通用磨坊 (GIS) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the fourth quarter F12 full year 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, June 27, 2012.

I would now like to turn the conference over to Kris Wenker, Vice President of Investor Relations.

Please go ahead, ma'am.

Thanks, operator.

Good morning, everybody.

I am here with Ken Powell, our CEO, and Don Mulligan, our CFO, who will discuss our fiscal 2012 results and our outlook for the new fiscal year in just a minute.

First I will do my usual housekeeping.

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've posted slides on the website, too, to supplement today's prepared remarks.

These remarks will include forward-looking statements that are based on management's current views and assumptions and 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 Don.

Thanks, Kris.

And hello, everyone.

Thanks for joining us this morning.

As you see in our press release, we posted solid results in the fourth quarter.

Slide four gives you a summary.

Sales totaled $4.1 billion, up 12%.

Segment operating profit was $737 million, a 9% increase versus last year.

Net earnings attributable to General Mills totaled $325 million and diluted earnings per share were $0.49 as reported.

Excluding changes in the mark to market valuation of certain commodity positions, integration expenses from the international Yoplait acquisition and the restructuring charges we announced at the end of last month, adjusted diluted EPS totaled $0.60, up 15% year-over-year.

Slide five summarizes operating highlights for the quarter.

Net sales increased 3% excluding acquisitions and all three of our business segments posted gains.

Gross margin declined 140 basis points excluding mark to market effects.

This was an improvement from results to the first nine months.

The addition of Yoplait International to our business mix accounted for roughly half of the fourth-quarter decline.

Our media investment increased 11% in the quarter and segment operating profit rose 9% with strong contributions from our international businesses and a 4% gain for our US retail businesses.

With this good fourth quarter finish our annual results were consistent with revised guidance we provided in February.

Slide six summarizes our results for 2012 in total.

Sales grew 12% to $16.7 billion, led by the addition of Yoplait International and strong net price realization on our base business.

Segment operating profit increased 2%, exceeding $3 billion for the first time in Company history.

This included input cost inflation of more than 10% along with an 8% increase in worldwide advertising expense.

Diluted earnings per share declined 13% as reported.

Adjusted diluted EPS excluding certain items affecting comparability reached $2.56, up 3% from last year.

Results for our US retail segment reflected the challenged operating environment for food manufacturers in 2012.

US retail net sales increased 3% and segment operating profit was 2% below year-ago levels due to inflation, volume declines and a 5% increase in media investment.

Our Bakeries and Foodservice business posted another year of solid topline growth.

Sales increased 8% in 2012 with modest volume growth and strong net price realization both contributing to this increase.

This performance is well ahead of the industry.

And as you can see on slide 8, we posted good growth across our key channels and brands.

Operating profit for this segment declined as expected due to sharp input cost inflation and comparisons against record grain merchandising earnings last year.

Our International segment delivered another year of strong performance.

Net sales and segment operating profit both increased nearly 50% reflecting good contributions from our International Yoplait acquisition and growth in our base business.

These good results included balanced growth across both developed and emerging markets.

For example in Western Europe, net sales for our base business increased 6% in constant currency and in China, constant currency sales grew 22% for the year to reach $550 million led by Haagen-Dazs and our line of Wanchai Ferry frozen dim sum items.

We are very pleased with the results of the Yoplait International yogurt business acquired last July.

In our three largest markets France, the UK and Canada, we delivered sales growth and market share gains including a full point of share gain in France and nearly 3 points of share growth by our Liberte brand in Canada.

In 2012, our global media expense increased 8% to exceed $900 million.

This includes higher levels of investments in our core developed markets and media support behind our International businesses including Yoplait.

We increased our investment in targeted media vehicles like digital and multicultural.

Based on measured media spending tracked by Kantar, we rank as the top US advertiser among all food and beverage companies over the last 12 months.

Slide 11 summarizes our 2012 joint-venture performance.

Net sales for Cereal Partners Worldwide increased 5% in constant currency basis led by mid single-digit growth in developed markets like the UK and Australia and double-digit growth in emerging markets in Asia and Latin America.

For the year, we maintained our 23% value market share.

CPW earnings declined in 2012, reflecting a one-time adjustment to tax reserve related to prior years.

Higher input costs and expenses for new manufacturing capacity in emerging markets including Malaysia, Turkey, South Africa and Brazil.

In Japan, constant currency sales for Haagen-Dazs increased at a mid single-digit rate.

But earnings were below year-ago levels.

This was expected given the difficult economic environment in Japan following the earthquake and tsunami a year ago.

That being said, this business finished the year a bit ahead of our plans.

Turning to the balance sheet, slide 12 shows the components of core working capital.

In a year where net sales increased 12%, our core working capital declined 7% as our focus on inventory reduction will improve working capital efficiency.

Increased levels of accounts receivable and accounts payable primarily from the Yoplait acquisition were largely offsetting.

Cash flow from operations totaled $2.4 billion, and this was after a $200 million voluntary cash contribution to our pension plan.

This strong cash flow funded $676 million in capital spending.

We invested in new manufacturing capacity in our snacks, cereal and yogurt businesses and we funded multiple cost savings projects across the Company.

