GIS - Earnings call transcript Q3 2022

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Operator

Greetings, and welcome to the General Mills Third Quarter Fiscal 2022 Earnings Q&A Webcast.

During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded on Wednesday, March 23, 2022. I would now like to turn the conference over to Mr. Siemon. Jeff ahead. go Please

Jeff Siemon

release, and available our everyone. quarter Q&A had Relations materials, our hope Frank, and prepared us our website. morning view results. for on today everyone presentation press review to for session were time to good you, our Thanks remarks, made morning, which joining I listen this Thank on Investor third our

under reminder, this quarter, a results new beginning reporting segment a As are structure. we

our information new make that on our sales our also You historical can shows of today's results this net call. we forward-looking statements may segment views that press that assumptions. for remind find segment on profit current could operating may supplementary Q&A are non-GAAP session, be in and statements website I'll discussed Please you factors recast and impact that structure. for and information, on this forward-looking refer which reconciliations based management's to for morning's release

CEO; our Joining me our Retail this and President segment. Group Jon North morning our Harmening, America of are Chairman and Nudi, CFO; Kofi Jeff Bruce,

the ahead question. go to us first get and get Frank, could started, please? Let's you

Operator

Instructions]. [Operator

Lazar Our first Please Andrew proceed. question Barclays. with comes from

Andrew Lazar

sort of if the XQ set bottom-line has to environment. from Mills’ aside a put around sort of of its full guess prior CAGNY raised still company despite were start where of So, General initial is above very maybe expectations Jeff, that I we such, company forecasts and comments the XQ the tough outlook year

guess a that. I twofold So on question

until it managing current And not around of quarter. the I But of to has to that? then I to know is really year think recent give things I this guidance there skepticism next down the for more will still you you. you is. sort the deal ultimately environment been importantly, ample sort do my investors enabled next industry from events would of ability First, as just Because the you think do dynamic like with up the this can sort going of you're through impact speak what That is to when detailed hold kicking industry's of group. questions. hear 'XX? of in many that the fiscal move road the light global Because about through can so concern be particularly industry Thank as catch costs, the think certain

Jeff Harmening

had And going realize were even we So, year, this reason approved our result, Andrew, volume I to at service the importantly, a I think into think QX as as year, important about we're we momentum more because ended before levels going look it's with CAGNY. with momentum to have the headed still thought, quarter than we as fourth mean we And this the is our and inflation. I we improved.

inflation fourth higher. we'd in QX, fact, In also and pricing will what the in with our be My be quarter higher quarter. in pricing And line, will in the line was expected. inflation fourth

with will is historical important Certainly elasticity, also improvement in higher. bit good it's of feel up, given of it's a items. the levels have -- We're also now, made so given as little anticipated, the in so there's really what's fourth bit is those service not better line there prices environment. And seeing current then a quarter handle what then a And volume we benign to been go elasticity note a lot on be if that -- right little elasticity. pretty just we as which it's than level has elasticities some this elasticities. we environment I say had mean, not driving a both to no but

And our confidence underlying and around assumptions in pricing. is quarter really inflation so, on raise our the fourth

which obviously thought fourth we year, said, mostly we pricing, quarter. saw as pricing inflation and And are, through. We includes on get we we the the calendar would hedged through the commodities

ability business in really it confidence service to so, the increased in the has And our fourth quarter.

Now they levels our historically won't have service been. be as

the anticipating that. So back getting way all to we're not

we look it's volatile 'XX, I a mean, environment. at pretty As

even well And past you year, so, comment know, fiscal Andrew, but are usually we as don't We hedging. on times. these comment unusual current and don't on

inflation in And mostly we 'XX. fiscal what now And of inflation is, so the thought fiscal through at buys it we'd year we'll level give in market. bit what us the does hedged calendar of you're into Though won't in calendar significant be 'XX, least time, we hedging prices it in just year. a a color we'll the little spot seeing our and have the have have at

Operator

Our with proceed. Goldman JP next Ken question comes Please Morgan. from

Ken Goldman

on specifically ask just to wanted for pet the margin. I

to I you think level in since assume costs? Can lowest about the brought you stay Blue And its little while. a bit are for here what dropped terms a to those input I talk Buffalo. pressure of that caused

mentioned also SG&A. you think I higher

potential to little think just the pricing Just for sense how better trying some expect of that a do do bit reached? headwinds? bottom for of the get be offsetting that I'm curious, about in start to how margin So of these to you you When view progression? to sort a

