General Mills, Inc.

Good morning. Thank you for joining us to hear our prepared remarks on General Mills' fourth quarter fiscal 2020 earnings. Later this morning, we will hold a separate live question and answer session on today's results, which you can hear via webcast on our investor relations website. In a moment, I'll turn the call over to Jeff Harmoning, our chairman and CEO, and Kofi Bruce, our CFO. But before I do, let me first touch on a few items up front. On our website, you'll find a press release on fourth quarter results that went out earlier this morning. along with a copy of the presentation. It's important to note that our remarks will include forward-looking statements that are based on management's current views and assumptions, including facts and assumptions Jeff and Kofi will share related to the potential impact of the COVID-19 pandemic on our results in fiscal 21. The second slide in today's presentation lists several factors, among them the impact of the pandemic, 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.

Thanks, Jeff, and good morning, everyone. Before we get into our results, I'd like to take a moment to touch on two topics that are top of mind for many of us right now. First, I want to voice General Mills' strong support for the inspiring movement for social and racial justice that was tragically elevated by the horrible killing of George Floyd here in our hometown of Minneapolis a month ago. While Minnesota is a focal point, We know this is not just one community's problem. It's clear from George Floyd's death and the many that preceded it that systemic injustice and racism still exist in our country and in societies around the world. We have a lot of work to do to start the healing, to help our communities rebuild, to emphasize that Black Lives Matter, and to help drive lasting change for social and racial justice. The events of the last month reinforce the importance of our ongoing work to build a culture of belonging at General Mills. Our people are the true heart of the company, and we are focused on creating an environment where all employees feel they can share their unique perspectives and ideas and know they will be treated with respect. That begins with a commitment to foster courageous conversations and to take courageous actions. We stand united against acts of racism and are committed to humbly learning and and finding authentic ways to be a part of the solution. The second topic I want to address is the impact the COVID-19 pandemic has had on our employees and on our communities. In this time of uncertainty regarding personal health, the economic outlook, and access to food, General Mills, more than ever, is dedicated to making food the world loves and needs. I offer my sincerest thank you to each team member, customer, frontline worker, and peer company who has worked tirelessly to support our communities, our families, our friends, and our neighbors during this difficult time. You have stepped up in an incredible and safe way to ensure a reliable food supply, and we thank all of you. As we turn to the business of our fiscal 2020 results and 2021 objectives, I'd like to start with a few key messages on slide five. Throughout fiscal 2020, before and during the pandemic, Our most important objectives have not changed. They are the continued health and safety of our employees and our ongoing ability to serve our consumers around the world. Fiscal 20 was a year of significant challenge and change in the world around us, and I'm extremely proud of the way General Mills adapted and executed to meet the significant changes in demand in the fourth quarter and deliver outstanding performance. Importantly, we closed the year having achieved each of our fiscal 2020 priorities, and we exceeded all of the key financial targets we laid out a year ago. Looking forward to fiscal 21, we are not providing guidance for our headline financial measures due to significant uncertainty in the balance of at-home versus away-from-home food demand. Even so, we've set three key priorities that will keep us focused on what we can control and allow us to deliver competitive performance in the short term while continuing to advance our long-term strategic goals. First, We will compete effectively everywhere we play. We will also drive efficiency to fuel investment in our brands and in our capabilities. And third, we reduce our leverage to increase our financial flexibility. There is no doubt that the COVID-19 pandemic has profoundly impacted our business over the last few months. We've seen an unprecedented increase in demand for food at home and a corresponding decrease in away-from-home food demand. Prior to COVID-19, at-home food represented approximately 85% of our net sales, and away-from-home food represented the remaining 15%. In the fourth quarter of fiscal 20, elevated home food demand accelerated net sales growth, most notably in our North America retail segment, where a significant share of net sales comes from categories that were most impacted by at-home eating, including meals, baking, and cereal. The impact of elevated at-home demand was less pronounced in our Europe and Australia segment, reflecting its lower proportion of net sales in those categories. The pet segment experienced increased demand early in the fourth quarter from stock-up purchasing, which partially unwound by the end of the quarter. Lower away-from-home food demand reduced growth for our convenience stores and food service and Asia and Latin America segments. We've implemented employee safety measures based on guidance from the CDC and WHO across our supply chain facilities, including proper hygiene, social distancing, mask use, and temperature screenings. As of today, all of our manufacturing facilities are open and continue to operate without significant disruption. The significant surge in demand has reinforced the importance of supply chain excellence, something that has been a hallmark of General Mills for decades. We've increased the agility of our supply chain, including partnering with customers to prioritize production of key products to reduce downtime and increase capacity. With the uptake in consumers eating at home, we've seen broad-based improvements in household penetration for our brands, and we're encouraged by early indicators on repeat. And we've seen many more consumers buy their food online in recent months. We modified our fourth quarter plans to increase engagement with consumers online, resulting in a significant acceleration in our e-commerce sales growth. Our ability to adapt to these changes allowed us to deliver outstanding performance in the fourth quarter, as you can see on slide seven. This included 16% growth in organic net sales, 24% growth in constant currency adjusted operating profit, and 33% growth in constant currency adjusted diluted earnings per share. We strengthened our business in many ways in the fourth quarter, including increasing our agility, deepening our relationship with our customers, getting our brands in front of many new consumers, enhancing our competitive position in our categories, and investing meaningfully in our people, our brands, and our capabilities. These changes set us up to deliver continued strong results in the months and years to come. A year ago, we outlined three key priorities that were critical to delivering a successful year in fiscal 20. Accelerating our organic sales, maintaining our strong margins, and reducing our leverage. I'm pleased to say that through nine months before the full impact of the pandemic hit our business, we were on track to deliver on each of these priorities. And with the acceleration in Q4, we ultimately exceeded our expectations for all three. Let me take you through a few examples of how we delivered against our fiscal 20 priorities beginning on slide nine. We started the year knowing that improving growth in the North America retail segment and delivering another strong year in pet were going to be critical to accelerating our overall organic sales growth. And both our teams came through with great results. Our North America retail team delivered a truly exceptional year in fiscal 20. Prior to COVID-19, we were already on track to improve organic sales growth for the year. At-home food demand accelerated dramatically in Q4, with retail sales for our U.S. categories up 32%, driven most prominently by the meals, baking, and cereal categories. And our supply chain stepped up admirably to service this demand, keeping our trusted, leading brands in front of consumers and enabling U.S. retail to deliver its best full-year market share performance in a decade. This performance was led by our U.S. meals and baking operating units. which generated 68% retail sales growth in the fourth quarter, including strong results for Pillsbury refrigerated baked goods, Progresso's soup, Totino's hot snacks, Betty Crocker desserts, and gold medal flour. In U.S. cereal, we delivered a third consecutive year of retail sales growth and extended our leadership position in the category, gaining 70 basis points of share for the full year. This performance was due to strong brand building, especially across the Cheerios franchise, which grew retail sales and market share in Q4 behind the success of its heart health messaging. And once again, we launched the top two new products in the category for the quarter with an oats and honey version of Cheerios Oat Crunch and Trix Trolls. On U.S. snacks, we said we'd improve in fiscal 20 with a focus on bars and fruit snacks, and I'm pleased to say that we achieved that goal. We drove 11% retail sales growth on fruit snacks behind increased capacity and exciting equities such as Disney's Frozen 2. And we made important improvement in our snack bar's market share throughout the year, including share growth in the fourth quarter, led by improved innovation, merchandising, and distribution for Nature Valley. In U.S. yogurt, fiscal 20 retail sales declined 1%, largely in line with last year's performance. Our core business performed very well, including retail sales growth of 5% on original-style Yoplait and 8% on Go-Gurt. Our second-half innovation was particularly strong, with original-style Starburst and dairy-free Weed by Yoplait finishing as the two largest new items in the category in the second half. We continue to experience declines in the tail of our yogurt portfolio, including light and green varieties. But with a strong core and relative innovation making up a greater proportion of our portfolio, we expect to see further improvements in our U.S. yogurt sales as we go forward. Finally, we returned our Canadian operation unit to growth behind improved in-market execution, resulting in 60 basis points of share gains. As you will see on slide 11, North America retails a relentless focus on execution, coupled with our strong portfolio of leading brands, resulted in market share growth in nine of our top ten U.S. categories in the fourth quarter and seven out of ten for the year. As I mentioned, our pet segment continued to drive strong growth in fiscal 20, with all-channel blue retail sales of double digits resulting in another year of market share gains. Our consistent, strong investment behind brand awareness and pet parent education, combined with our successful expansion into additional food, drug, and mass, or FDM retail outlets, contributed to a nearly two-point increase in household penetration. We remain delighted to have Blue in the General Mills portfolio and we're excited about the growth opportunities that lie ahead for the brand. Beyond accelerating organic growth, our two additional fiscal 20 priorities were to maintain our strong margins and reduce leverage. As you can see on slide 13, we beat those goals. We expanded our adjusted operating profit by 40 basis points to 17.3% of net sales. We delivered another strong year of holistic margin management savings at 5% of COGS, realized favorable price mix, managed our administrative costs effectively, and capitalized on volume leverage. These efforts overcame 4% input cost inflation, a mid-teens increase in annual media investment, accelerated investments in our global capabilities, and incremental safety and operating costs due to COVID-19. We've made tremendous progress on reducing our leverage, driven by earnings growth and excellent management of working capital. We closed the year at a 3.2 times net debt to adjusted EBITDA, significantly ahead of our fiscal 20 target. With that, I'll transition it over to Kofi to take you through our fiscal 20 results, and our 2021 financial assumptions. I'll then come back at the end to highlight our fiscal 21 priorities and how we intend to win. Kofi, it's over to you.

