通用磨坊 (GIS) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the fiscal 2015 fourth-quarter earnings conference call.

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

Later we will conduct a question-and-answer session.

(Operator Instructions).

As a reminder, this conference is being recorded Wednesday, July 1, 2015.

I would now like to turn the conference over to Jeff Siemon, Finance Director, Investor Relations.

Please go ahead.

Thanks, Dina, and good morning, everyone.

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

Kris Wenker is here too but she has put herself in listen-only mode.

I will turn the microphone over to Ken and Don in just a minute but first let me cover our 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 and you can find our slides on our website that supplement our remarks this morning.

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

The second slide in today's presentation includes factors that could cause our future results to be different than our current estimates.

With that let me turn the call over to Don.

Thanks, Jeff.

Welcome to your first earnings call and hello everyone.

Thank you for joining us today.

Before I get into the numbers, let me just take a moment to recognize Kris Wenker's tremendous 35 years with General Mills and her terrific differential leadership of our investor relations efforts.

She will be missed both inside this building and I know by many of you on the phone with us today and we wish her all the best.

As noted in our press release today to get to the business at hand, General Mills operating performance in fiscal 2015 was mixed.

Our Convenience Stores and Food Service segment had an excellent year with segment operating profit increasing 15% to reach a record high of $353 million.

Our International segment posted good margin expansion and profit growth in constant currency.

But sales and profits declined for US Retail, our largest operating segment.

Our business performance strengthened in the second half of the year with our Consumer First efforts gaining traction and we took important strategic actions during 2015 including the acquisition of Annie's and the initiation of several projects designed to create -- to increase our speed and agility while reducing costs.

These actions have positioned us to deliver stronger growth in 2016 and beyond.

Our fourth-quarter results are summarized on slide five.

Remember that this quarter included an extra week which contributed approximately 6 points of net sales growth and $0.04 of earnings per share.

Net sales of $4.3 billion essentially matched year-ago results.

On a constant currency basis, net sales increased 6%.

Segment operating profit totaled $800 million, an increase of 9% as reported and 13% in constant currency.

Net earnings and diluted earnings per share were both down on a reported basis primarily due to an impairment charge taken on our Green Giant brand asset and a tax charge related to a one-time repatriation of foreign earnings.

Adjusted diluted EPS which excludes these and certain other items affecting comparability increased 12% to $0.75 per share.

Constant currency adjusted diluted EPS increased 18% in the quarter.

Our full-year results are summarized on slide six.

The 53rd week contributed approximately 1 point of net sales growth in fiscal 2015.

Net sales declined 2% to $17.6 billion.

On a constant currency basis, net sales increased 1%.

Segment operating profit fell 4% to $3.0 billion.

Constant currency segment operating profit was 2% below last year.

Net earnings attributable to General Mills totaled more than $1.2 billion and diluted earnings per share were $1.97.

These results were below year-ago levels including the charges related to restructuring projects, the brand asset impairment and the repatriation of foreign earnings.

Adjusted diluted EPS of $2.86 was up 1% as reported and up 4% in constant currency.

Slide seven provides the components of our net sales growth.

For the fourth quarter, pound volume increased 3% from prior year including Annie's in the 53rd week.

Sales mix and net price realization also added 3 points of sales growth.

Foreign exchange reduced sales growth by 6 points.

For the full-year, pound volume declined 1%, net price realization and mix added 2 points of sales growth and foreign exchange reduced sales growth by 3 points.

Our US Retail segment had a disappointing year but as you can see on slide eight, trends did improve in the second half most notably for yogurt and cereal.

Our US retail brands gained share in categories representing 65% of measured sales volume including gains in the cereal, yogurt and grain snacks categories.

But overall sales trends in many categories were weak reflecting the impact of changing consumer food preferences.

For Convenience Stores and Food Service, fourth-quarter net sales increased 4%.

Our six focus platforms which include cereal, yogurt, snacks, frozen breakfast, mixes and biscuits continued to lead growth for this segment with sales up 8% in the quarter.

For the full-year, segment net sales increased 4% to $2 billion including 9% growth on our focus platforms.

Fourth-quarter net sales for our International business segment increased 9% on a constant currency basis with gains across all four regions.

For the full-year, International net sales totaled $5.1 billion, 5% below last year's reported but 6% above last year in constant currency.

Slide 11 shows you constant currency net sales results by region.

Full-year net sales in Latin America increased 17% reflecting inflation driven pricing across many markets.

In the Asia-Pacific region, constant currency net sales grew 5% driven by growth of Haagen-Dazs in China and Betty Crocker products in the Middle East.

Sales in the European region also increased 5% due in part to strong innovation on Old El Paso Mexican products.

And Canada sales in 2015 essentially matched year-ago levels in constant currency.

On slide 12, you can see that adjusted gross margin increased by 70 basis points in the fourth quarter.

This was driven by positive net price realization.

For 2015 in total, adjusted gross margin was down 70 basis points to 34.7% reflecting the impact of volume deleverage.

Our input cost inflation for the year totaled 2%.

