通用磨坊 (GIS) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the General Mills first-quarter F '12 earnings results conference call.

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, September 21, 2011.

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

Kris Wenker, VP of Investor Relations.

Please go ahead.

Thanks, operator.

Good morning, everybody.

I am here with Ken Powell, our CEO; Don Mulligan, our CFO and Ian Friendly, Executive Vice President and head of our US Retail operations and I will turn the call over to them in just a minute.

First, I need to cover my usual housekeeping items.

Our press release on first-quarter results 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 the website too.

They supplement today's prepared remarks.

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 our future results to be different than our current estimates and with that, I will turn you over to my colleagues beginning with Don.

Thanks, Kris and hello, everyone.

Thank you for joining us this morning.

As you have seen from our financial results release this morning, General Mills is off to a good start in fiscal 2012.

We delivered sales growth in each of our three operating segments.

The quarter included a strong level of product innovation and a 7% increase in advertising investment.

And while the inflationary pressure on our gross margin was every bit as challenging as we expected, earnings were a bit better than we had forecast with adjusted earnings per share matching year-ago levels.

In total, we remain on track to deliver our full-year sales and earnings targets for 2012.

Slide 5 summarizes our results for the quarter.

As a reminder, our results now include the Yoplait International business acquired on July 1.

We report this business on a one-month lag, so there was only one month of Yoplait performance in our first-quarter results.

Sales totaled $3.8 billion, up 9%.

Segment operating profit declined 3% in the quarter, reflecting higher input costs and the increased advertising investment.

Net earnings totaled $406 million and diluted earnings per share were $0.61 as reported.

These results include a net decrease in the mark-to-market valuation of certain commodity positions in grain inventories that reduced earnings per share by $0.03 this quarter.

Excluding mark-to-market effects, diluted EPS would be $0.64, matching year-ago performance.

Slide 6 shows the components of our total sales growth on an as-reported basis, including the one month of results from the Yoplait International acquisition.

Pound volume contributed 2 percentage points of growth in the quarter.

Sales mix and net price realization added 5 points to sales growth and foreign exchange added 2 percentage points to our sales growth rate.

Slide 7 provides a breakdown of our first-quarter sales growth, excluding the impact of the Yoplait acquisition.

As expected, pound volume was lower in the quarter, down 3 percentage points.

Price and mix contributed 7 points of sales growth and foreign exchange added 2 points.

So net sales, excluding the Yoplait acquisition, increased 6%.

Slide 8 details our net sales performance by segment.

US Retail net sales grew 3% led by strong performance in our snacks business.

International sales were up 30%, including one month of Yoplait International results.

Excluding Yoplait, our sales still increased at a double-digit rate and net sales in our Bakeries and Food Service segment increased 13%.

Slide 9 outlines our first-quarter gross margin performance.

As we told you this summer, our first quarter represented this year's toughest gross margin comparison.

On a reported basis, gross margin declined to 37.6%, reflecting the impact of higher input costs for products sold in the current period and changes in the mark-to-market value of grain inventories and commodity hedges we will use in future periods.

Excluding mark-to-market effects, our gross margin declined 250 basis points.

The addition of Yoplait International accounts for roughly 50 basis points of that decline.

The remainder reflects higher input costs.

For the full year, we still anticipate that our underlying gross margin, excluding mark-to-market effects and the impact of Yoplait International, will decline by roughly 100 basis points.

We continue to invest in consumer marketing to drive top-line growth.

Our investment in media and advertising increased 7% in this year's first quarter on top of an 8% increase last year.

Slide 11 shows our segment operating profit for the quarter.

Total segment profits declined 3%, reflecting the higher input costs and increased advertising investment.

US Retail profit was 5% below last year levels.

International profits increased 30%, reflecting strong top-line growth and favorable foreign exchange and Bakeries and Food Service profit declined 15% for the quarter as improved net price realization did not fully offset higher input costs in the period.

Grain merchandise earnings also declined from strong year-ago levels.

After-tax earnings from joint ventures exceeded our expectations, up 7% to $28 million for the quarter, including favorable foreign exchange effects.

On a constant currency basis, CPW sales were up 8% in the quarter, led by growth from the Nesquik and Chocapic brands.

First-quarter constant currency sales for Haagen-Dazs Japan also increased 8%.

Excellent performance in that challenging environment.

Completing our review of the income statement, you see that interest expense declined 5% in the quarter, reflecting lower rates and changes in our debt mix.

The effective tax rate for the quarter was 32.1%.

Excluding mark-to-market effects, our tax rate was 32.4% compared to 32.8% a year ago.

And the average number of diluted shares outstanding declined modestly in the quarter.

We still expect our share repurchase activity will be lower this year as we use cash to fund the Yoplait acquisition, but at a minimum, we expect share repurchases to offset options exercise.

Switching to the balance sheet, slide 14 shows that total core working capital increased 8% in the quarter, roughly in line with sales.

The Yoplait acquisition contributed to the higher balances for both receivables and payables in the quarter.

These were largely offsetting.

The increase in inventory values was driven by rising input costs.

You will also see other impacts of Yoplait International reflected in our balance sheet, including Sodiaal's ownership interest.

A portion of the Sodiaal ownership interest is classified as noncontrolling interest.

The larger piece is listed as redeemable interest.

This reflects the fact that we agreed to give Sodiaal limited annual rights to put that portion of their ownership interest to us over the next nine years.