Thanks, Jeff, and hello, everyone. Let's start with our fourth quarter financial results on slide 15. Net sales of $5 billion were up 21%, including a roughly 10-point benefit to reported net sales from calendar differences in Q4. including the 53rd week and the extra month of results in our pet segment. Organic net sales grew 16% in the quarter, including the impact of elevated consumer demand driven by the COVID-19 pandemic, as well as the extra month for pets. Adjusted operating profit increased 24% in constant currency, primarily driven by higher net sales, partly offset by higher SG&A expenses, including a 39% increase in media investment. Adjusted diluted earnings per share totaled $1.10 in the quarter and grew 33% in constant currency, driven by higher adjusted operating profit, higher after-tax earnings from joint ventures, and a lower adjusted effective tax rate, partly offset by higher diluted shares outstanding. Slide 16 summarizes the components of our net sales growth in the quarter. Organic net sales were up 16%, with 12% growth in organic pound volume and three points of favorable organic price mix. Foreign exchange was a two-point drag in the quarter, and the 53rd week contributed seven points to net sales growth. Now let's turn to segment results. beginning with North America retail on slide 17. Fourth quarter organic net sales were up 28%, with growth in all five operating units led by U.S. Meals and Baking and U.S. Cereal. For the full year, organic net sales were up 6%. As Jeff mentioned, we competed effectively in market in Q4, with share gains in nine of our top 10 U.S. categories. Fourth quarter U.S. retail sales increased 37%, which was ahead of organic sales growth, driven by a reduction in customer inventory as our retail partners worked to fulfill elevated demand. Fourth quarter constant currency segment operating profit increased 69%, primarily driven by higher volume, partly offset by higher SG&A expenses, including a significant increase in media investment. and full year segment operating profit grew 15% in constant currency. Organic net sales for our pet segment increased 37% in the quarter, including the impact of an extra month of results in this year's quarter as we shifted the segment's calendar from an April to a May fiscal year end to align with our corporate calendar and other segments. PET's fourth quarter net sales performance compared against a 38% pro forma growth in last year's Q4, driven by a significant distribution expansion into food, drug, and mass. Fiscal 20 all-channel retail sales were up double digits, led by significant growth in FDM. For the full year, PET segment organic net sales increased 18%. On the bottom line, fourth quarter segment operating profit grew 23%, driven by net sales growth partly offset by higher SG&A expenses. Full year segment operating profit grew 46%, including strong underlying growth, as well as the comparison against a $53 million purchase accounting inventory adjustment a year ago. Turning to convenience stores and food service on slide 19. Organic sales declined 29% in the quarter, driven by significantly reduced demand in away-from-home channels. We saw reduced foot traffic across key channels with significant double-digit traffic declines in schools, lodging, and restaurants. And convenience stores also saw a double-digit decline in foot traffic. We continued to compete effectively even as channel demand slowed. In fact, we grew market share in our key major channels in the fourth quarter, and for the full year, organic net sales were down 9%. Segment operating profit down 67% in the quarter and down 20% for the full year, driven by lower net sales. In Europe and Australia, fourth quarter organic sales increased 4%, primarily driven by increased at-home food demand for our Mexican food and baking products categories, partially offset by declines in away-from-home channels. As Jeff alluded to earlier, because our portfolio mix in this segment includes roughly 40% of net sales in yogurt, sizable businesses in ice cream and snack bars, and nearly 10% of net sales to food service channels, the impact of elevated at-home food demand was considerably less than in our North America retail segment. which has a much larger portion of net sales in meals, baking, and cereal categories. In terms of fourth quarter in-market performance, retail sales were up double digits for Mexican food, ice cream, and baking products, and were up mid-single digits for yogurt. For the full year, Europe and Australia organic net sales were down 1%. Fourth quarter segment operating profit declined 14% in constant currency, driven by higher SG&A expenses, partially offset by higher net sales. Full year constant currency segment operating profit declined 3%, driven by higher input costs and lower volume, partially offset by positive price mix. In Asia and Latin America, fourth quarter organic net sales declined 7%. Net sales were down double digits, driven by reduced traffic in food service outlets and Haagen-Dazs shops. This headwind was partially offset by double-digit net sales growth on Wan Chai Fairy dumplings in China. Importantly, we saw traffic in our China shops improve over the course of Q4, from down 90% year-over-year in February to down roughly 15% in May. Net sales in Latin America were up mid-single digits in the quarter, driven by double-digit growth on gnocchi, meals, and snacks in Brazil. For the full year, Asia and Latin America organic net sales were down 2%. Fourth quarter segment operating profit declined $47 million to a loss of $24 million, driven by net sales decline on the segment's higher margin businesses, as well as higher SG&A expenses. Of note, Haagen-Dazs shops have a significant fixed cost rupture, and we expect the segment's profit margins will improve as economies further reopen and shop traffic is restored. For the full year, segment operating profit decreased 73% in constant currency. Slide 22 summarizes our joint venture results in the fourth quarter. Serial Partners Worldwide posted top-line growths for the seventh consecutive quarter with constant currency net sales up 13%, including the impact of increased at-home food demand due to the pandemic. CPW's growth was broad-based, led by Brazil, UK, Australia, and the continental Europe region. CPW continued to compete effectively, including gaining market share leadership in its continental Europe region and in Brazil. Haagen-Dazs Japan net sales declined 13% in constant currency, driven by lower volume. Fourth quarter combined after-tax earnings from joint ventures totaled $34 million, up 68% from a year ago, driven primarily by CPW volume growth, positive price mix, and the phasing of brand investment. Turning to total company margin results, fourth quarter adjusted gross margin increased 80 basis points, driven by favorable price mix, including growth from higher margin North America retail and pet segments, and strong HMM savings more than offsetting COGS inflation, partially offset by increased supply chain costs related to COVID-19. Full-year adjusted growth margin was also up 80 basis points. Adjusted operating profit margin in the quarter increased 40 basis points, driven by the increase in adjusted gross margin, partially offset by higher SG&A expenses, including median investment. As Jeff mentioned, full-year adjusted operating profit margin increased 40 basis points to 17.3% of net sales. Slide 24 summarizes other noteworthy Q4 income statement items. Unallocated corporate expenses, including certain items affecting comparability, increased by $91 million in the quarter, driven by higher compensation and benefits expenses. Net interest expense decreased $6 million, driven by lower average debt balances. The adjusted effective tax rate for the quarter was 19.1%, 20.6% a year ago, driven by certain discrete tax benefits in fiscal 2020, and a more favorable mix of earnings by market. And average diluted shares outstanding were 1% in the quarter. Our full year financial results are outlined on slide 25. Net sales of $17.6 billion increased 5%, including approximately 2.5 points of growth from the combination of the 53rd week and the extra month for the pet segment. Organic net sales increased 4%, including an estimated three points of growth from the impact of COVID-19. Adjusted operating profit for the year totaled slightly more than $3 billion, up 7% in constant currency, driven by higher net sales, partially offset by higher SG&A expenses, including a 15% increase in media investment. Fiscal 20 adjusted diluted earnings per share of $3.61 were up 12% in constant currency, primarily driven by higher adjusted operating profit, lower net interest expense, a lower adjusted effective tax rate, higher non-service benefit plan income, and higher adjusted after-tax JV earnings, partially offset by higher average diluted shares outstanding. Turning to the balance sheet and cash flow, full-year operating cash flow totaled $3.7 billion, up 31% from the prior year, primarily driven by changes in assets and liabilities tied to core working capital, as well as higher net earnings. The increase in operating cash flow included both structural improvements as well as timing benefits related to COVID-19-driven volume increases in Q4. We expect these timing benefits will largely unwind in fiscal 21. Our core working capital balance totaled negative $206 million down $591 million from a year ago, driven by increases in accounts payable from continued terms extension and increased spend to service demand, as well as lower inventory balances stemming from ongoing reduction efforts and from servicing higher demand in Q4. We expect the portion of core working capital improvements tied to elevated fourth quarter demand to largely unwind in fiscal 21. Capital investments for fiscal 20 totaled $461 million. Full year free cash flow totaled $3.2 billion, up 42% from a year ago. And free cash flow conversion was 143% for the full year. The strong free cash flow performance enabled us to pay $1.2 billion in dividends, reduce debt by nearly $1 billion, and end the year with a leverage ratio of 3.2 times net debt to adjusted EBITDA, which was well ahead of our original goal of 3.5 times. Turning to fiscal 21, we've outlined some key top-line assumptions on slide 27. The largest factor impacting our performance this year will be relative balance of at-home versus away-from-home consumer food demand. This balance will be determined by factors such as consumers' ability and willingness to eat in restaurants, the proportion of people working from home, the reopening of schools, and changes in consumers' income levels. While the pandemic has significantly influenced each of these factors in recent months, the magnitude and duration of its future impact remains highly uncertain. We expect consumer concerns about COVID-19 virus transmission and the potential for a protracted recession will drive some level of elevated food demand at home this year relative to pre-pandemic levels. We are attracting factors such as the level of virus control and potential for a resurgence, the availability of a vaccine, GDP growth, unemployment rates, consumer confidence, and wage growth to assess the level and length of this elevated at-home food demand. One consideration we know with certainty is that calendar differences, namely the comparison against the 53rd week and the extra month of pet results in Q4 of fiscal 20, will reduce full-year fiscal 21 net sales growth by approximately 2.5 points. Between the calendar differences and the significant surge in demand we saw last quarter, we expect F21 fourth quarter net sales to be down materially year over year. We've outlined some important fiscal 21 financial assumptions on slide 28. We expect this to be a dynamic year, and we will need to maintain our agility to service demand and manage our expenses. Our objective is to maintain margins roughly in line with fiscal 20 levels. We expect to deliver H&M savings of approximately 4% cost of goods, while input cost inflation is expected to total approximately 3% of COGS. We also expect to incur meaningful incremental costs to service elevated demand, and we plan to further step up investments in brand building and growth driving capabilities. Below the line, we expect net interest expense of approximately $430 million and adjusted effective tax rate roughly in line with our fiscal 20 rate. At full year, average diluted shares outstanding increased by about 1%. And as Jeff mentioned, we expect to make further progress on lowering our net debt to adjusted EBITDA ratio. With that, I'll hand it back to Jeff to close our prepared remarks with our fiscal 21 priorities.