Kofi Bruce

take Ken, the is I'll Kofi. This Thanks that. question. for

impact to on things here one brands pet So about of pet think the the important of also margins. the is

charges margins in dilutive margins through is flowing specific some this weighing purchase -- well. There's as one-time the to accounting on the to related So year. that the

the And more get we'll excuse we step into that production we we between gap it expect brands, both forward, improve and for online fully as me. to we system close. acquired on a bring on HMM expect the inflation business our brands then pet pricing those that margins -- and see So as and

pricing up So a meaningful be expect in contributor the to QX. step will pet we

Operator

from next Sandler. Michael comes Our Piper question Lavery with

Michael Lavery

tent what that here, 'XX, a when noted are even acceleration things it I'm maybe an luck just would got a as fiscal I if of just under you're our seeing where that bit coverage you've appreciate now, further some holds, there's coverage of that calendar little would give through just little sit inflation, Maybe you love I for be to still that moderation? 'XX. inflation a the would ahead? far pushing peek -- but magnitude any in guess look know does the or say order they if significant

Jeff Harmening

the Michael, yes, Yes, for luck be question. you might thanks And bit. pushing little your a

it's I to think fair say.

much this give perspective the on calendar a be be to XX% wouldn't policy our at to would be why inflation in expect normal We think year about we guided significant. go want to -- I would I is And expectation than the XXXX. I the be that. to point which hedged, you further

ourselves as in the get actions to to to to up structural. and give we frankly, or is time aligned here goal whether the see the buy inflation being read time the not market, So ourselves

Michael Lavery

Maybe the sequential on think levels the in to is the get in that keep modest it to what pizza that year-over-year pricing your last Retail quite there more the just that performance couple segment? we've and in good was we significant? that just seeing. your in Was for mind it things America pushed short margin some been fairly North service out and outlook on Or to -up, a drove going dough you snack, weeks for really obviously really how but other quarter, of just still was margin about and of time, and are momentum with door said of compared good the declines of relatively kind follow you period speaking and

Kofi Bruce

I'll to start. Jon then anything. And I Yes, ask missed fillers if I'll any provide

So I think you got it mostly right.

end to actions the probably tail pricing of the middle towards the quarter saw we in come-in quarter. So

this segment So expect as company. first levels in we meaningful be forward, go on to had in line reform closer step to contributor well his up the as for what as a been expect top therefore the quarter. we trending of Jeff that up to service the that, question, as to with total referenced prior we'd they a step comments in On the to meaningful

So the our good guidance confidence of think two what of a that portion us rate. I those drove gives a things is combination

Jon Nudi

think exactly right. I that's Yes,

I'll focused and really year, to distribution big just again, bit and a our evolved are service. that beginning the big centers spend about So well. and of this as year minute are a for two it's service really deeper we At our across a go been that's pricing end. us the the on logistics Obviously, it's Maybe challenge things on little bottlenecks.

up seeing We centers have a distribution move and about done selection. good our really is product at we’re ability to feel materials issue staffing job nice The biggest around now.

challenging, and particularly starch into to QX, was So, so pizza hot fats things RBG, our oils and our like particularly it ingredients coming and in products. run packaging. and In plants snacks,

levels are QX. to our historical a for as our to seen quite we time and bit We've XX%. a on-shelf improve service We but trade the So those platforms. on were XX% an lot levels. team spent overall working XXs availability, in We in really case fill a improvement below still of

not to get expect historical We but better levels. near

be expect the We into we to XXs go QX. as in

hot fruit, things to So We Supply work, we've levers. as reformulated We're up that it's once team. time XX snacks a for on capacity meeting phone or many one lot you business get teams. We've the RBG really to suppliers, to customers at removing our can on sure to make senior adjusted At lanes we And getting Every constrained of over ingredient [IGT] actions, did our OEP, an the which on we're pretty time. sure make level, formulation, the is and levels we've elements working by sure times the make ESC. We potatoes. we've added the lots change, team we that of ingredients. doing formulations. senior our like the of level. the or on week We've In senior a other chain with work make control change that level prioritize team significantly pulled at of working we're just hurdles adding team platforms is year-to-date. freight and products, some really proud at obviously to you cereal, have taken started towers together. well daily

of time did better, quarter. we and that. to entered I business. a do, we this stay we're very think, chunk spending So our more good got sure work that our a We've making We as focused lot service on we'll