So with the first quarter completed, we are on track to deliver our 2012 targets, now including Yoplait International.

We expect to deliver double-digit growth in net sales this year.

We expect segment operating profit to grow slower than sales.

Our robust pipeline of HMM activity will offset most, but not all of the 10% to 11% input cost inflation we expect this year.

We expect to generate earnings growth over the remaining nine months of the year with the pace of growth strengthening as the year unfolds.

For 2012 in total, we are reaffirming the guidance we provided this summer.

We expect EPS to grow at a mid-single-digit rate and reach $2.59 to $2.61 per share.

This range includes the roughly $0.01 drag we have estimated for the Yoplait acquisition, which is driven by increased amortization and depreciation expense and an EPS impact of reduced share repurchase activity.

Our EPS guidance excludes any mark-to-market effects in Yoplait integration costs.

With that, I will turn the microphone over to Ian for an update on our US Retail business.

Ian?

Thanks, Don and good morning, everyone.

Let me begin with a snapshot of the improving trends we are seeing at the Cadbury level.

As we have discussed before, input costs are up significantly for food manufacturers.

In response, branded and private-label manufacturers have taken pricing actions to offset a portion of the input cost inflation.

Across our categories, average unit prices increased sequentially and were up nearly 5% for the first quarter of our fiscal 2012.

Food manufacturers have also built greater levels of product innovation and marketing support into current year plans and as a result, category sales trends are improving.

In fact, this improvement in category trends is quite broad-based.

As you can see on slide 18, category net sale trends across all channels improved in 11 of our top 12 categories this quarter and in aggregate, net sales for our major categories grew over 4% across all channels in the first quarter after flat performance in fiscal 2011.

Now our marketshare performance across these categories was admittedly a mixed bag with declines in cereal and yogurt and gains in grain snacks and soup.

In total, our dollar share was down a bit in the quarter, but that is consistent with our expectations at this stage of the year.

Our US Retail pound volume also declined this quarter as anticipated.

Some of this decline reflects our actions to reduce trade spending and take pricing.

But changes in product mix also contributed to our pound volume decline.

Volumes declined for some of our heavier products, including soup, canned vegetables and dessert mixes, while our strongest volume gains came in lighter product offerings like grain snacks.

And while inflation required us to take moderate levels of pricing on a variety of our products earlier this year, our HMM cost-savings efforts mitigated this somewhat.

Slide 20 shows the current non-promoted price per serving for a variety of our products.

We are focused on ensuring our brands remain affordable, mainstream choices for consumers.

As Don mentioned earlier, net sales for US Retail increased 3% in the quarter, led by our snacks and Small Planet Foods divisions.

For the full year, we expect net price realization to help drive mid-single-digit growth in net sales.

We will also grow our business by staying focused on product innovation and effective marketing support.

Let me give you a few examples of those efforts starting with cereal.

The US ready-to-eat cereal category generates more than $6 billion in annual sales in Nielsen-measured channels alone.

The improving category trends that began in the fourth quarter of fiscal 2011 have continued with sales dollars up nearly 3% in measured channels in the first quarter.

Now remember that in the first quarter of last year category dollar sales declined due to a competitor recall and increased levels of trade promotion focused on smaller brands.

This year, first-quarter average unit price was higher for each of the branded cereal manufacturers and also for private label.

First-quarter sales for our cereal business grew 2% in measured channels.

Our new items, Fiber One 80 Calorie Honey Squares, Cocoa Puffs Brownie Crunch and Cascadian Farm French Vanilla Almond Granola are all off to a great start.

And we continue to see incremental sales from Cinnamon Burst Cheerios, which launched in January.

We had strong performance on established brands as well.

Honey Nut Cheerios is America's best-selling cereal.

We featured this message in new advertising driving retail sales for this brand up 5% in the quarter.

The gluten-free benefits of our Chex line of cereals continue to resonate with consumers.

Quarterly dollar sales of this franchise were terrific, up 29%.

And targeted Hispanic messaging drove strong growth for Cinnamon Toast Crunch with retail sales up 8% in the quarter.

The cereal category responds to innovation and product news, so we like the chances for good category sales growth in 2012 and with continued product news on many of our established cereal brands, plus bigger and better new product introductions coming in the second half, we are expecting our cereal business to show good sales growth too.

Let's turn to grain snacks.

Category sales totaled nearly $2 billion in measured channels alone and are estimated to exceed $3 billion across all channels.

We are leading growth in this category through continued innovation.

In June, we launched Fiber One Brownies.

These great tasting chewy brownies contain just 90 calories per serving and are off to a terrific start.

We continue to see strong sales from our 2011 launch of Nature Valley Granola Thins, another great tasting low-calorie snack product.

And our established products are performing well too.

With retail sales up 16% in measured channels alone, we are very pleased with our grain snacks performance in the first quarter.

And with increased levels of marketing support planned throughout the year and a strong lineup of innovation scheduled for the second half, we are expecting another year of good growth for our grain snacks business.

I should add a quick word about Larabar, which is helping drive the strong sales growth in our Small Planet Foods division.

These are fruit and nut-based energy bars.

Since we acquired Larabar in 2009, we have expanded distribution and added new products.

Sales for this brand are up 65% in just two years.

In fiscal 2012, we are continuing to add new retail outlets and new products, including two new flavors launched this summer.