Thanks, Kofi. Let me reiterate our key priorities for fiscal 21 outlined on slide 29. First, while consumer demand will depend largely on external factors, we will focus on what we can control, namely to compete effectively everywhere we play. We expect that continuing to demonstrate superior execution will lead to increased brand penetration, competitive service levels, strengthen customer partnerships, and market share gains in our key categories. Second, we will drive efficiency to fuel investment, leveraging our HMM initiatives and volume levers to fund increased spending on our brands and capabilities, higher cost of service demand, and higher ongoing health and safety expenses. Finally, we will reduce our leverage to increase our financial flexibility. To achieve our fiscal 21 priorities, We will need to focus across the enterprise in several key areas, including brand building, innovation, and strategic capabilities. Bold brand building is the lifeblood of a consumer products company, and we have plans in fiscal 21 to advance our efforts to meet consumers where they are with purpose-driven brands. For example, we will build on our successful Cheerios Heart campaign, which features the heart-healthy benefits of Cheerios through compelling marketing and in-store merchandising. On Pillsbury refrigerated cookie dough, we're renovating the entire line to be safe to eat raw. We'll drive consumer awareness of this exciting news through media and in-store support starting this summer. In PET, we'll continue to invest behind our blue brand to drive increased household penetration to compare and decide advertising. And we're launching new advertising to strengthen awareness of our treat portfolio. And on Haagen-Dazs, our newest global Don't Hold Back campaign is designed to encourage consumers to create a new kind of extraordinary moment by letting go and being truly present while enjoying the premium quality of Haagen-Dazs ice cream. Turning to innovation, I have seen us move and innovate faster in recent months than ever before. In fiscal 21, we will continue to innovate across all aspects of our business, our existing businesses, creating new business, how we work, and how we go to market. Even in a time of uncertainty, we know consumer news and innovation remains critical to our business. So we are planning to bring high-quality new products to market this year, even if quantity may be lower than in years past. For example, in U.S. Snacks, we are launching a new Nature Valley Packed Sustained Energy Bar made from nuts, seeds, and fruit and available in almond butter and blueberry and peanut butter and cranberry varieties. In U.S. Yogurt, we have a number of new items coming to market in the first half. including Ratio Keto Yogurt, a keto-friendly yogurt with 1 gram of sugar, 2 grams of carbs, 15 grams of protein, and 15 grams of fat, available in five different flavors, including strawberry, black cherry, and coconut. In Europe and Australia, we're launching Old El Paso Tortilla Pockets, supported by It's Not Rocket Science, It's Pocket Science campaign, bringing more convenience and fun to the category and encouraging consumers to add one more taco night to their routine. InPet will continue to benefit from new products like Cat Burst that launched in the past three months, and we look forward to an exciting second half innovation lineup focused on expanding our portfolio of wet food and treats. And we have innovation across many other categories, including new varieties of Cheerios and Monkey Charms, premium versions of Wanchai Furry Dumplings, a new line of Progresso Topper Soups, Pillsbury Heat and Eat Cinnamon Rolls, decadent Haagen-Dazs fruit varieties, and new Takis line of Totino's hot snacks, and many more. In addition to brand building and innovation, we plan to leverage our scale through fiscal 21 through enterprise capabilities like e-commerce, data and analytics, HMM, strategic revenue management, and food safety and quality that create competitive advantages for General Mills. For example, we drove nearly 50% growth in e-commerce net sales in fiscal 20, including accelerated growth in the fourth quarter as consumers increasingly turn to this channel for their shopping needs. We pivoted to meet consumers where they were shopping by adapting content to our food websites, such as BettyCrocker.com, to encourage cooking education and drive stronger e-commerce sales. We'll build on this in fiscal 21 by further investing in e-commerce and adapting our plans for growth. As we shared at Cagney in February, we are also investing behind data and analytics, building a dedicated team with unique skills to unlock significant data-driven opportunities for our business. In fiscal 21, we'll leverage tools to enhance our global sourcing capabilities and drive efficiencies in procurement. We'll use analytics to amplify our strategic revenue management efforts to unlock price mix opportunities. And we'll leverage data to personalize our communication and offers to consumers, including utilizing our recently digitized Box Tops for Education campaign. I'll close our remarks today with a few thoughts. I am proud of the way we've kept our focus on our people and our consumers and delivered superior execution, leading to an outstanding year in fiscal 20. And we've established priorities for fiscal 21 that will ensure we deliver competitive performance in the short term while continuing to advance our long-term goals. In summary, I'm confident General Mills will emerge from the pandemic a stronger company in a position to generate consistent, profitable growth and top-turn returns for our shareholders. Thank you for your time this morning. This concludes our prepared remarks. I invite you to listen to our live question and answer webcast, which will begin at 8 a.m. Central Time this morning and will be available for replay at generalmills.com.