Operator

from Robert Moskow next Suisse. comes Credit Our with question

Robert Moskow

I milling believe ones. of specifics more capacity quick expanded. then in you secondly, there talk if want can this bit know you're a in I adding you've any other calendar there's that refrigerated in couple Jeff, year? dislocation of you plans see flour And some about any from wanted your more grain to for and in little the categories dough. kind markets? expansion a Just been the do benefits grain business, merchandising I expect

Jeff Harmening

expansion, X capacity line. won't So in of product I go questions, terms Rob, on product by probably line the

that are we a that appreciate And a the spend do businesses be our are there ones and momentum are willing will expand certainly have really, are on And to I However, the we'll is lines capacity what -- year. question. few performed to coming continue pre-pandemic the well during money on actually capital the and that I of will say those. pandemic, and of spending number the in

on on our know what that. question investing update that first But the at in fair the coming that our call -- will just you'll capacity business. is of so where year probably current major the businesses. we to capital end intend we several of do we see one an a And on do year is your We'll in expand give our and is

we businesses that have number have we had We a during and the pre-pandemic pandemic. of momentum on

world-class In terms We've think going being grain supply XXXX, benefits. been we flour of to on able do flour know that a long about pretty since our effectively. see so milling I said milling and we're don't have Having that in dislocations, any I mean, history to we'll milling of We're full that, I have that. businesses. question the

Operator

Bank. comes from question Deutsche next from Our Steve Powers

Steve Powers

guess so-called new think able to may You guess constraints savings what degree the cost those be performed that HMM year. despite you constraints HMM well the but curious degree on talking that more abate accelerate about. to conditions, cost -- on and And you actually you've savings been I'm supply into hopefully, I I business-as-usual to focus continue, you're supply some to able momentum as just

Just some commentary around great. HMM would be

Kofi Bruce

love for if I'd Appreciate that got your and the powers. tomorrow you've conditions in business-as-usual question,

that century. What since So expect if lever been say we shed We've we really of And if that. a in off HMM due would the I about that conditions the start think a is costs it that consistent and this for a expectation of is, it. get lot should to concerns don't environment at to doing we is our us. stable to get to disciplined the I be be us we'll capability -- in -- I HMM core COGS allows have ability as to, mid-single-digit put -- start it's any when that I close this pretty keep say, when to we've more when is productivity operating we and delivering the our been that of or on when, will a position that to in disruption. hard of

is what so And our environment allow with inflation. taken of margins deal this we've our back margins will to that as that extraordinary the a to gross in do us up -- bring SRM actions result the

Steve Powers

pet the up specifically, different adverse on pet expect just hold tact, your consumer how we could, category broadly, care, a I you high-end, your a but premium environment. broadly, brands enter I on if perspective on to fully the If love just I'd category food pet. mean more

you how through evolved and able to has category cycle? solidified think a to be Just itself that persevere

Jeff Harmening

a of the things is in by predominant the ago, pet. it a the which this last we Buffalo, would well will positioned that in what pet top category even sub-optimize to food pet recession, think think on even given do during very perform long going that, I you thing Blue well. and And we long before bought forward, continue Steve, humanization that was you recession, will through of will -- And quite that to give tough in The the in pet look I #X at of want well. that anticipate category long, the to is and is trend you're clearly it's Yes. perform out time one last food. the to your we going pet And segment continue now, a be turns how we're -- very performs the area way. our and we're tell the food category it we performed natural times well,

of things And And brand to part so we result, have way, segment that we as the a best holds have good during well all really best up really exposure label. very recessions. private a good by those a believe the the category and and low

Operator

Our next from question with comes Bank of Spillane America. Bryan

Bryan Spillane

-- think perspectives elevated of my So it. in the you is just on of level and guess is get there's elasticity, about I Jeff, expect sort prepared around this expectation -- demand question the X wanted remarks, to I mentioned it that a mention you to stick.

is, at it's for channels. more because of And inflation And anything because shifted a COVID to given we've of terms So at function is of kind that maybe so now is go just just point, being that cross-elasticity second part in out? eating expensive that now consumers seeing an a of between home that to Nudi, maybe expectation Jon now you're eating then like so home? from just be home just at where more

terms as in a stores just choices that's would set but anything maybe in? we're know going lot channels or just the and/or on different I convenience of stores pricing making between there, consumers there's So watching avoiding food appreciate.