We returned $1.1 billion of cash to shareholders including a 9% increase in our dividend.

Our strong profit growth and cash flow allowed us to fund three acquisitions and take on an additional $544 million in debt while maintaining our credit rating.

Last month we announced a restructuring program designed to improve our organizational effectiveness and alignment on our key growth strategies.

We recorded a $101 million pretax charge in the fourth quarter which we've excluded from adjusted diluted earnings per share.

We expect to record an additional $19 million in pretax expense in fiscal 2013.

We are estimating $75 million in annualized cost savings in this restructuring plan.

In fiscal 2013, we realized the majority of these savings, roughly 80% of the full amount, which we reinvested to support our key growth strategies and to accelerate innovation across General Mills global business platforms.

In our US yogurt business, we are launching 35 new items in the first half of 2013.

That is three times the number in last year's first half and we are supporting our 2013 product news with increased levels of marketing investment and merchandising support.

We are also investing to accelerate development for certain international businesses including support for the Canadian Yoplait yogurt business we will acquire in September and investment in emerging markets, particularly in China.

Let me outline more fully our fiscal 2013 plans, which call for another year of good sales and earnings growth for General Mills.

We are targeting mid single-digit sales growth that includes good contributions from acquired businesses, Yoplait Canada, Yoplait Ireland, Food Should Taste Good, Parampara Food Products and two incremental months of Yoplait International.

We also expect volume and sales growth on our base business.

Input cost inflation is expected to run at a 2% to 3% rate.

We expect to offset this inflation with supply chain productivity savings.

We expect segment operating profit to grow slightly faster than sales with advertising and media support at or above this year's $914 million level.

Our 2013 plan also includes reinvestments.

As I mentioned earlier, the three key areas are our US yogurt business; the Canadian Yoplait business will be assuming control about September 1, and emerging market development.

These investments totaled roughly $100 million pretax.

In addition, we expect pension expense and tax rate to be headwinds for us in 2013.

The funded status of our qualified pension plans remains very healthy.

Despite historically low interest and discount rates we finished fiscal 2012 94% funded.

in fiscal 2013 several changes will affect the calculation of our pension expense.

First, the discount rate we are required to use is 60 basis points below year-ago levels at a historically low 4.85%.

In addition, we are lowering our rate of return assumption from 9.6% to 8.6%.

This is a reflection of the lower equity market performance over the last decade and our view of long-term future market prospects.

Along with various other smaller factors, these changes impact pension expense by $0.06 per share.

Slide 17 provides a summary of our earnings guidance for 2013 before any contribution from the Yoki acquisition in Brazil.

We expect mid single-digit growth in net sales.

We see sales and volume growth trends for the base business weighted toward the second half of the year.

Underlying gross margins are predicted to improve modestly from 2012 levels.

We expect our media investment to at least match last year's strong level of investment.

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

We are assuming an effective tax rate of 33%.

This is higher than 2012, which benefited primarily from a one-time adjustment in our tax reserve but is in line with recent years' average rate.

We expect joint-venture earnings to grow at a double-digit rate.

In terms of phasing, we expect first-quarter earnings per share to be below last year with growth across the remaining nine months of the year.

At the end of May, we signed a definitive agreement to acquire Yoki Alimentos, a family-owned food business in Brazil.

We expect the transaction will close during the first half of fiscal 2013.

Yoki's four largest businesses, popcorn, basic foods, seasonings and side dishes are growing at a double-digit rate in recent years and hold leading share positions.

In fiscal 2011, Yoki reported IFRS sales of roughly $550 million and EBIT margins in the low double-digit range.

We expect Yoki to contribute nicely to sales and operating profit in 2013.

That will be offset by one-time transaction costs, incremental amortization expense and funding costs.

So we are estimating roughly $0.02 to $0.03 drag to adjusted diluted EPS in 2013 from the partial year impact of Yoki.

On an annualized basis, the addition of Yoki will roughly double our sales in Latin America and significantly increase our scale in Brazil.

We will gain an extensive supply chain network and a national salesforce.

We are very excited to add Yoki's people and products to our Company.

As you can see on slide 19, we expect adjusted diluted earnings per share of roughly $2.65 in fiscal 2013.

This includes the $0.06 of additional pension expense, a $0.02 hit from the higher tax rate and a $0.02 to $0.03 drag from the anticipated Yoki acquisition.

Our adjusted EPS excludes one-time integration costs, mark to market effects and restructuring charges.

We expect to couple good sales and profit growth in 2013 with increased cash return to shareholders inclusive of the Yoki acquisition.

Yesterday we announced an 8% dividend increase to a new annualized rate of $1.32 per share.

This represents a roughly 3.5% yield at recent stock prices.

So we are planning a higher level of share repurchase activity than in 2012.

So share repurchases are expected to contribute to EPS growth in fiscal 2013.

We believe our operating plans for 2013 are quite strong.

We have high levels of innovation planned across our core product portfolio.

We will have good contributions from recently acquired business.

Sales and operating profits are expected to grow at mid single-digit rates and that's before any contribution from Yoki.

To tell you more about our plans for next year, I will now turn the call over to Ken.

Thank you, Don.

And good morning to everyone, and thank you for calling in.