Greetings and welcome to the fourth quarter fiscal 2020 earnings call. Due to presentational participants, we're in the listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, just press the 1 by the 4 on your telephone. If any time the conference is to reach an operator, capacity star, foot might have zero. As a reminder, this conference is being recorded Wednesday, July 1st, 2020. Now, I would like to turn the conference over to Mr. Jeff Seaman. Please go right ahead.

Thank you, Tommy, and good morning, everyone. Thanks for joining us for our Q&A session on our fourth quarter results and full year results this morning. I hope everyone had time to review our press release, listen to our prepared remarks, and view our presentation materials. which are available on our investor relations site. It's also important to note that in our Q&A session this morning, we may make forward-looking statements that are based on management's current views and assumptions, including facts and assumptions related to the impact of the COVID-19 pandemic on our fiscal 21 outlook. 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 virtually with Jeff Harmoning, our chairman and CEO, Kofi Bruce, our CFO, and John Newdy, group president of North America Retail. We're holding this call from different locations, so hopefully our technology cooperates and everything goes smoothly. With that, let's go ahead and get to the first question. Tommy, can you please get us started?

Absolutely. Thank you. And once again, before we start, as a reminder to register for a question, it is the one pulled by the four on your telephone. And you'll hear a three-tone prompt to acknowledge your request. If your question has been asked or you'd like to draw your registration, it is the one followed by the three. And we'll proceed with our first question on the line. It's from the line of Andrew Lazar with Barclays. Go right ahead.

Good morning, everybody, and thanks very much for all the change in the earnings release format this morning. Very helpful. Good morning, Andrew. Good morning, Andrew. Maybe to start, I was hoping to focus on sort of the underlying business momentum, if I could. And I know it's a little harder to get at now, obviously, given everything that's going on. But I think on the third quarter call, General Mills had said that, you know, excluding the pandemic impact, it would be at the low end of its full year organic sales growth range of 1% to 2%. And I think that Blue Buffalo coming into the base adds about a point. So I guess underlying business trends, at least as of 3Q, roughly call it flattish, your expectation for the year. I think my question was, again, excluding the pandemic, I guess would General Mills have been considering fiscal 21 to kind of still be somewhat of an incremental reinvestment year to really shore up sort of organic growth and build on the recent improvements you've seen in categories like snack bars and yogurt and things like that?

Yes, Andrew, your math is right on that. And as I said before, we try to stay in the middle of the boat. And one of the ways we do that is by continuing to reinvest in our business. And you see the results in the fourth quarter included a pretty significant step up on our marketing spending. And actually, we think our strength at the beginning of June, especially in North America retail, is due to the fact that we are spending money on marketing because our promotion levels are actually down in June, and our growth is still double digits. And so We believe in investment and marketing, and you saw that in the fourth quarter, and you'll see that again in fiscal 21. You'll also see investments for us in capabilities, particularly on the data and analytics side, to drive both our sales growth through things like e-commerce and strategic revenue management, as well as cost savings projects like procurement. Whether COVID or not, we had planned to reinvest some of the earnings growth back into sustained top-line sales growth, and that is our plan going into next year currently.

And then I guess lastly, it's really on inventory, specifically at the consumer pantry level. I think in today's release you mentioned that there's the potential for sort of pantry inventory drawdowns moving forward, and I'm curious if this is simply – a pet food comment, which I think would make sense, or a broader portfolio comment. Because to me, I guess it seems that consumers have been both consuming and replenishing, you know, a lot of your center store products rather than stocking up. So I'm just curious if that's something that you're already starting to see or anticipate in fiscal 21 or more of a broader just, hey, at some point, just given how strong you know, shipments have been, we should just keep an eye out for this, if you get what I'm asking.

