通用磨坊 (GIS) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the General Mills 2011 fourth-quarter year-end results.

During the presentation, all participants will be in a listen-only mode.

Afterwards, we will conduct a question-and-answer session.

(Operator Instructions).

As a reminder, this conference is being recorded Wednesday, June 29, 2011.

I would now like to turn the conference over to Ms.

Kris Wenker, Vice President, Investor Relations with General Mills.

Please go ahead.

Thanks, operator.

Good morning, everybody.

I am here with Ken Powell, our CEO and Don Mulligan, our CFO.

They will discuss our fiscal 2011 results and our outlook for the new fiscal year.

Let me remind you first our press release was issued over the wire services earlier this morning.

It is also posted on our website if you still need a copy.

We have posted slides on our website too that supplement today's prepared remarks and these remarks will include forward-looking statements that are based on management's current views and assumptions.

The second slide in today's presentation lists factors that could cause future results to be different than our estimates and with that, I will turn you over to Don.

Thanks, Kris and hello, everyone.

Thanks for joining us this morning.

The last 12 months was a challenging period for the food industry and for General Mills.

Input costs swung from deflationary to inflationary and consumers in developed markets remained cautious in an economic environment where improvement seems slow at best.

Given these challenges, we are generally pleased with our 2011 results.

We met the key growth targets we set for the year.

We returned a substantial amount of cash to shareholders through dividends and share repurchases and the combination of dividends plus stock price appreciation resulted in a double-digit return to shareholders for the year.

As expected, our performance in the fourth quarter was quite strong.

These results reflected faster net sales growth and good margin recovery as a result of recent pricing actions.

Slide 5 summarizes our results for the quarter.

Sales totaled $3.6 billion, up 3%.

Segment operating profit was $675 million, a 14% increase versus last year.

Net earnings totaled $320 million and diluted earnings per share were $0.48 as reported.

Excluding the impact of mark-to-market effects in both years and a tax charge in 2010, earnings per share were $0.52, up 27% year-over-year.

Our net sales growth accelerated 3% in the fourth quarter.

US retail sales were down 2% reflecting significant year-over-year differences in trade promotion activity and pricing.

International sales grew 16% as reported and 9% on a constant currency basis.

And our Bakeries & Foodservice segment reported an 11% increase in net sales driven by pricing and mix.

Our pound volume declined in the fourth quarter as expected since we were lapping very strong performance in the year-ago period.

Remember that in the fourth quarter of 2010, total Company pound volume increased 6% on a comparable weeks basis.

Last year's performance was particularly robust in US Retail where pound volume grew 8%.

This year's fourth-quarter results show improved net price realization as the driver of our top line.

On a reported basis, fourth-quarter gross margin increased to 37.5%.

Excluding mark-to-market effects, gross margin expanded 100 basis points to 38.6%.

Slide 9 shows our fourth-quarter operating profit by segment.

Profits increased in all three segments as we benefited from price realization and strong margin performance.

We delivered double-digit growth in both Bakeries & Foodservice and International.

After-tax earnings from joint ventures doubled to $30 million for the quarter, including favorable foreign currency effects and income tax comparisons.

Fourth-quarter sales for CPW increased 10% as reported and 2% on a constant currency basis.

Haagen-Dazs Japan constant currency sales declined 10% reflecting the challenging economic conditions in that market.

As a reminder, our JV results are for the three months ended in March 2011, the month the devastating earthquake and tsunami hit Japan.

Slide 11 summarizes our results for 2011 in total.

Sales grew 2%.

That is on top of a 1% growth as reported and 4% growth in comparable sales in 2010, which included 3 points of drag from divested businesses and the 53rd week.

Segment operating profits grew 4%, diluted earnings per share grew 20% as reported, and diluted EPS, excluding certain items affecting comparability, reached $2.48, up 8% from last year.

Results for our US Retail segment fell short of our target primarily due to higher levels of promotional spending across our categories for much of the year.

Our net sales essentially matched year-ago performance overall.

This included strong sales gains for our Small Planet Foods and Snacks divisions.

Segment operating profit was 2% below strong year-ago levels.

In 2011, our US Retail media expense was below last year's level, which grew 22%.

However, we continue to increase the efficiency of our media spending.

In fact, our total media pressure in market increased to a double-digit rate and based on measured media spending tracked by Kantar, our US media investment ranks number one among all food companies in 2010.

Let me shift over to Bakeries & Foodservice business, which had another strong year in 2011.

Slide 14 shows net sales results for our key channels and brands.

Our sales to food-service distributors were up 3% and sales of our brands in convenience stores grew 11% in 2011.

Our consumer branded products are leading this growth.

Yogurt sales increased 6%, cereal sales grew 3% and snack sales increased 11% in fiscal 2011 across food-service channels and convenience stores.

This great sales performance, combined with HMM productivity savings and higher grain merchandising earnings, led to another year of robust profit growth for our Bakeries & Foodservice business.

Operating profit margins exceeded 16% in fiscal 2011 and total operating profit grew to double-digit rates surpassing $300 million for the first time in Company history.

Our International operations also posted strong sales growth in 2011.

As shown on slide 16, net sales increased 7% overall.

In Europe, sales grew 7% in constant currency led by Haagen-Dazs in France, Nature Valley in the UK and strong new product performance for Old El Paso across Europe.

In Canada, currency sales increased 3% led by cereal and grain snacks.

