General Mills, Inc.

Greetings and welcome to the General Mills first quarter fiscal 2022 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 a conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded today, Wednesday, September 22nd, 2021. It is now my pleasure to turn the conference over to Jeff Seaman, Vice President and Investor Relations. Please go ahead, sir.

Jeff Seaman Thank you, Frances, and good morning, everyone. I appreciate you joining us today for our Q&A session on first quarter results. I hope everyone had time to review the press release, listen to our prepared remarks, and view our presentation materials, which were made available this morning on our Investor Relations website. Please note that in our Q&A session, we may make forward-looking statements that are based on our current views and assumptions, including facts and assumptions related to the potential impact of the pandemic on our results in fiscal 22. 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. And on the call with me this morning are Jeff Harmoning, our Chairman and CEO, Kofi Bruce, our CFO, and John Doody, Group President of our North America Retail segment. So let's go ahead and get to the first question. France, can you please get us started?

Absolutely. If you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. And our first question will be from the line of Andrew Lazar with Barclays. Please go ahead.

Great. Thanks very much. Good morning, everybody. Jeff, I wanted to start off maybe to get a better sense of how you were thinking about guidance for the rest of the year and kind of how you're managing the business in obviously what's still a very volatile environment. I guess specifically, you know, it sounds like the company has not made meaningful adjustments to its original net sales outlook for the remainder of the year. But it seems like consumption still remains elevated, even into your fiscal 2Q. Volume elasticity in response to pricing, all admittedly early, is almost nonexistent so far. And the company obviously is taking additional pricing actions as well. So I guess at a high level, I'm trying to get a sense of. how much of guidance sort of builds in a sales deceleration and cost increases that you're already seeing versus just trying to be prudent in what's clearly still a very fluid sort of environment. Thanks so much.

Yeah, thanks, Andrew. And let me start by just kind of reiterating what's kind of in our guidance and what's not. And then, you know, I'll provide some clarity on kind of what lies ahead, even in an uncertain market. And I find that clarity beats certainty, you know, in terms of how we think about these things. You know, it's important you kind of hit on it that, you know, our updated guidance for the year would reflect the beat we had in sales in the first quarter, which we just announced, but really didn't have any change in our sales performance for the balance of the year. And, I mean, you know, it probably raises the question then if our sales demand remains elevated as it has for the first quarter, would that indicate that there's a possibility that our sales could be higher? And the answer is yes, there is that possibility. And our second quarter has certainly started out well, particularly in North America, as you look at the retail sales and as you look at pets, our second quarter is off to a nice start. But there is a lot of uncertainty, and the revised guidance we have does not contemplate yet revised demand guidance. But I think we'll have a much better view as Q2 unfolds, and as we announce earnings in Q2, we'll have a better view not only of the quarter, but then how does demand look for the rest of the year. The other piece of it is really on the bottom line, and our guidance not only contemplates what happened in the first quarter, but also the elevated inflation that we're going to see for the balance of the year. We said it was 7% at the beginning of the year. It's clearly going to be between 7% and 8% now as we go on the year. It also contemplates some pricing actions. that we have taken in order to help address that rising inflation. And, you know, how our profit comes in will be determined. I think about, you know, how much exactly does inflation go up and exactly when was pricing hit. In terms of as we look forward, I think the important things, there are a couple of things that are really clear to us. One is that inflation is going to continue through the balance of our fiscal year, which is to say the first half of calendar 22. That much is clear and it's going to be broad. The second thing is clear is that we've done a really nice job with pricing so far, and our prices are going to go up for the remainder of the year as we see inflation going up. And so you started to see that at the end of Q1, and by hitting Q2, you'll see more pricing. And, you know, our job is to, as we've done for the last three or four years, is just kind of stay in the middle of both, which is to say we're not going to chase sales growth at the expense of profitability, nor are we going to be slavish to profit margin at the expense of things like driving our brands. And this balance of driving sales growth and profitability has served us well over the last few years, and I would argue during the pandemic has served us especially well, and we're still in the midst of it. I think I'll stop there. Otherwise, it'll probably be a filibuster. But I appreciate the starting question.

