通用磨坊 (GIS) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the General Mills Q4 2014 earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded Wednesday, June 25, 2014. I would now like to turn the conference over to Kris Wenker, Senior Vice President, Investor Relations. Please go ahead.

Thank you, operator. Hello, everyone. I am here with Ken Powell, our Chairman and CEO and Don Mulligan, our CFO and I will turn the microphone over to them in just a minute. First, I have got to cover my usual housekeeping items. Our press release was issued over the wire services earlier this morning. It is also posted on our website if you need a copy. You can also find slides on our website that supplement our remarks this morning and our remarks will include forward-looking statements that are based on management's current views and assumptions. The second slide in the presentation deck lists factors that could cause our future results to be different than our current estimates and with that, I will turn the call over to Don.

Thanks, Kris and hello, everyone. Thank you for joining us today. Our plans for fiscal 2014 call for sales and earnings growth consistent with our long-term business model along with increased cash returns to shareholders. As we will discuss today, we made good progress building our worldwide food businesses and we returned more than $2.7 billion in cash to shareholders through a 17% dividend increase and significant share repurchase activity.

But our sales and operating profit performance in 2014 was disappointing. In the fourth quarter, promotional spending in developed markets was less effective than we planned and input cost inflation was a bit above our forecast. Net sales and adjusted gross margin fell short of our targets.

Our fourth-quarter results are summarized on slide 5. Net sales totaled $4.3 billion, down 3% versus last year. On a constant currency basis, net sales were down 1%. Adjusted segment operating profit, which excludes the charges associated with Venezuelan currency devaluation, totaled $733 million, essentially even with year-ago results.

Net earnings and diluted earnings per share were both up double digits as reported. As we indicated on the third-quarter call, a significantly lower tax rate and lower shares outstanding were strong contributors to EPS growth in the final quarter. Our reported results also include a $0.09 per share charge for the Venezuelan currency devaluation, a $0.06 per share gain on the sale of several Idaho grain elevators and a $0.01 gain for a mark-to-market valuation of certain commodity positions. Adjusted diluted EPS, which excludes these and certain other items affecting comparability, increased 24% to $0.67 per share.

Slide 6 gives you the components of our fourth-quarter net sales growth. Foreign exchange reduced sales growth by 2 points, pound volume was 2% below last year's levels and sales mix and net price realization added 1 point of sales growth.

Slide 7 shows fourth-quarter net sales results by segment. For US retail, net sales declined 1% overall. Pound volume for US retail grew by 1%. This was offset by negative price and mix. International segment net sales declined 7% as reported and 2% on a constant currency basis. Pound volume declined 6% from last year's level, which included one extra month of results for Europe and Australia. Price and mix added 4 points to the segment's net sales growth. Net sales for our Convenience Stores & Foodservice segment grew 1% overall in the quarter with pound volume essentially matching year-ago levels. However, looking at just our six priority platforms, which are snacks, cereal, yogurt, mixes, biscuits and frozen breakfast, combined net sales grew 5%.

On slide 8, you can see that adjusted gross margin showed a slight decline in the fourth quarter. This primarily reflects lower net sales and higher input cost inflation than anticipated in the quarter. For 2014 in total, adjusted gross margin was down 80 basis points to 35.4% reflecting the change in business mix with incremental months of results for new businesses added in 2013, as well as higher input costs. Our input cost inflation for the full year totaled 4%, higher than we had planned, primarily driven by dairy costs.

Our full-year results are summarized on slide 9. Net sales for 2014 grew 1% to reach $17.9 billion. On a constant currency basis, net sales increased 2%. Adjusted segment operating profit fell 2% to $3.2 billion. Net earnings attributable to General Mills totaled more than $1.8 billion and diluted earnings per share were $2.83. Adjusted diluted EPS grew 4% to reach $2.82. US Retail net sales in 2014 essentially matched prior-year results at $10.6 billion and operating profit decreased 3% to $2.3 billion.

Slide 10 shows you the sales results by division. Snacks, Small Planet Foods and Big G Cereals led performance for this operating segment. For Convenience Stores & Foodservice, net sales declined 2% in 2014 driven by a 2% decline in pound volume. Operating profit for this segment was also down 2% to $307 million. Net sales performance was essentially in line with our plan reflecting our ongoing strategy of focusing business mix on key product platforms and the most resilient customer channels. Net sales for our six priority platforms grew 4% for the full year.

2014 net sales for our International business segment totaled $5.4 billion, up 4% as reported and up 8% in constant currency. Adjusted segment operating profit grew 4% to $535 million and increased 10% in constant currency.

On slide 12, you can see International constant currency net sales rose in three of our four geographic regions. Sales in the Europe and Australasia region declined 4% to $2.2 billion reflecting the comparison against 13 months of results in fiscal 2013. Canada sales totaled $1.2 billion, up 5% in constant currency. This reflects low single digit growth in base business net sales and three incremental months of Yoplait. Latin America sales crossed the $1 billion threshold with strong growth on the base business and a full year of Yoki reported results. And in Asia-Pacific region, constant currency sales grew 9% to exceed $980 million driven by another year of double-digit growth in Greater China.