This represents very strong performance in a highly competitive retail environment.

Sales in the Asia-Pacific region increased 9% in constant currency led by strong double-digit growth in China.

And in Latin America, sales increased 11% reflecting good performance in Argentina, as well as pricing across the region.

Segment operating profit increased 52% driven by strong net sales growth, margin expansion and foreign currency effects.

Slide 17 highlights performance for our Cereal Partners Worldwide joint venture.

In 2011, net sales increased 2% on a constant currency basis with improving performance trends in the second half of the year.

Market performance was mixed with continued category weakness in the UK, but good growth in developing cereal markets like Mexico and France a double-digit growth in emerging markets like Russia, Brazil and Turkey.

Excluding the UK market, our net sales increased 5% on a constant currency basis.

We saw good growth across our core brands led by high single digit sales gains for Cheerios, Nesquik and Chocapic.

As shown on slide 18, General Mills in total has delivered consistent earnings growth in recent years.

2011 is the fifth consecutive year that we have met or exceeded our earnings targets and this has translated into superior returns to shareholders over the same period.

Since 2007, General Mills has delivered a 10% annualized total rate of return to shareholders versus a 1% decline in the overall market.

Turning to our balance sheet, use of core working capital increased nearly 16% in 2011 driven primarily by higher inventory levels, which reflect the rise in input costs.

Receivables 12% driven by higher sales and foreign currency effects.

Accounts payable increased at an even slightly faster rate.

Cash flow from operations totaled $1.5 billion, which included both a $200 million voluntary cash contribution to our pension plan and a $385 million tax payment related to the IRS settlement and net tax gain we booked in our second quarter.

This strong cash flow funded capital spending comparable to 2010.

We invested roughly $650 million in capital, adding new manufacturing capacity to our snack bar and yogurt businesses and funding various cost-saving projects companywide.

We returned nearly $1.9 billion to shareholders, including a 17% increase in our dividend.

And our strong profit growth and cash flow allowed us to take an additional $460 million in debt while maintaining our credit metrics and BBB+ rating with all three rating agencies.

As we look ahead to fiscal 2012, we expect another year of sales and earnings growth from General Mills.

We are assuming significantly higher costs for ingredients (inaudible) with estimated input cost inflation at 10% to 11% for the year.

These inflation headwinds will be particularly strong in the first quarter.

Our sales growth will be driven by pricing, our plan assumes a modest decline in pound volume.

We expect another year of robust savings from our discipline of holistic margin management and we plan to increase our media investment at least in line with sales growth to support a strong lineup of new product [and] new innovation.

It is important to note this guidance before any impact from the anticipated acquisition of a controlling interest in the International Yoplait business.

We also expect 2012 to be another year of strong cash flow generation.

We plan to invest about $670 million in fixed assets, including new manufacturing capacity slated for our cereal, yogurt and grain snack businesses.

We will pay approximately $1.2 billion to complete our purchase of a controlling interest in Yoplait International.

This purchase will reduce our share repurchase activity in fiscal 2012.

And yesterday, we announced a 9% increase in our dividend to a new annualized rate of $1.22 per share.

Slide 23 provides a summary of our earnings guidance for 2012 before any Yoplait International impact.

We expect mid-single-digit growth in net sales with a modest decline in pound volume offset by mix and pricing.

Underlying gross margins are expected to decline roughly 100 basis points as we expect our HMM discipline of cost savings, mix management and price realization to largely but not completely offset input cost pressure during this 12-month period.

We expect our media investment to grow at least in line with sales.

We project our operating profit will grow at a low single digit rate.

Restructuring expense is planned to be minor and comparable to 2011.

Interest expense is expected to increase at a low single digit rate.

We are assuming an effective tax rate comparable to 2011.

We have estimated joint venture earnings comparable to 2011 results too with strong growth in CPW earnings offset by a decline in Haagen-Dazs Japan.

We are assuming a slow business recovery there from the earthquake and tsunami and we expect mid-single-digit growth in earnings per share reaching $2.60 to $2.62 per share before any mark-to-market effects.

In terms of quarterly performance, we expect first-quarter earnings per share will be below year-ago levels.

That is due to sharp input cost increases and shifts in the timing of promotional activity.

The remaining three quarters are expected to show EPS growth.

Now, as for Yoplait, we recently received regulatory approval, so we expect the transaction to close quite soon.

We are planning to provide a fiscal 2012 outlook on July 13.

Here is what I can tell you today.

We will consolidate the business results for total Yoplait International into our financial results.

Sodiaal's interest will be reflected as earnings attributable to noncontrolling interest.

Like other European operations, we will report this business on a one-month lag.

So fiscal 2012 will capture at most 10 months of operating results.

We recorded a majority of the transaction expense in our 2011 results.

Yoplait will contribute operating profit growth in 2012, but we are estimating it will be offset by incremental amortization and an EPS impact of reduced share repurchase activity.

Combining these factors, we are anticipating roughly a $0.01 drag to adjusted earnings per share in 2012.

We will also have integration and some remaining transaction costs in fiscal 2012.

These will be excluded from underlying EPS.

We are currently estimating these costs at roughly $0.03 of [expense].

With that, let me wrap up this review of 2011 results.

We delivered sales and earnings growth in line with our long-term growth model and generated double-digit returns to shareholders.

We also enhanced our business portfolio this year.

We added to our US yogurt business with the purchase of Mountain High.

