通用磨坊 (GIS) 2020 Q4 法說會逐字稿

Greetings and welcome to the fourth quarter fiscal 2020 earnings call.

(Operator Instructions) As a reminder, this conference is recorded on Wednesday, July 1, 2020.

Now I would like to turn the conference over to Mr. Jeff Siemon.

Please go right ahead.

Thank you, Tommy, and good morning, everyone.

Thanks for joining us for our Q&A session on our fourth quarter results and full year results this morning.

I hope everyone had time to review our press release, listen to our prepared remarks and view our presentation materials, which are available on our Investor Relations section.

It's also important to note that our -- in our Q&A session this morning, we may make forward-looking statements that are based on management's current views and assumptions, including facts and assumptions related to the impact of the COVID-19 pandemic on our fiscal '21 outlook.

Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call.

I'm here virtually with Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Jon Nudi, Group President of North America Retail.

We're holding this call from different locations, so hopefully, our technology cooperates and everything goes smoothly.

With that, let's go ahead and get to the first question.

Tommy, can you please get us started?

(Operator Instructions) And we'll proceed with our first question on the line.

It's from the line of Andrew Lazar with Barclays.

Thanks very much for all the change in the earnings release format this morning, very helpful.

Maybe to start, I was hoping to focus on sort of the underlying business momentum, if I could, and I know it's a little harder to get at now, obviously, given everything that's going on.

But I think on the third quarter call, General Mills had said that excluding the pandemic impact, it would be at the low end of its full year organic sales growth range of 1% to 2%, and I think that Blue Buffalo, coming into the base, adds about 1 point.

So I guess, underlying business trends, at least as of 3Q, roughly, call it, flattish, your expectation for the year.

So I think my question was, again, excluding the pandemic, I guess, would General Mills have been considering fiscal '21 to kind of still be somewhat of an incremental reinvestment year to really shore up sort of organic growth and build on the recent improvements you've seen in categories like Snack Bars and Yogurt and things like that?

Yes, Andrew, your math is right on that.

And as I've said before, we try to stay in the middle of the boat, and one of the ways we do that is by continuing to reinvest in our business.

And when you see the results in the fourth quarter included a pretty significant step-up in our marketing spending.

And actually, we think our strength at the beginning of June, especially in North America Retail, is due to the fact that we are spending money on marketing because our promotion levels are actually down in June and our growth is still double digits.

And so we believe in investment and marketing, and you saw that in the fourth quarter, and you'll see that again in fiscal '21.

You'll also see investments for us in capabilities, particularly on the data and analytics side, to drive both our sales growth through things like e-commerce and strategic revenue management as well as cost savings projects, like procurement.

And so whether COVID or not, we had planned to reinvest some of the earnings growth back into a sustained top line sales growth, and that is our plan going into next year currently.

And then I guess, lastly, it's really on inventory, specifically at the consumer pantry level.

I think in today's release, you mentioned that there's the potential for sort of pantry inventory drawdowns moving forward, and I'm curious if this is simply a pet food comment, which I think would make sense, or a broader portfolio comment.

Because to me, I guess, it seems that consumers have been both consuming and replenishing a lot of your center store products rather than stocking up, so I'm just curious if that's something that you're already starting to see or anticipate in fiscal '21 or more of a broader just, "Hey, at some point, just given how strong shipments have been, we should just keep an eye out for this," if you get my -- what I'm asking.

Yes.

So Andrew, let me answer broadly and then -- specifically on Pet, and then I'll have Jon Nudi answer more specifically on North America Retail.

Broadly, as you can see in the strength of the Nielsen data on the human food side, month to month to month, while there certainly was a stock-up in March, and you can see that in the data, consumers are clearly still buying and eating through the stock that they have on hand.

And so that is consistent with what we thought would happen at the beginning of the quarter when we saw the stock-up, and in fact, it happened throughout the quarter.

And again, it continues into June with some double-digit growth on the human food side of the business.