Yeah, so Andrew, let me answer broadly and then specifically on PET, and then I'll have John Newdy answer more specifically on North America retail. Broadly, as you can see in the strength in the Nielsen data on the human food side, month to month to month, while there certainly was a stock up in March, and you can see that in the data, consumers are clearly still buying and eating through the stock that they have on hand. And so... That is consistent with what we thought would happen at the beginning of the quarter when we saw the stock up. And, in fact, it happened throughout the quarter. And, again, it continues into June with some double-digit growth on the human food side of the business. On pet food, we saw something different. And, again, consistent with what we expected, which is given that pets don't eat a tremendous amount at restaurants, we thought that when we saw the stock up in March, people were asking us, is this because there is a – A lot of dogs coming out of shelters, and the answer is no, people are just stocking up. And we expect that to reverse in April and May, and largely it has reversed in April and May. There may be a little bit more to unwind as we begin our new fiscal year in the pet food category, but a lot of that is unwound already. And so what we see in pet is different than what we see in the human food side, both of which we expected. And John Newdy, anything specific you'd like to add on that?

Yeah, thanks, Jeff, and good morning, Andrew. So maybe I'll touch on consumer inventory levels or pantry levels. I'm sure a question on many people's minds, too, are just customer inventory levels, so maybe I'll go there as well. So from a consumer standpoint, at least in North America, we believe that the majority of the product that we've moved to consumers has been consumed. We do believe that consumers are keeping slightly higher levels of inventory in their pantries, but we do expect that to continue. Obviously, as it's a really dynamic environment with the pandemic still, you know, raging across the country. From a customer standpoint, we did see a drawdown in customer inventories over Q4. I guess just to quantify it, so for Q4 in NARA, organic growth was 28%. Our movement was higher, though, in the U.S. It was up 37%. In Canada, it was up 20%. And really, that difference was all driven by retailers pulling down inventories, obviously trying to keep products on the shelf. We would expect that to come back at some point in fiscal 21. You know, at this point, we don't have a great idea of when to what extent it will come back. But definitely we saw retailers pull down inventories during Q4. Great.

Thanks so much for that, everybody.

Thank you. We'll get to our next question on the line. It's from the line of Ken Goldman with J.P. Morgan. Go right ahead with the question.

Hi, good morning. Thank you. And I second Andrew's comments. I do like this format. So hopefully we'll keep it going ahead. I did want to ask two questions, if I can. First, you mentioned some headwinds to your operating margin in fiscal 21. You talked about some higher input costs, supply chain costs, spending on brands and capabilities and COVID related costs. Is it possible to sort of bucket or rank order these just so we kind of get a sense of which are going to be the bigger headwinds and which are going to be maybe some of the smaller ones.

Kofi, you want to field that one?

Absolutely. So I think great question and good morning. As you look at these, we would reference, you know, first as we're coming out of our Q4, we did see higher operating costs as well as COVID-related costs. The split between those two is roughly – we had about $100 million in higher sort of COVID-related costs, I would say. The split between those two is two-thirds, one-third, with two-thirds being comprised of the operating costs, things such as accruing, external supply chain, you know, trucking premiums. And then on the other side, the wellness costs, everything from personal protective equipment, wellness policies. So we would expect that to be a continued headwind as we step in F21, as a portion of those costs will continue. Obviously, we can't quantify that because a lot of that will be tied to the pandemic, the pace of the virus spread. and obviously the pace of demand to the extent that the operating costs are directly tied to our ability to source product.

Does that get at your question? Yeah, that's perfect. I'll follow up with more details later, but that's helpful. For a quick follow-up, we've heard some rumblings in the industry that maybe some retailers will get a little bit more aggressive on pricing in the back half of the calendar year, Just to help out some of the consumers that may start to struggle more as unemployment lasts longer and perhaps some of the stimulus checks fade. And I'm just curious if you're hearing anything similar. It doesn't necessarily make sense for me, for retailers to be pulling down prices right now. I'm not sure in an environment where there's out of stock, that's the most logical maneuver. But I'm just curious if you're hearing anything along those lines that you can share with us or whether that's misguided.

So, John Newdy, you want to field that?

Sure. So, good morning, Ken. In terms of promotional support, obviously in Q4, we saw retailers pull back in promotion as the focus was on keeping products in stock. As we moved into May and early June, we saw our promotional levels get back to more normal levels in most of the categories. And as we look to plan through the rest of the year, we're planning on normal levels. So, we have not you know, really been faced with any ask for deep discounts or deep promotional pricing. The one thing I would add is, I mean, there are certain categories that we are constrained from a supply chain standpoint and capacity standpoint. So even if there was a desire to, you know, go harder from a promotional standpoint, we just don't have the capacity to do that. So I think that's going to be a limiting factor across many of our categories. So I guess to answer your question specifically, we have not had those discussions, and even if they come, again, I think we're going to be limited with what we can do.

Great. Thanks, everyone.

Thank you very much. We'll get to our next question on the line. This is Chris Groh with Stifel. Go right ahead with your question.

Hi. Good morning. I will third that if that's the right word for appreciating the new format, so thank you for that as well. I do want to ask in terms of the decision not to provide guidance for the year. You have given a lot of components and things to help us get there, if you will, and I know that there's a lot of volatility in the business, no doubt. As I think about giving an indication of roughly a flat operating margin for the year, I'm just curious, as you look at the volatility in the business, sort of where you get that confidence. Is it that the way you're going to manage the business this year? Is it that you have a good sense of you know, kind of where sales will shake out, and therefore you've been able to give the confidence in that operating margin outlook for the year. I'm just curious how you think about that.

Yeah, thanks, Chris. This is Jeff Harmony. I'm glad you asked that. First, I guess I'd like to start by saying the fact that we didn't issue formal financial guidance is not a reflection of conservatism and is not a reflection of lack of confidence. It's actually an understanding that a big determinant of how much we grow this coming year will be, you know, how the pandemic plays out. And that is highly uncertain as it relates to the duration and depth of the pandemic. So I don't want anyone on the call to read into it that it's a lack of confidence or actually conservatism. In fact, we think our business will grow over the first three quarters relative to what it was pre-pandemic levels. And that's because now we're in a period where people are still staying at home. They're working from home. Many restaurants are either closed or people don't want to visit. And to a question that Ken Goldman asked earlier, we think that will be followed by a recession. And if you look back to the last recession, General Mills performed quite well. And so we think there will be an environment where we'll be able to grow for the first three quarters, followed by a fourth quarter comparison. Obviously, that will be very, very difficult. The other thing I guess to highlight is our confidence stems from the fact that we've executed really well. We're confident that we will emerge from the pandemic in the last few months as a stronger company and as witnessed by our share growth in nine of our top ten categories in the U.S. by being the third fastest grower in Europe and leading share growth in our categories in Europe and growing in our categories in Brazil and growing Wan Chai Fairy double digits in China. So I think hopefully what you hear is a company that is confident that the things that we can control, we have a good visibility to. And I would say on top of that, our marketing is particularly good right now, whether it's North America retail and honey things like Honey Nut Cheerios, or we're very bullish on PET and continue to be bullish on PET after, you know, posting another year of double-digit retail sales growth and 18% reported net sales growth in the year. So that's kind of where we stand. And the reason we didn't provide guidance was because the environment is so unpredictable with a pandemic. That's why.