First-quarter retail sales increased a robust 35% in measured channels.

Let's turn to yogurt.

This category generates more than $4 billion in retail sales in measured channels and growth continues to be driven by the emerging Greek segment.

In fact, sales of Greek-style yogurt have doubled over the last 12 months and today make up roughly one-quarter of category sales.

We have got strong levels of investment behind our Greek yogurt business this year.

New manufacturing capacity came online in August.

At the end of the last fiscal year, we were not able to fully meet consumer demand for our Greek yogurt.

With additional capacity now online, we expect our growth to accelerate moving forward.

We have also turned on national advertising support for this product for the first time.

Early response has been good.

Since the August 1 launch of our ad campaign, baseline unit turns have increased over 30% and our Greek yogurt sales were up 50% for the quarter.

Our media plan for Yoplait Greek goes beyond television.

For example, this month, we launched a digital marketing initiative in San Francisco and Chicago that incorporates social media.

We have also got in-store sampling and couponing planned to bring new users to Yoplait Greek.

So we are ramping up our activity in this growing segment of the market.

As we have discussed before, fiscal 2012 will be a year of strong investment across our entire US yogurt portfolio.

Our plans call for increased levels of consumer support.

We have product news on established lines, including the recent reformulation of Yoplait Original to contain 50% of an adult's daily value of calcium.

We have got strong consumer marketing plans for our GoGurt business, which is doing well in the growing kids segment of the category.

We have a great lineup of new product launches and we are expanding distribution for Mountain High Yoghurt in the Western United States.

We think we have got a solid plan to get our yogurt business growing again in 2012.

More news and innovation are slated for the second half of the year.

We will talk about that in the months ahead.

As I mentioned earlier, product innovation is a key ingredient in our growth plans across General Mills' US Retail business in 2012.

We have already launched 70 new items in the first half of the fiscal year, including great innovation in the freezer case.

Pillsbury Scrambles and Grands Egg Sandwiches are great new options for breakfast.

Scrambles are delicious combinations of egg, ham or sausage and Green Giant vegetables.

Grands sandwiches offer scrambled eggs, cheese and meat inside a fluffy biscuit.

And all of them are 300 calories or less per serving.

We have also entered the handheld hot meal segment with the launch of three flavors of Totino's Pizza Stuffers.

These kid-friendly pizza pouches can replace a sandwich and are hot and ready in minutes from the microwave.

Both of these innovations represent new product platforms for General Mills.

With continued strong sales from our other recent frozen innovations, including Yoplait Smoothies, Wanchai Ferry and Macaroni Grill's dinner entrees and Green Giant Valley Fresh Steamers, we expect a good year of sales growth in the freezer case.

We continue to invest in our brands to drive top-line growth.

In US Retail, our first-quarter investment in media and advertising increased 6%, solid performance against a 6% increase in the first quarter of 2011.

And in the second quarter, we expect our growth in media spending to accelerate a bit with advertising expense expected to grow faster than sales again in this period.

In summary, our US Retail business has started the year well with results in line with our expectations.

As we look ahead to the balance of the year, we are encouraged by the improving sales trends in our categories.

Our higher levels of innovation and marketing support, combined with net price realization, have us on track to deliver our targets of mid-single-digit growth in net sales for 2012.

We continue to expect our segment operating profit to grow at a low single digit pace, reflecting sharply higher input cost inflation and increased levels of marketing support.

I will now pass the microphone to Ken for a review of our other two operating segments, as well as an outlook for the rest of the year.

Ken?

Okay, thank you, Ian and good morning, everybody.

As we assess the performance of our US businesses and our International operations, we are encouraged by resilient sales results for our brands in what remains a very difficult operating environment.

We are dealing with high inflation and volatility in our input costs.

Consumer trends are a tale of two worlds.

An increasing number of consumers in emerging markets are buying branded packaged goods as their income expands, but high unemployment, a soft housing market and concerns about the economy are pressuring consumer confidence and spending in developed markets.

Despite these challenges, we remain very optimistic about the opportunities for those of us in the food business.

Consumers around the world continue to see products that provide nutrition, taste, convenience and value and at General Mills, we have got a global portfolio that delivers against all of these attributes.

Ian just gave you an update on our US Retail business.

Let me add some comments on the Bakeries and Food Service segment, which competes in channels for US food sales away from home.

First-quarter 2012 Bakery and Food Service net sales growth results for our business continue to outpace the food service industry as we focus on consumer segments with the best growth prospects.

Net sales with food service distributors grew 5% in the quarter, led by our hot breakfast products, including the new Pillsbury Heat and Eat mini-French toast for K-12 schools.

Sales in convenience stores grew 6% as we gained distribution on new snacks offerings such as Fiber One 90 Calorie Brownies and Nature Valley Recharge Energy Bars.

And pricing drove sales in our restaurants and in-store bakery segments, up 18% in the quarter.

As Don showed you, Bakeries and Food Service operating profit declined in the quarter.

Input costs were higher and grain merchandising earnings lower than year-ago levels.

And the latest economic data indicates that industry trends have softened a bit over the last quarter as restaurant and convenience store traffic has declined.

But as we have stated before, we feel very good about our Bakeries and Food Service business.

We believe our strategy of focusing on the fastest-growing channels and higher margin products will continue to drive performance that outpaces the industry as a whole.