In Australia, we expanded our lineup of Italian products with the acquisition of Pasta Master refrigerated lasagna.

We divested a frozen baked goods line.

We also had a small divestiture in our Canadian Bakeries & Foodservice business and of course, we announced our intent to purchase a controlling interest in Yoplait International.

This year demonstrated the value of our broad business portfolio as growth in International and Bakeries & Foodservice offset industry weakness in the US.

We feel we have the Company well-positioned for continued growth in 2012.

To tell you more about our plans for the new year, I'll turn the microphone over to Ken.

Thanks, Don and good morning to one and all.

The targets for fiscal 2012 sales and earnings growth that Don just outlined are a bit different than our long-term growth model.

We expect our sales growth to be above our long-term target and we are planning for segment operating profit growth and EPS growth to be below our model.

And this is basically due to the double-digit increase in input costs that we've estimated for the year.

Our HMM initiatives will continue to deliver a robust level of productivity savings and we have taken various pricing actions through both list price increases and moderation of merchandising in depth and frequency to offset a portion of the input cost increases.

But our pricing needs to be competitive with other branded and private-label offerings on a category-by-category basis, so our plan assumes we will offset most, but not all of the inflation we anticipate over the 2012 period.

Our plans also include increased media investment to support a full lineup of new product introductions and marketing initiatives on our core established brands and we have made modest assumptions about the pace of business recovery for our Haagen-Dazs joint venture in Japan.

We believe that these 2012 plan targets are appropriate given the current operating environment and achieving them will represent another year of quality growth for General Mills.

Now our long-term planning assumptions project input costs to rise at a mid-single-digit rate driven by global demand for food and energy and that is in fact what we have averaged over the last five years, but with greater volatility in recent years.

We have maintained and even expanded our gross margins over this time.

While we expect to give up a bit of ground in 2012, we look to protect and expand margins over a longer period of time.

Our program of holistic margin management is that gives us confidence.

It provides the fuel to invest behind our brands and our HMM efforts are truly global.

In North America, we have implemented multiple initiatives over the last several years to reduce the cost to ship product to our customers.

In 2012, we will apply that expertise to reduce the cost of raw material shipments to our manufacturing locations.

In China, we are leveraging US best practices to increase the efficiency of our Wanchai Ferry manufacturing process so that we can increase capacity without spending additional capital.

And in Europe, we have centralized the purchasing of freight and indirect materials.

So we remain very much on track to realize a three-year total of $1 billion in COGS productivity worldwide by the end of 2012.

And looking farther ahead, we expect to capture total worldwide supply chain productivity of more than $4 billion by the end of the decade.

We have a high degree of confidence in our five key growth drivers -- protecting margins, product and marketing innovation, expanding in international markets, partnering with our customers and investing in consumer marketing to build our brands.

Of these, innovation is job one.

It is what ultimately drives growth in our categories and growth in our sales, earnings and marketshare.

We are bringing greater levels of both new items and product news to market in 2012, and I want to give you a few specific examples starting with US Retail.

We have got terrific innovation planned on cereal.

Cinnamon Burst Cheerios, launched in January, continues to perform very well and provides a high fiber cereal that the whole family enjoys.

We have just launched Fiber One 80 Calories cereal providing consumers with a great tasting low-calorie breakfast option.

French Vanilla Almond Granola is the latest addition to our Cascadian Farm line strengthening its position as the number one granola brand.

And kids are going to like new Cocoa Puffs Brownie Crunch.

We have got another year of strong innovation planned for our snack bar business, 90-calorie brownies are the latest addition to our Fiber One productline.

With chocolate fudge and chocolate peanut butter varieties, these products give consumers a great-tasting low-calorie snack.

We have also added two new varieties to our highly successful Fiber One 90-calorie grain bar line.

Nature Valley Thins had a great first year in 2011 and we are going to support that momentum with increased manufacturing capacity and higher levels of advertising.

Turning to yogurt, our improved Greek yogurt is now on store shelves and performing well.

Additional manufacturing capacity to support demand is coming online this summer and we will begin national advertising to support this new offering.

We are going to continue to remind consumers that Yoplait Original delivers 50% of a woman's daily calcium needs in one cup of yogurt.

Our new Yoplait Light and Granola Parfaits combine yogurt, real fruit and Nature Valley granola and finally, we will benefit from a full-year of sales contribution from our 2011 Mountain High acquisition.

Our first-half innovation lineup includes several new brand platforms as well.

We have created a new frozen breakfast line with six varieties of Pillsbury egg scrambles and Grands biscuit breakfast sandwiches.

Pizza Stuffers give kids a handheld option to enjoy the great taste of Totino's.

Old El Paso Tortilla Stuffers are heat and eat providing a complete fajita meal in just 60 seconds.

And for dessert, we have got new FundaMiddles, filled cupcake mixes from Betty Crocker and Sweet Moments refrigerated cheesecake bites from Pillsbury.

So in total, we have a very robust innovation lineup in 2012.

By our measure, a very meaningfully stronger lineup than that in 2011.

We will launch nearly 70 new items in US Retail in just the first six months and there are more to come later in the year.

Now that is all new items, but since 2004, we have challenged ourselves to improve the health profile of our established products.

2011 marks the seventh consecutive year we increased the items in our line offering improved health credentials.

Over 60% of our US Retail sales last year came from products with health improvements.