On pet food, we saw something different, and again, consistent with what we expected, which is, given that pets don't eat a tremendous amount at restaurants, we thought that there would be -- when we saw the stock-up in March, people were asking us is this because there is a lot of dogs coming out of shelters?

And the answer is no, people are just stocking up, and we expect that to reverse in April and May.

And largely, it has reversed in April and May.

There may be a little bit more to unwind as we begin our new fiscal year in the pet food category, but a lot of that has unwound already.

And so what we see in Pet is different than what we see in the human food side, which -- both of which we expected.

And Jon Nudi, anything specific you'd like to add on that?

Yes.

Thanks, Jeff.

And so maybe I'll touch on consumer inventory levels or pantry levels, and I'm sure a question on many people's minds too are just customer inventory levels, so maybe I'll go there as well.

So from a consumer standpoint, at least in North America, we believe that the majority of the product that we've moved to consumers has been consumed.

We do believe that consumers are keeping slightly higher levels of inventory in their pantries, but we do expect that to continue, obviously, as it's a really dynamic environment with the pandemic still raging across the country.

From a customer standpoint, we did see a drawdown in customer inventories over Q4.

I guess just to quantify, so for Q4, our organic growth was 28%.

Our movement was higher, though, in the U.S., it was up 37%; in Canada, it was up 20%.

And really, that difference was all driven by retailers pulling down inventories, obviously, trying to keep products on the shelf.

We would expect that to come back at some point in fiscal '21.

At this point, we don't have a great idea of when or to what extent it will come back.

But definitely, we saw retailers pull down inventories during Q4.

We'll get to our next question on the line.

It's from the line of Ken Goldman with JPMorgan.

I second Andrew's comments.

I do like this format, so hopefully, we'll keep it going ahead.

I did want to ask two questions, if I can.

First, you mentioned some headwinds to your operating margin in fiscal '21.

You talked about some higher input costs, supply chain costs, spending on brands and capabilities and COVID-related costs.

Is it possible to sort of bucket or rank order these, just so we kind of get a sense of which are going to be the bigger headwinds and which are going to be maybe some of the smaller ones?

Kofi, you want to field that one?

Absolutely.

So I think great question.

As you look at these, we would reference, first, is we're coming out of our Q4.

We did see higher operating costs as well as COVID-related costs.

The split between those 2 is roughly -- we had about $100 million in higher sort of COVID-related costs, I would say.

The split between those 2 is 2/3 and 1/3, with 2/3 being comprised of the operating costs, things such as accruing external supply chain, trucking premiums; and then on the other side, the wellness costs, everything from personal protective equipment, wellness policies.

So we would expect that to be a continued headwind as we step into F '21 as a portion of those costs will continue.

Obviously, we can't quantify that because a lot of that will be tied to the pandemic, the pace of the virus spread and, obviously, the pace of demand to the extent that the operating costs are directly tied to our ability to source product.

So that get at your question?

Yes.

That's perfect.

I'll follow up with more details later, but that's helpful.

For a quick follow-up, we've heard some rumblings in the industry that maybe some retailers will get a little bit more aggressive on pricing in the back half of the calendar year, just to help out some of the consumers that may start to struggle more as unemployment lasts longer and perhaps some of the stimulus checks fade, and I'm just curious if you're hearing anything similar.

It doesn't necessarily make sense for me for retailers to be pulling down prices right now.

I'm not sure in an environment where they're out of stock that's the most logical maneuver.

But I'm just curious if you're hearing anything along those lines that you can share with us, or whether that's misguided.

So Jon Nudi, you want to field that?

Sure.

So Ken, in terms of promotional support, obviously, in Q4, we saw retailers pull back in promotion as the focus was on keeping products in stock.

As we moved into May and early June, we saw our promotional levels get back to more normal levels in most of our categories.

And as we look to plan through the rest of the year, we're planning on normal levels.

So we have not really been faced with any asks for deep discounts or deep promotional pricing.

The one thing I would add is, I mean, there are certain categories that we are constrained from a supply chain standpoint and capacity standpoint.