We remain on track to deliver good sales growth for Bakeries and Food Service in 2012 with a mid-single-digit decline in segment operating profit expected as we lap strong levels of grain merchandising earnings last year.

Let me shift to our International operations.

Slide 34 shows the components of our International sales growth.

Sales increased a robust 30%, including the benefits of the Yoplait acquisition.

And net sales, excluding Yoplait, were healthy as well with pound volume, pricing and mix and foreign exchange all contributing to net sales growth of 14% on the base of business.

On a constant currency basis, our first-quarter International net sales grew 20% with growth across all four regions.

In Canada, sales increased 8%, including the addition of the Liberte yogurt business that was part of our Yoplait acquisition.

Sales in Europe increased 36%.

This is continued strong performance in a very challenging market.

Our growth reflects the addition of Yoplait, plus good gains by Nature Valley in the UK and Haagen-Dazs in France.

Sales in the Asia-Pacific region increased 15%, led by double-digit growth in China and in Latin America, constant currency sales increased 12%.

Our large global brands are driving this sales growth.

Haagen-Dazs had a great summer in France where Secret Sensations is off to a terrific start.

This is ice cream on the outside and a liquid creme brulee or chocolate fondant center on the inside.

In China, we have invested in additional retail freezer capacity and we remain on track to open over 100 new Haagen-Dazs ice cream shops around the world in 2012.

Our convenient meals business in China is Wanchai Ferry.

We are launching new varieties of dim sum and frozen noodle offerings and increasing our levels of media investment.

And we have begun our expansion of Wanchai Ferry into new markets in Southeast Asia, starting with Thailand.

Old El Paso is leading Mexican category growth in France through a combination of great in-store visibility, including sampling and recent new product innovation, such as an extra mild fajita kit.

We continue to build Nature Valley distribution in the UK and have added chewy varieties to our Nature Valley lineup in Australia.

And while it is early days, we are very excited about the contributions from our new global platform, Yoplait yogurt.

The integration of this business is going well and we will have more to say about growth prospects as the year unfolds.

Our largest global business is cereal and we are seeing good performance in international markets.

In Canada, we continue to lead category growth.

We added nearly a full point of marketshare in the last 12 months.

With the strongest new product lineup we have had in many years and health messages on the cholesterol fighting benefits of oat fiber in Cheerios, we expect another year of strong performance for our cereal business in Canada.

Slide 38 highlights performance for our Cereal Partners Worldwide joint venture.

We continue to build off of our positive momentum from last year with first-quarter pound volume up 6% and net sales up 8% on a constant currency basis.

After several quarters of decline, the UK cereal category is growing again and our net sales in this market grew at low single digit rates in the quarter.

Our first-quarter net sales in Australia increased at double-digit rates led by growth in Uncle Toby's Hot Oats cereal.

And we continue to see good performance across developing and emerging cereal markets, including double-digit growth in Mexico and Turkey.

Brand performance was led by Nesquik and Chocapic.

We saw good growth on some regional brands as well, including double-digit growth on [Nescow] kids cereals and all family corn flakes.

Let me give you a quick update on our Haagen-Dazs Japan joint venture.

I would like to first recognize the tremendous work and dedication of the employee team in Japan.

Despite operational and personal challenges in the aftermath of the March earthquakes and tsunami, they sold a lot of ice cream.

Net sales increased 8% on a constant currency basis.

As a reminder, we report our joint venture sales on a two-month lag.

So these results include the three months immediately after the earthquakes and tsunami and this is outstanding business performance.

But we still expect a slow pace of business and consumer recovery in Japan this year, so we have not changed our expectations for Haagen-Dazs Japan.

Our estimates assume sales and profits for this venture will decline in 2012 in total.

Across our categories worldwide, we remain committed to leading growth and innovation is the key to this and we have got a terrific lineup of new items already launched with additional innovation planned for the back half of the year.

And with sales trends accelerating in many of our categories, we think our top-line growth prospects are very good.

We also have a variety of merchandising events planned to drive customer and consumer excitement.

To help in the fight against breast cancer, we have got two events planned this fall.

Over the last five years, we have partnered with the Susan G.

Komen Foundation to make Pink Together, one of the most powerful cause-marketing platforms in the grocery store, featured on over 300 million packages of General Mills products.

Pink Together extends to our Bakeries and Food Service business with colleges and universities too.

We are partnering with sororities across the country to increase breast cancer awareness on campus.

We have reached over 300 schools nationwide, up from only a handful of schools just a few years ago.

Our second program is called Save Lids to Save Lives.

This is the 13th year we have offered our signature pink Yoplait lids to raise money for breast cancer research.

Yoplait will donate $0.10 for every lid redeemed up to $2 million in total this year.

We also have new advertising and expanded Hispanic outreach as part of the program this year.

We continue to expand our successful Box Tops for Education platform.

For example this year, we are expecting to add over 1200 Hispanic schools to the program nationwide and merchandising events aren't just a US phenomenon.

In China, Moon Cakes are a delicacy given in celebration of the Mid-Autumn Festival.

Haagen-Dazs Moon Cakes reflect their tradition of giving the best to friends and families.

We started product distribution in advance of this year's festival and demand has been terrific with long lines of consumers waiting to redeem certificates for Haagen-Dazs Moon Cakes.

So these are just a few of the merchandising programs we have planned in the months ahead.

So with one quarter complete, our fundamental expectations for fiscal 2012 have not changed.