Slide 13 details our segment operating profit results for fiscal 2015.

Total segment operating profit declined 2% in constant currency driven by the decline in US retail.

On a constant currency basis, International's profit increased 9%.

As I mentioned earlier, profits in Convenience Stores and Food Service were up double digits.

Slide 14 summarizes 2015 joint venture performance.

On a constant currency basis, net sales for Cereal Partners Worldwide declined 2% and Haagen-Dazs Japan sales grew 6%.

After-tax earnings from joint ventures totaled $84 million, a decline of 6% as reported but in line with year-ago results in constant currency.

Slide 15 highlights some additional items from our 2015 income statement.

At the end of the fourth quarter, we made a strategic decision to redirect certain resources supporting our Green Giant business in the US Retail to other businesses in the segment.

As a result, our future sales and profitability projections for this business declined causing us to record a $260 million impairment charge related to our Green Giant brand intangible asset.

We recorded restructuring and project related charges of $357 million in fiscal 2015 including $73 million in cost of sales.

Corporate unallocated expenses excluding items affecting comparability declined 7%.

Annual interest expense increased $13 million driven by higher average debt levels.

In the fourth quarter, we incurred a tax charge of $79 million related to the one-time repatriation of foreign earnings.

We expect to pay $24 million in cash taxes.

Lastly, the adjusted effective tax rate was 30.5% compared to 32.2% a year ago reflecting changes in earnings mix by country and favorable discrete items.

Turning to the balance sheet, slide 16 shows that core working capital declined to 13% in fiscal 2015 due primarily to improvements in accounts receivable and accounts payable.

This is the ninth consecutive quarter that we have reduced our core working capital versus the prior year.

Cash flow from operations totaled more than $2.5 billion in fiscal 2015 essentially unchanged from the previous year.

Fixed asset investments totaled $712 million including investments related to Project Century.

We paid over $1 billion in dividends and repurchased 22 million shares for $1.2 billion.

Since fiscal 2011, General Mills has returned $10 billion to shareholders through dividends and share repurchases.

Over that time our dividends per share have grown at an 11% compound rate.

We have reduced average diluted shares outstanding by 2% per year and we have accomplished this during the same period that we acquired three significant businesses in Yoplait International, Yoki and Annie's.

Slide 19 provides an update on the status of our cost savings initiatives.

We delivered $75 million in savings in 2015 from Project Century, Project Catalyst and our policies and practices update.

This reflects an accelerated pace of savings compared to our original projections.

In addition, last week we announced Project Compass, an initiative designed to streamline our international organization structure and save $25 million to $30 million in fiscal 2016 and $45 million to $50 million by 2017.

We anticipate incurring between $57 million and $62 million in restructuring charges associated with this project.

In total, we now anticipate the combination of all our recent cost initiatives including Project Compass will deliver between $285 million and $310 million in savings in 2016 and more than $400 million by 2017.

We plan to reinvest a portion of these savings into growth driving initiatives including cereal renovation, capacity expansion for grain snacks and our launch of Yoplait in China.

Looking ahead to fiscal 2016, we expect to increase our operating cash flow above 2015 levels.

The first call on cash is investment into the business to support growth and drive cost savings.

On slide 20, you can see that we anticipate fixed asset investments will increase to approximately $840 million in 2016 driven by increased investment in Project Century.

Slide 21 provides a summary of our 2016 sales and earnings guidance.

The 2016 growth rates reflect the impact of one less week.

We are targeting net sales to be approximately flat in constant currency.

Excluding the difference in weeks, we expect 2016 net sales to be up 1% in constant currency.

We expect to deliver $400 million in cost of goods HMM.

This should more than offset input cost inflation which we estimate at 2% this year.

Given HMM plus Century savings, adjusted gross margin is expected to improve from 2015 levels.

We expect our media investment to decline slightly.

We project our total segment operating profit will grow at a low single digit rate in constant currency.

Our plan assumes a mid single-digit decline in interest expense reflecting a stable level of debt and lower average rate resulting from refinancing maturing higher coupon bonds.

We are expecting our adjusted tax rate will be comparable to last year's 30.5%.

We expect joint venture earnings to grow at a low single-digit rate in constant currency and we plan to continue returning cash to shareholders through share buybacks.

For fiscal 2016, we are targeting a net reduction in average shares outstanding of approximately 1%.

We expect mid single-digit constant currency growth in adjusted diluted earnings per share.

At current exchange rates we would estimate a $0.04 headwind to full-year adjusted diluted EPS growth in 2016.

In terms of the quarterly cadence of EPS in 2016, we expect the first quarter to show the strongest growth as it compares to a weak prior-year period.

The fourth quarter will have the tough comparison with one less week though we do we expect base business growth in the final quarter.

We have a broad slate of Consumer First renovation and innovation planned in each of our business segments for fiscal 2016.

For more on that, I will now turn the call over to Ken.

All right.

Good morning everybody.

Thanks, Don.

So as we enter fiscal 2016, General Mills is keenly aware of our consumers' changing food preferences and the impact those changes are having on our industry.