And we have got strong innovation planned for US away-from-home channels.

In Bakeries & Foodservice, we expect continued good growth from recent new products like Pillsbury Crescent Scrambles and Wheaties Fuel Bars.

The launch of Pillsbury Mini French Toast will provide school cafeterias with another easy-to-prepare hot breakfast option that kids will love.

Our International businesses have solid innovation plans too.

It is turning out to be a warm summer in Europe, which is a terrific time for Haagen-Dazs innovation.

We have recently launched two flavors of Haagen-Dazs Secret Sensations.

It is ice cream on the outside with a liquid creme brulee or chocolate fondant center.

It is just the kind of indulgence you would expect from Haagen-Dazs.

In Japan, Haagen-Dazs Crepe Glace is a blend of ice cream, crunchy biscuits and rich sauces all wrapped in a soft crepe to make an indulgent handheld treat.

We will continue our strategy of geographic expansion for our Wanchai Ferry business in China.

We expect our core frozen dim sum products -- excuse me -- we will expand our core frozen dim sum products to additional cities in China this year and in additional markets, we will expand beyond frozen dumplings and launch varieties of wonton, baozi and mantou.

And we will begin expanding Wanchai Ferry into other markets in Southeast Asia.

The wholesome snack category provides great opportunities for international innovation and we have got a great lineup of new items.

In the UK, we are building on strong 2011 performance with additional varieties of Nature Valley Crunchy & More products and double-digit increases in advertising.

In Canada, we are adding package sizes with higher bar counts to reach new consumer segments and we are expanding our Fiber One, 100 Calorie productline.

And we are bringing our existing brands to new markets with the launch of Nature Valley Chewy bars in Australia and Nature Valley Crunchy bars in South Korea.

Our international cereal businesses are poised for good growth in 2012.

In Canada, we have added a point of marketshare in each of the last four years and we are targeting another year of strong growth in 2012.

We are already generating tremendous customer excitement with the planned launch of Chocolate Cheerios and we will launch the first mainstream gluten-free cereal products in Canada, Honey Nut and Rice Chex.

CPW has got good product news too.

In the UK, Superfruity Shredded Wheat will be launched and in Europe, Nesquik Pillows will extend this successful franchise by combining a creamy center with the Nesquik taste that kids enjoy.

We will fuel growth for our brands through strong levels of media investment.

In 2012, we are targeting media spending to grow at least in line with sales growth and our impressions in market will grow faster than sales.

We continue to improve our efficiency through targeted media vehicles like digital.

Spending here will be up nearly 30% this year.

Our spending will continue to target three fast-growing consumer segments -- baby boomers, multicultural consumers, and the millennial generation.

We are launching new media campaigns on brands like Nature Valley and Cheerios that target these groups, including a 35% increase in multicultural media versus last year.

Now our four global business platforms of ready-to-eat cereal, superpremium ice cream, convenient meals and wholesome snacking are in growing categories that are on trend with consumers.

And we are equally excited about the opportunity to add a fifth global platform, yogurt.

We look forward to telling you much more about our plans for this platform in the very near future.

So we enter 2012 confident that we are positioned for another year of quality growth at General Mills.

We have leading marketshare positions in competing categories that are on trend with consumers and that are growing in markets around the world.

And we will invest in the product news and innovation that keeps our brands healthy and growing.

So I will wrap up this morning by reminding you to attend our investor event in Boston on Wednesday, July 13 where we will outline our plans for fiscal 2012 in more detail.

Presentations at the event will begin at 8.30 a.m.

Eastern time and will also be available via webcast.

So thanks to all of you for joining this morning for your interest in General Mills.

With that, I will now open up the call for questions.

(Operator Instructions).

Chris Growe, Stifel Nicolaus.

Hi, good morning, everyone.

I just had -- I have two questions for you.

I guess first, Don, a question on the guidance and just understand how Yoplait fits in.

Would you say that the guidance today, the 5% to 6% growth, includes share repurchase and then when you add in Yoplait sort of net of that, it is a negative $0.01?

Is that the way to look at the current guidance range and how it could change with the addition of Yoplait?

Yes, that is exactly the way to look at it.

The $2.60 to $2.62 includes our normal share repurchase rate.

And then with Yoplait, we are going to redirect some of those funds to the acquisition.

So the way to think about that $0.01 drag I mentioned on the underlying is from an operating standpoint.

Net of the share repurchase reduction from an operating standpoint will actually be about neutral.

Then we have about a penny of amortization -- intangible amortization that will drag.

So kind of cash neutral, $0.01 reported drag.

(multiple speakers) assumes we have about 10 months of operating results for Yoplait.

Okay, got you.

And then the other question I had for you, I guess for Ken, would be -- we have had some comments recently from other companies about sort of the challenges around price realization.

I wonder if you could talk about your experience and getting the pricing through and I guess as I look at it today, you have obviously a very strong level of inflation.

Should we expect more pricing to come through or is it a matter of just getting it through, sort of getting retail to reflect that at retail?

Are you having any challenges or any sort of threats there if you will to the business?

Yes, thanks, Chris.

I guess what I would say on that is that we anticipated this level of inflation pretty well as we finished -- we are in the sort of spring of this year moving on from the third and into the fourth quarter.

And it has come out broadly the way we thought it would and as you know, we began taking a series of pricing actions and planning for a set of merchandising changes broadly across the line.

And those have been really all announced and pretty much all executed over the last two quarters.