Yeah, I know. Very, very helpful. And just a very quick follow-up. You know, with some of the incremental pricing, you know, retailers obviously always say the same thing, which is, you know, they're open to, you know, pricing when things are structural as they see structural versus, let's say, purely transitory and things of that nature. So I guess as you've kind of gone back to the well, so to speak, as a lot of others have as well, Are those conversations changing at all, broadly speaking, in terms of what is sort of acceptable or thought of as transitory versus structural things that one would need to price for? Just curious perspective on that. Thanks so much.

Let me give you an overview, and then, John, if you have anything to add, I would welcome your commentary as well. I mean, ideally, you'd not like to go back to retailers multiple times or consumers multiple with price increases, but we're clearly not an ideal market. And everyone understands that not only is there inflation, but everyone understands it's also dynamic, and it really is. I probably used that word 15 times this morning. dynamic market. And so people understand the need to revise plans and make sure that we're staying current. And we're all seeing the same costs, whether it's transportation costs or labor costs or ingredient costs. I mean, we're all seeing the same kind of costs, whether it's CPG companies or retailers. So it's never easy, but I think there is an understanding that we're in a market that is continuing to change. John, any colors you'd like to add to that?

Yeah, I think that's exactly right. Obviously, retailers are seeing increased costs and inflation as well. And one of the things we're really proud of is the strategic revenue management capability that we've built over the last five years or so. And it's differential in terms of the information we have, the data, the talent, and the stories that we can put together. When you come to retailers with a rationale that makes sense and facts, they tend to listen. And we're really leveraging the entire SRO toolkit as well. So obviously we've taken some less price increases, but we continue to look at promotional optimization and mix and PPA and really leveraging all of those different tools. So, so far so good. We like the way that conversations have gone. We've gotten the majority of our pricing accepted and more importantly, reflected in the market. So that's a trick as well. So we're really working well with retailers and we'll continue to take the inflation and deal with it as we move throughout the year. Thanks very much.

Our next question is from the line of Ken Goldman with JP Morgan. Please go ahead.

Hi, good morning. Thank you. You know, with the understanding that you don't provide specific quarterly guidance, are there any items, you know, Kofi, that we should be particularly aware of as we model the current quarter? You know, I guess especially as we think about, you know, unusual comparisons with last year or the timing of pricing by segment, I just want to make sure we're sort of minimizing, you know, potential surprises there. Sure, Ken. Thanks for the question. Well, obviously, as you think about, in particular, the first half, second half perspective on the year, with our Q1 coming in stronger than we expected in both the top and the bottom line, we would expect a little bit more balanced year in terms of the flow of margins, in that we're seeing more of the cost, obviously, in the cost increase coming in in the back half, by a little bit stronger performance in the first half. And we do still expect our pricing realization to come in sort of full force in Q2 and against the inflation expectations. So just to give you a little bit more color, we don't want to get any deeper on a quarter-by-quarter basis. I appreciate that. Thank you for that. And then as a follow-up question, You know, you showed in your chart how difficult, or sorry, you showed a chart in your slides on how difficult the labor market is. Obviously, you know, your inflation outlook is being raised today largely because of that. We are anecdotally, and it's very early, but, you know, hearing that perhaps the worst is over, though, for the labor situation, you know, given some benefits rolling off, given back to school. Obviously, labor is still incredibly difficult to secure. I guess I'm just asking, is it worsening anymore? Are you seeing a peak in those challenges? Just curious how to think about that going forward from here.

Yeah, I would think the, no, it's a very fair question, Ken. And, you know, I guess we foresee, you know, labor challenges persisting for quite a while. I mean, especially as you look at logistics. So, you know, there's a shortage of truck drivers here in the U.S., and that's not going to obey for a while. There's a shortage in shipping containers as we look at global transportation. You can see them on pictures in the L.A. port. So that's not going to go away for a while. And while we have seen a little bit of loosening in the labor markets once the government spending has kind of decreased, that's not going to solve the whole dilemma. So I would suggest that the challenges we have with labor and labor inflation are going to persist for some time. We have not really seen them abate significantly to this point.