We will continue to combat high inflation with a robust pipeline of product innovation, HMM activities and marketing investment.

We are focused on ensuring that our brands offer great taste, convenience and nutrition for consumers around the world at good value.

And we believe prospects are excellent for achieving our growth targets in 2012 and beyond.

So thank you for your time this morning and for your interest in General Mills.

Now we would be happy to answer some of your questions.

So operator, if you could please get us started.

(Operator Instructions).

Andrew Lazar, Barclays Capital.

Good morning, everyone.

I guess I will preface this question by saying this is more the optimist in me, but some of the things that you talked about in the prepared remarks kind of struck me as maybe some of the first more positive data points perhaps that we have heard, not just from a General Mills perspective, but for the industry as a whole, in quite some time.

The concept of the first quarter being perhaps the peak in inflation for you and the industry, having a lot of your pricing in place now.

And then your category comments that you talked about and Ian discussed as well certainly seem like somewhat more positive than what we have heard.

So I guess my question is am I just being overly optimistic?

Do you think that maybe we are kind of seeing a bit of an inflection point of sorts for the industry?

Or do you still think given obviously what I know is still a tough consumer environment, is it really too early to say?

So good morning, Andrew.

This is Ken.

I would say -- I don't know if we are at an inflection point.

I mean I would say that we still see the environment as challenging.

My comments on the Food Service side, I think as you heard earlier in the year, we were -- the forecasters there at Technomic were predicting maybe there would be a little bit of growth on that side of business, which is -- and if there is growth in Food Service, it is usually because consumer confidence is increasing a bit and they are a little more optimistic about income and that has since come down.

That sector is going sideways.

We continue to think that the consumer is, from what we can tell, quite cautious, very planful about their shopping trips.

So we think that the environment there is going to continue to be challenging.

Having said that, we are also, as you heard, encouraged by the category developments that we saw in the first quarter.

We think that we -- as we have said in the past, we think that we got our expectation for inflation and our pricing package about right.

We got that behind us many, many months ago.

We are obviously encouraged by very solid cereal performance, very exciting performance on the grain snacks side of the business.

So there are some good signs there.

We are encouraged by the first quarter, but I would say the environment still seems pretty challenging to us.

Got it.

Well, thank you for that.

And then a very quick follow-up, net price realization came through very nicely as you expected in -- well, across the board, but in US Retail specifically.

As we think forward into sort of the next quarter or two, would you expect the pricing piece to kind of build sequentially from here or is kind of what we saw in this past quarter sort of where you are at and knowing that you do have a little bit more promotional activity planned for the next quarter?

I am just trying to get a sense of do we see kind of US Retail price mix plateau at this level, maybe even take a step back just because of promotional timing?

Just trying to get that perspective or expectation out there?

Hi, Andrew.

This is Ian.

I think my expectation is roughly similar.

In some ways, we do have some seasonal items -- seasonal parts of our business coming up.

On the other side, I will say that, in many cases, one of the ways that we have taken pricing is reduction in trade merchandising or raising our traded price points.

And some of that hasn't been reflected yet, particularly for the seasonal businesses like soup where that will be much more evident going forward.

So there will be some actions we have already taken that haven't yet shown up for net price realization.

But the nature and the degree I would say is roughly in line with our first quarter.

Great, thanks for that and for the comment on soup.

Chris Growe, Stifel Nicolaus.

Hi, good morning.

I just had a question for you and I guess a bit of a question for Ian back to that acceleration in the categories.

Clearly, there is some pricing component inherent in that.

I just want to be clear that, underlying that, are you seeing better volume trends?

We can see the pricing going up, but is that at least a factor that you think that is helping drive or helping show better category growth for your categories?

The categories kind of played out and our business played out roughly as we thought from a volume impact, elasticity and pricing standpoint, which is to say we have had to take quite a bit more pricing than we would ever historically have taken.

And it did have a negative impact on volumes, but roughly in line with what we expected, maybe a little bit better in a few categories.

But I would say our expectation for the year is sales-driven growth by pricing and dollars with a modest decline in volume.

Okay.

And then I just wanted to ask about -- you are using a combination of price increases and promotional declines, if you will or reductions in trade merchandising.

The elasticities, have they kind of shaken out where you expect and I guess the nuance I'm looking -- is there any change or any difference in elasticity in categories where you are primarily using reductions and promotion versus those where you are raising prices?

Is there any alterations, if you will, to the volume patterns in those categories?

As I said earlier, it is roughly in line with our expectations, whether it's -- no matter which way the pricing is realizing, the impact on demand is coming in pretty much as we thought across most categories.

One of the things that always affects that is what else is going on in the store, so we have to actually see as the year plays out.

Not just our own categories in the business, but indeed the entire food industry.

But given the level of input inflation we are seeing, I would expect that it will be fairly inflationary throughout the store.

So I am cautiously optimistic that the elasticity should hold the way we thought.

Okay.

And just to follow up on that, and my last question, do you have the trade cost per case?

You have given that before.

Was that down in the quarter?

I don't have that in front of me.

My expectation though is that our trade cost per case is roughly in line with prior year and our expectation for the full year is it will be down a bit.

Okay, thank you.

Ed Aaron, RBC Capital Markets.

Thanks, good morning, everybody.

Just wanted to ask kind of an update question on kind of cereal category pricing trends.