So we feel that we have planned for this level of inflation and have implemented the pricing that we will need over this next period of time.

We have done that pretty well.

Now, obviously, we are in a volatile environment and so we monitor inputs very closely.

As you know, we never comment prospectively about future pricing, but I think what I would say at this point in time is that I think we have planned well for what has in fact come to pass and we have worked with our retailers well over the last three or four months and we have got the pricing that we think we need through.

And Chris, I guess just for perspective, what I would add is if you looked at our results for the quarter for US Retail, we have about a 400 basis point expansion in price mix and if you look at Nielsen, our actual -- our average unit price has actually increased a bit north of that in the most reported 12 weeks.

So I think we are seeing it come through.

I guess just to round that out then to clarify.

You have the 10% to 11% inflation and you say I think in the release about how you are going to be, including HMM, including mix improvements, a little short of that overall.

So does that suggest the need for more pricing through the year I guess?

Is that the way -- because you want to fully overcome that?

We don't really look to price for the absolute peak of inflation that we would see.

I mean I think what we are reflecting is the inflation that we are facing.

We have got very good HMM continuing to come through.

There is a competitive reality out there.

We really want -- it is really important to us to stay in the zone with our key branded and private label competitors.

So we are balancing all of that and our take is that all of that addition doesn't get us quite all the way to covering the full 11% of inflation, but we think that, on balance, we are positioned in the correct way for the business.

Okay, thanks for your time this morning.

Andrew Lazar, Barclays Capital.

Good morning, everyone.

Two things.

I guess, first, wondering if for US Retail specifically what sort of I guess inflation are you looking for as well as pricing.

I guess I am trying to get a sense -- is retail consistent with the overall sort of corporate numbers that you have talked about in terms of what to expect around inflation and pricing for the year and then just a follow-up?

Yes, Andrew, I think the way for you to think about that is that inflation estimate of 10% to 11%, think of that as a global, very broad-based look at our commodity basket as we look around the world.

So I wouldn't look for differences one to another -- I mean there can be differences from division to division depending on their specific product mix, but it is a global number.

And then on the pricing part of that, because, again, I am trying to see what you are looking for on sort of the retail package piece whereas I know you have some bigger swings in pricing from time to time in Bakeries & Foodservice based on some of the business mix there.

Yes, the pricing I think from segment to segment might vary a bit and US Retail is going to be mid single digit.

And as Don said, we have seen I mean an awful lot of that already coming through.

So we think we are pretty close to where we are going to end up in US Retail and you guys can track and see that as well.

In the Foodservice side, for instance where it is more of a fully sort of grain-based productline, then the pricing will be higher there and that also is pretty much through.

Okay, so then if we think about 10% to 11% input cost inflation, just purely just the math of it, it would seem as though 4% to 5% pricing would be able to kind of handle that, right, even excluding HMM and it does seem like that sort of pricing is what you are looking for in fiscal 2012.

So what I am just trying to get a sense of is, if I am missing something there or -- because you are looking for mid single digit pricing, which corporately just on its own would cover call it 10% to 11% inflation from an input cost standpoint.

So I want to make sure I have got the math right is all.

Andrew, this is Don.

I think there are a couple of things you want to take into consideration as you think about modeling.

One is we do expect some modest decline in our volumes.

That obviously has a knock-on effect on our margins.

And so as we see that come through, and obviously from a pricing standpoint, that is part of what is driving those volume numbers.

As we think about the pricing that we are putting through, we are pricing largely to offset the dollar inflation.

That is why you see the margin impression that we talked about in our gross margin.

So we are not pricing again within this 12 months to fully retain the gross margin percentage, but ensure that we are at least offsetting the inflation dollars.

Got it.

Okay, and a quick last one, I will sneak it in.

Just how do the 70 new products in the first half compare, if you have it, to sort of last year's first-half rate and that is it?

Thanks so much.

I am looking around the room, Andrew, to get hand signals from -- I mean I think --.

I get that a lot in my office too, Ken.

Yes, yes, no, it is certainly comparable to higher and we feel quite good about the -- we think the quality and we have got some -- we've just got some very good ones.

We think that the cereals are really good, the 90-calorie brownie, we've just had a string of very good innovation in that healthy snacking sector.

And so we think that is going to be good and we have got ample capacity, which I think is an important point in that division to really supply everything that we anticipate.

We like Pizza Stuffers a lot, which has been testmarketed for the last few years.

I am being facetious, but it is a very successful product in Canada and so we have a lot of confidence in that whole kind of frozen handheld sector.

We think the Pillsbury Breakfasts are good offerings and have been well received.

So we feel quite good about what we have gone out with here in the first quarter and we will have more.

We will have more good new products as we come into the second half of the year.

So we have got a good lineup of innovation here.

Great, thanks so much.

Terry Bivens, JPMorgan.

Good morning, everyone.

Just, Ken, just to go back to Yoplait a minute, does your guidance -- I assume your guidance for 2012 includes marketing to be spent on the new Yoplait acquisition?

No, Terry.

We haven't really, other than the transaction expense comments that Don made, we haven't really shown you any operating detail on Yoplait because we haven't closed the sale yet.

We will do that in mid-July.

Terry, if your question is the media spend guidance we gave growing at least in line with sales growth, that is for our existing business.

It doesn't include Yoplait International.

Yes, what I was getting at here is really this.