That's a good answer. Thank you for that. Just a quick follow-on to that. So you've talked about generating efficiencies to incrementally invest in the business in fiscal 21. You have H&M savings coming through around 4% of the cost of goods sold. You've got inflation around 3%. Is that the gap that you hope or part of which you hope to reinvest? And if we think about generating efficiencies, is that incremental to what you expect for HOM right now? You hope to have even more savings to reinvest? I just want to see if I can kind of frame that opportunity.

So, Kofi, why don't I leave that one to you? Sure.

Absolutely. Hey, Chris, how are you? Yeah, we are expecting to reinvest a portion of that gap in capabilities. But as you can imagine, and to my earlier question again, I think, you know, the challenge in operating in this environment is that, you know, demand and demand for at-home food is probably the single hardest thing to predict. And so we will be focused on managing that. the middle of our P&L so that we can deal with the potentially higher operating costs. And so as we think right now, we have that balanced. We think the capabilities investments, though, will help us advance along from goals. I don't want to quantify those for competitive reasons, but they're meaningful enough for us to continue to make progress on our capabilities. So I hope that gets at your question.

It does. Thanks so much for that, Keller.

You bet.

Thank you very much. We've got our next question on the line from Alexia Howard with Bernstein. Go right ahead.

Good morning, everyone.

Morning.

Morning, Alexia. Hi. Firstly, on the incentive compensation, I assume that was a fairly big step up this quarter given the strength. I was wondering if you were able to roughly quantify how much that inflated the SG&A line this time around. And then thinking out through fiscal 21, how does incentive compensation work for next fiscal year if there's no guidance and no formal sort of goals at this point? And then my follow-up question is you mentioned as one of your goals the desire to reduce leverage further to increase financial flexibility. Does that mean that your M&A pipeline is that or that you are actively out there looking for potential deals, and if so, in which areas are you perhaps looking most closely to do that? Thank you.

So, Kofi, let me – I'll have you field a series of questions from Alexia.

Okay, thanks. Hi, Alexia. How are you doing? So, I would say – let me start first with incentive, and I would say it is a big driver, obviously, in the quarter in our and our SG&A line. So it is obviously tailwind this year, excuse me, headwind this year, and we would expect it to be a tailwind next year. Obviously, you know, I can't go into a tremendous amount of detail, but just know that we will be effectively setting our targets based upon a dynamic environment and All companies are dealing with this, but we would expect, based on everything we know right now, for this to be a tailwind. All things being equal on leverage, we're pleased with the progress we've made on debt leverage. I think at the start of the Blue Buffalo acquisition about two years ago, we had a target to get down to three and a half times. By the end of this fiscal year, we are at 3.2 times, so we are pleased to be slightly ahead of schedule. and on pace to get to our long-term goal of three times. I think at that point, then we will start to look at resuming our normal capital allocation policies with the first priority being focused on increasing the dividend rate.

Lexia, this is Jeff Seaman. I would just add a quick color on the incentive piece. We always plan versus our internal plan and incentive at the beginning of the year would be 100 payout. If we beat our plan, you know, that's a headwind in the year, but obviously good news for our shareholders as we would have exceeded our goals. That's what played out in 20. We have an internal plan for fiscal 21, and so assuming we deliver that plan, we'd be paying out less than we did in 20, but obviously if we beat our plan, that could change.

Great. Thank you very much. I'll pass it on.

Thank you. We'll get to our next question on the line from Dara Mosinian with Morgan Stanley. Go right ahead.

Hey, good morning, guys. Hope all is well. So, Jeff, or maybe John, obviously a large step up in consumer demand in any retail post-COVID. There's obviously some increased trial there. Can you spend some time discussing how much of the higher demand was due to new trial of your products based on your consumer survey work and bringing new customers in? And as you look going forward longer term, you know, your ability to potentially hold on to those customers and what the strategies would be to do so. Thanks.

So let me start with this question, and then I'm going to pass it over to John to provide some added detail. One of the things I'm most proud of of our company over the last three months, especially in North America retail, is that we have gained penetration across all of our categories. And if you look at 52 weeks, which is an even better way to look at it, all but maybe one category, we've increased household penetration, which is the highest correlation to growth. And so I'm really pleased with what our team has been able to do. Obviously, it varies by category. So, John, do you want to provide any color or any insights?

Yeah, absolutely. So, you know, I guess when you look at penetration, we do believe it's important to take a longer view. So, as Jeff mentioned, when you look over 52 weeks versus pre-pandemic levels, we grew penetration in the majority of our categories. Importantly, too, we outpaced our categories in terms of our performance and the penetration we were growing. The highest growth in penetration were areas in our meals and baking areas, so things like soup, Pillsbury refrigerated baked goods, desserts, and flour. And there's also significant gains. And for us, you know, two points of penetration equals about 2.5 million U.S. households. So, again, it's significant. And importantly, too, when you look at a year ago, we grew penetration in seven of our top ten categories. So, again, it's not just prior to the pandemic. Versus a year ago, we're growing overall in the majority of our categories. And we're starting to look at repeat. I would say it's still early days. And, again, we need a bit more time to really understand that. But repeat amongst our new households is strongest and really outpacing our categories as well. And what's exciting to us, again, our highest repeat rates are in things like Cheerios, the franchise, Cheerios franchise, Pillsbury RPG desserts, Annie's mac and cheese, and Old El Paso. So we've worked hard over the last decade, frankly, to really improve our products, whether that's improving the ingredient deck, making sure that they tasted the best they possibly could. And we think that many consumers are trying our products for the first time or coming back after many years and finding a better experience. We think that will bode well for us as we move into fiscal 21 and beyond.

I would like to add on to John's comments that everything that John said about North America retail is also true for all of our categories in Europe. as well as our Wanchai Ferry business in China, which saw significant penetration gains, as well as our at-home business in Brazil, which is the vast majority of our Brazilian business. And so whether you look at North America retail or Europe or China or Brazil, our major markets, we've experienced strong penetration gains in all of our at-home businesses.

Okay, great. And then can you also touch on e-commerce performance in the quarter and the changes you've made in that business to take advantage of higher channel growth online from a category perspective going forward?

Well, if we – yeah, sure. If we look at e-commerce broadly across the company, it's roughly 9% of our sales as we enter – as we exit the fourth quarter with a significant increase. And in all of our geographies and the vast majority of our categories, we over-index online versus bricks and mortar. And there are two reasons for that. One is that we've been investing in e-commerce for a number of years. And the second is that we have really good brands, and we have a lot of the biggest brands. And when you're shopping online, those are the brands that tend to do well. And so for both of those reasons, we have seen outsized growth in e-commerce over this period as we look globally. It's been particularly acute in the U.S. And, John, do you want to comment a little bit on what we've seen in terms of U.S. growth in e-commerce?