So even if there was a desire to go harder from a promotional standpoint, we just don't have the capacity to do that.

So I think that's going to be a limiting factor across many of our categories.

So I guess, to answer your question specifically, we have not had those discussions, and even if they come, again, I think we're going to be limited with what we can do.

We will get to our next question on the line.

It's from Chris Growe with Stifel.

I will third that, if that's the right word, for appreciating the new format.

So thank you for that as well.

I do want to ask in terms of the decision not to provide guidance for the year.

You have given a lot of components and things that help us get there, if you will, but -- and I'll note that there's a lot of volatility in the business, no doubt.

As I think about giving an indication of roughly a flat operating margin for the year, I'm just curious, as you look at the volatility in the business, sort of where you get that confidence.

Is it that -- it's the way you're going to manage the business this year?

Is it that you have a good sense of kind of where sales will shake out, and therefore, you've been able to give the confidence in that operating margin outlook for the year?

Just curious how you think about that.

Yes.

Thanks, Chris.

This is Jeff Harmening.

I'm glad you asked that.

First, I guess, I'd like to start by saying the fact that we didn't issue formal financial guidance is not a reflection of conservatism and it's not a reflection of lack of confidence.

It's actually an understanding that a big determinant of how much we grow this coming year will be how the pandemic plays out, and that is highly uncertain as it relates to the duration and depth of the pandemic.

So I don't want anyone on the call to read into it that it's a lack of confidence or actually conservatism.

In fact, we think our business will grow over the first 3 quarters relative to what it was pre pandemic levels.

And that's because now we're in a period where people are still staying at home, they're working from home, many restaurants are either closed or people don't want to visit.

And to a question that Ken Goldman asked earlier, we think that will be followed by a recession.

And if you look back to the last recession, General Mills performed quite well.

And so we think there will be an environment where we'll be able to grow for the first 3 quarters, followed by a fourth quarter comparison.

Obviously, that'll be very, very difficult.

The other thing, I guess, to highlight is that our confidence stems from the fact that we've executed really well.

We're confident that we will emerge from the pandemic in the last few months as a stronger company.

And as witnessed by our share growth in 9 of our top 10 categories in the U.S., by being the third fastest grower in Europe and leading share growth in our categories in Europe and growing in our categories in Brazil and growing Wanchai Ferry double digits in China.

So I think -- hopefully, what you hear is a company that is confident, that the things that we can control, we have a good visibility to.

And I would say on top of that, our marketing is particularly good right now, whether it's North America Retail and anything like Honey Nut Cheerios, or we're very bullish on Pet and continue to be bullish on Pet after posting another year of double-digit retail sales growth and 18% reported net sales growth in the year.

So that's kind of where we -- that's where we stand.

And the reason we didn't provide guidance was because the environment is so unpredictable with the pandemic, that's why.

That's a good answer.

Just a quick follow-on to that.

So the -- you've talked about generating efficiencies to incrementally invest in the business in fiscal '21.

You have HMM savings coming through of around 4% of the cost to goods sold.

You got inflation around 3%.

Is that the gap that you hope -- or part of which you hope to reinvest?

And is it -- if we think about generating efficiencies, is that incremental to what you expect for HMM right now?

You hope to have even more savings to invest?

Just want to see if you can kind of frame that opportunity.

So Kofi, why don't I leave that to you?

Sure.

Absolutely.

Yes, we are expecting to reinvest a portion of that gap in capabilities.

But as you can imagine, and to my earlier question to Ken, I think the challenge in operating in this environment is that demand and demand for at-home food is probably the single hardest thing to predict.

And so we will be focused on managing the middle of our P&L so that we can deal with the potentially higher operating costs.

And so as we think right now, we have that balanced.

And we think the capabilities investments will help us advance our long-term goals.

I don't want to quantify those for competitive reasons, but they're meaningful enough for us to continue to make progress on our capabilities.

So I hope that gets at your question.

It does.

We'll get to our next question on the line from Alexia Howard with Bernstein.