Makes sense. Thanks so much.

Our next question is from David Palmer with Evercore ISI. Please go ahead.

Thanks. Good morning. In your transcript, you mentioned that your service levels weren't quite where you wanted them to be. I wonder what is the average out there in service levels in the industry, and where do you think General Mills is versus normal? and normal for today for the industry, but also normal versus itself. And is there any sort of outcome from this? Are you below where you'd like to be in terms of ship sales, or are there penalties happening? Fair question.

John, do you want to take that one on?

Yeah, absolutely. So, David, what I would say is that our service levels are certainly better than they were at the beginning of the pandemic, but still quite a bit off of where we'd like them to be, which is in the high 90s. And really, we're seeing a widespread impact, everything from raw material vendors, challenges there, internal manufacturing, co-packer manufacturing, our distribution network. And it's almost whack-a-mole right now. So we have literally hundreds of disruptions in our supply chain, and it really changes on a daily and weekly basis. So we've gone back to some of the practices that served us well at the beginning of the pandemic. We've stood up. control towers at the working level on a daily basis, on a weekly basis at the more senior level to really dig in and work with our teams to solve these issues. And we do expect these issues to persist throughout the year. What I like is the way that we're performing, and I think we're outperforming versus many of our competitors in the space. So we are probably somewhere in the 80s in terms of total service levels. And what I would tell you is that it varies widely across categories. And The majority of our categories were actually in the 90s and then performing well. We have a few that we have capacity issues. We have a few that have ingredient issues that are really dragging us down. So we continue to work closely with retailers. In fact, the bulk of our discussions right now with retailers are really around service and making sure that we can ship the product that our consumers are ultimately looking for. So I like the way that we're performing. At the same time, I think it's going to be a challenge as we continue to move throughout the rest of the year.

And then just to follow up on pet food, maybe a good time to go over where you think the big picture strategy and opportunity is now that you closed on the treats acquisition. Where are your market shares, maybe by major pet segment, and where do you see that opportunity? Where do you see that market share going to from your major segments? I'll pass it on. Thank you.

Sure. On Blue Buffalo, the first thing I would say is that our organic business on Blue Buffalo performed quite well in the first quarter. I mean, we were up 20% and gaining market share really across all the different segments. Having said that, I think it's important also to reflect that for Pat, we probably had our easiest comp of the year this past quarter. We only grew about 6% in the first quarter last year and 18% in the second quarter. And so as good as I feel about Blue Buffalo, I feel great about it. I wouldn't model 20% growth for us from here on out because the comparisons get quite a bit steeper as the year goes on. But blue buffalo in itself is performing quite well. We really have opportunities across the segment. We over-index and dry dog food, and we basically under-index in every other sub-segment of the category. So there is broad opportunity there. And I would say with the Tyson acquisition, when we first looked at it several months ago, we liked it. Once we had bought it, we got a closer look. We really liked it. Now that we have it, we like it even more. And what I can tell you is that the growth of 20% is – kind of exceeded our initial expectations. And it's got a good management team. And we not only bought some nice brands, a good portfolio, but a good team. And what that acquisition really helps us to do is cement our leadership in the treats part of the dog category and something we wouldn't have been able to get to by ourselves. And so it's very complimentary, both in product form and customers, to where Blue Buffalo sits. So the more we've gotten to see it, the more we feel good after spending that kind of money to make an acquisition. But we feel good both about Blue and about this recent acquisition of the Tyson Pet Food business.

Thank you.

Thanks.

Our next question is from the line of Michael Lavery with Piper Sandler. Please go ahead.

You've got broad pricing across, really, it looks like, every category and segment. Can you touch on just what you're seeing as far as elasticities? And certainly your sales are holding up, but any surprises, any variation? It looks like... the consumer demand really remains strong. But especially just looking ahead, anything we should maybe watch out for or where there could be some, you know, a little bit more volume pressure perhaps?