I mean one would anticipate as you get your hands on this business that there will be some outsize marketing to really kind of try to drive these businesses like I think you have in mind.

I am just wondering whether we should expect that in year one, whether we should expect it in year two, which also kind of gets to the question of will this be accretive in FY '13.

That is really where I was going.

Well, let me answer -- as Ken alluded to, we will provide further detail on the operating plans hopefully on the 13th when we meet, assuming we get everything closed between now and then.

But to think about it, broadly if you think about the business that we are acquiring, it will be about -- it's a little over $1 billion, $1.2 billion in sales.

Our share of the operating profits will add somewhere between $0.05 to $0.10 to our earnings.

Obviously, it will be probably at the lower end of that this year because it is going to be a partial year.

As we look at F '13, we expect to move to the upper end of that range.

The combination of that is going to be, as I said, basically cash neutral this year with a $0.01 drag to the amortization of the intangibles.

As we get into to F '13, we would expect the operating performance to at least equal what we have in the intangibles, so reporting neutral, but cash accretive and then growing from there.

And again, we will provide more color to the specifics behind that next month.

And I guess just the last thing to add, Terry, is I mean these are market by market as this thing comes our way.

They are very good brands that respond very well to the things that we are good at.

It is a category where innovation works, the category works, consumer marketing and innovation works and they have done that well and they have built some nice brands and we look forward to working with them and bringing our capabilities to them.

And they compete in this fabulous, huge and growing yogurt category.

So the whole mix of opportunities there is quite exciting to us.

I would add to that, let me just finish up, a couple of people have asked now about the Yoplait impact.

And obviously, I have seen a lot of the cuts that all of you have taken at trying to estimate what the EPS impact will be and I think there is probably two fundamental differences in terms of what we are guiding to now versus some of the analysis I have seen.

It is the fact that we are funding it through shares and a lot of people model it through debt.

We are doing that primarily because we do want to retain our BBB+ rating and we are looking at our credit ratings.

And as we have talked about acquisitions in the past, we have always indicated that they will be funded through share repurchase dollars being redirected and so that is what we are doing here.

And that is probably causing probably $0.03 to $0.04 difference from what many of you have modeled.

And then the other is the non-cash charge, the amortization of the intangibles, which would be a bit over $0.01 in F '12 and maybe upwards of around $0.02 in F '13 and going forward.

And again, noncash, I don't think people have modeled that typically.

So I think that is where you get the difference between the guidance that we are giving you today and some of the modeling I have seen in your papers.

Okay.

Thank you very much for that color.

Eric Katzman, Deutsche Bank.

Hi, good morning, everybody.

I guess just a couple of questions or one question on the fiscal fourth quarter, Don.

It seems, if I did the math right, that your corporate expense ex-mark-to-market, etc.

was about $100 million and that was quite above what you were running for the rest of the year.

I realize the fourth quarter is usually kind of a catch-up, but was there something to read into that run rate for fiscal '12?

This is in the corporate unallocated?

Exactly.

Yes, we had I would say three things, one of which was common through the year, which was the increased pension expense that we had each quarter, but the two things that came through in the last quarter would be that that's typically what we have when we put through our contribution to our foundation, to the General Mills Foundation.

So that was on the order of $20 million to $30 million in the quarter.

I am looking around to make sure that I have that number correct.

And then we did actually have -- our stock price made a nice appreciation in the quarter and as we record some of our restricted stock expense, that jumped by about $10 million or $12 million in the quarter as well.

So those were kind of one-offs in the quarter.

It doesn't necessarily indicate a higher run rate as we look into F '12.

Okay.

And then I guess on the -- kind of stepping back a second, you know when I look at the chart, Ken, that you showed on the inflation, you had kind of similar levels of inflation in fiscal '09.

Granted it wasn't as much of a jump, but we had an '08 and '09 high single digit inflation.

And it seemed like the Company, with the pricing that it put through back then, really didn't suffer from, if my memory is correct, much volume erosion and HMM was doing its job and those were pretty strong years.

And so I am kind of, I guess, wondering, and maybe this has been asked, but is it really the competitive environment and the state of the consumer that has you a bit more cautious on the volume outlook and kind of where all this promotions/net pricing ends up?

Let me start.

Eric, it is a good question and I think it is a good sort of comparison to make.

And you are right about the -- we had the same pricing.

We had HMM firing there in that year just as we do this year.

I mean we think we've planned the pricing well.

HMM continues to work very well.

The difference really is that consumer and the way the consumer is behaving and the key thing going on in F '09 was we had a very meaningful shift from consumers eating food away from home to consumers moving into the grocery store.

And that shift I think gave us a tailwind, so we had a combination of HMM volume growth and pricing, all of which came through, which led to the scenario that you've just described.

We don't see food away from home growing over the next few years and this is something that we will go into in a little more detail on July 13, but that sector has stabilized and so we don't really see the dramatic shifts into the grocery right now.

Although obviously there is good traffic in grocery stores, but we don't see that shift and we do see the consumer -- as you know, it is a slow recovery.

You guys all know the caution out there and so that I think is the reason for our caution on the volume piece of the equation.

The only other thing I would add, Eric, is if you are comparing back to F '09, I can absolutely understand how you gravitate to that comparison as F '09 was a 53-week year, fiscal year also.

So we have that as benefiting our bottom line.

Okay.