Firstly, on the incentive compensation, I assume that was a fairly big step-up this quarter, given the strength.

I was wondering if you were able to roughly quantify how much that inflated the SG&A line this time around.

And then thinking out through fiscal '21, how does incentive compensation work for next fiscal year if there's no guidance and no formal sort of goals at this point?

And then my follow-up question is that you mentioned as one of your goals the desire to reduce leverage further to increase financial flexibility.

Does that mean that your M&A pipeline is that -- or that you are actively out there looking for potential deals?

And if so, in which areas are you perhaps looking most closely to do that?

So Kofi, let me -- I'll have you field those series of questions from Alexia.

Okay.

Thanks.

So I would say -- let me start first with incentive, and I would say, it is a big driver, obviously, in the quarter in our SG&A line.

So it is obviously a tailwind this year -- or excuse me, a headwind this year, and we would expect it to be a tailwind next year.

Obviously, I can't go into a tremendous amount of detail, but just know that we will be effectively setting our targets based upon a dynamic environment.

And all companies are dealing with this, but we would expect, based on everything we know right now, for this to be a tailwind.

All things being equal, on leverage, we're pleased with the progress we've made on debt leverage.

I think at the start of the Blue Buffalo acquisition about 2 years ago, we had a target to get down to 3.5x.

By the end of this fiscal year, we are at 3.2x.

So we are pleased to be slightly ahead of schedule and on pace to get to our long-term goal of 3x.

I think at that point then, we will start to look at resuming our normal capital allocation policies with the first priority being focused on increasing the dividend rate.

Alexia, this is Jeff Siemon.

I would just add a quick color on the incentive piece.

We always plan versus our internal plan, and incentive at the beginning of the year would be 100 payout.

If we beat our plan, that's a headwind in the year, but, obviously, good news for our shareholders as we would have exceeded our goals.

That's what played out in '20.

We have an internal plan for fiscal '21.

And so assuming we deliver that plan, we'd be paying out less than we did in '20.

But obviously, if we beat our plan, that could change.

We will get to our next question on the line from Dara Mohsenian with Morgan Stanley.

So Jeff or maybe Jon, obviously, a large step-up in consumer demand in NA Retail post-COVID.

There's obviously some increased trial there.

Can you spend some time discussing how much of the higher demand was due to new trial of your products based on your consumer survey work and bringing new customers in?

And as you look going forward, longer term, your ability to potentially hold on to those customers and what the strategies would be to do so?

So let me start with this question, and then I'm going to pass it over to Jon Nudi to provide some added detail.

One of the things I'm most proud of, of our company over the last 3 months, especially in North America Retail, is that we have gained penetration across all of our categories.

And if you look at 52 weeks, which is even a better way to look at it, all but maybe 1 category, we've increased household penetration, which is the highest correlation of growth.

And so I'm really pleased with what our team has been able to do.

Obviously, it varies by category.

So Jon Nudi, do you want to provide any color or any insights?

Yes, absolutely.

So I guess, when you look at penetration, we do believe it's important to take a longer view.

So as Jeff mentioned, when you look over 52 weeks versus prepandemic levels, we grew penetration at the majority of our categories.

Importantly, too, we outpaced our categories in terms of our performance and the penetration we are growing.

The highest growth in penetration were in areas -- in our meals and baking areas, so things like soup, Pillsbury refrigerated baked goods, desserts and flour.

And we saw some significant gains.

And for us, 2 points of penetration equals about 2.5 million U.S. households.

So again, it's significant.

And importantly, too, I mean it's -- when you look at it a year ago, we grew penetration in 7 of our top 10 categories.

So again, it's not just prior to the pandemic.

Versus a year ago, we're growing overall in the majority of our categories.

We're starting to look at repeat.

I would say it's still early days, and again, we need a bit more time to really understand that.

But repeat amongst our new households is strongest and really outpacing our categories as well.