Jon Nudi

is This Bryan. Thanks, Jon.

I'll and tackle then I'll to maybe a here, get elasticities So in second. pricing

different. us an of market. obviously, leveraging And I look toolkit. of on. So the spending brand, one brand the what's is to at what's last always-on down we're for really within It's SRM our do each revenue SKU other or from Pricing, years really capability market, We're supply that things about coming built standpoint. the capability, leadership. subject, and at we've our we're a different over an We're SRM effectively chain. believe I'm X pricing And then talked looks We and lot every level. that looking inflation we're looking management strategic of proud the time happening Jeff's And for at SRM capability. in the plans X the under go the full

make to In mix. tag bit really data prices So our the are up And our more categories, architecture unit that's category. pricing clear to inflation, price trade lot pass we're optimization, we average many it's us as that's certainly it's and the our the leaders U.S., feel take want to day, our to the of we advances, be. than the in pricing needed. at as little this we in that where end or like sure We on cases, At our goal have and strategies. car a But measured need point preserve to is margins.

never with discussion. facing Pricing work retailers. Everyone is an the is inflation, easy closely though. we So

coherent we're a pricing like been So reflection acceptance, rationale in in and to more what find We've good will for good market. the importantly, and the provide again, able more taking we a market. why in good plan can and pricing, for look lock importantly,

been us. it's done and great each level road about the So pricing I to date. for as more is we've down to what feel We've brands future needed. for a well for area big a if the got focus SKU our map of

Jeff touched elasticity. In on terms seeing I of I we mean, this earlier, are elasticity, mean,

So again, seen quarter-to-quarter. not is levels. it's not. not remain We've This pretty at consistent like historical elasticities we're

So was what we saw to in QX consistent QX.

expect And price/mix going to case in QX. that number. be have more QX to We in the we're

see bit levels. historical a again, back to So elasticity but not we more to result, as expect a

try important to to channel. but at to not That's and parse well. remember But elasticities noise them segments of channels, terms across significant levels away-from-home and categories support obviously government lot there's mobility from data, and we'll the to thing again, to to what's consumer In historical do It's inflation in everything as and to try levels that. really of product out, and continue happening constant. the hard a availability remain

Operator

Howard Our comes question next Bernstein. with from Alexia

Alexia Howard

in innovation? much disruption about there's so ask the I industry. marketing on and Obviously, going Could

down? ratcheted on likely imagine mean back right supply just remain on out then Is world? lot the that to spending put it this the though be underlying also I starting play because a that of about sounded to also to until out has the fires in current be side, can marketing, innovation now. was get chain quarter. easier that the things of issues was talked to But of there SG&A chain? the supply resolved. as marketing way down that And the that on there's state Does had You've

Jeff Harmening

is do for think question. that's Alexia, to remember I And why XX% The we've there's row. that of back levels on share categories I than market the cut our a is done that a haven't and appreciate really Jeff. X of years in or gained that, key our we've in really innovation. This more reason because spending we marketing --

effective, of product our on over of world. And In have innovation. we've over levels have you led off and and the increased most fact, our spending innovation categories time. same new brands marketing brands And be on of be true just actually all and our can't will spending those turn the marketing

see whether of we costs brands, have or the are our in marketing, whole the through admin down, periods companies that's SG&A the been With is reason pandemic, like innovation are -- are quarter, invest that down. rough of the the their that that product our we new one whether come So regard #X the who that's reason latest to ones ones that successful. this things out through, is we is

and really our the But time. pretty a marketing, picture, continued is we've very is and share in we're to the everywhere continued Our period that marketing just why short a but that's touch, much reason world. of growing broader down reflection in a innovate spending we've

Operator

Grandet next Our with Guggenheim. from comes Laurent question

Laurent Grandet

I've on investors. from a bit a back question and pricing that's come because pets to like many got I'd

what really parents seeing you the pack if price, -- is the for third X? the are in food could can impact share finally, So business are e-commerce again, And first What and could next concern, for size those as from the on into the retail and what pet And [they from year]? elasticity, are the pet it's anything unbundle down mass some as smaller split on, seeing shutting investors? one And mix and you you that update what specifically to brands? pet quarter? -- on in is we of specialty price major you us between please of

Kofi Bruce

Sure. This is Kofi.