Sure, Jeff. So specifically for the U.S., we saw a 250% increase in our e-commerce business in Q4. Importantly, now almost 50% of all U.S. households have purchased food and beverage products over the last year. So, again, that's a significant step up of about seven points versus the prior year from a penetration standpoint. You know, and probably the biggest limiter in terms of why the growth couldn't have been even higher is just – our retailers and their capacity to really deliver to consumers' homes and even click and collect the number of slots that they had. So we're working with our retail partners to make sure that we optimize our e-commerce business with them, increasingly really connecting into their data and making sure that we take an omni-channel approach to making sure whether a consumer wants to shop in the store or shop online or seeing consistent campaigns, and then really working from the supply chain standpoint as well to make sure that we can deliver products to our consumers or to our customers will ultimately get it to our consumers. So we're excited about e-commerce and as Jeff mentioned, we've been working on this for multiple years and it's really paying off in the U.S. alone. We have a 110 index to bricks and mortar. So again, to the extent we sell more online, that's good for us.

Great. Thanks, guys. Appreciate it.

Thank you very much. And we'll get to our next question on the line. So John Bob Gardner with Wells Fargo. Go right ahead.

Good morning. Thanks for the question. Good morning, John. Jeff, or maybe John, I wanted to ask about product mix. You had the drag in Q4 from the comp at Buff and the composition of the tonnage at NAR. But if you step back and think more structurally, one of the things we hear from investors is that there isn't any pricing power in food. But to the extent that the innovation is on trend, you're margining up already with new products at Buff and in snacks and yogurt. How do you think about your capacity to capture a stronger mix on a consistent basis across your portfolio in a COVID world, even if the flexibility to move list prices may not be ideal?

So as we think about it as a company, what you saw is positive price mix from the fourth quarter because we sold a lot more through North America retail and we sold a lot more through pet food. And so To the extent that we keep growing pet, and we certainly plan to do that, and we see elevated demand in North America retail, that actually bodes pretty well for price mix as we think about it on a company level. It gets more complicated when you look within a geography, but let me have John Newdy answer how it has played out in North America retail, you know, over the last quarter, because it's important, but it's complicated when you look at it.

Thanks, Jeff, and good morning, John. When you look at price mix, we look at it in two ways. One, in the P&L, which is done on a per-pound basis, and then also in Nielsen, which is on a per-unit basis. And you saw some very different things in Q4 if you look at those different ways. So from a P&L standpoint, for the first three quarters, our price mix was actually flat. Again, that's on a per-pound basis. In Q4, to your point, it was down seven points, so it was a significant drag. But it was 100% driven by mix as we sold heavier products, so things like soup, desserts, and flour, as well as larger size packs as consumers really moved that way. When you look at Nielsen, though, on a per unit basis, we actually saw an increase in price mix in Q4, really driven by less promotion and favorable customer mix. So we feel like there is some pricing power out there. And one of the things, again, we've worked hard at over the last few years is strategic revenue management, really building a toolbox, that allows us different levers to pull given the environment. So I think as we look towards fiscal 21, you'll likely see less pricing just as inflation won't warrant it and it'll be obviously a competitive environment and value will matter. But things like price architecture and mix will be things that we focus on. And the good news, again, having been out this a while, we've got a pipeline of ideas in our toolbox that we'll be able to execute against. So we continue to expect to drive price mix in fiscal 21. We'll probably just look a little different than how we drove in fiscal 20.

And I guess just to build on that, I mean, maybe come back to Jeff, thinking about Blue Buffalo. I mean, some of the price per pound premiums on the new products, new wet entries, they're pretty sizable versus the base portfolio. Is there anything you're seeing out there where there's an elasticity for consumers or kind of a pushback on pricing? Or do you feel, though, there's still one way to go with the mixed premium innovation as long as the innovation is on trend?

With regard to pet, I mean, we think there's a way to go. And if you look at the growth of the pet category, first of all, the pet category is growing mid-single digits, and it's primarily on pricing. And the part of the category that's growing the fastest is the premium part of the category. So we certainly think there is a place to play there. And Blue Buffalo, we believe, is the best equity in that premium space. And I think our growth over the last couple of years would add some credence to that. We also know that the People care deeply about their pets, and especially in a time of high anxiety, which I think under any circumstance you could qualify this as a time of high anxiety. People rely on their pets, and the last thing they want to do is cheat their pets and the source of comfort. So what we see in the marketplace, whether it's through recession or whether it's through a time like this, is that one of the last things that people are interested in skimping on are their pets. And so they don't do that, and we see that being played out in the market right now. Great.

Thank you.

Yeah.

Thank you very much. We'll get our next question on the line from Jason English with Goldman Sachs. Go right ahead.

Hey, good morning, folks. Thank you for slotting me in, and congrats to you and your teams for navigating this very turbulent situation, especially kudos to your supply chain. I've got to believe this was very challenging for them. My questions, I guess we just closed on pets, so maybe we could take it back up there. There's obviously a lot of noise in reported results this quarter because of what you're comping and the extra days. Can you give us a beat on how retail sales are tracking across all channels in the quarter and what you're seeing so far as we roll into the new fiscal year?

Yeah, so thanks, Jason, and appreciate the support for how we've executed the last quarter. We feel really good about it. As you said, our supply chain has held up remarkably well. And we've driven those supply chain gains all the way through our sales organization to our customers and feel very good about how we service the business and service demand in a time when people really need it. When we look at Blue Buffalo, let me take a step back. You know, for the year, we reported net sales 18%. Through three quarters, we were up 11%. And in the last quarter of the year, we believe that our retail sales were up somewhere in the high single-digit range. And so for the year, we have guided 8% to 10% like-for-like growth, and we're confident we exceeded that somewhere about the 12% range. So for the year, we over-delivered on what we said we did, so we feel great about that. In the fourth quarter, you're right, there is a ton of noise. The retail sales look like they're up high single digits. And, again, that's still share-leading growth for the category, a category that's up mid-single digits. So we're really pleased, even amongst the noise, with our performance on Blue Buffalo in the fourth quarter.

That's super helpful information. Thank you for that. And turning back to your North America retail portfolio, as we look at the Nielsen data, your TDPs are down a lot. Your average items per store are down a lot, as they are across the industry. And we've heard from a lot of different companies about skew rationalization, streamlining portfolios through the maximized capacity. Can you touch on how much streamlining you've accomplished and how much of that streamlining you think you'll be able to sustain? Or when, if at all, do you think you're going to start to layer back on those products?

So, John Newdy, why don't you take that and maybe touch on not only the streamlining of distribution, but maybe a couple other actions we've taken to help make our supply chain more efficient. Sure.