And what's exciting to us, again, our highest repeat rates are in things like Cheerios, the franchise -- Cheerios franchise, Pillsbury RBG desserts, Annie's Mac and Cheese and Old El Paso.

So we worked hard over the last decade, frankly, to really improve our products, whether that's improving the ingredient deck, making sure that they tasted the best they possibly could.

And we think that many consumers who are trying our products for the first time are coming back after many years and finding a better experience.

And we think that'll bode well for us as we move into fiscal '21 and beyond.

And I would like to add on to Jon's comments that everything that Jon said about North America Retail is also true for all of our categories in Europe as well as our Wanchai Ferry business in China, which saw significant penetration gains, as well as our at-home business in Brazil, which is the vast majority of our Brazilian business.

And so whether you look at North America Retail or Europe or China or Brazil, our major markets, we've experienced strong penetration gains in all of our at-home businesses.

Okay.

Great.

And then can you also touch on e-commerce performance in the quarter and the changes you've made in that business to take advantage of higher channel growth online from a category perspective going forward?

Well, if we -- yes, sure.

If we look at e-commerce broadly across the company, it's roughly 9% of our sales as we enter -- as we exit the fourth quarter with a significant increase.

And in all of our geographies and the vast majority of our categories, we over-index online versus bricks-and-mortar, and there are 2 reasons for that.

One is that we've been investing in e-commerce for a number of years, and the second is that we have really good brands, and we have a lot of the biggest brands.

And when you're shopping online, those are the brands that tend to do well.

And so for both of those reasons, we have seen an outsized growth in e-commerce over this period as we look globally.

It's been particularly acute in the U.S.

And Jon Nudi, do you want to comment a little bit on what we've seen in terms of U.S. growth in e-commerce?

Yes.

Sure, Jeff.

So specifically for the U.S., we saw a 250% increase in our e-commerce business in Q4.

Importantly, now almost 50% of all U.S. households have purchased food and beverage products over the last year.

So again, that's a significant step-up of about 7 points versus the prior year from a penetration standpoint.

And probably the biggest limiter in terms of why the growth couldn't have been even higher is just our retailers and their capacity to really deliver to consumers' homes and even click and collect the number of slots that they had.

So we're working with our retail partners to make sure that we optimize our e-commerce business with them, increasingly really connecting into their data and making sure that we take an omnichannel approach to making sure whether the consumer wants to shop in the store or shop online, they're seeing consistent campaigns, and then really working from a supply chain standpoint as well to make sure that we can deliver new products to our consumers -- to our customers who will ultimately get it to our consumers.

So we're excited about e-commerce, and as Jeff mentioned, we've been working on this for multiple years, and it's really paying off.

In the U.S. alone, we have a 1-ton index to bricks-and-mortar.

So again, to the extent we sell more online, that's good for us.

And we'll get to our next question on the line from John Baumgartner with Wells Fargo.

Jeff or maybe Jon, I wanted to ask about product mix.

You had the drag in Q4 from the comp at Buff and the composition of the tonnage at NAR.

But if you step back and think more structurally, one of the things we hear from investors is that there isn't any pricing power in food.

But to the extent that the innovation is on trend, you're margining up already with new products at Buff and in Snacks and Yogurt, how do we think about your capacity to capture stronger mix on a consistent basis across your portfolio in a COVID world, even if the flexibility to move list prices may not be ideal?

So as we think about it as a company, what you saw is positive price/mix in the fourth quarter because we sold a lot more through North America Retail and we sold a lot more through pet food.

And so to the extent that we keep growing Pet, and we certainly plan to do that, and we see elevated demand in North America Retail, that actually bodes pretty well for price/mix as we think about it on a company level.

It gets more complicated when you look within a geography.

But let me have Jon Nudi answer how it has played out in North America Retail over the last quarter because it's important, but it's complicated when you look at it.

Yes.

Thanks, Jeff.

And when you look at price/mix, we look at it in 2 ways.

One in the P&L, which is done on a per-pound basis, and then also in Nielsen, which is on a per-unit basis.