Slide 13 summarizes 2014 joint venture performance. On a constant currency basis, net sales for Cereal Partners Worldwide were flat and Haagen-Dazs Japan sales grew 9%. After-tax earnings from joint ventures totaled $90 million, a decline of 4% in constant currency, reflecting increased consumer spending at CPW.

Turning to the balance sheet, slide 14 shows the components of core working capital. We continue to make solid progress in this area with core working capital down 9% in fiscal 2014. Since fiscal 2011, we have reduced core working capital by 19% while growing net sales by 20%. Cash flow from operations totaled $2.5 billion for the year compared to $2.9 billion last year. This decline primarily reflects a decrease in other current liabilities due to year-over-year differences in accruals for trade promotion and income taxes. Fixed asset investments totaled $664 million for the year resulting in free cash flow of $1.9 billion.

We returned more than $2.7 billion of cash to shareholders through stock buybacks and dividends in fiscal 2014. Dividends per share increased by 17%. The current annualized rate of $1.64 per share represents a yield of 3% at recent prices for GIS stock. We have a strong track record of returning cash to shareholders. In recent years, our dividends per share have increased at a 13% compound rate and our average shares outstanding have declined 1% per year. That is despite pausing briefly on share repurchases to fund the strategic acquisitions of Yoplait and Yoki.

Fiscal 2014 was a good year for General Mills' shareholders. The combination of share price appreciation and dividends resulted in a 13% total return for the year. That is near the very top of returns generated by our peer group and it is consistent with our goal of delivering double-digit shareholder returns.

Let's now shift to fiscal 2015. General Mills now generates 35% of our sales and a meaningful share of our profit outside the US and we expect this international weighting to grow in the years ahead. So we are transitioning to providing our guidance to you in constant currency.

Slide 19 summarizes some of the key assumptions we have built into our fiscal 2015 growth plans. We believe it is prudent to assume food and beverage industry growth in developed markets improves at a very modest pace over the course of the year. Our fiscal 2015 includes a 53rd week, which is worth roughly 2 points of top-line growth. We are targeting mid-single digit constant currency net sales growth, including that extra week. We will continue to generate cost savings and reinvestment funds through our robust pipeline of HMM initiatives. This business discipline has been our first line of defense against input cost inflation for many years.

In fiscal 2015, we are targeting more than $400 million in COGS HMM alone. This should offset inflation, which we estimate at 3% this year. We are targeting mid-single digit constant currency growth in segment operating profit. We plan to reinvest the profit benefit of the 53rd week to support increased media spending and startup expenses related to several key fiscal 2016 product launches. One example is the startup expenses for our new Yoplait factory in China.

Finally, we are beginning to work on new cost-reduction initiatives designed to boost our efficiency and sharpen business focus behind our key growth strategies. We have begun a formal review of our North American manufacturing and distribution network with the goals of streamlining operations and identifying potential capacity reductions. And we have initiated efforts focused on further reducing overhead costs. Together, these new initiatives are targeted to generate $40 million in pretax savings in fiscal 2015 with additional savings in fiscal 2016. We will share more details with you in the coming months as we determine our specific action plans.

Let me say a quick word about pension expense. We continue to include pension expense in our reported results. In fiscal 2014, the return on our plan assets was 15% and the overall funded status at the end of the year was 100%. Our fiscal 2015 pension expense will be down modestly versus last year driven by our actual asset returns. The discount rate for fiscal 2015 is unchanged from last year at 4.5%.

Slide 21 provides a summary of our guidance for 2015. We are targeting mid-single digit sales growth in constant currency. Adjusted gross margin is projected to improve modestly from 2014 levels. We expect our media investment to grow faster than sales. We project our segment operating profit will grow at a mid-single digit growth on a constant currency basis. Our plan assumes a high single digit increase in interest expense reflecting a shift to more long-term debt and our expectation of rising interest rates over the course of the year.

We are assuming an adjusted tax rate comparable to last year's 32.2%. We expect joint venture earnings to grow at a high single digit rate in constant currency due primarily to sales growth and lower levels of input cost inflation for CPW. We plan to continue returning cash to shareholders through share buybacks. In May, our Board approved a new 100 million share repurchase authorization with no expiration. For fiscal 2015, we are targeting a 3% to 4% net reduction in average shares outstanding. And we expect high single digit constant currency growth and adjusted diluted earnings per share. At current exchange rates, we would estimate a $0.03 headwind to full-year adjusted diluted EPS growth in 2015.

One other guidance note, we expect our first-quarter adjusted diluted EPS to be below year-ago levels. That primarily reflects our plans for increased merchandising expense with a higher number of new product launches in the period along with tax rate phase-in. We are excited about our operating plans for 2015. We plan to deliver consumer-focused renovation, product news and innovation across all elements of our portfolio. I will now turn the call over to Ken who will share our plan highlights across each of our segments. Ken?

Okay, well, thank you, Don and good morning to one and all. As we move into fiscal 2015, our number one priority is to accelerate top-line growth. We will do that by sharpening our consumer first mindset with particular focus on four growing consumer groups -- the growing middle class in emerging markets, US multicultural families, millennials and consumers over age 55. With these growing consumer groups and our broad portfolio, there are plenty of growth opportunities and our plan is to go out and get them.

In US Retail, we expect mid-single digit growth in net sales for 2015, including the benefit from the 53rd week. We expect segment operating profit will grow roughly in line with sales with benefits from top-line growth, HMM and new cost-reduction efforts partially offset by investments in product innovation and advertising.