And then I don't know if you can answer the last one, but I don't know if you can answer this now or wait for a couple of weeks, but it just -- your stock has been okay within the context of a pretty strong group the last couple of months, but I don't -- I think you'd probably admit it hasn't done as well as you probably would like or as it has done in the past.

And you are suspending share repurchases to spend the money on the Yoplait business, but it really doesn't look like it is going to add much in terms of at least earnings over the next year or so.

And so can you kind of -- I mean it is not like the Company is underlevered and then at the same time you raise your dividend 9%.

So I am just trying to kind of understand like the capital kind of allocation and why it wouldn't make sense to just put on more leverage, but buy back stock if you are that comfortable that Yoplait is really going to so significantly add, as a fifth pillar of growth, especially with raising the dividend.

It's a very fair question.

Let me kind of parcel it all out.

I guess what I'd give as a macro view first is that when we think about our earnings growth, we, first of all, fundamentally look at our sales and operating profit growth.

EPS is clearly an important figure, but we want to make sure that we are creating businesses that are going to drive that operating profit growth.

That is what we think we have added with the Yoplait acquisition.

As we think about the financing, we do want to make sure that we retain a capital structure that mirrors -- that allows us the fundamental strength and the flexibility as we move forward.

We think BBB+ is the right place to be both from a borrowing standpoint and that financial flexibility standpoint.

To hold that rating, it means using share repurchase dollars, what could be share repurchase dollars for this acquisition.

It is a little bit separate from our dividend decision.

The dividend decision quite honestly from going from 9% versus something a little bit lower isn't a significant dollar decision, but it is important that we continue to move that dividend in that high single digit that really we have committed to over time.

And certainly we have delivered against over the most recent past.

So as we think about our return to shareholders, the key thing is, in regards to the Yoplait acquisition, is how do you add businesses that are going to help you drive that top-line growth in the operating profit and that is what that acquisition did and funding of it then is maintaining our capital structure.

Okay.

I will pass it on.

Ed Aaron, RBC Capital Markets.

Thanks, good morning.

I just wanted to ask a couple of clarification questions about your 2012 guidance.

So last quarter, you seemed fairly committed to delivering on your growth algorithm for the year and just wondering if that was more of a misread on our part or if something may be changed in terms of your internal planning process over the past 90 days or so.

No, I think what I would say is we really do approach every year obviously with a commitment and the goal of being very closely aligned with that long-term planning model.

And just simply as we got deeper into the plan and the full impact of the inflation and really as we have talked over several questions over the past few minutes really tried to assess where we thought the consumer would be in response to the general level of inflation.

That just led us to conclude that we need to be cautious about those variables as we go into fiscal '12.

So certainly our starting point is also to stay on model, but this is the year that I think for very clear reasons we have chosen to vary from that a little bit.

Okay, that's fair.

And then as far as kind of your pricing goes, it looks like you've pulled back on trade spending a little bit more than what your peers have in kind of the most recent periods and I am wondering if you think that is because your competitors are maybe being still a little bit excessively promotional or if there are perhaps some timing dynamics involved related to some of your upcoming new product introductions that you are trying to keep some powder dry to support over the next few months?

Yes, I mean it's difficult to and unwise to make difficulty) our competitors, but it is fair (technical difficulty) in our industry with where in-store promotion and merchandising is a key marketing lever and so there are significantly high levels of promotion across most of our categories.

I think as you approach increasing prices, I mean all of us are looking at a combination of list price increases and you have seen those, but also changes in promotional strategy often either through frequencies, sometimes in depth.

I mean this is I think very clearly going to be part of the mix for everyone.

As to how that plays out, I mean there are timing elements to this.

Different retailers have different planning approaches and it can take time for the merchandising piece to work its way through.

And so it's not worth going into that now, but I am quite confident that we are all looking at a mix of the two levers as we adjust our prices here.

Thanks for taking my questions.

Vincent Andrews, Morgan Stanley.

Thank you very much.

I guess I wanted to get some more color on the cost inflation and maybe relative to where your hedge position is going into this year relative to last year just because we were sort of modeling a high level of inflation for you guys, but 10% to 11% is higher than we thought and then we also would have thought there would have been some benefits from hedges at least going into the first half of the year.

So I guess my question is is did you have a stronger cost position last year because you were very well hedged and some of the inflation going into this year is just that rolling off or are we sort of misunderstanding some of the key inputs that you might be experiencing higher than -- higher inflation than we might be able to see sort from futures curves?

Vincent, this is Don.

I think what everybody is seeing across the industry is a pretty significant step-up in inflation.

I think we have seen all of our peers call out high single digit, even double-digit rates as well, so I think everyone is feeling this in the near term.

And clearly if you look across -- again, we have a broad basket -- if you look across our commodity basket whether it is grain or energy or dairy, you can look year-over-year and see the spot market, it'd be 40%, 50%, even 70%, 80% increase in some of those commodities.

So the higher rate of inflation I think is very much industrywide.

As far as our hedge position, we are coming into this year a little over 50% hedged.

It is about the same place we were a year ago.

And so we are comfortable with our hedge position as we come into the year.

So we are consistent with a year ago.

And as we look back on the past year, we do think we hedged pretty well in an upward sloping market.

So obviously as those hedges roll off, we feel the impact of those and that is why we see the highest inflation pinch in this first quarter.

Okay, and maybe just a quick follow-up on the volume.