Michael, what I would say is you made an observation, I think, which is really important, which is that, you know, the pricing that we realized in the first quarter is broad. And I think that speaks to what John Doody was talking about earlier on our strategic revenue management capability and the fact that our capability is significantly better. across our company than it was, you know, four years ago. And you see that in market. We got out to market fast, and we've been out there effectively. As we look at, you know, you talk about elasticity of demand. You know, it is still early. You know, we don't have a tremendous amount of data points yet. Having said that, it seemed to us as if demand is holding up quite well. It's holding up a little bit better than we had thought. And if I think through the logic of that, particularly here in the U.S., You see that restaurant traffic is still down. The food costs from away-from-home eating are going up at least as fast as they are in at-home eating because labor is a piece of that, and they face the same pressures we do from an ingredient standpoint. So when you see broad-based inflation, not only in at-home eating, but also perhaps even more so in away-from-home eating, where restaurants, many of them, you know, not only do they see inflation, but they're having trouble staffing all of their restaurants. It seems to us that this is an environment where elasticities, at least so far it seems to us, are a little bit lower than what we have said. Now, the sample size is small, and we'll continue to monitor that, but that's what we see in the world right now. And pretty much true across the world, whether it's here in the UK or in China or Brazil.

Okay, that's great. And just to follow up on your comments about the digital programming and just the unique position you have with all the data you get from the receipts for box tops, can you give a little bit more sense of how you can take advantage of that and really put that data to work?

Well, what we're able to do, whether it's the Buddies by Blue Buffalo, whether it's Box Tops for Education, or whether it's what we're doing in China with our Haagen-Dazs Omnichannel approach to shops, is that we can better meet consumer demands, and we can give them things that are more specifically interesting to them. And the more specific things you can give to consumers, the better off you're going to be in attracting their sales. And not only that, particularly things like Box Tops for Education, we can also partner with our retail customers because a lot of them have first-party data now. And we can combine the data that we have with the data that they have in order to customize offers to consumers that are to the benefit of them, realizing, of course, all the privacy laws and so forth. So I don't want to go into much more depth than that, other than to say that it's the next evolution of marketing. And we talk about connected commerce, and I think for some it sounds like a buzzword but we want to give you a couple of clear examples that here at least here at general mills is not a buzzword it's something we're taking uh we're taking an active approach to okay great thanks so much our next question is from the line of chris the growing with this people please go ahead hi good morning thanks for the time Hi, Chris.

Hi. I just had a quick question if I could. In an environment where you're seeing stronger revenue growth, and that's translating to stronger profit growth as we saw in the first quarter, I just want to get a sense around investment. And that can obviously take many forms, marketing or investing back in the business sort of white space, and you've done a lot of investing back in the business the last few years. But I want to get a sense of, as we think about your opportunities for, say, incremental marketing or something along those lines, Would continued stronger revenue growth prompt you to want to reinvest more heavily is the ultimate question. Chris, thanks for the question. So as we think about structurally where we are in the year, we're confident that we have strong support behind our priority brands. We would expect to retain that even as we do see additional cost pressure come in. On the basis of everything we know, we still believe that we have strong ideas, and we're going to continue to support those. I think as we roll forward here, we will also continue to support our capabilities investments around data and analytics. So at the core of our expectations and our guidance, we've preserved our expectations for the year. Okay, thank you. And just a follow-up question, if I could. In relation to the incremental cost inflation that you expect for the year, you also talked about some more SRM actions and obviously still HMM savings. So the inflation that's coming through, do you believe you can offset that with your SRM initiatives this year, such that costs are roughly offset by the SRM initiatives and plus HMM? So I think, you know, I'll start with just the recognition that the environment remains dynamic on the cost side. So, you know, we are seeing cost changes moving through the system rapidly. We are, at this point, you have a best call on the cost picture for the year moving up from 7% to 8%. And we've got plans to address what we can see. And the best thing I can tell you is that we are prepared to act should it change further, which is a very distinct possibility in this environment, given how much we've seen it move here in the first three months of the year. And just one follow-up on that, Kofi. The incremental inflation, is that across the remaining three quarters? Or is it perhaps more heavily in, say, Q2? Just understand how the incremental costs run for the year. Yeah, so I'll give you the perspective that it is going to impact the second half of the year a little bit more heavily than the first half, as you can expect, given the combination of our hedge positions and where we would expect to see this exposure more heavily hit us. So that is part of why we would give you the perspective that we see a little bit more balance in the profit picture between the first half and the second half. Okay, I heard that before. I wish I understood it. So thank you for that. I appreciate your time this morning. Thank you, Chris.