We have made several leadership changes in this business as we start the new year. Jeff Harmening became Chief Operating Officer for US Retail as of May 1. David Clark now leads the Yoplait division changing places with Becky O'Grady who now is in charge of our international Haagen-Dazs business unit. Jon Nudi has moved from our US Snacks division to run our Europe business prompting some additional moves within our US divisions. You will notice some familiar faces in new jobs. The new face is Liz Nordlie who was promoted to President of Small Planet Foods. I have great confidence in this team. They have each established a lengthy resume of results across a wide variety of General Mills businesses and I am enthusiastic about the fresh thinking they are already bringing to their businesses.

So at the risk of stealing a bit of thunder from Jeff's presentation at our Investor Day in a couple of weeks, let me share his team's priorities for 2015 and they are investing in our cereal business for growth, returning our US yogurt business to growth, accelerating our strong performance in better-for-you snacking, leveraging the good momentum we have in Totino's hot snacks, Old El Paso Mexican products and baking products and continuing to foster our strong culture of HMM.

So let me give you a few details on these priorities beginning with cereal. Sales in the US cereal category declined in fiscal 2014, down 4% in measured outlets. Full category performance was a bit better than that, including stronger results in non-measured channels. Our cereal performance has outpaced the category in recent years. Big G net sales grew slightly last year and they are stable since fiscal 2010. We've grown cereal marketshare in three of the past four years and we've gained a cumulative 20 basis points of share over that time.

The growth plan for Big G in fiscal 2015 begins with product news and strong advertising support on several large established brands. We are rolling out some great taste-focused renovations, more cinnamon taste on Cinnamon Toast Crunch, new fruitier tasting Trix and we will invest behind some strong new advertising on Lucky Charms and Cheerios.

Consumers today are seeking more protein at breakfast and we are responding. The 2014 launch of Nature Valley Protein Granola exceeded our expectations. This year, we will grow distribution and broaden the line with new peanut butter and dark chocolate peanut butter varieties. We recently launched a new line of Cascadian Farm protein granolas. These are certified organic choices for consumers. And we have brought protein to the leading franchise in the category. New Cheerios protein is available in cinnamon almond and oats and honey varieties. Early retailer and consumer response is quite encouraging.

As you know, consumer interest in gluten-free offerings also is growing. Retail sales for the Chex franchise increased by over 6% last year behind strong consumer messaging and the introduction of Vanilla Chex. This year, we are increasing our media spending behind Chex at a double-digit rate. We are also launching a new platform, gluten-free Chex hot oatmeal.

Now I know many of you are anxious to see renewed cereal category growth and frankly we are too. We are confident it will happen. This is a category consumers love. In fact, US consumers rank cereal as a top 10 food and beverage choice in the same list as sandwiches, fruit, coffee and juice. We are very focused on doing our part for the cereal category and growing sales for our cereal brands in 2015.

So let's turn to yogurt. Sales for this category grew 6% in the US in 2014, but our overall yogurt sales didn't grow and that was a disappointment. However, we have our business moving in the right direction. Retail sales of our Greek yogurts grew 41% last year and our share of the Greek segment is now running at 10%. In addition, our original style Yoplait business posted retail sales growth for the full year in 2014 with results strengthening in recent months.

In fiscal 2015, we are expanding our Greek taste-off event across the country with sampling in stores nationwide this summer. We will continue to grow our distribution on Greek thanks to business momentum and some excellent new items, including new flavors of Greek 100 and Yoplait Greek yogurts. We will build on original style Yoplait's positive momentum, leveraging a snack-focused advertising message that has all family appeal. The big news on Yoplait Light in the first half is the removal of aspartame across the entire line, which will hit shelves in the fall and we are modernizing our lineup of flavors, including red velvet cupcake and apricot mango sorbet. In addition, we are bringing a high level of fun to the kids yogurt sections with Minions, Teenage Mutant Ninja Turtles and Hello Kitty equities. With positive momentum on Greek and original style Yoplait and strong plans in place across the business, we believe we will return Yoplait to sales growth in 2015.

For our grain snacks businesses, retail sales have grown by 50% since fiscal 2010 and we have increased our share from 29% to 41% of the category by leveraging highly differentiated innovation. In 2015, we are expanding our successful Fiber One franchise with streusel bars, a great tasting snack that delivers whole grain, real fruit and 20% of your daily value of fiber, all with just 150 calories. We are targeting Hispanic households with the launch of Nature Valley fruteria bars featuring whole grain and visible pieces of fruit in very appealing flavors, including strawberry apple and mango strawberry. And we are introducing great tasting extensions of proven franchises like coconut almond Nature Valley protein bars and blueberry Nature Valley Soft-Baked Oatmeal Squares.

Our natural and organic snack brands enjoyed great results in 2014. Larabar retail sales increased by over 30% last year. We are now launching two new chocolate varieties of Larabar ALT protein bars and for the first time, we are extending the Larabar brand beyond nutrition bars with the launch of Larabar Renola. Renola is granola reinvented, a simple grain and gluten-free mix of nuts, fruits, seeds and spices. The three varieties -- cinnamon nut, cocoa coconut and berry -- can be consumed as a snack, a topping or as a cereal with milk.