I'll of the front So on price/mix. start with question part the

here, X see go our you price/mix that about give points QX. in we into forward pet saw to a expectation quarter. step on sense then we'll is we the Just And up that of as

fingertips. question channel don't split, I about think it, get rest have just may to at which I to was Jeff? back have of you verify. the Do your to we the you have that

Jeff Siemon

Yes.

Laurent, about then mass, the food, I down, broadly, I about to drug X/X little food, X/X, maybe closer e-commerce drug bit mass higher the each. in probably splits, a X/X, XX%; specialty, across think, channel mean we're and and -- at and and maybe XX%

a comment roughly the channel. wanted So that's of in maybe -- at reported Kofi’s just are correct, it’s I kind broad terms, looking number. we where to on actually from on --

to on pricing, organic some plus On going the did price/mix the -- of got was an basis, quarter. the -- have you've And that's pet in we a combination for quarter. XX% pricing -- which market a the in was

are brands relative as have partial quarter growing benefit and those of we cat only at on about from heard launch, that are that advantaged for a both wet you then for here as you price in mix we've per recently. dry, pound Tastefuls both us acquired the treats wet Tastefuls faster and food basis, instance, talk had to our food CAGNY, well and as the on know, a some So as us for benefit

Jeff Harmening

couple you more And Laurent, detailed asked other questions -- a of questions.

The the the really catch availability off of said category relatively in forward. it's in the it's at recessionary going of consumer to shelves. is they or wet anticipate in the quarter, strong of elasticity, to are And about one is buying sizes, the we've is has as seen quarter. terms you can key sizes. pack fourth acquisition that relatively believe we the so look this is in opening is dry asked trade in because really food, food point. that's our driving consumers whether In what remain demand impact And been the pack availability the the that's find pack And going inelastic. There's periods, things and pet category, pricing pet category and whether so Even kind as a at we we will we our pet not up will down which Really positive remarks, our have size. It's a in in to margins strong. inflation, going the fourth on strong, trade inelastic. really

Operator

comes question Stifel. next Growe with from Our Chris

Chris Growe

had quick Just questions. X

The be first -- would maybe just one for Kofi.

As of we gross there. we think year-over-year? pricing maybe inflation change out same kind get therefore, say, But improve about should a should to rate And it's be I accelerating then more second gross Just sequentially still order double Obviously, had should trying I Jon. some down the of expect the and but for this margin magnitude should of year-over-year, quarter. reflects and in as question, pricing cost the or digit, in in dynamic fourth be is guidance. to picks going The that well.

had? rebuilding ahead gap of in the On X-point about in you you consumption you hoping to that demand you out. to that should be curious here? the I that? I'm in issues the keep Are inventory. are -- up with And do sales from quantify theoretically guess still you called shipping Does undershipment you quarter service North Retail, also shortfall that And American the

Kofi Bruce

Okay.

a gross obviously, is obviously, would increase our take if -- you embedding first question. meaningful. squeeze I range, your So on the absolutely be be let sequential do improvement expect a me step the part margin year-over-year. up margin of gross And of and possibility, the the price/mix to

Jon Nudi

Chris, mentioned, on growth points shipments by expect and service in on pizza And versus lag question, retail We U.S. sales to snacks. in as the QX. by shipments really X the net sales don't hot issues sales quarter, RBG, Nielsen the consumption you lag did measured driven

where reflected fiscal expect also into be If more in we levels push improve, will likely service to to we rebuild do a levels. we back but might bit that's guidance. We hopefully, really and to able get inventories can a and historical better bit, 'XX, rebuild in inventory our can QX, don't

Operator

Bank Our next Ken of with question from comes Zaslow Montreal.