There has been some talk about some recent incremental pricing actions by your main competitor.

Just kind of an update on where you stand from a pricing perspective there.

Have you taken all the price that you need?

Obviously, we won't comment on future pricing actions.

What I will just reinforce is we like what we are seeing in the cereal category.

It is sequentially improving a great deal.

We are seeing growth, dollar-driven growth.

We took -- when we did our, as Ken mentioned, our inflation and pricing estimate, we took what we felt we needed to do to make our fiscal year work for us.

That doesn't preclude future actions, but I would just say that I think the cereal category is working in a very productive manner right now.

Thank you.

And then just one quick follow-up and I apologize if you already gave this, but can you tell us what your inflation rate was in the quarter?

We don't provide quarterly guidance or information on inflation, but what we have said and what we did see is that we see higher inflation the first half of the year versus the second half of the year, but still 10% to 11% for the full year.

Okay, thank you very much.

Alexia Howard, Sanford Bernstein.

Good morning, everyone.

I have got -- okay, so two questions, one on yogurt.

Historically, yogurt has obviously been an important source of growth in the US Retail segment.

I am just wondering are you actually seeing stabilization now that you have not got the advertising campaign and the new capacity in place.

I mean with the August numbers better than earlier in the quarter and are you actually getting back into positive territory for yogurt overall?

Hi, Alexia.

This is Ian.

No, I guess I wouldn't characterize it quite that way yet.

Our business is on track with where we expected it, but it is down due to so much of the category's growth in share going towards the Greek segment.

And our new capacity for our Greek business didn't really come online until the last month of the quarter.

So within the quarter, I would say -- well, I wouldn't say -- we were down on our yogurt business.

It should get sequentially better over the year as we are able to get behind this business, but it is going to be many periods of working that back.

Great, thank you.

And then a quick follow-up for Don.

On the uses of cash, I think other companies are talking more about less in the way of share repurchases, more cash targeted towards bolt-on acquisitions.

This quarter, you repurchased I think a little over $100 million and you certainly did over $1 billion last fiscal year.

How are you thinking about uses of cash as we go forward?

Are the share repurchases more opportunistic here or do you expect to continue that?

We always have share repurchase as part of our traditional way to return cash to shareholders, but as we have said this year, our share repurchase activity will be down substantially from last year because of using that cash to fund the Yoplait acquisition.

So I think that is the main factor you will see in our use of cash this year.

Great, thank you very much.

I will pass it on.

Eric Katzman, Deutsche Bank.

Hey, good morning, everybody.

A couple of detail questions.

What was the goodwill amortization non-cash expense in the quarter and what do you expect it to be for the year associated with Yoplait?

For the year, as we said I guess probably in the July meeting, we expect about $0.01 or a little over $0.01 drag in EPS from the new amortization from the intangible assets.

We had one month of that in the quarter, so it is probably in the neighborhood of $3 million to $5 million.

It shows up in our operating results.

You will also see it then in the amortization/depreciation line of the cash flow.

And that is off of -- I guess you had footnote 3, which has like $571 million of finite lived intangibles, so it is only --

That is correct.

-- $5 million off of that $571 million?

Yes, because if you think about those asset lives, they are going to be -- they are extended -- they are different terms, but it is everything from mid-single-digits to double-digit in terms of years.

So the average life is probably in the high single digits to low double digits in terms of years and again, this is one month because we only had one month of Yoplait results in the quarter.

Okay.

And then I noticed that in the International segment the price mix was dramatically different pre and post-Yoplait.

Can you talk about that a little bit?

It looked like there was like a 12-point swing between Yoplait in or out.

And I guess I assume that that is only going to get more pronounced when you include Yoplait for a full quarter.

Yes, that just reflects the fact that it is a lower-priced product on a pound basis versus our other International portfolio.

We see a similar impact in the US business.

It is just that it is obviously -- it stands out in International because this is the first time we have consolidated Yoplait.

Okay.

And then last kind of I guess detailed Yoplait question, even though it was there for a month, I think Kris earlier had said that it was a profitable contributor on the fully consolidated basis.

Could you say how much that was out of the -- I guess it was $81 million of EBIT that you had in the quarter for International?

Yes, Eric, we don't break down line-of-business profitability, but I will reiterate what we shared in July that we are going to have 10 months of results for Yoplait for the year.

We expect it to contribute about $1.2 billion in sales.

Operating profit is low double digits as a percent before that amortization expense we just talked about.

Okay.

And then just pulling back for a second to Ken.

Ken, Ralcorp is obviously -- their acquisition of Post is a clear failure in strategy and so now they are spinning that out I guess as a stand-alone entity.

There has been some -- I guess there was a question put to Kellogg at Back-to-School and they said, no, they couldn't touch it in terms of antitrust.

Do you see it the same way and how do you see a stand-alone Post as a competitive force in the category?

Yes, your first thought has crossed our mind in the past, but we would have similar antitrust and competition issues there.

That is very, very clear.

As to how they might do on a stand-alone basis, I think it is very difficult to say.

I mean we think that there is good brand power there.

I mean clearly they have good equities and so if they -- if that stand-alone business does a good job of bringing into the organization people who really understand the category and understand how to build cereal brands and the kind of consumer insight that you need and advertising intensity and if they bring people in who understand that, then those brands ought to be responsive and they ought to be able to get high-quality growth out of those businesses through baseline development.