As you all know, the last 12 months was a challenging period for the food industry.

Input costs increased at the highest rate in over three decades, and the pace of economic recovery around the world remains slow at best.

As we move into fiscal 2013, we expect slow economic growth to continue and we think the packaged foods business will remain very competitive.

The restructuring program we announced last month will better align and focus resources against our best opportunities for growth, accelerate our innovation efforts and make General Mills a more efficient organization.

It will generate savings we will invest back in our businesses and enable us to deliver a balanced plan for growth across our global platforms, and I want to tell you a bit more about this initiative.

In our US retail segment that reports to Ian Friendly, we are strengthening our alignment and focus by creating three new divisions.

Our new meals division will be solely focused on our key center store meal items, Progresso soup, Helper dinner mixes, Old El Paso Mexican foods and Betty Crocker side dishes.

This alignment allows us to increase our emphasis on these important brands and to strengthen their growth.

The new frozen foods division combines our frozen entrees, Totino's pizza, Totino's hot snacks, Pillsbury breakfast pastries and Green Giant items.

This division focus will better leverage our frozen food scale and consumer insights in order to increase our executional capability.

And it will allow us to more effectively partner with our customers in this important and growing section of the grocery store.

Finally, we've combined our baking expertise across Pillsbury refrigerated dough and Betty Crocker dessert mixes to create a new baking products division.

With many complementary products from shelf-stable mixes to refrigerated ready-to-bake items, we will more efficiently serve the baking consumer moving forward.

Now our Big G snacks, Yoplait and Small Planet Foods division already have good category focus, and they remain unchanged.

Jim Murphy has assumed leadership of Big G as Jeff Harmening has moved to become CEO of the Cereal Partners Worldwide.

Christi Strauss, who led CPW for the last six years, is currently on sabbatical.

In our International segment that reports to Chris O'Leary, we are creating a new regional operating structure to maximize growth in developed markets and drive differential growth in emerging markets.

We are creating a new Europe Australasia region focused on driving developed market growth.

The other regions are Canada, the Latin America region, the Greater China region and a region combining Asia, the Middle East and Africa.

And we will also have two strategic business units designed to centralize and coordinate growth strategies for our two biggest global brands, Yoplait and Haagen-Dazs.

This new structure will allow us to generate cost efficiency across our international operations that will help fund business development around the world.

In Bakeries and Foodservice, our business realignment began several years ago.

By focusing on the fastest-growing customer segments and higher-margin product lines, we've grown sales and profits and we've expanded operating margins by several hundred basis points.

So we are going to stick with this strategic approach moving forward.

John Machuzick who led the transformation of this business, is retiring in August after a highly distinguished 34-year career with General Mills.

He will be succeeded by Dave Dudick, who most recently led our US channel sales team focused on supercenter, club and alternate format customers.

Our restructuring program is truly a Companywide initiative.

Across every function we've identified opportunities to reduce duplication and centralize capabilities, making us a more efficient and a more cost-effective organization.

Savings from these restructuring actions will accelerate our investment and strategies to drive future growth.

And I am very confident that these changes will lead to continued strong operating results for General Mills.

Our strategies for growth are focused on five global categories, ready to eat cereal, superpremium ice cream, convenient meals, wholesome snack bars and yogurt.

The Euromonitor data shows that these are big categories projected to grow at mid to high single-digit rates in the years ahead and innovation plays a key role in driving global category growth.

So I want to share our plans for growth on each of these platforms beginning with our newest global business, yogurt.

The International Yoplait business we acquired last July delivered strong results in 2012, and we've got plans for continued international yogurt growth in 2013.

In France, we are launching new varieties of Calin, a functional yogurt high in calcium.

We are expanding Calin to the UK market with a three item launch.

We are supporting both new and established yogurt products with higher levels of advertising, and we've expanded our Europe yogurt business by reacquiring the Ireland Yoplait license.

Retail sales of Yoplait in Ireland totaled $65 million in the last 12 months.

In Canada, we expect to increase household penetration for our Liberte brand through distribution gains and new flavors of core Greek and Mediterranean product lines and expansion into drinkable and kid varieties.

And reacquiring control of the Yoplait business this fall will also significantly increase our scale.

Together Liberte and Yoplait account for roughly 35% of total Canadian yogurt market sales.

In the US, we are innovating across multiple segments of the yogurt category.

We are the market leader in the light segment, and we are launching a lower calorie Greek offering, new Yoplait Greek 100 calorie yogurt.

And we are bringing product news to Yoplait light.

It is now just 90 calories per cup.

And both of these items are the only Weight Watchers endorsed products in the category.

We have increased levels of advertising planned on our kid yogurt business.

We are expanding our regional Mountain High large-size business to a national offering.

Today large-size yogurt represents 9% of category sales.

We are launching Yoplait Simplait, a line of great tasting, all natural yogurts with just six simple ingredients.

We are also launching Yoplait Fruplait with twice the fruit.

And our US yogurt innovation extends beyond the Yoplait brand.

Liberte is a leading player in Canada's fast emerging Greek segment.

We are bringing this great tasting product to the US with a six item launch.

The regional rollout begins this summer.

We are also increasing distribution of Liberte Mediterranee, a highly indulgent yogurt available in seven varieties including coconut and French vanilla.