Ken Zaslow

to dig want deeper into elasticity the go question. don't little I a

bit your about and it that categories showing Is zero elasticity? of just there are where elasticity And of a categories? all is either Or can you there's of some a it said You are certain the flat? is level showing elasticity. been spectrum across talk little elasticity a similar greater categories or variability spectrum

Jon Nudi

Yes.

and So XXX It's for a categories. U.S. over this competed is in not long, for we -- Jon.

We have had in can in every you, the and reacting businesses. And obviously is U.S. global category tell our differently. I

So There's that seeing elasticity, we has elasticities zero vary. are not a though. single that category

So of levels point, to seeing heightened particularly the pricing are when changes are Again, we're take at everything. in price elasticity between for you seeing sure. we due and that there the there inflation, elasticities But are categories. this

those As I mentioned earlier, though, elasticities are holding. generally

in the They're holding levels than seen they're past. what again, So towards at levels. not increasing. They're we've historical lower not getting

Ken Zaslow

same? lag out, And occurred? understanding on came data just that the of improved, was were Was then data The data obviously time? quick talk back, about speed the back leave able came it how you it. kind changed which Can to Okay. came your is Or it on to analytics. actually or the And in real-time is data quicker stayed that -- a the in when is understanding, idea real the it and back service analytics? analytics it question Appreciate my there your in levels second or real-time understand -- I'll the there. positive. figuring analytics And of that you data a real-time

Jon Nudi

Yes.

think analysis one, related So pretty I this on simple. data to was

was hours a we of as our running than lines could end getting was focused the platforms, not supply we much more so the on day. ingredients get -- particularly plants. those and And out at again, had demand really of So capacity on and issue, day, big on getting the XX to snacks, RBG, much those hot pizza the literally as our

So as end a quarter, towards we the of put the get we had court press. full

customers. teams great had what than more thought. out and volume And a we originally able we directly to pump did were to we shipped Our job, significantly that

our -- retailers. significantly of our centers through about It it our and supply that, more job cases, to quarter analytics data sales in see team again, as we in And our to a again, able a terrific some really did distribution again, improving was situation. the ability directed our a some thing. were so So And result, some just to end run wasn't product. that really to stronger cases;

Jeff Siemon

We have Frank. time for one more

Operator

Our Markets. with next from Nik question comes Capital RBC Modi

Nik Modi

quick on X Just consumer. questions the

talked guys CAGNY deal about about You at prep.

the evolved guess, seeing. to then, agree if you consumer, I just would thinking more statement happening to go given low-income thoughts is you given just a that any And and perhaps that have I you've way see the that consumer about than inflation guys what's the quasi-recession you external into just on been going all rather it? Or with what wanted sooner see the So been on and not what's maybe with with is later the pressures? going

Jeff Harmening

just that be I I many latest our about start rather than exactly future. determined our moving pieces. our to It's trying what's predict Nudi's the and guess as so would success are to think not is -- be how by on there comment I we mean -- going going opaque I pivot, in saying supply, ability can purpose. by to happen witnessed I'm fast to by Jon

difficult to pre-pandemic say. good going to a There the yet couple that be consumer but yet. back now than returning There certainly from a inflation from yet a and X How how can that quarters they're is people it's for consumers greater for not will place the some And inflation, have while. in of is quarters recession, to determined. be office, is possibility is are but of now demand of well-being, -- We their the financial here to a look much quite is a now. be state levels

And what so the successful about. And happen determine our react happened what's I last what's to ability great pet. I in predicated ability to ability another And you'll that's but years think to that been be on really over to going to couple has our next. see of next feel

Retail, see over world. all You in America you see North it that the

But been few possible. outcomes you the will been I are a years, we've of a as last of And of over so outcomes through future, think about successful the and all tell are variety them. there we there's that variety

at at we're comes we'll so deal not competitors, that, confident be that able as well to as if whatever And with next, least perfectly. us our

Jeff Siemon

that's think everyone we the and follow-ups have along, next free a we'll you quarter. have good out talk this feel Otherwise, you morning. questions to time all Appreciate I today. appreciate Frank, Please team good Great. if IR today. reach day, and wish the the following to

Operator

please disconnect line. does and We Have Ladies a day, conference conclude thank that and you participation for for that gentlemen, your you the call everyone. great your ask today.

General Mills (GIS) 23 Mar 222022 Q3 Earnings call transcript