So it really is very much -- it's just a function I think of the kind of organization that they have built behind it.

Were you surprised at the margins that they showed?

I mean it seemed like they had -- for a number three player in the category, I think it was 25% plus operating margins, seemed to be -- even as good a category as cereal is, it seemed to be quite high for a number three player.

You are a little deeper into their P&L than I am, Eric, so it sounds good.

But anyway, I will pass on that one.

Okay.

All right.

I will pass it on too.

Thank you.

Ken Zaslow, BMO.

Hey, good morning, everyone.

Ian, you characterized 2012 as the year of investment.

How do you think you're going to be characterizing 2013?

I would like to think I would be characterizing 2013 as a year of great return on that investment.

I will second that.

What do you think the likelihood of that is I guess?

That is what I am trying to get at.

You are spending a lot behind this brand.

You are obviously not at the growth level that you probably want to be at.

Do you think 2013 will be a year where you can restore your growth level, restore your profit to where you would have been if you had constant growth to the level you want?

How do you think about it?

And I assume you're -- because my comments were around the yogurt category -- that your question is around the yogurt category as well.

My next question was how do you expect to gain marketshare in both -- you talked about how the category growth for both cereal and yogurt were good, but you didn't really talk about where you think you were going to play out in the marketshare opportunities in those categories.

So if you want to take them together, that would be fine.

Sure.

I think they are in some ways distinctly different.

In the case of yogurt, the category has undergone tremendous transformation, but there is a lot of positives in that.

A category that is now the size of yogurt growing at high single digits is a very rare thing.

And so the ability for innovation to continue to drive consumption and grow the category continues to support what a fantastic business the yogurt category is.

And at different times, trends come in, many that we have created that have driven that growth and in some cases where competitors have driven.

But as has been in the past, the game is always far from over in yogurt.

It is a high consumption, fast-moving category.

I think our investments will very much drive our business performance forward.

We will get competitive in the Greek segment.

There is further innovation to be done even beyond the Greek segment and we will continue to drive the category in a positive way.

So I am very enthused about the yogurt category, but we have to, this year, acknowledge we have some work to do to sort of step back and get back into the game on some of the segments that have emerged quickly.

But I feel very good and I like our plans going forward in it.

I just want to acknowledge we have work to do.

In the case of cereal, you are really dealing with I think a fairly anomalous period from the standpoint of there's recalls and things and historical data to work through on the share basis.

I think once that all works through the wash, you will see, again, a very productive category and a very productive General Mills within that category.

And so I feel terrific about what is going on in cereal and I feel really good about our prospects.

And so that is a very different situation.

That is almost a case of the math in the comp.

Okay.

So do you think you will regain a significant portion of your marketshare in yogurt, as well as cereal or how do you think -- I mean do you think there are share gains?

Just is there a way to quantify how you are thinking about it?

I would say in cereal, I feel very good about our cereal share trajectory once we get through these odd comps in the category, which we are largely through.

Yogurt is going to be a piece-by-piece build-up over the year and into next year.

It is not going to be an overnight solve.

But the sequential growth I think will improve.

Great.

Thank you very much.

David Driscoll, Citi.

Thank you.

Good morning, everyone.

Ian, I wanted to just ask you a little bit about US Retail, inventories at retail.

There are too many retails in that question.

But at the retail level, what are you seeing right now in terms of General Mills product inventories?

Do you believe that shipments have been tracking in line with consumption?

And just kind of the general trends.

I mean at some points in time, we have seen the retailers really pushing hard to reduce inventories, but I'd kind of like a little update on that, if you will.

Yes, over -- all of US Retail, in general, it was up a bit in the quarter, but not significantly and as you head into seasonal periods, it is quite normal for that to go on.

So I would say what we are seeing overall is pretty normal behaviors.

There have been fluctuations and there always are in a given category or two.

But overall, I would say we are not seeing any distinct broad-based retail pullback of inventory.

Okay.

So then in terms of this quarter's performance affecting next quarter's performance, you wouldn't think that there is anything to read through here that, looking at the retail trends, is a reasonable proxy?

No, I wouldn't think so.

I will say just that it's there in the data.

In the case of soup, there appeared to be some inventory reduction going on over the summer, but I expect that will self-adjust over the year.

Okay.

Ken, you commented on Haagen-Dazs Japan and the tremendous performance three months post the tsunami and earthquakes.

Yet you maintain the idea that it is not going to -- it is going to see year-over-year declines.

Can you just expand on this a little bit?

Intuitively, it doesn't seem to make sense.

If the three months post the event were so strong, it would seem to me like those would have been the toughest three months that you would face throughout the year.

Why wouldn't this be better than expected?

And perhaps you just want to say it is too early to say because you have got so much more of the year left.

And then related on the joint venture line, CPW -- just like to hear your thoughts about the sustainability of that.

Is there anything funny in the quarterly comparisons and the very solid growth that CPW posted?

So, David, on Haagen-Dazs, and I have got Chris O'Leary here sitting next to me, we were kind of chatting as you were asking the question.

I mean our team performed extraordinarily well in the period immediately after that catastrophe in Japan.

And obviously, the business performed quite a bit ahead of what we thought it might do.

But as we think about the rest of the year, I would say we think it is prudent to -- we just think it is appropriate to be cautious about consumer sentiment and how those categories will play out.

So you are right.

