated in the first quarter with retail sales up 1%. We outpaced the category, expanding our share leadership position through increased investment behind compelling consumer ideas, such as our Cheerios heart health campaign and strong in-store execution and events. We also had another impressive quarter on innovation with the top five new products in the category, including blueberry Cheerios and cinnamon toast crunch Cheerios. I am very pleased by our performance in U.S. cereal and am excited about the plans we have for the rest of the year to continue our momentum. We're executing well on the fundamentals of innovation and brand building and will continue to drive these lovers in the rest of the year. Last year, we improved U.S. yogurt retail sales behind our strategy to expand into faster growing segments of the category and to support our core with brand building investment and on-trend equity news. In fiscal 20, we'll continue to improve U.S. yogurt with a strong lineup of innovation, brand building, and product news. Through the first three months of the year, yogurt retail sales were down 2%. We drove retail sales growth on the core with original-style Yoplait flat to last year and Go-Gurt up 13% due to increased distribution on Go-Gurt Dunkers and Go-Gurt Simply, as well as strong back-to-school merchandising. The Simply Better segment, which now represents 12% of the category, continues to be an attractive growth space. We drove 8% retail sales growth on our products in this segment behind our better-tasting YQ product reformulation which now prominently features the protein benefit on the updated packaging. And we launch into the growing beverage segment with our new Yoplait smoothies. In total, we like the news and innovation we're bringing to the U.S. yogurt category this year to drive further improvement in our retail sales trends. Turning to U.S. snacks, we have a long track record of growth on this business. However, fiscal 19 was certainly a more challenging year. In fiscal 20, we're focused on improving our performance behind innovation, renovation, brand building support, and in-store execution. In the first quarter, retail sales were down 2%, cutting our fourth quarter declines in half. Retail sales trends for Nature Valley improved each month during Q1, driven by positive results of our wafer bar innovation and a stronger back-to-school merchandising season. Retail sales for Fiber One have also improved each month since we reformulated the product line to be more relevant for modern weight managers. While we are still at distribution losses from earlier this calendar year, our gross returns per point of distribution have stepped up in recent months. For the remainder of the year, we'll continue to execute our F20 plans on bars, and we expect to see continued retail sales improvement. We're focused on competing effectively everywhere we play. including our profitable $4 billion U.S. meals and baking operating unit. First quarter retail sales for Old El Paso grew 5% due to increased distribution, consumer news, and merchandising, as well as price realization across channels. We returned soup to both retail sales and share growth in the first quarter. We drove retail sales up 2% due to broad-based strength in the soup portfolio, and we have solid plans in place for the upcoming soup season. We had a great year on refrigerated dough in fiscal 19, and that performance has continued into this year. First quarter retail sales were up 2%, and market share increased by a full point, driven by distribution gains and in-store execution behind innovation. In total, we're off to a good start on these businesses, and we think we'll step up to have a successful year on US meals and baking. Overall, we're encouraged by our first quarter results in North America retail, and were focused on the right priorities to improve organic sales growth in fiscal 2020. Shifting gears to PET, I am pleased to say that we had a great first quarter, with net sales up 7%. This includes lapping an extra week of reported results in last year's first quarter, excluding this timing difference, net sales were up in the mid-teens. Our growth was led by our expansion into the food, drug, and mass channel, and we generated seven points of positive price mix in the quarter. Looking at in-market performance, we drove all channel retail sales up low double digits, and we grew share again in the quarter. First quarter segment operating profit totaled $81 million compared to $14 million a year ago, driven by the $53 million purchase accounting adjustment in last year's Q1, as well as higher net sales this quarter. On slide 15, you can see how the key components of our double-digit retail sales growth break out by channel. Retail sales were up more than 100% in the food, drug, and mass channel as we benefited from our expansion to new customers and the launch of wilderness and food, drug, and