Our next question is from the line of Alexia Howard with Bernstein. Please go ahead.

Good morning. Can you hear me okay?

Yes.

Perfect. All right. So the first question I had was really around the categories or the businesses that are holding or gaining share. I think you said that Of your priority businesses, you're holding or gaining share in over two-thirds of those. I'm just wondering, you know, which businesses are not priority and is there an overall number for the company overall? And then I have a quick follow-up.

Yeah, I'm not going to give it down to the decimal point, Alexia, you know, on what's priority and not. But I would say that, you know, our priority businesses are the overwhelming majority of our businesses. So they are the most significant part. They represent the top ten categories overall. for us in the U.S. and our top categories in Europe and Asia and Brazil. And they include all the global categories as well as the local gems that we talk about. So it's the vast majority of our categories. And so when we say we're gaining share, you know, roughly 65% or so of our categories, you can be confident that is most of our categories throughout the world. We say prioritize, though, because it doesn't include some, but it includes all the biggest, most important categories for us.

Okay, thank you very much. And then I think you said earlier that in answer to the question about service levels, that there are certain categories where you've got capacity constraints and or ingredient issues. Are you able to just give us a little bit more color on where those ingredient issues are happening? Is it bringing things in from emerging markets? And then domestically, is it other capacity issues, mainly because of labor, or is it getting parts?

uh into the machines i'm just trying to figure out where the pain points are from a supply chain perspective and thank you very much and i'll pass it on yeah yeah i would say uh alexia that you know there are there are a couple categories where we have supply constraints only because demand has been has been high for such a long time and i'll give you fruit snacks as an example of that here in the us where you know we grew share massive amounts of share two years in a row Demand was high before the pandemic. It's been high during the pandemic. It's certainly high right now. And so we've had to go out and add more capacity, which we're going to do later, which we signed off on a year ago and which we come to market a year. But that takes a long time to get to. So fruit snacks would be a great example of one of those places. And, you know, desserts right now would be another example where, you know, the desserts category has been really strong for us. And so we have capacity constraints there. When it comes to ingredients, you know, it's a little bit here and a little bit there. It's not, you know, one particular ingredient, you know, all around the world. It's really a combination of small things, as I think John Doody aptly described it as whack-a-mole. I mean, there's ingredient shortage here and a little bit there and one labor shortage here and a truck that's not out there. There's not a geography or a category where we see it. It's a little bit of everything. And from what we understand, I think probably most of our competitors and most of our retail customers are experiencing something very similar.

Great. Thank you very much for the color. I'll pass it on. I appreciate that. Thank you. Thank you.

Thanks. Our next question is from the line of Steve Powers with Deutsche Bank. Please go ahead.

Hey, thanks, guys. Hey, Kofi, not to belabor it, but just to round up the comments you've made thus far on cost and cadence, can you just talk about where cost inflation ran in the first quarter relative to your call for 7%, 8% in a year? And then, if possible, the same thing on H&M savings relative to the 4% full-year impact expectation? And then I've got to follow up with a pet like with Jeff. Thanks. Sure. So our HMM ran roughly in line with our sort of full-year forecast. And then I think as you look at cost inflation, it was a touch lower. It was still elevated. So, you know, I don't want to get too precise, but I think it's a touch lower than we expected it to be for the remaining three quarters because in the original inflation calls it was relatively balanced. Okay. Okay, that helps. And then, Jeff, going back to pet treats and the Tyson brands, as you said, off to a very solid, strong start, can you expand just on your expectations there, mainly as you plug those businesses into the Blue Buffalo go-to-market model, and just any context on timing as to how you see that process unfolding? Thank you.