We believe this strong innovation lineup will renew sales growth for our US yogurt business in fiscal 2013.

We will share more details of our yogurt plan at our New York meeting on July 10.

Let me turn to ice cream.

Our Haagen-Dazs business had a terrific year in 2012 with constant currency sales up 16% and we look to continue that momentum in 2013.

We are planning to open roughly 80 additional shops this year, including 50 in China.

The launch of Secret Sensations was a big success last year, and in 2013, we are adding a new meringue and raspberry flavor, and we are launching this line to additional markets in Europe, Asia and South America.

We are also adding flavors to our core Haagen-Dazs product line and rolling out a new package design.

We expect to increase our media investment at a double-digit pace behind our global advertising campaign.

Convenient meals are important for today's busy consumers and we have strong growth plans in place for our brands in 2013.

In the US, our Progresso Recipe Starters are easy base sauces to use in a wide range of recipes.

We are expanding our Hamburger Helper business with new package sizes that are perfect for club stores and dollar stores.

In Europe, we will drive growth on our Old El Paso business through improved advertising, in-store displays and the expansion of recent new products to new markets.

And we will continue to add new products in new cities for our Wanchai Ferry business in Greater China.

Now let's turn to wholesome snack bars.

In the US, we've led the growth of the grain bar category for several years including nearly five points of share growth in 2012 alone.

And we've got a strong lineup of new items in 2013.

We are expanding our Fiber One franchise with the launch of Fiber One Chewy Bars, and we are building on last year's highly successful Fiber One brownies with a new flavor and a new package size.

We expect continued growth for Nature Valley Protein Bars launched last January and we are adding a dark chocolate and peanut butter crunchy bar variety.

We are targeting another year of growth for Larabar and we are launching Uber bars in away from home channels along with new Gardetto's snack crackers and additional varieties of Betty Crocker Sweet Rewards bars.

Wholesome snack bars are a hit in markets around the world, and we've got strong plans for international growth in 2013.

In Canada, we are bringing innovation to the category with Fiber One 110 calorie brownies and Nature Valley Granola Thins.

In Europe, we are expanding our Nature Valley franchise with the launch of a new Sweet & Nutty product line.

Nature Valley also will be an official product sponsor of the Olympic Games in London next month.

Our largest global business is cereal.

In the US, we posted market share gains in each of the last five years, exceeding a 31% dollar share across all channels in 2012.

And we have a strong growth plan for our US cereal business in 2013.

Peanut Butter Multi Grain Cheerios launched in January continues to perform very well.

It is the biggest new cereal among the 25 items launched in the category since January.

We've just introduced gluten-free Apple Cinnamon Chex, new Fiber One Nutty Clusters & Almonds is a great tasting cereal that delivers 40% of the consumers' daily value for fiber.

And we've added Cascadian Farm Ancient Grains Granola to our line of Cascadian Farm organic cereals.

We've also got news on established cereal brands.

We will remind consumers that all Big G cereals contain more whole-grain than any other single ingredient, that original Cheerios provide heart health benefits and that several varieties of Chex cereals are gluten-free.

We are bringing innovation to our international cereal businesses as well.

In Canada, we've increased our cereal market share by 5.5 points over the last five years, reaching nearly a 30% share of the category in 2012.

Outside North America, Cereal Partners Worldwide will increase marketing investment against each of its core brands, Cheerios, Nesquik, Chocapic, and Fitness.

CPW has some great tasting new products too, including Fitness white chocolate and Chocapic pillows.

So as we look to fiscal 2013 and beyond, we see the prospects for General Mills as very bright.

Our five global product categories deliver foods that are convenient, nutritious, and they taste great all at a good value.

These five platforms account for over 60% of our worldwide sales and they have terrific growth prospects and our brands hold leading positions in these large, growing global categories.

So we really like the prospects for increasing our sales, earnings and marketshare positions in these categories in the years ahead.

We are continuing our evolution into a truly global food company.

Ten years ago just 5% of General Mills sales were generated outside of the US and most of that business was in Canada.

Today half of all General Mills employees work outside the US and we sell our products in over 100 countries.

Including our proportionate share of joint ventures, international net sales now exceed $5 billion and represent over 30% of General Mills' total worldwide sales.

Now while we are pleased with our progress in international markets, we remain very committed to driving growth in our core US market.

And with increased levels of investment in our US yogurt business and a very strong lineup of product news and innovation across our domestic portfolio, we like our US growth prospects moving forward.

We enter 2013 confident that we are positioned for another year of balanced growth at General Mills.

We are investing to keep our established brands healthy and to launch new products in both developed and emerging markets.

We will make investments to ensure our products are competitive and investments to fuel our global growth.

We believe our 2013 targets strike the right balance between sales and profit growth in the current year and reinvestment to support our longer-term progress.

I'll wrap up this morning by reminding you about our investor meeting in New York on Tuesday, July 10 where we will discuss our plans for fiscal 2013 in more detail.

Presentations will begin at 10 a.m.

Eastern time, and they will also be webcast.

So I would like to thank all of you for joining us on the call today and for your interest in General Mills.

With that, we will open the call for questions.