mass in last year's fourth quarter. Importantly, retail sales for food, drug, and mass customers who have carried blue more than 12 months were up 50% versus last year. As we expected, retail sales and pet specialty continue to decline by double digits. This is an important channel for Blue, and we continue to support the channel through unique programs and innovation. For example, in the second quarter, we're launching Carnivora, a new super premium offering for pets exclusively into the pet specialty channel. We also have plans to execute exclusive programs in this channel later this year, including our new Baby Blue program, which we'll tell you more about next quarter. And Blue continues to win in the rapidly evolving e-commerce channel, with retail sales up 20% in the quarter, resulting in further market share gains. We remain on track to deliver 8% to 10% like-for-like growth for our pet segment this year. We're also focused on a successful leadership transition as Billy Bishop moves into a founder and brand advisor role in January, and Bethany Quam, currently president of our Europe and Australia segment, assumes day-to-day management of the pet segment. We remain confident in this business and are excited about the growth prospects ahead. In the convenience and food service segment, organic sales were down 4% in the quarter, primarily driven by lower bakery flour volume and the negative impact of flour index pricing, both of which resulted from a decline in underlying wheat process prices during the quarter. Despite near-term pressure from flour, we continue to drive good growth on our higher-margin Focus 6 platforms. Net sales for these platforms were up 2% in the first quarter, driven by strong performance in the K-12 schools, including our new 2-ounce equivalent grain cereals and our bulk Yoplait yogurt. Segment operating profit in Q1 declined 6% from year-ago levels that were up 14%. In Europe and Australia, organic sales declined 5% due primarily to a challenging retail environment in France impacting yogurt and ice cream, where we were unable to secure agreements with some key accounts on inflation-driven price advances resulting in lost distribution. Additionally, we had a headwind in the UK and France driven by changes in merchandising timing. On a positive note, we drove good retail sales growth on snack bars and Old El Paso behind innovation and consumer news. First quarter segment operating profit decreased 15% in constant currency, driven primarily by the timing of brand building expense and lower volume, partially offset by positive price mix. In Asia and Latin America, organic sales declined 3%. Sales in our three key emerging markets, Brazil, India, and China, fell short of our expectations in the quarter. In Brazil, we saw retailers draw down inventories early in the quarter. In India, we changed our route to market to focus on more strategic and profitable distribution. And in China, we saw lower volumes on Haagen-Dazs due to slower consumer traffic in shops and on Wan Chai Ferry due to pricing actions we implemented to cover significant pork inflation. First quarter segment operating profit in Asia and Latin America totaled $10 million, down $2 million versus a year ago, primarily due to lower net sales. Looking ahead. We expect to drive improved organic sales trends for the company beginning in Q2. Slide 19 summarizes our key focus areas by segment. In North America retail, we'll continue to focus on maintaining momentum in U.S. cereal while improving U.S. yogurt and snacks. In pet, we'll continue to drive strong retail sales growth in the food, drug, and mass and e-commerce channels, and we'll execute exclusive innovation and programs in pet specialty. In the remaining three segments, we'll see acceleration in our organic sales growth starting in Q2. In convenience and food service, improvement will be led by our Focus 6 platforms, where we'll benefit from strong innovation in schools and convenience stores. We also expect bakery flour volume will improve, though we continue to expect index pricing on flour, which is profit neutral, to be a drag on net sales. In Europe and Australia, we'll benefit from increased merchandising and will continue to drive strong performance on snack bars and Old El Paso. We'll also laugh the impact of our distribution loss on Haagen-Dazs in the second half of the year. In Asia and Latin America, the retail inventory in Brazil and distribution headwinds in India that we experienced in Q1 are largely behind us, and we expect to see improvement in the second quarter driven by new strategic revenue management actions and increased levels of innovation from Haagen-Dazs cones in Asia, Betty Crocker ready snacks in the Middle East, and new spicy dumplings in China. With that, I'll turn it over to Don to review our Q1 performance on margins and cash flow. Don? Thanks, Jeff, and good morning, everyone.