General Mills, Inc. (GIS) Earnings Call Transcript & Summary

Good morning, and welcome to the 93rd Annual Meeting of General Mills' Shareholders. I hope all of you are healthy and safe in these unprecedented times. I'm Jeff Harmening, Chairman and Chief Executive Officer of the company. It's 8:30 a.m. We have a quorum. All official papers are on file, and the inspector of election has been appointed. So I'll call this meeting to order. Here with me today is Richard Allendorf, our General Counsel and Corporate Secretary; Kofi Bruce, our Chief Financial Officer; and other members of our senior leadership team are also attending the meeting virtually. I'd now like to introduce our Board members who are attending the meeting virtually and standing for election. Kerry Clark, retired Chairman and Chief Executive Officer of Cardinal Health; David Cordani, President and Chief Executive Officer of Cigna Corporation; Maria Henry, Chief Financial Officer of Kimberly-Clark Corporation; Jo Ann Jenkins, Chief Executive Officer of AARP; Elizabeth Lempres, retired Senior Partner of McKinsey & Company; Diane Neal, retired Chief Executive Officer of Sur La Table; Steve Odland, President and Chief Executive Officer of The Conference Board; Maria Sastre, retired President and Chief Operating Officer of Signature Flight Support Corporation; Eric Sprunk, retired Chief Operating Officer of NIKE; Jorge Uribe, retired Global Productivity and Transformation Officer of the Procter & Gamble Company. And I am also a member of the Board. At this time, I would also like to recognize Roger Ferguson for his service to the Board. Roger is not standing for reelection to the Board at this meeting. Next, let me introduce Michael Gaynor and Laura Collins, who are attending the meeting virtually and representing our independent auditor, KPMG. Richard, would you now please introduce the 4 proposals being voted on at this meeting.

We are presenting 4 proposals for a vote at this meeting. These proposals are: first, the election of the 11 directors named in the proxy statement; second, an advisory vote on executive compensation; third, ratification of KPMG as our independent auditor and fourth, the amendment and restatement of our certificate of incorporation to eliminate supermajority voting provisions. These 4 proposals are recommended by our Board of Directors for shareholder approval. Full details on each of these items are provided in the proxy statement. All items have now been presented for shareholder vote. For shareholders, if you have not voted or would like to change your vote on any of the proposals, please make sure to do so now on the virtual meeting portal. Our inspector of election for today's meeting is Broadridge Financial Solutions. I am pleased to announce that preliminary voting results suggest that more than the required number of shares have been voted. First, for the election of all director nominees; second, in support of the company's executive compensation program, third, to ratify the appointment of KPMG as the company's independent auditor for fiscal 2022, and fourth, to approve the amendment and restatement of our certificate of incorporation to eliminate supermajority voting provisions. The final vote totals, which will include votes received prior to the adjournment of today's meeting, will be reported on a Form 8-K filed with the SEC within the next 4 business days. We will make that Form 8-K available on our company website.