Operator, would you please get us the first question?

(Operator Instructions).

Matthew Grainger, Morgan Stanley.

Good morning everyone.

Thanks for the question.

When we think about the need to or the desire to accelerate your international investments, whether in China or in other markets, clearly this is going to be a multiyear process.

Does this have the potential to weigh on your ability to generate high single digit EPS growth over the next several years?

Does the commitment to increase scale outside the US imply that the Company's sustainable EPS growth over the midterm could or potentially should be below your long-term targets?

No.

Okay, and I guess when you think about the acceleration in international investments, is this -- does this really mark sort of a structural step up in how you are thinking about allocating your spending across the different regions, or is this sort of -- is 2013 going to be a more focused year of increased investment?

I would say that as we look at emerging markets -- let me step back and just say two things.

First off, when we think about growing our business, the first order of business is ensure that we have a very strong base business, whether that is here in the US, Canada, Europe and you saw those results this year with Europe for examples showing mid single-digit base business sales growth.

And so that is always job one is to make sure that we have a very vibrant base business.

Then where we see incremental opportunities is in international particularly in emerging markets.

We have a fabulous business in China that is growing over 20% this year.

We are augmenting that with obviously an acquisition in Brazil.

But also on an organic basis, we are plowing back some of our earnings growth to accelerate even faster in China for example and we've done that for the last three to four years.

And while we've done that, you've still seen that international has grown quite nicely on both the top and bottom line.

So this isn't a change of direction we've been -- tried to be pretty transparent about that over the last few years that we've been putting additional money back into those markets because we see long-term growth potential.

The only thing I would add to that, Matt, is I would say we don't have a target, a percentage of international business that we are chasing.

We want to do this in a thoughtful and strategic way.

Obviously we are buying businesses that we think fit very well within our capability where we can add value and that will create value for us over the long term.

This year was interesting because we had a couple of significant opportunities with Yoplait International at the beginning of the year and Yoki at the end.

But this is -- you can't always predict how these things will fall.

But in both cases clearly both acquisitions I think fit very well within our product categories in the things that we are good at.

We are going to use those to create value for shareholders over the long-term.

Okay, and a very quick follow up just with respect to the 2015 targets that you've outlined in the past.

Are you still committed to those?

We are.

We are committed to does.

We think certainly when you include the businesses we've acquired over the last few years, I think we are probably nicely ahead of the top line and operating profit goals in those targets.

And we think we are in the hunt on EPS, as well, so we are still very committed to those targets.

Okay.

Thanks very much.

Eric Katzman, Deutsche Bank.

Good morning, everybody.

I have a couple of questions.

I guess just some details first.

Don, you included some what looked like one-time transaction costs in the dilution from Yoki.

Could you give us a sense as to how much one-time cost you are looking within that $0.02 to $0.03 of dilution?

The transaction will be about $0.01.

Okay, and then on the pension accounting assumptions, I feel like I've been screaming in the wilderness, but a couple of your peers have with fiscal years close to yours have made some adjustments to the accounting which were kind of favorable to their growth.

Why didn't you do that?

A couple reasons.

The major one is consistency both with our historical results and what is still I think the norm for most of our peer set.

And then the other is transparency and the information you need to see what our results would look like with different accounting treatments or reporting treatments is readily available in our Qs and Ks.

So if someone wants to take a different look at our pension, we have the information there for them to do that.

Plus as you saw on the call today, we highlight when there is a material movement in the pension expense, so it is really about consistency and transparency and we are quite satisfied with our accounting and reporting treatment.

Okay, then I guess to Ken, I thought you laid out a good view of the upcoming year, but one thing that has been a little bit different I guess in terms of the Board and your signaling is that with the Yoki acquisition despite spending about $1 billion on this, you've now kind of committed to buying back stock where for example with the Yoplait deal, you suspended that.

Is that kind of a signal of your and the Board's view of the valuation of the stock, or just maybe you could kind of explain the use of capital in that regard.

Eric, I'll take that one.

We clearly -- looking at the stock price today, I think if you looked at our results at any kind of multiple whether it is on a cash flow or earnings versus historical measures and we think we are undervalued and that certainly plays into our consideration of how we use our capital for shares versus acquisition funding.

Okay, and then last thing -- sorry for this.

I guess there is some concern over the volume performance in the last quarter, and obviously as you well know, there has been incredible focus on yogurt.

Can you care to say what the volumes were if you pulled out what is happening in yogurt because you seem to be gaining share and doing pretty well across every other part of the business.

And I'm kind of wondering does the 7% volume drop in the last quarter, is that mostly tied to yogurt and everything else is doing pretty well?

And I'll pass it on.

The answer generally, Eric, would be yes.

Yogurt has been a drag this year.

And if you look at -- if you just look at market share, for instance for US retail with and without yogurt, if you back yogurt out, I think our share was flat to slightly above in aggregate across the rest of the categories.

There are some other factors in there, but in general I think you are premise is correct, and with all of the innovation and renovation that we have on our yogurt business as we entered the first quarter this year, work both on our core product line with very good marketing initiatives and new products that we feel are quite good, we obviously we are committed to reversing that and getting unit and sales growth in our yogurt business this year.