We remain deeply committed to following the consumer, adapting to their evolving preferences and driving growth.

Where we embraced Consumer First in fiscal 2015, we saw our business respond whether that is with protein cereals in US Retail, Yoplait yogurt in US Retail and Food Service channels, or Old El Paso dinner kits around the world.

Our plan for 2016 is to expand our Consumer First efforts worldwide to generate sustainable topline growth.

So let me give you some highlights starting with US Retail.

We have four clear priorities for US Retail in 2016.

They are first and foremost to grow our cereal business.

Second, to accelerate our performance in better for you snacking which includes both our yogurt and snacks operating units within US Retail.

Third, to drive double-digit growth on our natural and organic portfolio by leveraging the combination of Annie's and our heritage natural and organic brands.

Finally, to deliver Consumer First value on select brands in a way that generates positive returns for our business.

Let me give you a few details on these priorities beginning with cereal.

General Mills has been leading performance in the $10 billion US cereal category.

We gained 30 basis points of value share in fiscal 2015 and have grown our share in seven of the past eight years, gaining 1.6 share points during that time.

But our share growth in 2015 did not translate into sales growth for us so we have more work to do.

Consumer First renovation is at the heart of our plans to renew cereal growth.

At CAGNY, we told you we are embarking on a broad investment plan designed to renovate our Big G portfolio for today's consumers and that gluten-free Cheerios was the first step in that plan.

Later this summer we will begin marketing five of our largest Cheerios varieties which make up nearly 90% of franchise sales as gluten-free.

We have developed a technology that separates our oats which are naturally gluten-free from other gluten containing grains that find their way into the oats supply.

We know that 30% of US consumers are interested in gluten-free foods and that a number of them have left the cereal aisle as a result.

This news gives them five great reasons to come back.

We will be taking another of our oat-based cereals, Lucky Charms, gluten-free later this year.

Between Cheerios, Lucky Charms and our Chex franchise, we have gluten-free news on products representing over half of our cereal sales and 17% of total category sales.

Last week we unveiled the second step in our cereal renovation plan.

We are removing artificial flavors and colors from artificial sources from all General Mills cereals.

Nearly half of US households are making an effort to avoid artificial flavors and colors and we are responding.

75% of our Big G portfolio will meet this claim by January with the remainder targeted by the end of calendar 2017.

In addition to Consumer First renovation news, we are launching a strong slate of innovation in 2016 geared toward growing segments of the cereal category.

Nature Valley Protein Granola has been a big success since it launched two years ago.

This year we are introducing two varieties of Nature Valley Protein Soft Baked Granola bites, a portable granola for consumers on the go.

Muesli is another cereal form that is benefiting from consumer interest in simple, less processed foods.

To capitalize on that trend, we recently launched new Nature Valley Toasted Oats Muesli in original and blueberry flavors.

Our line of Cascadian Farm organic cereals and granolas continues to enjoy strong growth and we are introducing a new honey oat crunch variety this summer.

Finally, we are extending our Nature Valley protein hot oatmeal line with maple pecan crunch and toasted coconut almond crunch varieties.

So these are all first-half launches and we have more new items planned for the back half.

In fact, our lineup of news is as strong as I have seen from Big G in a very long time with core renovation that impacts the entire portfolio, compelling new product innovation, strong promotional events and increased consumer directed marketing all rooted in a deeper understanding of what our consumers are looking for today.

Add it all up and we expect to deliver share growth and sales growth for our US cereal business in 2016.

Let's turn to yogurt where we generated strong growth in 2015.

Retail sales for Yoplait increased 7% and we gained nearly a full point of market share and this growth was broad-based.

Retail sales growth for our Yoplait Greek yogurts increase 39% led by Yoplait Greek 100 and new Greek 100 Whips.

Our original style Yoplait business saw retail sales increase 15% thanks to new advertising focused on better for you snacking for the whole family.

Retail sales for our kid yogurts returned to growth driven by our removal of artificial colors and flavors and by fun movie equities like Frozen and Star Wars.

In fiscal 2016, we will build on this positive momentum.

Core brand renovation is at the heart of our 2016 growth plan for original style Yoplait.

We recently rolled out a 25% sugar reduction across the entire line and early response has been positive.

In Greek, we have a new line called Yoplait Plenti.

These eight varieties include whole-grain oats, flax and pumpkin seeds.

We are also launching two new flavors of Yoplait Greek 100 Whips, coconut macaroon and chocolate cherry and we will grow our kid yogurts by partnering with movie equities like Disney's Frozen and by leveraging our Go-GURT Get The Last Drop advertising campaign.

With broad-based momentum and strong plans in place across the business, we expect 2016 will be another year of sales and share growth for our US yogurt business.

Over the past decade General Mills has leveraged consumer interest in convenient great tasting better for you snacks to build a grain snacks business that totals $1.4 billion in Nielsen measured outlets.

Our market share has increased by 15 points over the last seven years including almost 2 points of growth in 2015.

Core brand renovation is a central part of our 2016 grain snacks plan too.