I mean we are pleased with the first quarter, but we are going to sort of take a cautious stance here until we see a little more data.

And for CPW, I think your question was is that sustainable and I don't have in front of me -- are the quarter's numbers sustainable?

I don't have in front of me the previous quarters.

I will tell you that CPW has had a solid year.

I mean they started -- they started well and really they've sustained it over the course of the year.

I mean they have very good brand-building initiatives in that company.

Their core businesses have been solid.

Their business in the UK, which was really a drag a year ago, is helping a little bit now.

They have got fabulous focus and business development activities, consumer development activities in emerging markets and that has been a driver for them.

So we feel quite good about their performance this year and given the still very low penetration of cereal in most of the markets that they compete in, we think that the global cereal category generally and CPW have very, very good growth prospects well into the future.

If I could sneak in a modeling question for Don, two quick ones.

Interest expense guidance for the year, so given your comments about first-quarter interest expense coming in better than expected, there is a lot going on because of the financing of the acquisition.

Can you update us on your full-year expectations for interest expense?

And then on the non-controlling interest line, isn't this typically going to be a positive, like it was the wrong direction in the first-quarter report versus what I typically expect?

Maybe I am wrong on that, but if I am not, can you explain what to expect there for the year as well?

Sure.

On the interest expense, as we said in July, we expect mid-single-digit growth in our interest expense given the additional debt we have taken on earlier in the year to fund Yoplait and that still remains our guidance.

As I mentioned, we did have some favorable breaks from a rate standpoint in the quarter, but our guidance for the full year still holds.

As far as the noncontrolling interest on the P&L, you are exactly right.

That will be Sodiaal's share of the earnings out of Yoplait.

We did have operating earnings in the quarter, but we also had a mark-to-market on the balance sheet, a cross-currency loan on the Yoplait balance sheet.

It is a euro entity with a sterling-denominated loan.

July obviously was a bit of a hiccup in the foreign exchange markets in Europe and it broke against the euro.

And so we ended up having a mark-to-market, a non-cash mark-to-market flow-through.

So the reason [CEA] lost in the quarter is because that reflects Sodiaal's share of that mark-to-market loss.

As we look at the full year, as I mentioned to Eric's question, so we continue to expect to see double-digit, low double-digit profit margins from that business.

And so as a result, you will see that loss turn into a positive on the full-year end of the NCI line.

I appreciate the detail.

Thank you.

Todd Duvick, Bank of America-Merrill Lynch.

Good morning.

Thank you.

I wanted to ask a quick question, Don, about the balance sheet.

Obviously, with the acquisition of Yoplait and you mentioned the debt balance is higher, but your leverage is still in good shape, but really with respect to the short-term debt, you have got north of $2 billion of short-term debt and that is the most that you have had since the credit crisis.

So I guess my question is do you plan to go back to the way you managed the balance sheet prior to the credit crisis, holding more short-term debt, including commercial paper, on the balance sheet or would you look to term out a portion of the debt associated with Yoplait in the debt capital markets?

A couple of things.

When you talk about that $2 billion plus, some of it is a maturity, a $1 billion maturity we have coming due in February and then the balance -- I think it is $1.4 billion or $1.5 billion -- is actual commercial paper.

We will term out or, if you will, refinance that maturity that is coming due.

We haven't exactly picked the size yet, but that $1 billion of maturity, we will be back in the market to refinance that sometime probably around midyear, mid-fiscal year for us.

As far as the commercial paper, we will pay that down over the year.

As I mentioned, we have a higher-than-normal balance now versus what we have been running so that is really the funding mechanism for the Yoplait acquisition.

So as we generate cash, we will spend more cash on paying down that balance and bringing down our share repurchase for the year.

So you will see that balance come down over time.

One thing I would say just on that front, with the increase in our balance, we still have ready access to the commercial paper markets.

As a matter of fact, our recent issues have been at LIBOR minus a couple basis points.

So we are trading actually versus LIBOR arguably better than we ever have.

So we feel very good about our market access, but still we do expect to bring that balance down over time.

Okay, that's helpful.

Thank you.

Operator, let's sneak one last one in here before our hour is up.

David Palmer, UBS.

Hi, this is actually Mineo filling in for Dave, but our question is on your food cost outlook.

Now looking back to the June and July timeframe when you last reported, corn prices and the grains complex in general have been quite volatile since then and are a bit higher now.

So is this something that may be making you adjust your thinking about the second half of the year?

This is Don.

We are about 75% covered as of now, so we have a pretty good line of sight on what the inflation will be for the year and it still is in that 10% to 11% range that we gave guidance on in July.

To your point, the markets have been volatile.

As a result, we have extended some of our positions, but in terms of our inflation expectations for the year, they still remain in that 10% to 11% range.

Great.

And just a quick follow-up.

Can you talk a little bit about where you are focusing your HMM energy this year?

This is Ian.

Our HMM energy is really -- it has always been the case that it is across the board in all our businesses.

In fact, both domestic and international.

And so, again, continue to think of this as much more as a grass roots phenomenon that really goes across all our lines.

What I can tell you is our level of HMM is every bit as strong as it has been, if not a little bit stronger than prior years and so it continues to be a very productive activity for us, but it is not isolated to any one business or category.

Great, thank you very much.

Great, thanks, everybody.

If there are still questions in the queue, please give us a call.

We appreciate your time.

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

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

Have a great day, everybody.