We are broadening the Food Should Taste Good brand with the introduction of Pita Puffs. This crisp snack delivers the satisfying crunch of a pita chip in an innovative new puffed form. And we are bringing the culinary appeal of Food Should Taste Good to the cracker aisle with a new line of gluten-free brown rice crackers in delicious flavors like sea salt, peppercorn blend and tomato basil.

We are also launching Fiber One cookies nationally this quarter. This is a great tasting product for consumers looking to satisfy their cookie craving without the guilt. These cookies have just 120 calories and 20% of your daily value of fiber. Our better-for-you snacking businesses have clear momentum and so do several other key businesses in our US Retail portfolio. Retail sales for Totino's hot snacks have grown 10% in the last two years to reach over $0.5 billion in measured sales alone. In fiscal 2015, we will work to build on that success with our Zero to Pizza Pronto advertising campaign. We are also innovating with new barbecue chicken and spicy taco style varieties.

Old El Paso is leading the Mexican category with measured sales up 4% and share up 0.5 point in fiscal 2014 and this is thanks to differential innovation like our Stand 'n Stuff tortillas. This year, we are bringing bold nacho cheese flavor to our Stand 'n Stuff taco shells and we are significantly increasing our media investment to accelerate momentum on this very exciting brand.

On our baking product businesses, we will continue to invest in the digital advertising efforts that Ann Simonds shared with you on our third-quarter call. We are addressing consumer desires for affordable indulgence with the launch of Pillsbury filled cookies and Cinnabon bakery-inspired cinnamon rolls. And we are expanding the successful Immaculate baking brand from the refrigerated dough case into the dry mix aisle. So that is a taste of the very full marketing plans we have in US Retail. You will hear much more on this business from Jeff Harmening in July.

We finished fiscal 2014 with good sales momentum in our Convenience Stores & Foodservice business. For fiscal 2015, we are targeting renewed top-line growth for this segment with net sales forecast to grow at a mid-single digit rate, again including the 53rd week. Positive mix and strong HMM delivery are expected to help segment operating profit grow at a high single digit rate.

Let me give you a few examples of how we will be driving net sales growth in fiscal 2015. First, McDonald's recently announced that they will be offering Yoplait Go-Gurt in Happy Meals at more than 14,000 locations across the US beginning in July. We have developed a new snacking product for the K-12 channel, new snacking products for the K-12 channel, like Nature Valley Crisps and Simply Chex, products that meet the USDA's new snack nutrition regulations.

We will continue to drive growth in the convenience store channel with innovations like Chex Chips and Totino's Pizza Chips. Bethany Quam, who was recently promoted to President of the Convenience Stores & Foodservice segment, will share more details with you next month.

For our International segment, plans call for a high single digit constant currency growth in net sales and operating profit in 2015. Our consumer first approach is as important in our International business as it is in the US. Let me share some highlights of the great product news and innovation we have planned starting in our developed markets.

In Canada, we are bringing relevant innovation to the cereal category. We are targeting healthful foodie consumers with our launch of an ancient grains variety of Cheerios. We have just introduced Nature Valley protein granola to Canada following fast on the heels of its successful introduction in the US. And on Lucky Charms and Cinnamon Toast Crunch, we are investing in taste-focused advertising targeted to adults.

Our Liberte yogurt holds a leading position in Canada's Greek yogurt market. We are launching a new sub-line of Liberte Greek featuring higher fat, indulgent flavors. We are also introducing new Yoplait Source yogurt with Stevia, capitalizing on growing consumer interest in natural sweeteners. We will continue to tap the US Snacks innovation pipeline to bring new products to Canada. Nature Valley Breakfast Squares are launching this month. And Old El Paso is bringing some new restaurant quality entrees to the Mexican aisle.

In Europe, we are adding new fruit varieties to the core Haagen-Dazs portfolio and we are launching Haagen-Dazs Triple Sensations, a breakthrough innovation, which delivers three layers of indulgence in every bite. We continue to play a leading role in developing the Greek style yogurt segment in Europe. We are supporting our recent launches of Liberte Greek in the UK and Yopa, high-protein yogurt, in France with new flavors and pack sizes in the first half of this year. And we are expanding our Old El Paso Stand 'n Stuff tortillas and dinner kits throughout the regions.

So let's shift to emerging markets where our focus on the growing middle-class consumer is driving strong growth for our businesses. Fiscal 2014 was another year of double-digit growth for us in China and we intend to keep our foot on the gas in 2015. We are expanding the Haagen-Dazs retail line with new flavors like blueberries and cream. We will reinforce the super-premium equity with increased media investment in existing geographies and we will continue to expand the brand with new shops and retail outlets in new cities across the country.

On Wanchai Ferry, we will strengthen our brand leadership in the dumpling segment by inviting consumers to taste the best of the season with new varieties like asparagus and shrimp and we will drive differential growth in the [Taiwan] segment by expanding our breakthrough [crystal Taiwan] innovation. We will also continue working toward key milestones, including the plant commissioning and regulatory certification that will enable us to launch Yoplait into the fast-growing yogurt category in China.