In the second quarter, we are rolling out an improved Nature Valley Crunchy Bar that is easier to bite and we will be marketing 20% of the Nature Valley portfolio as gluten-free.

And we've got some terrific new items too.

In fiscal 2016 we are launching two new Fiber One cheesecake bars in salted caramel and strawberry flavors and we are introducing a pair of new Nature Valley simple nut bars featuring whole, simple ingredients for consumers interested in less processed snacks.

Our natural and organic portfolio of brands ended 2015 on a strong note with net sales nearly doubling to $200 million in the fourth quarter.

Even excluding the Annie's business, net sales for our heritage natural and organic brands were up approximately 25% led by our Cascadian Farm, Larabar and Food Should Taste Good brands.

Pro forma sales for our US natural and organic brands are now approaching $700 million and we remain on track to grow this business to $1 billion by 2020.

We have a strong growth plan for natural and organic in 2016 which we expect will deliver double-digit sales growth.

We will use General Mills sales strength in traditional channels and Annie's strength in the natural channel to grow distribution across our natural and organic portfolio.

On the innovation front, we are launching a line of Annie's soups later this summer.

These are five organic soups packaged in Tetra Pak cartons featuring flavors that kids will love and a brand that moms trust.

This new platform will be in stores only nine months after we closed on the acquisition.

We also have exciting news across many other parts of our natural and organic portfolio.

We are launching two new Food Should Taste Good Real good bars and we are doubling consumer investment on Larabar.

Our final priority for US retail is to deliver Consumer First value on select brands in our portfolio.

On Helpers, we are launching a 20% more initiative to better meet the needs of larger families.

On Totino's Pizza Rolls, we are adding value with a crispier crust product improvement.

On Betty Crocker desserts, we are making a clearer distinction for consumers between our everyday value products and our more premium value added mixes.

So that is a glimpse of the Consumer First marketing plans we have in US retail in 2016.

You will hear much more on this business from Jeff Harmening at our Investor Day on July 14.

As Don mentioned, our Convenience Stores and Food Service segment had an outstanding year in 2015.

Net sales grew 4% overall and Consumer and Customer First innovation helped generate 9% growth for our six focus platforms and that favorable mix drove segment operating profit to a record $353 million, 15% above the prior year.

Let me give you a few examples of our product news and innovation for 2016.

On cereal, we will leverage the gluten-free and color and flavor renovation work from US retail and bring that news to K-12 schools and college and university food-service outlets.

On yogurt, we will launch Yoplait Smoothie Pro, a ready to serve smoothie solution for food-service operators and we will continue our partnership with McDonald's offering Yoplait Go-GURT in Happy Meals at more than 14,000 locations across the US.

We will grow our successful line of frozen breakfast products targeted to school operators.

Our new cream cheese filled Pillsbury mini bagels are heated right in the bag and meet the nutritional requirements for K-12 school meals.

And we will expand our Pillsbury minis portfolio in convenient stores with two new flavors of ready-to-eat Danish.

Bethany Quam, President of our Convenience Stores and Food Service segment, will share more details with you on the 14th.

Our International segment generated 6% constant currency net sales growth in 2015.

We had a strong year in Europe where constant currency sales rose 5%.

Today nearly 40% of the segment's $5.1 billion in net sales are generated in emerging markets which represents an important long-term growth opportunity for our brands.

Let me share some highlights of the Consumer First product news and innovation we have planned for 2016, starting in our developed markets.

Constant currency net sales for Old El Paso increased mid single-digit in Canada and double-digit in Europe in 2015.

We will build on that success in 2016 by launching our premium line of restaurant-style dinner kits into Europe and by introducing Old El Paso flavor blasted tortilla shells in Canada.

In addition, we will expand our convenient meals offerings by introducing a line of Parampara Indian spice mixes in Europe.

We are encouraged by early results of our Haagen-Daza stick bar launch in France and will be extending that innovative platform to other markets later in 2016.

In the UK and Canada, we are launching a line of Liberte Greek products with grains and seeds utilizing the same technology as Yoplait Plenti in the US.

In emerging markets, we continue to focus on the growing middle-class consumer.

Our plans in 2016 include a new line of Yoki branded ready-to-eat popcorn in Brazil leveraging Yoki's leading position in the microwave popcorn category.

In China, we will extend our line of Wanchai Ferry dumplings with more vegetables and lean meats appealing to a younger consumer demographic.

We will introduce seasonal flavors of Haagen-Dazs ice cream like apricot lavender and cream and expand Haagen-Dazs shops and retail outlets into new cities and we will broaden distribution in Shanghai on our new Yoplait business which we launched just last month.

Our CPW joint venture has been capitalizing on growth opportunities for the past 25 years.

This is now a $2 billion net sales business and a strong number two player in the cereal category outside of North America.

CPW is focused on Consumer First growth plans too.

In fiscal 2016, we are bringing gluten-free news to Nesquik, the second largest global brand in CPW's portfolio.

In the UK, we are seeing growing consumer interest in SIMPLICITY and we are launching two varieties of shredded wheat with fruit to capitalize on that trend.