And we think we have a good chance to do that.

Okay.

Thanks.

I'll pass it on.

Bryan Spillane, Bank of America.

Good morning.

Two questions.

One, just in terms of the process you've gone through in terms of business realignment, can you just talk through I guess first, as far as you see it today is that process complete?

Meaning you've made some adjustments to how you are viewing the world and what you need to do to source incremental growth going forward and you feel comfortable that this process is done or do you think there is still kind of more of an ongoing, more events to come in terms of realignment?

This process is done but as you know, as a Company, we have an ongoing, very high focus on margin expanding activities under the HMM Grouping.

We are very focused on continuous improvement.

And so as you said, while this restructuring which is based on our look going forward of inflation and the environment while this particular reorganization process is done, we remain very highly committed to these HMM processes.

And in fact, we are going to have a very -- in addition to this restructuring that we've just completed, we will have a very strong level of HMM in the plan next year both in the US and increasingly on the international side where we just are seeing more and stronger engagement with those HMM disciplines.

Okay, thanks.

And then just a follow-up.

In terms of your revenue outlook for 2013, this is more I think just a US -- a question about the US -- if you can give any color at all in terms of your view on price volume mix expectations.

And I guess what I'm really interested in is given the volume weakness really across the industry, is there any expectation in your view that either for your own plan or for the industry that there is some reinvestment in price or promotion in order to drive volume?

Let me give you a couple of thoughts.

First of all, our volume growth assumption in -- we are confident about our volume growth assumption in US retail, which basically assumes a continuing good level of volume growth in all of our snack businesses, which have been very strong and would include products like Larabar, Nature Valley, Fiber One.

So those products have very strong momentum and they are going to contribute to growth.

We also have very strong initiatives in our yogurt business and that will contribute as well to units.

And then we have we think very, very prudent and reasonable volume assumptions on some of our bigger more established categories like cereal.

And we think the mix all in is very prudent.

On the merchandising side, as we said, we took a lot of pricing last year.

We got it mostly right.

Going forward we are going to be adding some merchandising selectively in selective categories and product lines just to make sure that they are competitive and as we say, in the zone.

We typically do that anyway, and following very substantial amount of price increases this year, we are going to be doing that again as we go into 2013 just to make sure that we have that value equation right everywhere.

And it is important for us to do that.

We constantly monitor the value.

We are not looking at necessarily a price point.

We are looking to be in a zone that will allow our marketing programs and our consumer promotion programs to be as effective as they can be.

So we will be doing some of that as well.

Bryan, the only color I would add a little bit further is just in terms of phasing.

We do expect volumes to grow over the course of the year, to be relatively flat in the first quarter and then begin building as we come out of the negative trends we've seen through F12.

Okay, thank you.

Chris Growe, Stifel Nicolaus.

I'd like to ask you in relation to the sales growth guidance, I think you had said, Don, it does not include the Yoki acquisition.

What else would it include?

Would it include a couple months of Yoplait from last year?

Would it include the Yoplait licenses that you are requiring?

Yes, I am glad you asked.

Let me run through because there are quite a number of them and as I said, it is worth about two to three points in our top line.

So there is two months of the Yoplait International business that we bought last July.

That are incremental this year.

They are incremental to 2013.

There are nine months of Yoplait Canada.

We will take over that business on September 1. There is 10 months of Food Should Taste Good which we acquired in the fourth quarter of fiscal '12, 10 additional months.

There is roughly 11 additional months or incremental months of Yoplait Ireland we acquired in May, and then there is virtually a full year of Parampara, the small business that we bought in India.

So those five businesses in those months I listed are all going to be incremental '13 versus '12.

That all excludes of course Yoki which we'll provide some guidance on when we actually close it.

So you -- I think you just indicated -- about call it a 2 percentage point benefit overall to the sales from all those factors or a little more than that?

Two to three points.

Okay, and that is in relation to the mid single-digit sales growth that you are giving for the year then?

Correct, that's right.

Okay, so I guess what I'm trying to understand then is the underlying sales growth guidance, let's just call it kind of roughly 3%, I'm just trying to understand what is embedded within that expectation.

Are you going to have some follow-through pricing still coming through?

I'm just really trying to work up the volumes and trying to get a sense of what you expect on the volume front.

Do you expect that to turn pretty meaningfully into say second and third quarter to a positive?

Some of it is, as you said, Chris, there will be some carryforward pricing that comes in.

And then the rest of it is really what I said in trying to reply to the previous question, which is modest volume assumptions for some of our big core categories and then continuing pretty good volume growth in that healthy snacking area where we have very strong momentum and another year of a very good innovations.

That would be all the healthy snacking, many of the Small Planet Foods product line.

So we are expecting good growth there and some growth, unit growth in Yoplait in the US.

So it would be those components that would lead us to the volume growth in the US.

The full year, that underlying sales growth will be a mix of volume and price mix.

Sure, okay.

And the volume as I mentioned, will build as the year unfolds.

Thank you for that.

And just a follow-up, if I could.

In relation to the guidance from marketing to be flat to up, I guess I want to understand that is all I guess a constant currency basis?

Is that on a reported basis?

And again, given all the new products you have, and you've even highlighted some areas of investment you want to make, I guess I thought it would have been up a little more than that.