In Brazil, our fiscal 2015 plans call for another year of double-digit net sales growth. We are capitalizing on Brazilian consumers' passion for the World Cup with Yoki's Bring the Party to your Home campaign. This leverages our annual Festa Junina in-store merchandising event and we have launched a line of world flavors, Yoki snacks featuring flavors from many World Cup countries. We are increasing media investment behind compelling messages like Kitano seasonings Clean Plates campaign. And we are investing behind the recent launch of Betty Crocker dessert mixes.

After the US, the Middle East is the second-largest market for Betty Crocker in the world. Our team there is building on consumer interest in sweet snacking with new varieties of Betty Crocker mixes, including molten chocolate cake and chocolate cheesecake, supported with high levels of consumer spending. In India, we will drive trial and awareness of Pillsbury value-added mixes and Parampara meals by more than doubling consumer support while expanding distribution.

Emerging markets continue to lead CPW's growth. Next month, we are adding Fitnesse chocolate to our market-leading brand portfolio in Southeast Asia targeting consumers seeking permissible indulgence and we have big nutrition news rolling out across our kids cereals line in Latin America centered on less sugar, same great flavor message. So that gives you a sense for the strong growth plans we have across our international business in 2015. Chris O'Leary will share details with you in just a few weeks.

So in summary, General Mills' fiscal 2015 plans are centered on the objective of faster top-line growth fueled by sharper consumer-focused news and innovation. We have a very robust slate of product news, renovation and innovation that we are bringing across each of our business segments. We are maintaining our strong HMM focus and we have launched new efforts designed to contribute $40 million in pretax savings this year with more to come in fiscal 2016. And above all, we are focused on our commitment to deliver earnings growth and strong cash returns to our shareholders. So we look forward to talking more with you about these plans during our investor event on July 8. So with that, I will open the call for questions. Operator, would you please get us started?

(Operator Instructions). Eric Katzman, Deutsche Bank.

Hi, good morning, everybody. Two questions, I guess, Ken, you clearly have stated with all the details on the new products that top line is the focus. It looks like promotional spending just for pretty much everybody, including yourself, has not been as effective. So could you kind of talk a little bit about the comment that like media spending is going to be up I think you said greater than sales? How does promo fit into that? And then I have a follow-up on the cost savings restructuring effort.

Okay, well, good morning, Eric and thanks for the questions. Let me make a few comments. We continue to be very focused, as you point out, on innovation, new products, renovation of core brands and of course, the advertising that is necessary to really communicate those ideas to consumer and of course, when we get that combination right, that is when we see top-line growth, clear benefits coupled with very compelling advertising. So that is core to our plan and continues to be core. And I described I think a number of instances of how we will play that out.

On the merchandising side of your question, I'd make a couple of points about sort of what we saw in the fourth quarter and our focus going forward. First of all, while we did not see the efficiency that we had hoped for, I just want to underscore we've seen relatively stable merchandising price points. So it is not a question of price point erosion or more aggressive levels of promotion. It really for us related to execution. We just see more and more of the players interested in getting merchandising. There are a limited number of places in the store to get that high quality that we want, which is really good placement on end-aisle displays coupled with the feature support that we know drives efficient merchandising.

So as we looked at those metrics and variables, particularly in the second half and fourth quarter of the year, we saw some slippage there. So we look at it as -- while we are quite disappointed, we kind of analyze and think our way through these things, we think it is an executional issue. We just have to make sure that we have got our customers focused on the right big brands and executing in the right way with high-quality display support in store and the right level of communication. So we are going to -- and recognize it is more competitive -- focus on execution. We have got very good sales capability and that is sort of how we will approach that as we go into 2015. Does that get at it for you, Eric?

Yes, that is helpful. Thank you. And then I guess on the review on the cost side of things, obviously, kind of similar, everybody is looking at what is the right cost structure, capacity utilization. I guess it is early days, but it just seems that $40 million relative to your EBIT, which is kind of approaching $3 billion, is kind of relatively modest. Is this -- should we think about this as being a much bigger kind of program or is this really just adjusting some utilization rates in select businesses?

So Eric, let me make a comment and then I think Don wants to jump in. You should think of that number as a partial year number and as I think we have noted, we will expect that to grow in out years. Beyond that in terms of more detail on how we are approaching this and what we are thinking, we don't have those to share with you today and so we will come back at those later. But I think it would be correct to say that is a partial year that we are capturing there and we expect that to increase going forward.

Yes and Eric, what I would add is, as you are well aware, we have been under an HMM discipline for close to a decade now that has allowed us to continue to drive efficiencies in both our supply chain, as well as our overheads, which has avoided the need to take a lot of large-scale restructuring actions. That said, on a very targeted basis, we do think we see some opportunities. To Ken's point, we expect to be back to you in 90 days or so with more specifics on portions of it. It will play out beginning this year. Think about those savings falling more in the back half and then they will expand in F'16 and we will give you a line of sight on that when we are ready to announce more specifics.

Okay. I will pass it on. Thank you.

David Palmer, RBC Capital Markets.

Good morning. US Retail has been at the center of the shortfall in the last few years versus your high single digit targets. It seems to be key to the turn in your fiscal '15 guidance in addition to the impact from cost reductions and the extra week. Assuming that is fair, what areas of US Retail do you expect to improve the most into the next year and why would those be the areas that you expect to improve? Thanks.