And emerging markets continue to be a great growth opportunity for CPW.

In the Philippines, we are introducing a cocoa crunch all in one product that comes in a single serve package with milk powder so a consumer just adds water to enjoy a bowl of cereal with milk.

So that gives you a sense for the growth plans we have across our International business in 2016.

Chris O'Leary will share more detail with you in two weeks.

So let me quickly summarize our plans for 2016.

Our primary strategy is to expand our Consumer First focus to generate sustainable topline growth.

We will do that by investing in significant core brand renovation across our portfolio and by introducing a strong slate of meaningful innovation all geared toward meeting consumers' evolving food preferences.

We will maintain our focus on HMM and we will deliver increasing levels of savings from our cost reduction initiatives.

And above all, we remain focused on our commitment to deliver earnings growth and strong cash return to our shareholders.

We look forward to talking more with you about these plans during our investor event on July 14.

So with that I will open the call for questions.

Operator, please get us started.

(Operator Instructions).

Chris Growe, Stifel Nicolaus.

Good morning.

Just two questions if I could.

The first would just be you have a lot of cost savings coming through this year in particular on the HMM cost savings as well as obviously the restructuring related savings.

Just want to get a better sense of if you could give an idea how much of these are being reinvested, how much do you expect to come to the bottom line and maybe a breakdown of those savings roughly between cost of goods sold and SG&A?

If I could just add one other question it would be a different question, in relation to you mentioned an investment in Yoplait in China.

And I guess just to get a better sense of when that is going to start hitting and when we should see that in the market and any expectations for that business?

Thank you.

Chris, this is Don.

I will take the cost save and reinvestment.

We do obviously we say this year talking about 2016, we do see a step up in the cost savings contribution and the incremental value of those this year.

We are selectively reinvesting.

As we think about how we built the plan this year it was really about balancing, reinvesting to drive sustainable topline growth with increased efficiency in margins and then returning cash to shareholders.

As we balanced all of that, we did find some opportunities for some specific investments.

As you do your modeling it is probably going to be 50% plus of the saves this year will go back into the business and that is going to be across both COGS in media and consumer support more broadly and then some SG&A capabilities.

So for example, as you think about gluten-free Cheerios, removing artificial colors and flavors across our cereal brands, a sugar reduction in yogurt, getting our value right on Betty Crocker and Helpers, launching Yoplait in China that you referred to plus there are some things we didn't talk about today that we are improving our capabilities to reach Hispanic consumers in the US and putting some capabilities against some faster growing channels like e-commerce.

So we have been very targeted where we see the greatest growth opportunities and the commonality of all of those is where we see Consumer First opportunities to grow our business for the long-term and that is where we are putting the reinvestment.

We do expect to see a return to comparable topline growth this year.

As I said, if you remove the one week it is going to be up 1% but I also want you to think about this being a two-step process.

We are going to start seeing part of the benefit of those reinvestments this year and we expect to see another step as we get into 2017 because we are building the base for growth for the long-term and we will start seeing that inflection and change in trajectory this year.

Just to add to that, Chris, Yoplait China would be a good example of really looking at the long term and to build businesses that are going to sustain over many, many years.

I think you know we have been planning to enter China for a number of years.

Interested of course because it is a very large multibillion-dollar category already in China and so we began shipping from our own plant last month.

The products are on shelf in retail stores in Shanghai.

We are offering a couple of traditional spoonable varieties.

These are very, very high-quality building on the French heritage of Yoplait.

We are also offering a drinkable product so there will be basically three platforms.

They are on the shelf, they look great.

We are really excited by it.

We are going to do what we have always done in China which is to really learn about the business model in Shanghai.

And then as we have success, we fully intend to expand that business into other major cities in China.

Eric Katzman, Deutsche Bank.

Good morning, everybody.

I guess I am not sure if we calculated this correctly but if you exclude the acquisitions and you exclude the extra week, was the fourth quarter volume down like mid single-digit and if so, was that within your kind of expectations for the quarter?

Eric, your math is pretty good.

It is probably right around 4% when you back out the extra week and Annie's and so forth.

It was actually and there are two things that I would just point.

One is in our C&F business we did exit a line of low to no margin businesses and that had an impact in the quarter.

And then in US RO, we actually were laughing a build of retailer inventory from a year ago so we had anticipated both of these as we gave our guidance.

Our sales actually came in pretty much in line with what we expected including the volume component of our sales so we entered 2016 in the position that we expected to when we first started building our plan back in the spring.

Okay, thank you.

And then maybe I could ask about this value initiative and just kind of how should we think about that?

It seems like it is mostly some of the baking goods, baked goods products that are being affected and is this kind of a straight out price cut or are you promoting or is it a combination of trying to drive some of those center of the store brands that have struggled a bit?

So as you know, we are not trying to win on the basis of pricing and merchandising but in the case of some of our baking products and also Helpers for example, we simply found ourselves not competitive from a merchandising standpoint as the year unfolded.

That was also true for soup where we didn't enter the season with the right price points.