And you saw some very different things in Q4 if you look at those different ways.

So from a P&L standpoint, through the first 3 quarters, our price/mix was actually flat, and again, that's on a per-pound basis.

And Q4, to your point, it was down 7 points, so it was a significant drag, but it was 100% driven by mix as we sold heavier products, so things like soup, desserts and flour, as well as larger-sized packs as consumers really moved that way.

When you look at Nielsen, though, on a per-unit basis, we actually saw an increase in price/mix in Q4, really driven by less promotion and favorable customer mix.

So we feel like there is some pricing power out there.

And one of the things, again, we've worked hard at over the last few years is strategic revenue management, really building a toolbox that allows us some different levers to pull given the environment.

So I think as we look towards fiscal '21, you'll likely see less list pricing, just as inflation won't warrant it, it will be obviously a competitive environment and value will matter, but things like price pack architecture and mix will be things that we focus on.

And the good news, again, having been at this a while, we've got a pipeline of ideas in our toolbox that we'll be able to execute against.

So we continue to expect to drive price/mix in fiscal '21, it'll probably just look a little different than how we drove it in fiscal '20.

I guess just to build on that and maybe coming back to Jeff, thinking about Buffalo, I mean, some of the price-per-pound premiums on the new products in wet and treats have been pretty sizable versus the base portfolio.

Is there anything you're seeing out there where there's an elasticity for consumers or kind of a pull back on pricing?

Or do you feel as though there's still a runway to go with the mix premiumization as long as the innovation is on trend?

Yes with regard to Pet, I mean, we think there's a ways to go.

And if you look at the growth of the Pet category, first of all, the Pet category is growing mid-single digits, and it's primarily on pricing.

And the part of the category that's growing the fastest is the premium part of the category.

So we certainly think there is a play to play there.

And Blue Buffalo, we believe, is the best equity in that premium space, and I think our growth over the last couple of years would add some credence to that.

We also know that people care deeply about their pets, and especially in a time of high anxiety, which, I think, under any circumstance, you could qualify this as a time of high anxiety.

People rely on their pets, and the last thing they want to do is cheat their pets and the source of comfort.

So what we see in the marketplace, whether it's through recession or whether it's through a time like this, is that one of the last things that people are interested in skimping on are their pets.

And so they don't do that, and we see that being played out in the market right now.

We'll get our next question on the line from Jason English with Goldman Sachs.

Congrats to you and your teams for navigating this very turbulent situation, especially kudos to your supply chain.

I got to believe this is very challenging for them.

My questions, I guess, we just closed on Pet, so maybe we could pick it back up there.

There's obviously a lot of noise in reported results this quarter because of what you're comping and the extra days.

Can you give us a beat on how retail sales are tracking across all channels in the quarter and what you're seeing so far as we roll into the new fiscal year?

Yes.

So thanks, Jason, and appreciate the support for how we've executed in the last quarter.

We feel really good about it.

As you said, our supply chain has held up remarkably well, and we've driven that -- those supply chain gains all the way through our sales organization to our customers and feel very good about how we've serviced the business and serviced demand in a time when people really need it.

When we look at Blue Buffalo, let me take a step back, for the year, we grew reported net sales 18%.

Through 3 quarters, we were up 11%, and in the last quarter of the year, we believe that our retail sales were up somewhere in the high single-digit range.

And so for the year, we had guided to 8% to 10% like-for-like growth, and we're confident we exceeded that somewhere about the 12% range.

So for the year, we overdelivered on what we said we did, so we feel great about that.

In the fourth quarter, you're right, there is a ton of noise.

The retail sales look like they're up high single digits.

And again, that's still share-leading growth for the category, a category that's up mid-single digits.

So we're really pleased, even amongst the noise, with our performance on Blue Buffalo in the fourth quarter.

That's super helpful information.

And turning back to your North America Retail portfolio, as we look at the Nielsen data, your TDPs are down a lot.

Your average items per store are down a lot, as they are across the industry.