Yeah, I was first of all, I would say it's off to a strong start. I mean, you know, and What I'm really pleased with is the way that the Tyson team we inherited and the Blue Buffalo team are really working together already, even if we haven't plugged it into our system. And as I indicated earlier, you know, they're certainly a talented team that we brought over from Tyson. We feel good about them. But we haven't plugged it into our whole system yet or either our distribution system or our omni-channel system. And so that's going to take a little bit of time. You know, I don't have an exact date for that. the key for us is that we maintain our execution of that business because it's executing quite well on its own. Uh, while we, you know, bring it in piece by piece to some of the blue Buffalo businesses and some things will integrate and some things we won't. And, um, but you know, what I can tell you right now is that the teams are working very well together and, uh, you know, it's, we're only a couple of months in, but we like to start we're off to. And, um, And I think once we are able to plug in some of our capabilities to this Tyson business, whether it's strategic revenue management, which we really haven't quite done yet, or holistic margin management, which we haven't done yet, or plug it into the sales team and add to their capabilities, we think that there's quite a bit of room for growth.

Okay. Very good. Thank you very much. Thanks.

Our next question is from the line of Nick Mody with RBC Capital Markets.

Please go ahead. Thanks. Good morning, everyone. Jeff, I wanted to ask a question about, you know, you've been talking a lot about whack-a-mole, which I think is pretty clear given the environment, but the whack-a-mole seems like it's becoming more normal when you think about just disruptions, weather events, you know, the labor shortage, labor issues are probably going to persist longer, issues with other countries in the U.S. and trade wars and impact on ingredient costs. So I'm just curious, like, do you think the industry in general needs to go through a mini capex surge to really appropriate the supply chains and the capabilities to make sure that they can deliver consistent results through this, what I would characterize as going to be probably a volatile environment for many years to come.

Yeah, Nick, your observation that it's a volatile environment across all the things you indicated, I think that's exactly right. You know, what I would say is that I think in environments that are difficult, General Mills is tend to perform its best. And you saw that during the beginning of the pandemic. I think you see it with our first quarter release. And I'm certainly hopeful that you'll see it in the subsequent quarters. And, you know, people talk about strategy all the time, but execution is pretty important. And, you know, we're executing really, really well. And it's because we're addressing all the things that you just talked about. Now, the question is how to address it. You know, capital may be one area in some places, automation may be an area in some cases, but I would also tell you that the coordination amongst your supply chain and your marketing functions and your sales functions, that's as important. as adding capital expenditures or automation or things like that. And so I do believe that the challenges that we see right now, I think they are the new normal for the foreseeable future. And, you know, with the supply chain we have and with the restructuring that we just did, which kind of addresses the holistic business here in North America, I think our chances of executing well will remain high.

Excellent. Thank you.

Our next question is from the line of Robert Moscow with Credit Suisse. Please go ahead.

Hi, thanks for the question and congrats on the results. Certainly much better than I expected. I wanted to know about the hedges, Kofi. I think you said that you're about 50% hedged for the year. In the back half of the year, can I assume that that means that you're generally like 0% hedged in the back half? And then what kind of things do you hedge and what do you not hedge? Maybe you could remind us because like trucking, logistics costs, are those part of the hedges or is it really like just ingredients that you hedge? Sure. Sure, so I'll start by with just a gentle correction of our hedge levels. We're at about 66%, so roughly two-thirds covered on the year at our present demand and volume expectations. So I think to your question about what we cover, I think generally in the ingredients on commodity side, we'll be able to hedge where there are markets. Some of those ingredients are covered the same thing. As we look at the logistics side, obviously, we do have long-haul and short-haul trucking contracts in our network. Obviously, with the labor pressures, there is upward price pressure on that entire complex just as a result of the shortage of trucks, and frankly, they even labor to unload trucks and shipping containers on the other side. So we are covered partially through the contracts that we have. The key is making sure that we continue to execute most of our routes on contract, and we are seeing a little bit of pressure as a result of having to do more sort of off contract and off network as a result of the labor shortage in the environment. Okay, that makes sense. And what happens when a supplier is late or has to charge premiums to you because of logistics challenges? Is that hedged or is that not hedged? No. Generally, no. And that is part of what I think one of the things that John has spoken to pretty clearly is the entire network incoming and out is under similar pressure. So that in this environment. Okay. Makes sense. Thanks for the clarity. Sure.