So I would just describe this as getting our merchandising price points and frequency in line with competition, tactical adjustments.

In the baking area for instance, we are adjusting prices on some of the more value-oriented parts of the line anyway so think cake and frosting, other parts of the line maybe brownies and cookies and these sorts of things will leave those prices as is.

So these are really just tactical adjustments to move us into the competitive zone and we think that will benefit in a much better volume performance.

Okay, I will pass it on.

See you in Boston.

Bryan Spillane, Bank of America.

Good morning, everyone.

I wanted to follow up on Chris Growe's question just with regard to just making sure I've got all the pieces on the cost savings that are incremental this year and then trying to sort of figure out how much is being reinvested.

Because I think back of the envelope I was looking at between HMM and the three programs, the incremental savings for this year should be somewhere in the $500 million to $600 million range.

Is that right?

That is correct.

That is what will impact COGS.

I am sorry, that will impact in total sorry, not just COGS but in total, yes.

In total, yes.

And then implied in the operating profit growth currency neutral is mid single-digit operating profit growth is like $150 million or so of operating income.

So if you are reinvesting half of the savings but there is $150 million of operating profit growth, it just seems like there is something I am missing in between.

So could you just help bridge that?

Obviously there is inflation, we have 2% inflation in COGS.

We will have normal inflation across the remainder of our SG&A and then again, the reinvestment is going to be over half of what the cost saves are so you have to roll that in as well.

And then the last piece that you might not have is for our pension expense with the change in mortality table, it is going to increase our liability, increase our expense, non cash by about $70 million next year.

That will not all flow through because we have some things that will partially offset that but it is something that we are going to have to absorb next year.

(multiple speakers)

That helps.

And I guess the 53rd week is also another $30 million or $40 million of OI that you have to lap?

Yes, that is going to take a point plus off of your growth rate.

Okay, great.

Thank you.

Robert Moskow, Credit Suisse.

A question on (technical difficulty)

We lost you, Rob.

Mr. Moscow, we are unable to hear you.

Sir?

No, we have lost you again.

Kenneth Zaslow, BMO.

Good morning, everyone.

I just have two questions.

One is every couple of quarters or several quarters you guys start looking again at the cost savings opportunities throughout different pieces of the businesses.

Are there any businesses that you are in the process of reviewing to go another level of cost savings?

That is my first question.

My second question is can you discuss the different sales trends for cereal in retail versus food service?

Is there any insight to be gleaned from the different growth trajectories of those two?

Ken, on the cost save side, it is an ongoing effort, it is an ongoing practice within the Company to look at where we are not as competitively fit as we could be and as opportunities present themselves that are material enough for investors to have a specific guidance on, we obviously disclose that as we did with Project Compass just a couple of weeks ago.

On your cereal question, Ken, I think part of it is just rooted in the fundamentals.

As you know, our Convenience and Food Service business is very, very targeted to the channels that we think have longer-term growth potential and so we are highly focused in schools and universities and healthcare and all of those channels are growing anywhere from 2% to 4%.

So part of it is that we are just seeing there is a little bit of a tailwind there.

And I would say the second part is that our innovation has just worked terrifically well in those channels.

We have great tasting cereals, the whole grain benefit of our Big G cereals has been extremely important to school food service operators and has given us a real competitive advantage.

We have a little over half the share in that segment.

So I would say it is a combination of some tailwind in those channels, very well targeted innovation and that is why we are very encouraged by the innovation that we will be bringing to the general market in 2016.

We think that is very well targeted, very focused on consumer trends and we are going to see revenue growth that will result from that innovation.

Thank you.

Robert Moskow, Credit Suisse

Hopefully.

(technical difficulty)

Rob, you've got to get on a different phone.

We are not hearing you.

All right, I am out.

I will try again later.

Bye-bye.

Matthew Grainger, Morgan Stanley.

Good morning, everyone.

So just two questions.

First, I wanted to see if you could give any more context on the rationale for the Green Giant impairment?

It is a brand that obviously has very high awareness.

You have done some testing out of the branded snacks.

Just how did you assess the pros and cons of continuing to try to enhance its credibility in and more of a health and wellness context?

And with the impairment, what are the implications for the future of it in your portfolio whether that is just prioritization or other alternatives?

So, Matt, we do continuously review where and how we are allocating our resources and resources defined R&D investment and marketing investment and capital investment so as you can imagine, we are just constantly looking very closely at that and we have, you have already heard about a number of opportunities that we have around the world in cereal and yogurt and snacking.

You will hear more later in July and we are dedicating resources to drive growth in those businesses and that necessarily means that other businesses are getting less and we have highlighted Green Giant.

The fact that we have done that shouldn't take away from the fact that Green Giant is in fact a profitable business for us.

As you said, it is a really good brand.

We are going to be bringing news and innovation to Green Giant both in the US and in international markets in F16.

So sort of reallocation doesn't mean not doing things.

We like that equity and we think there is innovation opportunity there so we will have news coming but we have just shifted some of the resources to areas that we see as higher growth and that resulted in the impairment analysis that we have highlighted.