David, thank you for the question. There are three focus areas in US Retail. One area of focus is to continue really and accelerate our very strong momentum in Snacks. We have had great success there. We have a very strong innovation pipeline. You will see more of that innovation in the first half. I will tell you there is more good innovation coming in the second half. So first things first is to keep the momentum going in a very, very successful part of our portfolio.

The next two priorities, Yoplait yogurt and cereal, let me talk about each of those a little bit. In the yogurt category, I would say that the dynamics of that category are shifting in our favor right now. While Greek yogurt is obviously a very big part of the category now, it has been stable at 46%, 47% of the category now for six or seven months and that means a couple of things. First of all, we have terrific Greek offerings now. We had a full slate of Greek products in many styles and formats. We introduced a number in the second half of last year. We are introducing 20 more in the first half of this year and we are seeing -- and these are very, very good products; consumers like them. We are seeing our share expand and so we are finally getting real traction in that large Greek segment.

On the other hand, the fact that the growth of the Greek segment has stabilized really means that there is room for these other segments I think to get traction now. And so we are clearly seeing that in our core cup business and on these Yoplait brands. We saw Yoplait Original grow last year. We are seeing that momentum continue behind reformulation and very effective advertising. We are going to be renovating and reformulating Yoplait Light in the first half of this year. We will be taking aspartame out and putting Stevia in, which we think our consumers are going to like a lot and gives us some good news to talk about. We are seeing some traction in our kid brands.

So overall as we look at that yogurt category, we just think the dynamics are going to be a bit more in our favor in our full portfolio.

And then finally on cereal, we have got a very clear point of view on what is happening there. Taste brands are doing really well, so whether it is Honey Nut Cheerios or Lucky Charms or Cinnamon Toast Crunch, big great tasting brands. Those are all growing for us behind product quality and very good advertising and so we are going to keep doing that and we will build on that. The consumer definition of health is changing in the cereal category. Clearly, they are interested in protein. Clearly, there are things that some consumers want to avoid like gluten and so you are going to see us build on those trends with new product offerings and continued renovation. Remember we grew our cereal business this year and we believe strongly that we will grow it next year and that we understand what is happening in that category very well.

So anyway, long answer to your question, but those are the three priorities. We are very focused on them and we are optimistic that we will be able to make those gains.

Thanks and see you next week.

Andrew Lazar, Barclays.

Good morning, everyone. Ken, I want to come back just for a minute to the promotional efficiency question from before. I'm trying to get a sense of whether this is other sort of companies in the grocery space having upped their game in terms of sort of in-store selling capabilities that has allowed them to be more successful in getting some high-quality space or is it just that, in the environment we are in, they are just pushing with more let's say monies or spending to get some of it, which will fade at some point? And have you seen something like this dynamic sort of in your experience before? And then I have got a follow-up.

Okay. Andrew, I would say, look, we have a very good competitive set in our space and so, as you know very well, our view is just the sheer number of new items and number of new competitors certainly, for instance, in the yogurt space. Just lots of people coming in with new items. So the competition for a limited number of quality display options I would say is increasing. So we continue to have very, very high confidence in our sales capability. We are really good at what we do there and we think we know the ingredients to successful execution. It always boils down to getting the right really category-driving products on display in the right way at the right price point, which -- and we know what that is and again, we are not pressing hard. We know what the right price point is and with the right kind of feature support. So we know what to do. We have diagnosed that Q4 and we think we can go out and get it. There is just more competition and demand, so we will have to up our executional game.

That's helpful. I appreciate that. And then with respect to pricing in yogurt moving forward, I guess particularly in Greek, you have got a couple of things here. You have got obviously higher dairy prices or costs. You have got a financial owner that now has a stake in one of your competitors. You have got perhaps some of the growth in Greek filling out some of all of this significant capacity that has come onstream over the last couple of years. Those factors would suggest to me the opportunity for pricing to stabilize or kind of move in the right direction as we move forward. And I think there have been some moves already to that effect by some players in Greek. Some even have suggested that maybe they have taken pricing and General Mills has not yet moved in that regard. So trying to get a sense on would you expect that to kind of move in the right direction and is that part and parcel of how General Mills thinks about it too?

Well, let me just say that I would agree with your observation that we are seeing price stability there. Obviously, we don't comment prospectively on pricing and that sort of thing. But, look, I agree with your observation. We also, of course, are seeing some moderating dairy inflation and it's always hazardous to predict what commodity prices are going to do as well, as you know, but we are encouraged by what we are seeing on that front. So dairy inflation will be a key variable for us next year and we like the direction it is going in now and I think we are observing price stability in that Greek segment right now.

And I think, Andrew, I would just add, if you looked at the Nielsen in the fourth quarter, pricing in Greek was stable and we were very much in line with that on both the movement and a dollar per cup basis. So we feel good about our pricing competitiveness and where it is and the stability in the category.

Thanks very much.

Alexia Howard, Sanford Bernstein.

Good morning, everyone. Two questions. Firstly, it looks as though comparing the third-quarter results with the data that came out today as those cereals and the frozen foods have declined quite sharply over the last quarter, given that you are expecting to get back to growth at least in cereals, how quickly do you expect that to happen during the course of fiscal 2015 and then I have a follow-up?