Our next question is from Jonathan Feeney with Consumer Edge. Please go ahead.

Good morning. Thanks very much. You know, in the years before the pandemic, I had the pleasure of covering some of the retailers too, as well as food. And it seemed the conversation was relentlessly, data versus relationships. It was all about elasticity and private label shares and retailers getting smarter, omni-channel, creating more data, and it basically forcing retailers to change their shell set more frequently based on all this maybe more quantitative factors than qualitative. In the past six months, it seems like there's this narrative in the industry that it seems retailers are unhappy with case fill rates. It's difficult. And the industry, pricing-wise, it was a very good performance to have a minor relative performance, to have a minor gross margin decrement year over year. But some others are much worse. It feels to me like the pendulum has swung, and now it's, well, that data is less important. I mean, elasticities, to your point earlier, are excellent. Private label shares are in free fall in most of these categories. I mean, supply is short. You would think if this were you look at the inflations of that I lived through in 07 and 2011, like these kinds of indicators would have. suggested dramatically more pricing, protecting and maybe even expanding gross margin on a two-year basis, certainly, versus pre-pandemic levels of better utilization, et cetera. So I guess I wanted your comment about, am I wrong about the analytics, first of all? Is that right about that kind of pendulum and the conversation between you and your retail customers? And Do you think that in a more normal environment swings back to where, hey, you know, more people buying your products, elasticities are good, and that suggests more pricing power over time? Thanks.

You know, I guess, you know, Jonathan, let me take a crack at the overview and then John Newdy to the extent you want to add on. You know, when I think about the data versus relationships when it comes to retail customers, I think about it the same way as I think about brick and mortar retail and e-commerce, which is it's the end. And, you know, especially in food where, you know, yes, we have e-commerce, but, you know, 85% of our e-commerce goes through stores. And so you need to be good at e-commerce and you need to be good at the physical distribution of products as well, which is why we talk about connected commerce. The same is true of what we're going through with retail customers right now. Yes, data is important. It will remain important. Data keeps getting better for our retailers. It keeps getting better for us. That will certainly play a role, but you only trust the data of people you actually trust. And so, you know, the retail relationships we have are also important because as we go to market and talk about, you know, what's going on in the environment, we need to make sure we have those relationships. So they are both important. As we think about elasticity of demand, you know, we'll see. We're kind of in uncharted territory. to be honest with you. And that's why all elasticity models are always based on historical data, which is useful to a point, but only to a point. And that's why I made the commentary earlier about we're seeing inflation broadly, not only across our products, but also across restaurants as well. And that's why I made the comment about service levels at restaurants and the ability to get labor, because it seems like in that environment, it feels like elasticity should hold up pretty well, and they have so far, but we'll see what is to come. John Doody, anything you want to add on either of those topics?

Yeah, I mean, I think that's well said. The only thing I would add is I think prior to the pandemic, there was a narrative that big brands were challenged, and I would say First of all, consumers like our brands, and we continue to build them and innovate and build our brands, and that's worked for us. The other thing I would say is for retailers, there's power in having scale. So a retailer can make a call to us, and we operate across 25 different categories in the U.S., that's helpful on the supply chain side. We can work on all those categories and really drive scale and make sure that we're operating well to service their shelves. And at the same time, we can focus on capabilities, whether that be, you know, connected commerce and digital marketing or e-commerce. So I think retailers are recognizing or have recognized that having powerful, you know, partnerships with some big manufacturers is beneficial to them, really streamlines their work. It's good for us and it's good for them as well.

Thanks. Very helpful answers. I appreciate it. Thank you.

And speakers, our final question for today will be from the line of Rob Dickerson with Jefferies.