Okay, that helps.

Thanks, Ken.

And then, Don, just briefly to come back to your comment on sort of the prior year comp from an inventory standpoint, can you just give a sense of where retail inventory stands at the moment as we go into the year because there were some retailer inventory reductions earlier in 2015 and we have heard a fair amount of public discussion around inventory practices and some key retailers changing.

So just whether you feel you are at normalized levels whether we should expect any volatility?

Good question, Matt.

I appreciate the chance to clarify.

We do think that we are at normalized levels in the retail trade.

The issue is we had some build inventory at the end of last year and we had that inventory then depleted during this year.

So we ended up taking kind of two hits, one for the depletion this year and one for lapping last year's increase.

But we think as we enter 2016 the retail inventories are at a normalized level.

Okay, great.

Thanks, Don.

David Driscoll, Citi Research.

Great.

Thank you and good morning.

I had kind of one major question and then just a couple of little details.

The first one is about cereal, both US and international.

Ken, you said a lot in your prepared comments about it but when I look back at the track record in cereal and the category, it has just been such a tough category so I would just kind of like to ask you what gives you real confidence that this is the turn that you are going to grow the business?

And if you could delineate between your confidence and growth in the US versus international that would be helpful and is this a General Mills specific positive or is this a category comment that you will also participate in?

So let me start by saying first of all, I think that the category in the US as we look at that still declining but the levels, the rate of that decline is moderating and so we are encouraged by that and if you just look at the last 12, last three, it was a little over 3% decline for the year -- for the quarter, it was a little less than a 1.5% decline and okay, and I think as you know, the latest month was an easier comp, but there was actually a little bit of growth there.

So we do see the category rates of decline moderating not only in the US but we are also seeing that in Canada and other developed markets around the world.

So I think that is an important factor.

The second point is that we think we have a very good understanding for new preferences that consumers have for breakfast and we have talked about this with you many times for products that are simpler, products that are more filling, products that taste good, products that address very specific issues that consumers have like gluten and artificial colors.

And as we address those things and as we bring innovation that address those, we are seeing growth.

Our granola business is growing really well.

We think muesli is going to do really well for us.

We see products that have had taste improvements grow extremely well.

Cinnamon Toast Crunch which is the third largest brand in the category grew at double digit this year.

So I guess just the second part of my answer to your question, David, is that we think we have a really good theory on what is going on in the category and as we address it with Consumer First stuff, we are seeing a response.

To your last point, we are very single-mindedly focused on growing our business and we think we have very, very strong innovation in order to do that.

Of course it will be as we see other players in the category invest more in innovation, as we see stronger investment in media and we think we are beginning to see that, these of course are going to be very helpful as well.

So as the entire category focuses on these things and we get the consumer support back in the category, that is going to make a big difference as well.

So anyway long answer but hopefully gives you our rationale.

Very helpful.

Just two quick ones for Don.

What is the Annie's revenue contribution in F16?

Is it about 1 percentage point to growth?

And then on media, I think in your guidance slide you said it was down but then in response to one of the Q&A you said that there was reinvestment in -- I forget what word you used -- advertising, media from the cost savings initiative.

So apologies, I am confused.

Is media down and I think it is and then why did you say that there was reinvestment in it from the cost saves?

Yes, media is down, I will get the question first.

Media is down and what I said is our total consumer will be up so -- and just let me parcel that out.

So media is obviously what you see on air, what you see in digital or in print.

It will be slightly down.

Essentially think about it as flat on a 52 to 52 week basis so we lose a week obviously this year.

Importantly, it is going to be up on key growth platforms where we have clear ideas.

Ken just talked about cereal in the US and internationally, our snacks business in the US, yogurt in the US, natural and organic in the US.

Internationally we see it in Old El Paso in addition to the cereal businesses and in emerging markets.

So we will have media up on platforms where we have strong growth ideas.

Total consumer will be up low single digits and when I talk about total consumer, that takes in the things like in-store events.

We have many of those in emerging markets, we are doing Haagen-Dazs in-store displays in our Southeast Asia markets.

Obviously Yoplait displays in China, Yoki in Brazil.

So a lot of opportunity to get more exposure in the store itself.

And then sampling falls into it as well.

Again think about Yoplait in China as we are launching that brand.

(inaudible) a lot of our natural and organic businesses are getting supported by increased sampling this year in the US.

So there is a number of vehicles that don't hit media -- a number of our consumer vehicles that don't hit media that we will be increasing our investment on this year.

The only thing I would just underline on that is Don's comment on sampling.

Sampling is perhaps the most powerful penetration driver that we have and many of our natural and organic businesses are not really driven in the traditional media, they are in fact driven almost entirely by getting the product into people's mouths.

So that is a growing part of our marketing mix and one that is not really counted in the media thing so that is an important highlight for you.

What was the Annie's?

So your other question was on Annie's sales contribution.

It was about 1% both in 2015 and in 2016 since we had it for roughly half a year in both instances.

Perfect.

Thank you.

I will pass it along.