And we've heard from a lot of different companies about SKU rationalization, streamlining portfolios to really maximize capacity.

Can you touch on how much streamlining you've accomplished?

And how much of that streamlining you think you'll be able to sustain?

Or when, if at all, do you think you're going to start to layer back on those products?

So Jon Nudi, why don't you take that, and maybe touch on not only the streamlining of distribution but maybe a couple of other actions we've taken to help make our supply chain more efficient?

Yes, absolutely.

Yes, obviously, if you look at distribution in Nielsen, it's a bit of a wild picture right now as there's out-of-stocks and other things happening as well.

I guess if you think about our business, and we compete across 25 different categories, in the majority of our categories, from a capacity standpoint and a service standpoint, we're in pretty good shape at this point.

Our supply chain has done a terrific job keeping our plants running and keeping them safe, importantly, for our employees and, obviously, for our consumers with the food.

So the majority of our categories were back up to pretty healthy service levels and haven't seen a significant decrease from a distribution standpoint with our retailers.

There was a trend prior to the pandemic with retailers really cutting back on the number of SKUs and categories, giving more phasings to higher-churning SKUs, and that was really driven by e-commerce and click and collect and obviously having the shelf capacity to service that business.

So we expect to see that continue.

Now we have a few categories that we have capacity constraints, soup being one of them, desserts being another one, and we've temporarily withdrawn a significant number of items.

So in soup, progressive soup, we prepandemic had something like 80 items, and now we're down to somewhere around 50.

We expect to phase -- start phasing some of those back end as we move through the first half of the year.

And frankly, some of them probably won't come back.

So again, I think we will take the opportunity to make sure that we have an efficient portfolio and one that works for us and works for our consumers.

Variety is important, though.

When you think about soup, everyone has got their favorite soup flavor.

So again, we're going to have to work through that as well.

So we feel good about where we are from a distribution standpoint.

One of the things that -- the metric that we look at is share of distribution because, again, we do expect total distribution points to decrease as we move throughout the year.

And we exited the year really improving from a total share of distribution standpoint, and that's what we'll continue to stay focused on as we move through fiscal '21.

Our next question on the line is from the line of David Palmer with Evercore ISI.

Just want to follow up on what we're maybe seeing in the Scanner Data lately.

It looks like the part that is audited by some of these Scanner Data companies is showing reduction in display activity, but some of that might be the fact that they're not auditing that as much.

And then I'm wondering if we're seeing some noise in that percent sold on discount because it looks like, within cereal specifically, that there's been some increase in percent sold on price discounting, which would seem to run against the times that you wouldn't need to be doing that.

So are you seeing some price reductions going on out there?

Is there more competitive activity in cereal?

Or is there noise?

And then I'll have a quick follow-up.

So Jon Nudi, why don't you field that one?

I would say the short answer is it's probably noise more than anything.

Many of the auditing groups are not going into stores at this point, or if they are, it's inconsistent in terms of what we're seeing.

So we're not looking too closely at display facts.

And some of the pricing gets really confusing as well.

What I would tell you, though, in general, we're not seeing anything out of the ordinary in terms of pricing in cereal.

In fact, we pulled back some of our promotions in Q4, particularly on our Cheerios franchise where we were a bit tight from a capacity standpoint.

So again, we're not seeing anything abnormal.

And I think from a data standpoint, again, the total movement and -- it's something to look at and something that makes sense.

I think when you start getting into some of the facts below that, I wouldn't put a whole lot of stock in it at this point, at least we're not.

Got it.

And just to follow up on the incentives, you talked about how you did above plan this last fiscal year because of the fourth quarter and probably caused some truing up in what you were doing in terms of pay for performance.

But I'm wondering, are you making adjustments to your annual targets and how you pay people?

Is the Board doing that for you and you down to the division levels?

And how are you making those adjustments?

Because this has to be viewed as an extraordinary period not just because of Blue and those acquisitions and other counter effects but because of this virus and passing that through the python.

Any help on that would be helpful.