Is there anything you are seeing so far in your fiscal first quarter that is giving you sort of incremental or sequential cause for concern on the volume front relative to your trends in the fourth quarter that might have been driving sort of the pricing decision because I guess we all know inflation is up and you just pointed out it is happening for everyone, so just trying to understand what is different.

Well, our expectations across the entire food industry is there was a bit of price deflation in the store over the past year in 2010.

We did see a marked uptick in volume as pricing started coming through because of these pressures I just talked about.

[Obviously], across the industry, you'll see significant declines as well.

That said, we are being cautious in our assumptions on the full year just given the current economic state and particularly the health of the consumer.

Now in terms of the near term, we talked about the fourth quarter.

We were rolling over significantly strong volume growth on a comparable weeks basis from a year ago, so we knew we would be down in the quarter.

We also have some certain promotional timing shifts this year for some large programs that will be running in the second quarter versus the first quarter a year ago and that will impact the volume in the first quarter, which is also why we feel the most volume and profit pressure in that first quarter.

And so the volumes as we see them coming in now, they are really meeting our expectations.

Q4 we know is tough to read because of that year-over-year comparison, but kind of a month into the quarter or a month into the year and the quarter, volumes are about where we expected them to be.

Okay.

Thank you very much.

Alexia Howard, Sanford Bernstein.

Good morning, everyone.

I just wanted to ask about Yoplait in the US rather than overseas.

And particularly with respect to shelf space, I guess I have seen some of the new Greek yogurt brands seem to be taking up quite a lot of space on the shelves.

And I'm curious about what your own shelf space trends have been or whether perhaps it is that, with the expansion of Greek yogurt, the entire category is getting more shelf space assigned to it, so it is not troubling you too much.

Well, it is very much the latter.

I mean I think the category, if we think about it historically, has been a category that has expanded the new development of new segments and so Greek is appealing to a new consumer and it is -- and retailers are expanding space in order to accommodate it.

So that is what is happening and as I said, obviously, we like that segment too.

We have got a product there now that is turning, it is gaining share.

We needed to add capacity to support it and we have, which is a good problem to have.

That will come onstream here later in the summer and at that point, we will have the mass and the capacity reserve to support advertising.

And so it is a good exciting segment and we are in there now with a product that is growing and retailers are clearly seeing the yogurt category as a grower and they are adding refrigerated space to support it.

Great, thank you very much.

In the interest of time, I will pass it on.

Thanks for that.

Let's take one last question here before we (technical difficulty).

Robert Moskow, Credit Suisse.

Thank you.

Two questions for you.

One is, when I look at what your plan was for media spending in the beginning of the year for fiscal '11, it was for pretty much a low single-digit increase.

You ended up cutting it quite a bit.

I get to a $90 million cut quantitatively.

And then when I look at the increase for fiscal '12, you are still not going to be up quantitatively to where you were two years ago.

And I am just -- it ended up being about 5.3% of sales or something like that.

Can you tell me if you think that you are continuing to spend at the right level or if you feel like fiscal '10 levels was really where you needed to be?

And then another question on restructuring expense, a lot of your peers are taking bigger restructuring charges, rethinking their asset platform base.

Have you thought about doing some deeper dives into your assets to determine whether deeper realignment is necessary?

Thanks.

Well, let me take the first bit.

I think about media, first of all, thinking about it maybe in a four or five-year trend and I think, in F '08, we were up double-digit or F '09 double-digit.

F '10, we were up I think it was 24% or 25%, so very, very significant increases over a long period of time.

We backed off I think appropriately some this year that we just concluded and we are adding back I think at a good level in this year.

So we are adding to an already high level.

The other point that I would underline is a comment I made in the prepared remarks.

We are getting much better at allocating more of the total media bucket to working media.

So we are figuring out ways through HMM and all these disciplines to reduce the amount of money that is going into production and all of the related expenses so that the actual true media impact both last year and this year is above the spending impact.

And I think we made the comment that we are now the number one media advertiser in the food space in the US.

And so I think that is kind of sort of a long-winded way of saying obviously we are totally committed to having the right level of media support.

We have got good growth this year supporting all of the core stuff that we have.

We will have good support on all these new products that we are excited about and the in-market impact will be even above the dollar figure that we are giving to you.

So we feel just fine about that.

Don, do you want to take the restructuring?

Yes, I will just add one other point on the media.

Rob, it's also you have to look relatively as well.

In the US, we actually gained share of voice this year.

So it is important to look at where we are relative to our competition, not just to our prior year.

As far as the restructuring, we always evaluate where our assets are and how productive they are, but fundamental is really HMM and our managing of margins isn't about necessarily downscaling bricks and mortar.

So it is about innovation, finding new ways to produce or to formulate products or deliver them to the customers and so we haven't had to rely on a lot of restructuring.

We have done some targeted restructuring in our Bakeries & Foodservice business over the last four or five years and you've seen the benefit of that in a business where profits have virtually tripled over the last -- over that time period.

So we do do it in a very targeted manner and we certainly do review our asset base on a regular basis.

But as we think about HMM and our ongoing productivity, it is really more about process formulation, delivery changes and less about bricks and mortar.

Thanks.

One follow-up for you, Don.

Is media -- are inflation rates rising this year compared to prior years?

For media, yes, it is up a bit.

Okay.

Thanks.

Thank you.

Thanks, everybody.

We are out of time, so those of you we didn't get to, please give me a shout.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your line.