I want to make sure I am understanding the number correctly, though.

We are starting with a very, very high base.

We have really, really increased investment here continuously over the last five or six years.

I think as Don may have said, we are the largest consumer foods advertiser in the US now.

So it is a good base, Chris, and we think it will probably be up close to in sort of low single digits.

But I think at this point, we will just say at that level or maybe a bit more.

It is a substantial amount, and we've got plenty of advertising to fuel our growth in the plan.

Okay.

Thank you for the time.

Andrew Lazar, Barclays.

Good morning.

Just a couple quick things.

One, just following up a little bit on Chris, you talked about some of the incremental investments totaling around $100 million in fiscal '13 and with media spending being up a bit off of an already high base, I'm just trying to get a sense of where that incremental $100 million is going.

Is a lot of that the sort of merchandising activity you've talked about a little bit to make sure you are -- I think as you put it, kind of in the zone on certain price ranges and such?

Just maybe a little more clarity on where that spending is going would be helpful.

There is really three areas, as I think I noted.

There is Yoplait US where we have product launches, 35 new items in the first half of the year and so we are advertising behind that.

There is also merchandising programs behind that.

So introductory trade spending is definitely a piece.

Correct.

Got it.

The second is Yoplait Canada as we reacquire that business, there is going to be some investment to bring that in, and then the third area, as I mentioned, was the emerging markets particularly in China where for the last few years we have put additional investment behind and rolled back some of the earnings to accelerate growth.

Got it.

I think when you originally announced the Yoplait International acquisition, you said there would be about $0.01 of dilution in fiscal '12 and then some level of accretion thereafter.

Is that still coming through the way you expected and any way to help quantify what that helps you in fiscal '13?

The Yoplait acquisition is performing at least as well if not a touch better than we anticipated a year ago.

I mentioned some of the topline results, but the bottom one has been just as encouraging.

So the guidance we gave last year in terms of the EPS flow would be consistent.

Got it.

Okay, and then the last thing would be the repurchase or the buying of the Canadian franchise and then obviously to a smaller extent Ireland.

Are there -- to the extent you can talk about it, are there other let's call it Canada like or more sizable Yoplait franchises sort of out there that either the timing of the agreement comes up over the course of the next year or so or where it may make sense to kind of go ahead and buy out the franchisee?

How likely are we perhaps to see some other things like this that are somewhat more sizable like Canada in the near to intermediate term?

Yoplait, we have licensees across some 70 markets.

In many of those, we have existing General Mills operations.

We will continue to analyze those just as we did in Ireland and in Canada.

I don't have any news to announce today in terms of what our next step would be, but that is part of the integration of the business is to evaluate each of those relationships and determine if it is best with the current licensee or a part of our wholly-owned family.

Thanks very much.

Greg Hessler, Bank of America Merrill Lynch.

Good morning and thanks for taking the question.

You indicated in the press release that on the Yoki transaction you're going to fund that with cash, a combination of cash and commercial paper.

Can you tell us about the break down there?

And just given where rates are today, might we see you in kind of a longer-term bond market?

Yes, Craig, thanks for coming on the call.

I like it when the debt capital market guys get involved as well.

We are -- the initial funding obviously would be with commercial paper and then over the year we will pay that commercial paper down with our cash flow, and we will likely be in the market we have a maturity coming up in February of next year.

So the combination of that and the commercial paper balance will probably bring us into the market at some point later this calendar year.

One thing I will mention, just to build on that and to take advantage of the question, as I mentioned earlier, our view on our shares and our share buyback activity will be higher this year than last year.

But I also want to just reaffirm that our credit metrics are very important to us and as we pay down some of the debt we take on for Yoki, our intent is absolutely to get back to the credit metrics that we are carrying today.

I appreciate that.

And then maybe just one follow-up.

As you look at your capital structure as it stands today, is there a particular tenor whether it be five years, 10 years, 30 years that you might look to when you do come to market?

Well, in today's environment longer is obviously better given where the curve is.

But actually our maturity ladder is pretty well dispersed, so there is not necessarily individual pockets that I would highlight today.

We will make that determination as we get closer to going to market.

Okay, thanks.

David Driscoll, Citi Investment Research.

Thanks a lot.

Good morning, everyone.

I want to follow up a little bit here on the bridge for F'13.

So I appreciate the reconciliation on the topline guidance that it does include some of the acquisitions.

The approximately 5% to 7% segment profit growth, I would assume that there is also the flow-through from the -- what did you say about three points from those carry -- the acquisition carry over into F'13 that will also go into drive your slightly better than the mid single-digit sales growth for segment op growth.

So assuming I am still right there, then a couple of points here.

The diluted -- sorry -- the share repurchase you normally do 2% of diluted shares outstanding.

Is that your intention for F13?

Okay, David, this is Don.

I'll take that one.

There were several questions rolled in there.

What are the questions?

Let me just clarify something.

You said SOP growth of 5% to 7%.

We didn't say 5% to 7%.

We said mid single digits, just to clarify that.

Within that clearly is going to be some benefit from the acquisitions, the most material one would be the Yoplait International, the extra two months.

And I wouldn't quantify beyond that.