Okay, I don't know that I have sort of quarter-by-quarter -- an outlook for you right now, Alexia. Again, going back to the fundamentals, we feel encouraged by the fact that we were able to grow that business this year in a down category and I won't repeat for you the litany of innovation that we are bringing, but fundamentally we think that these things are -- they work and that is why we are doing more of them. They are effective for us, so we are going to stay on that game of product renovation. We will be very focused on advertising that works and all these things that I've talked about and we expect, over the course of the year, to see that business grow. And as I talk, with merchandising support, we will sharpen our focus on execution there and our goal is to grow that business again in 2015.

And then just harking back to Eric's question about the promotional effectiveness declining this quarter, do you think it is partly to do with some consumers shifting to less heavily processed products and if so, what do you do with the promotions on those brands? Do you step it up and try to chase more volume even if the volume response isn't there or should you maybe be taking the pricing upwards and using that extra cash to channel into products that you are seeing grow like the snacks area?

Well, I think your last point, Alexia -- let me sort of address several of the points. Certainly, we are observing where the growth is coming across our portfolio and we continue to increase the pace of innovation and the level of support behind our snacking business because that is a real growth opportunity. Having said that though, again, we know where the growth is in the cereal category right now and we think we know how to get it and just to repeat myself, high taste indulgent products are performing very nicely for us and so we are going to add support to those. So Honey Nut Cheerios, the biggest brand in the category, grew for us this year. Lucky Charms and Cinnamon Toast grew and so we will keep renovating these highly differentiated products and we will support them well and we will add to them because they work.

But to your other point, we also know that consumers are interested in more protein and we do see more breakfast going to, for instance, Greek yogurt as an example or other protein-based breakfast. That is why we are expanding our range of protein-based cereal offerings. Nature Valley protein granola has been quite successful for us. So we are going to shift resources to that kind of innovation. It is early days and I mean literally we are just weeks into this, but it looks like Cheerios protein will strike a chord.

So to your point, Alexia, we do really study the market closely. We look to see how consumer preferences are shifting and our innovation plan and approach is very coherent in how it follows those trends and those preferences, which I think is the core of your question. So thank you.

And Alexia, the only thing I would add to that is you touched on media and where we are going to put our investments and you mentioned -- you noted that it is going to be up faster than sales next year, but I think you will also see it being more differentially put against those ideas in our USRO business for example that Ken touched on behind cereal, behind snacking, behind yogurt to potentially a more differentiated step than we have had in past years.

Thank you very much. I will pass it on.

Matthew Grainger, Morgan Stanley.

Hi, good morning, everyone. Thanks for the question. Just one clarification I guess on the guidance for operating profit growth first. You highlighted an expectation of mid-single digit segment operating profit growth, but you are also coming off a fairly significant decline this year in corporate expense. Could you just walk through some of the drivers of lower corporate expense this year and whether some of those might revert going into 2015?

First of all, to be clear, obviously, the corporate items or the unallocated are outside of the segment operating profit. Segment operating profit will grow in line with sales. It is going to improve off the growth rate this year driven partially by the higher sales growth that we are projecting for next year and the lower inflation, so greater gross margin expansion. So that is the fundamental driver in next year's number.

In terms of this year, our corporate unallocated was -- or corporate items was down for a few reasons. Compensation incentive was down year over year, not surprising given the results and then there was the miscellaneous other corporate items, benefit rate, etc. that were beneficial that were captured in the F'14 numbers.

Okay, thanks, Don. And just one question on Yoplait in China specifically. You have talked a few months ago about breaking ground on a manufacturing facility there and planning a gradual rollout. Just wanted to see if you could give any update on what type of progress you are expecting for this year and whether there is any prospect of having a product to commercialize at some point later in the year?

Matthew, it will be later in the year. We are building a plant. We have been very clear on that and this is an exciting multibillion-dollar category in China. We have great capability to bring there and we will obviously have more details to share with you as we get closer to the launch. But we will have very good capability and we intend to launch very high-quality, very competitive offerings into that market and we will start, as we always do, in a specific region in China and prove out the business model and make sure that we have got our capabilities aligned the right way and then we will expand. But we are obviously very enthusiastic about this opportunity and think it is a great growth platform for General Mills in China.

Okay, thanks very much, Ken.

David Driscoll, Citi Research.

Thank you. Good morning, everyone. Don, I wanted to go to the gross margins in the fourth quarter. In late March, on the third-quarter call, you laid out an expectation of pretty substantial fourth-quarter gross margin improvement and I thought you were pretty clear back then about strong expectations for HMM delivery and favorable input costs. Today, it seems like the miss is being more explained like it was a revenue issue because of these promotional items. What happened and why did the gross profit margin miss your expectations by so much?

Thanks for the question and that was where the miss was in the quarter. It was not HMM or productivity. That came in as expected. It was inflation came in a bit higher and our trade expense related to the promotions that we've talked about, the promotion efficiency or inefficiency, obviously not only hits the top line, but impacts gross margin as well. So it is really those two items, which didn't play out in the quarter as we had expected in March. And they are about -- they are probably both responsible for about half of the miss, those two items are equally responsible for the miss in the quarter.

Okay. Can you give us some color on the drivers of inflation in fiscal 2015?