Yeah, absolutely. So good morning, Jason. Yeah, obviously, if you look at distribution in Nielsen, it's a bit of a wild picture right now as there's a lot of stocks and other things happening as well. I guess if you think about our business and we compete across 25 different categories, the majority of our categories from a capacity standpoint and a service standpoint, we're in pretty good shape at this point. Our supply chain has done a terrific job. keeping our plants running and keeping them safe, importantly, for our employees and obviously for our consumers with the food. So the majority of our categories were back up to pretty healthy service levels and haven't seen a significant decrease from a distribution standpoint with our retailers. There was a trend prior to the pandemic with retailers really cutting back on the number of skews and categories, giving more facings to higher churning skews, and that was really driven by e-commerce and click and collect and and obviously having the shelf capacity to service that business. So we expect to see that continue. Now, we have a few categories that we have capacity constraints, soup being one of them, desserts being another one, and we've temporarily withdrawn a significant number of items. So in soup, progressive soup, we pre-pandemic had something like 80 items, and now we're down to somewhere around 50. We expect to start phasing some of those back in as we move through the first half of the year. And frankly, some of them probably won't come back. So, again, I think we will take the opportunity to make sure that we have an efficient portfolio and one that works for us and works for our consumers. Variety is important, though. When you think about soup, everyone's got their favorite soup flavors. So, again, we're going to have to work through that as well. So, you know, we feel good about where we are from a distribution standpoint. One of the things with the metric that we look at is share of distribution. because, again, we do expect total distribution points to decrease as we move throughout the year. And we have through the year, you know, really improving from a total share of distribution standpoint, and that's what we'll continue to stay focused on as we move through fiscal 21. Good stuff.

Thank you, gentlemen. Be well. Thank you.

Thank you very much. Our next question on the line is from the line of David Palmer with Evercore ISI. Go right ahead with your question.

Thanks. Just want to follow up on what we're maybe seeing in the scanner data lately. It looks like the part that is audited by some of these scanner data companies is showing a reduction in display activity, but some of that might be the fact that they're not auditing that as much. And then I'm wondering if we're seeing some noise in that percent sold on discount because it looks like within Serial specifically – that there's been some increase in percent sold on price discounting, which would seem to run against the times, that you wouldn't need to be doing that. So are you seeing some price reductions going on out there? Is there more competitive activity in cereal, or is there noise? And then I'll have a quick follow-up. John Nudy, why don't you field that one?

Good morning, David. I would say, you know, the short answer is probably noise more than anything. Many of the auditing groups are not going into stores anymore. at this point, or if they are, it's inconsistent in terms of what we're seeing. So, we're not looking too closely at the display facts, and some of the pricing gets really confusing as well. What I would tell you, though, in general, we're not seeing anything out of the ordinary in terms of pricing on cereal. In fact, we pulled back some of our promotions in Q4, particularly on our Cheerios franchise, where we were a bit tight from a capacity standpoint. So, again, we're not seeing anything abnormal, and I think from a data standpoint, again, that The total movement is something to look at and something that makes sense. I think when you start getting into some of the facts below that, I wouldn't put a whole lot of stock in at this point, at least we're not.

Got it. Thank you. And just to follow up on the incentives, you talked about how you did above plan this last fiscal year because of the fourth quarter and probably caused some truing up in what you were doing in terms of pay for performances. But I'm wondering, are you making adjustments to your annual targets and how you pay people, the board doing that for you and you down to the division levels, and how are you making those adjustments? Because this has to be viewed as an extraordinary period, not just because of Blue and those acquisitions and other counter effects, but because of this virus and passing that through the Python. Any help on that would be helpful.

So, David, you know, the board sets our compensation targets as well as ranges for compensation, and I'm not going to go into the depths of that, only to say that it is based on our sales performance and our operating performance and our profitability performance and weighted equally among those measures. And we pass those kind of things down to our segments. And you're right, it is a dynamic environment. which requires us to be dynamic in our assessments. And certainly one of the things we look at as we assess the performance of our businesses is how competitive are they in the marketplace and how efficient were they in being competitive. And that's why I say we're really proud of our performance. And even in areas like convenience and food service, which was down quite a bit in the fourth quarter, they actually grew share in the majority of their categories. And so they performed well in the fourth quarter, even in an environment that was really, really difficult. And so That's the way we'll continue to incent people. Again, it helps us stay in the middle of the boat in driving sales growth, but not at all costs and making sure we're efficient while we do it.

Okay. Thank you.

Thank you very much. We'll get to our next question on the phone line from Robert in Moscow from Credit Suisse. Go right ahead.

Hi, thanks for the question. I guess I have two. The one is on the breakfast cereal category. If I look at the data, I'd say it looks good, but not great. Retail sales were up about 6% in the past four-week period. It had been up double-digit. John and Jeff, are you surprised that the category is not growing faster in an environment like this where we're all kind of stuck at home, we're not eating breakfast on the go?

we have the luxury of time in our homes to prepare longer breakfasts for ourselves?

Or is this pretty much what you would expect? And the second question is, this is our first quarter. I understand not giving guidance for the year, but can you give us a sense of maybe just North America retail sales? It looks like overall your sales are still up double digit and probably can stay that way for the next three months in the retail data. Is that a fair assessment for first quarter trends, John? Thanks.

So let me answer the question on the first quarter trends. And to say that, you know, the reason we don't give quarterly guidance is because we've never given quarterly guidance, and we're not going to start now. You're right, Rob, and I'm glad you pointed it out. Our retail sales, if you look at Nielsen, are off to a great start in North America retail. So it gets back to a question I answered earlier, I think it was from Chris Groway, about you know, about, you know, the confidence we have. So it's not a lack of confidence that we're not providing guidance. It's really a matter of for the year uncertainty and for the quarter, the fact that we just don't provide quarterly guidance. On the question of cereal, I'll let John answer that in detail, but I want you to know I am thrilled that you're asking me a question about the cereal category being good and not great when it's growing at 6%. So with that, John, do you want to elaborate on that a little bit?

Yes, sure. Good morning, Rob. So, you know, we feel good about the zero category and, frankly, even better about our performance. So, Q4, the zero category grew at 26%. We grew at a similar level. And for the full year, the category grew at 5%. And when you go back to even the year prior, we think when you add in non-measured channels, it grew that year as well. So, We think the category was heading in the right direction. We like our performance. We've grown share in 11 of the last 12 quarters. We're the clear share leader in the category. We're doing that by having strong marketing campaigns. In fact, prior to the pandemic, we were having the best year from share standpoint on Cheerios in over a decade. We've gotten back to the heart health messaging that works really well. We actually, for the first time, ever changed the shape of the product to a heart for a limited time. That worked incredibly well. And then our innovation is working as well. We had three of the top five new products in the category last year. So, We feel good about the category. We feel good about our performance, and we think we'll continue to grow nicely in fiscal 21.

Okay. I mean, the market share gains, no doubt, stunning. So congrats on that, and we'll see how the category does. Thank you.

Okay, Tommy, I think we're going to wrap things here. I know we weren't able to get to everyone, but we want to make sure that we respect everyone's time and length on the call. So thank you, everybody, for your time and attention this morning. Appreciate the interest in General Mills, and we look forward to continuing to keep you updated on how we go from here. If you have follow-up questions today, please feel free to reach out to me, and we'll make sure we get to you. So thanks again.

Thank you very much. Thank you, everyone. That does conclude the conference call for today. We thank you for your participation as we disconnect your lines. Have a good day, everyone.