As far as share, we said we are going to have reduced shares and we will contribute to EPS even after the Yoki acquisition.

So that will play a role in our EPS growth.

But you won't say that it is 2% of diluted shares outstanding?

No.

Okay, and Ken, sorry for the rambling of my statements here, but it is difficult to reconcile everything that you've got here because there are pieces missing.

If we don't know diluted shares and then you've blended in -- (multiple speakers)

We understand there are a lot of moving parts here, so.

I apologize here.

I'm trying to be as clear as I can.

The realignment is -- that relates to the 850 workers that you've reduced in the force and I want to just make sure that is not part of ongoing HMM.

That is correct, and the realignment that I've focused on in my remarks, David, really the focus there was on the three segments.

So I made some comments on US retail and international and food service.

There were other elements to the restructuring that we did that I didn't comment on.

I commented on it generically but so for instance, we did some very good work in our R&D organization that really just accelerated a path that we were already on, which was to centralize more of our R&D capability around platforms, which is going to generate we think a higher level of innovation and in a very efficient way.

So for instance, we used to have four different R&D groups working on snack bars depending on the division and we said that doesn't really make -- we can do better than that.

Let's put them all together and have one group focusing on that big platform.

So we've done other things like that and altogether that would be the bigger number.

This is all incremental to our ongoing level of HMM across our supply chain, which will be very, very strong.

We are going to generate very strong base core HMM in the plan for F'13.

Let me try one final way on this particular line of logic is if we've got mid single-digit operating profit growth including a whole number of factors, the $100 million of investment, the realignment in the worker reduction, when you go from there to 3% growth year over year as your forecast at $2.65, there is then obviously below the segment operating line there is a bunch of negatives here that retard the EPS growth.

The problem that I can't really see it in the numbers right now is if there is a diluted share repurchase going on, if there is a share repurchase going on it would seem like the $2.65 number that you've given is worse than the pieces that I can -- I'm guessing at.

But Don, maybe you can help me clear up any of this.

Is it just as simple as you are taking this mid single-digit operating profit growth and you get down that translates into 3% EPS growth because of the pension and the tax headwind and whatever the diluted share number is at the moment, it is extremely minor?

If you take the $2.65 guidance and you add back the Yoki dilution that we highlighted at $0.02 to $0.03, the tax at $0.02 and the pension at $0.06, you get to a $2.75, $2.76 number, which is high single-digit growth, which is what our long-term model calls for.

Okay, final question moving on to yogurt.

The 35 new product launches, Ken, can you talk about the shelf space issue that I would guess that you would face launching that many products?

Is there any issue in actually getting all these things on shelf?

Maybe you can talk about, do you have to take some of your current products off shelf or is this just net incremental adds to your current yogurts space?

And then what does it imply for your projections for growth in US Yoplait in 2013?

And from there that will be it for me.

David, that is a great question, and thank you for asking it.

We have two sort of thrusts in yogurt in category management and distribution.

The big one and the main one and we've put a lot of effort into this, is making sure our retail partners understand how dynamic and how exciting this category is.

And the intent of that is to help them and make sure that they are planning to expand the case.

And we've had very good success doing that over the last several years.

And so depending on the retailer, we can go in and recommend another two feet, another four feet, another six feet.

So we've done I think a very good job of playing a leadership role in that area, and you are seeing across many of our large retail partners, we are seeing them expand the footage.

And so then within that our goal is to increase our distribution.

We held it basically stable in 2012.

We lost a little bit as we got to the end of the year and I mean very small amounts.

But as we go in with all of these new items, we have the retailer very optimistic about the category and inclined to expand shelf space.

We think we will be able to hold our core distribution and add incrementally with new products that we think are quite exciting and quite incremental.

So that is the sort of 1-2 punch to this.

Thank you so much.

Let's sneak one last question in here before we run out of time.

Rob Moskow, Credit Suisse.

Thank you.

I guess I will focus on gross margin guidance.

It is for a slight improvement I think, Don.

The commodity cost inflation outlook is very unstable.

You can see corn prices starting to shoot up again.

But on the other hand, I get calls from a lot of investors who think that General Mills might have a lot of gross margin expansion similar to what happened I guess in fiscal -- was it fiscal '10, or fiscal '09?

And I wanted to know, how is this year going to be different from that prior year where margins were up 400, 500 bps?

Is this different because it is more like decelerating inflation rather than true deflation?

Yes.

And as you look at the grain markets right now, are you really locked in at favorable rates that protect you from what is happening in grain?

Thanks.

Well, first off, we view F '13 as very different than F '10.

F '10 was a deflationary year.

It was minus 3% input costs that year.

This year we expect low single digits at 2% to 3%, I mentioned in the script.

Inflation.

2% to 3% inflation.

Thank you, Kris, 2% to 3% inflation.

So it is a very different environment.

We are about 50% covered as we enter the year, which is about an average position for us.

And as you noted, Rob, the markets are very volatile, and we have taken positions accordingly.

But that volatility will play out as the year unfolds.

Okay, I'll leave it at that.

Thanks.

Thanks, everybody.

I apologize that we didn't get through all the queue.

Give me a shout if I can be of help.

Thanks so much.

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.