Yes, well, we have 3% inflation. As you know, we have a fairly broad market basket. I guess one thing to note, it probably was highlighted by the fact that we identified dairy as the driver of the F'14 variance, is that dairy is becoming a larger piece of our basket, not quite as large as grains, but in that same 5% to 10% range. So as we looked -- and because of that breadth of input costs and again, we talk about inflation, it is really all of COGS we are talking about. It is very broad. Grains of 5% to 10%, dairy at 5% to 10%, many other products in the 5% range, including energy both from packaging and distribution. And so while we are seeing some favorable movements on grains, whether it is energy, sugar, even dairy as of today versus a year ago are still higher and we see them driving that inflation for the next year.

A final quick one -- sorry, thank you. A final quick question, 53rd week, is it correct to say it is 2 points to the revenue line, no impact to the profit line and as a consequence of that second statement, we should not have any negative issues related to this particular 53rd week affecting F'16 because always we have to deal with that right now, so is that all fair?

Yes, we expect that the extra week will generate about $0.05 of EPS, which, as we said, we are investing back this year to help drive top-line growth.

So no impact to profit and then that would be true then on the F'16. There is no reason to call that out as a factor affecting that particular year?

We expect to reinvest it this year, yes.

Okay, thank you.

Ken Goldman, JPMorgan.

Hey, thanks for the question. Not just for Mills, but across a lot of larger US-based food names, we are in a bit of a challenging cycle here. I guess I am wondering in your view how do you break this trend? What is the smoking gun? Do we need better innovation, stronger marketing, more efficient promos? Is it all of the above I guess? I am just trying to understand, Ken, in your view, what is the main problem we are all experiencing across packaged food at the moment and maybe how you go about fixing it?

Ken, I wish there was one silver bullet; it would make it easier for us, but I think it depends on the category. Clearly, snacking is a trend, a positive trend. So maybe that is a key factor and we are very focused on the snacking trend and it is not just the snacks in our snack businesses. We see yogurt becoming more and more of a snack food and in fact, one of the reasons for the resurgence of our core Yoplait businesses is that we are seeing more snack usage and we are actually talking about the product and its snack versatility in advertising. And so we are seeing it play out there.

We are seeing our hot snack products, Totino's do very well. We are seeing our natural and organic snacks. So I think that there is -- I think that there is a snacking play. I think that, as I said, I think that consumer definitions of well-being or health are changing and so we need to be very in tune to that and we have talked about the protein trend not just in yogurt, but across a number of categories and how that is playing out and how we are looking to capitalize on that. And we have talked about how consumers are looking to -- they are looking to avoid some different things and some things that maybe weren't on their radar several years ago with gluten being exhibit 1.

So it is -- we are in changing times and we are a marketing company, so our job is to understand the change and capitalize on it, find opportunity there. And so I think it is more than one change as I tried to say, but it is more snacking, it is changing definitions of health and wellness. But as we get clearer I think understanding of those and a better understanding of what exactly the consumer wants there, we will get better at giving those products to her and these again should become opportunities for us.

Thanks and then one really quick follow-up. Advertising spending in the fourth quarter, very basic math here and this easily could be wrong. Was it down low double digits, high single digits? Could you just confirm that it was down fairly meaningfully in the fourth quarter?

Yes, that's right and we had some add-ins last year, late last year that we are rolling over and just from an accrual basis, it ends up catching up with you in the quarter. The full-year number is the more important number to look at. It was down about 3% and that also included within our US business some shift from media to other consumer-like sampling behind our yogurt business, which had a fairly significant impact on that number.

Thanks. We'll see you in a couple weeks.

Operator, can we sneak one last one in here?

Certainly. Ken Zaslow, Bank of Montreal.

Hey, good morning, everyone. Ken, you changed up the leadership in North America. So my question to you is what are you looking to accomplish under the changes and what will be the greatest strategic changes? Are we going to start to see something different? And just putting it all together is moving people around versus inserting new talent from outside, what was the thinking on this because it seems to be maybe a strategic evolution here. Is there something going on? Can you help us out?

Yes, so what I am looking for -- thank you for the question. I think what you will see is greater focus, greater prioritization, more fluid allocation of resources. Some of the earlier questions on the call alluded to that and a higher pace of activity. I mean it is clear that it is just more competitive out there with innovation and ideas coming from both small, very small companies and big companies. And so along with the way we focus and prioritize, it is important for us to just pick up the pace of innovation and so you will see all of those things.

Was there any thought about bringing in outside talent or anything like that or do you think you have the right team for this North American leadership?

Yes, we have quite a strong team and we are developing and moving and promoting people based on the results that they have achieved over time and so we have a very effective leadership team in North America, well led and I think that you will see these points that I made just a minute ago.

My last question, usually you talk about acquisitions where there is priority using cash flow. You didn't talk about that at all. Can you just -- I know last year you guys said that you were not thinking about acquisitions. Is it back on the table? Just talk about it broadly. Obviously you are not going to give exact examples, but I just want to know broadly.

I'm happy to talk about it and you are right, we are not going to give exact examples, but, yes, M&A is still part of our strategy. We were very clear that F'14 was the year of consolidating some large acquisitions we had done and then returning cash to shareholders. I think we did both of those things very effectively. We have continued to work during F'14 to look at new opportunities in the same markets, the same areas that we have talked about previously getting deeper in emerging markets and better-for-you snacking in the US or in developed markets more broadly and as things eventuate, we will certainly share it with you.

Great. Thank you.

Thank you, everybody. Give me a shout if you still have questions. I appreciate it.

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.