Please go ahead. Great. Thanks so much. So just a quick question, kind of to dissect category dynamics a bit. You know, obviously, you know, elasticity kind of remains just unknown, but it seems as if, you know, maybe there is a, you know, encouraging, like at the end of the title, so to speak. At the same time, though, you're saying here at home, you know, demand remains a bit elevated. But then we also see either cereal meals and baking decline a bit, which obviously isn't shocking relative to the year-ago quarter. I'm just curious, as you sit down and you think about the guide and you dissect it category to category, Like, is it fair to say as we move forward, you know, over the next few quarters or so or as mobility increases that, you know, it's rational to think that maybe meals and baking and cereal, you know, are still a bit more pressured relative to kind of, you know, fluid COVID rates versus snacks and maybe the snacking part of the portfolio actually could continue to perform, you know, despite shifts in mobility. That's the first question. Thanks.

You know, I guess I would say, Rob, that, you know, broadly speaking, you know, all of our categories are up over where they were a couple of years ago. And at the same time, you're right, as consumers get to be more on the go, categories that are more on the go have, you know, we've seen an uptick in those. And for ours, you know, that's our bars category, you know, for example. And whether that's in Europe or whether that's in U.S., we've seen the same kind of trend. But I think, importantly, whether you look at baking or whether you look at cereal, you I mean, the trends versus a couple years ago are pretty good, and the ones for on-the-go categories are improving, as you suggest. John Doody, anything you wanted to add to that commentary?

No, I think you had it. I mean, obviously, it's dynamic, and when you compete in as many categories, moving parts and one of the things that Jeff has really stressed since he's been CEO is that we want to compete effectively in all the categories we compete in. So that's what we're really focused on. And obviously, as Jeff said, snacking has really rebounded and we're seeing good growth there. And there's big, important categories like cereal where, again, over a two-year basis, we are a with kids getting back to school and focus on convenience, we'll see that category continue to accelerate, which we sell in August. So we like how we're competing broadly in the U.S. We've grown share and created 50% of our business in Q1, and we've done it for four years in a row. So again, this wasn't just a pandemic-driven performance. We like the way that we're competing, and we'll continue to focus on that as we move forward. Okay, perfect.

Thank you. And then Just quickly, you know, I think in the prepared remarks, you know, you stated that, you know, it's an ongoing process and in search for potential, you know, go forward acquisitions, but then also potential divestment. So I guess, you know, just very broadly speaking, you know, now that, you know, we have kind of timeline on yogurt divestment, would you say you're kind of like largely done with that divestment piece of the portfolio optimization efforts? Or, you know, are you always looking, let's say, you know, and specifically looking at certain pockets that, you know, could still be up for divestment potential? And that's it. Thanks so much.

Yeah, Rob, I guess what I would say is that, you know, we're looking to close this. by transaction at the end of this year. And we just closed an acquisition with Tyson, so we feel good about those things. You know, I would view our portfolio shaping as kind of an always-on capability. I mean, similar, we view strategic revenue management, you know, used to be episodic until we made it always-on. And the same will be true with our portfolio shaping. I'm really proud of what we've done in our base business, not only this quarter, but the last few years. But it's also clear to me that we need to do that and continue to reshape our portfolio. And some of that will be through acquisition. And I think this Tyson acquisition is a great example of that. And to the extent that we think that investments are better spent in priority categories versus those that aren't as prioritized, we'll look at additional divestment opportunities as well. And so we'll continue to compete effectively in the categories we're in, and we'll continue to look for M&A opportunities. I think one of the things that I've been most pleased about over the last couple of years is that we've been able to do both effectively. And, you know, whether it's the start of Tyson or whether we've done what we've done with Blue Buffalo, we're keeping our eye on the ball as we've divested Yoplait. We've done all of that. And so... There are some companies that can say that, but I feel good about that combination for us, and we'll continue to look at that into the future.

All right, super. Thanks so much, guys. Thank you.

And speakers, I'll return the call back to you. You may continue with your presentation or closing remarks.

Great. Thanks so much. We are going to wrap up there. Thank you, everyone, for the time and good questions this morning. If you do have follow-ups, please feel free to reach out to me throughout the day. Otherwise, we look forward to speaking with you again next quarter. Thanks so much.

And that does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a great day, everyone.