So the -- so David, the Board sets our compensation targets as well as ranges for compensation, and I'm not going to go into the depths of that, only to say that it is based on our sales performance and our operating performance, our profitability performance and weighted equally among those measures, and we pass those kind of things down to our segments.

And you're right, it is a dynamic environment, which requires us to be dynamic in our assessment.

And certainly, one of the things we look at as we assess the performance of our businesses is how competitive are they in the marketplace and how efficient were they in being competitive?

And that's why I say we're really proud of our performance.

And even in areas like convenience and foodservice, which was down quite a bit in the fourth quarter, they actually grew share in the majority of their categories.

And so they performed well in the fourth quarter even in an environment that was really, really difficult.

And so that's the way we'll continue to incent people.

Again, it helps us stay in the middle of the boat in driving sales growth, but not at all cost, and making sure we're efficient while we do it.

We'll get to our next question on the phone line from Robert Moskow from Crédit Suisse.

I guess I have two.

The one is on the breakfast cereal category.

If I look at the data, I'd say it looks good but not great.

Retail sales were up about 6% in the past 4-week period.

It had been up double digit.

Jon and Jeff, are you surprised that the category is not growing faster in an environment like this where we're all kind of stuck at home, we're not eating breakfast on the go, we have the luxury of time in our homes to prepare longer breakfast for ourselves?

Or is this pretty much what you would expect?

And the second question is on first quarter.

I understand not giving guidance for the year, but can you give us a sense of the -- maybe just North America Retail sales?

It looks like, overall, your sales are still up double digit and probably can stay that way for the next 3 months in the retail data.

Is that a fair assessment for first quarter trends, Jon?

So let me answer the question on the first quarter trends and to say that, look, the reason we don't give quarterly guidance is because we've never given quarterly guidance, and we're not going to start now.

You're right, Rob, and I'm glad you pointed it out.

Our retail sales, if you look at Nielsen, are off to a great start in North America Retail.

So it gets back to a question I answered earlier, I think it was from Chris Growe, about the confidence we have.

So it's not a lack of confidence that we're not providing guidance, it's really a matter of, for the year, uncertainty; and for the quarter, the fact that we just don't provide quarterly guidance.

On the question of cereal, I'll let Jon answer that in detail.

But I want you to know I am thrilled that you're asking a question about the cereal category being good and not great when it's growing at 6%.

So with that, Jon Nudi, why don't you elaborate on that a little bit?

Yes.

Sure.

So we feel good about the cereal category and, frankly, even better about our performance.

So in Q4, the cereal category grew at 26%.

We grew at a similar level.

And for the full year, the category grew at 5%.

When you go back to even the year prior, we think when you add in nonmeasured channels, it grew that year as well.

So I think the category was heading in the right direction.

We like our performance.

We've grown share in 11 of the last 12 quarters.

We're the clear share leader in the category.

We're doing that by strong -- having strong marketing campaigns.

In fact, prior to the pandemic, we were having the best year from a share standpoint on cereals in over a decade as we've gotten back to the heart health messaging, that works really well.

We actually for the first time ever changed the shape of the product to a heart for a limited time.

That worked incredibly well.

And then our innovation is working as well.

We had 3 of the top 5 new products in the category last year.

So we feel good about the category.

We feel good about our performance, and we think we'll continue to grow nicely in fiscal '21.

Okay.

I mean the market share gains, no doubt, stunning.

So congrats on that.

And we'll see how the category does.

Okay.

Tommy, I think we're going to wrap things here.

I know we weren't able to get to everyone, but we want to make sure that we respect everyone's time and length on the call.

So thank you, everybody, for your time and attention this morning.

Appreciate the interest in General Mills, and we look forward to continuing to keep you updated on how we go from here.

If you have follow-up questions today, please feel free to reach out to me, and we'll make sure we get to you.

So thanks, again.

Thank you very much.

Thank you, everyone.

That does conclude the conference call for today.

We thank you for your participation as you disconnect your lines.

Have a good day, everyone.