Diane Geissler, CLSA.

Good morning.

I wanted to ask a question just about the cereal category in general, I know you are probably category captain with a variety of retailers.

But obviously cereal sales have been week for a number of years and I'm just trying to gauge where the retailer is at in terms of the category and some of the alternatives to the category such as the granola products you are launching which I think are quite a bit different than the regular sort of boxed cereal but also what you have been doing on the bar business?

How does that all sort of shake out at the retailer?

Are they increasing square footage, linear feet for some of these new products and decreasing the amount of shelf space for the core products or is the granola and bar growth kind of incremental?

Then I have part two to the question which is we have seen a lot of manufacturers come into that bar category.

I think SKU proliferation there has been pretty massive over the last few years and so what are you seeing in terms of some of these more protein enriched granola snack bars that have been launched over the last few years?

So let me start my answer by reminding everyone that cereal is a $10 billion category in the US.

So it is very, very large and as you note, it has been declining for the last couple of years but still very, very large and still about one-third of all breakfasts include cereal.

So I think the first point is it is very, very important to the retailer and basically what they want from us is innovative ideas that will drive growth in that category.

And so they are very enthusiastic about the initiatives that we are bringing.

I can assure you that you will see lots of in-store support and activity this summer and going into the fall for example around gluten-free Cheerios.

Cheerios by far the largest brand in the category.

They are highly enthusiastic about that initiative and it will get a lot of support because they see it as great news for the whole category.

So I guess the first point is it is big and our retail partners really want us to bring innovation and so they are quite enthusiastic about what we are doing.

In terms of SKU proliferation, in these targeted areas of granola or protein or things like this, I mean those initiatives are working for us and so that is exactly what our retail partners want.

They see those trends as well in other parts of the store, makes sense to them and we are getting nice support from them on those brands.

Of course both of us are constantly looking at what are our top turning items, what are the bottom turners and making sure that we are pruning.

But as you have heard from us before in general, our cereal items are very high turning and so we have held our share of distribution.

We have actually grown our share of distribution over the last several years because we have really strong brands.

Does that kind of get your question, Diane?

Yes, some good color on what the retailer is thinking about those two categories.

I also wanted to ask about the cash repatriation and the tax charge on that.

I guess the question is that obviously didn't need those funds to grow the businesses internationally otherwise you wouldn't have repatriated them.

But is there an expectation about future repatriation or was that done because of some kind of timing with regard to tax rules.

If you could kind of frame that for us that would be helpful.

Thanks.

I appreciate you flagging that.

This is a one-time repatriation.

It was $600 million.

We've looked at the economic cost of bringing that money back versus some of the cash needs that we had in the US for restructuring the acquisition of Annie's that we did last year.

We brought it back and while the effective tax rate charge was $79 million, it only carries a $24 million cash charge to it so it was low-cost from that standpoint.

It is a one time, it doesn't change our perspective in terms of how we are going to manage the rest of our cash internationally nor does it reflect -- it doesn't necessarily reflect anything on our investments internationally.

We have some robust investments internationally but we also have a very cash generative business internationally.

I think we have time for one more question.

Ken Goldman, JPMorgan.

Good morning, everyone.

I am a little bit surprised by how far Green Giant has fallen.

I mean it used to be a really good brand, the category is not the greatest but other of your competitors are doing okay.

So as you think about what happened there, are there any learnings you can take away from that that you can apply to maybe some of your other brands and categories just to sort of make sure something like that doesn't happen again?

Because I know in your words here you are sort of softening what is happening but it is not every day we see an impairment charge to this degree.

The observation that I would make, Ken, is that it is increasingly kind of a value focused category and the segment that is performing a little better tends to be the commodity oriented just frozen blocks of vegetables.

And so that is the direction that the category has moved in.

And of course as you know, we are also in the canned part of the category as well with our product so that would be an observation for you.

Having said that, we do see our portfolio is primarily more value added and more flavored and soft products and we see opportunities to continue to innovate and adapt with those kinds of products and it tends to be the higher and more innovative end of the category and so that will be our focus going forward.

Ken, what I would add to it in terms of learnings is that this is one area where the consumer preference has shifted pretty rapidly and a large focus of ours from a Consumer First standpoint is moving as rapidly as we can against those.

Sometimes you are constrained by the number of resources you can put against a business.

And so the cost savings initiatives that we are undertaking to free up resources to get after opportunities like this I think will allow us to be better and more adaptable and more agile as these kind of shifts happen as we go forward.

That is helpful.

Can I sneak in a very quick one?

Cereal reformulation, you talk about no colors from artificial sources.

Is that different than saying no artificial colors?

I'm just trying to make sure I understand that?

No, I mean we are eliminating the artificials and so any coloring and flavors that sort of thing now will be by the end of 2017 will be from natural sources.

Great.

Thank you.

Tina, I think we are out of time so Kris and I will be taking calls all day.

For those of you that don't have my number, you can reach me at 763-764-2301.

Thanks everyone and have a great day.

Thank you.

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

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

Thank you and have a good day.