Thank you, Richard. And with that, before beginning my prepared remarks on the business, we will now officially close the polls and adjourn the meeting. Now let's turn to our business update. Please note that our remarks this morning will include forward-looking statements that are based on management's current views and assumptions. There are many factors that could cause our future results to be different than our current estimates. See our fiscal '21 annual report on the General Mills Investor Relations website for a reconciliation of the non-GAAP measures discussed in today's business update. Since the onset of the pandemic, we have seen dramatic changes in consumer behavior. These changes, including how we shop, where we eat and work, how often we travel and more have required us to adapt. Throughout this time, we focused on what is most important: prioritizing the health and safety of our people and our consumers above all else. I'm proud of our team's focus and perseverance to deliver for our consumers and communities and to achieve our goals. It's clear that consumer behaviors are not returning to what they once were. The rapid growth in e-commerce, the likelihood that many office workers will have some degree of remote work and the increased depreciation consumers have gained for cooking and baking over the past 18 months will have lasting impacts. And will create opportunity. Simply put, we are ending one period of significant consumer disruption only to start another. Amid these near-term opportunities and challenges, we continue to be guided by our Accelerate strategy. This strategy is centered on strategic choices we've made about where to prioritize our resources to drive superior shareholder returns. We've highlighted 8 core markets led by the U.S., 5 global platforms: cereal, pet food, ice cream, snack bars and Mexican food, and our local gem brands such as Pillsbury, Annie's, Totino's and Wanchai Ferry. We've also defined how we will win by focusing on boldly building brands, relentlessly innovating, unleashing our scale and being a force for good. The output of our accelerated strategy will be long-term shareholder value creation generated through consistent sales growth, margin expansion, cash conversion and cash returns. Our performance in fiscal 2021 is a great example of how we're executing our Accelerate strategy to drive excellent results. Our focus on our key priorities throughout the year enabled us to exceed our goals, including delivering 4% organic net sales growth, 2% constant currency growth and adjusted operating profit and 4% constant currency growth and adjusted diluted EPS. In addition, our strong free cash flow generation enabled us to further reduce our debt leverage. As a result, we resumed dividend growth and share repurchase activity during fiscal 2021. We also took important steps to reshape our portfolio for future growth in fiscal 2021. This included acquiring Tyson's pet treat business, strengthening our position in a fast-growing U.S. pet food category. The Tyson's pet treat business is the leader in natural meat treats and is highly complementary to our Blue Buffalo portfolio. With this acquisition, our combined pet food business now generates roughly $2 billion in annual net sales on a pro forma basis, with very attractive margins, and it has been growing net sales at a double-digit rate in recent years. And back in March, we announced the planned divestiture of our European Yoplait operations to further streamline our portfolio and improve our growth and margin profile. That divestiture is scheduled to close later this calendar year. Overall, fiscal 2021 was a successful year, both in terms of our financial performance and the ways that we advance our accelerate strategy. Now turning to fiscal '22. We've outlined 3 priorities that will be critical to our success this year. First, we will continue to compete effectively executing on our accelerated strategy to deliver competitive performance. Second, we will successfully navigate the dynamic and challenging supply chain environment, leveraging our HMM productivity program, strategic revenue management pricing actions and other efficiency efforts to invest input cost inflation and other cost headwinds. And third, we will execute our portfolio and organization reshaping actions without disrupting our base to say that one quarter into the year, we're off to a good start on all 3 priorities. First, we're competing effectively. At home food demand remains elevated relative to pre-pandemic levels, and we continue to win in this environment. We've held or gained market share in roughly 66% of our retail sales base in our priority businesses so far this year, including share gains in many large and important categories, including cereal, Mexican food, pet food and refrigerated dough. We're also working hard to successfully navigate the dynamic and challenging supply chain environment. We expect input cost inflation in fiscal '22 will be between 7% and 8%, which would be the highest level of in 10 years. In addition, we're dealing with labor shortages that are impacting all aspects of our supply chain. These challenges are not unique to General Mills, they are industry-wide. To address them, we'll lean on our HMM productivity program as well as broad-based SRM pricing actions to offset these cost headwinds and protect our profitability in fiscal '22. In fact, we've taken pricing actions across nearly all of our categories and in all of our markets around the world, leveraging risk pricing, promotion optimization, price pack architecture changes and mix management. To be successful this year, we'll leverage our agility and our new organizational structure to ensure we're adapting well as the environment continues to evolve. With these clear priorities and a strong set of plans, we've outlined goals for fiscal '22 that we expect will represent competitive performance in the context of the dynamic demand and cost environment. We expect full year consumer demand for food at home in fiscal '22 will be below last year's elevated levels, and we expect away-from-home demand to improve from last year. But we do not expect either at home or away-from-home demand to return to pre pandemic levels. With those assumptions in mind, and with a stronger-than-expected start to the year in Q1, our latest fiscal '22 financial targets include: organic net sales towards the higher end of the range of down 1% to 3%. Constant currency adjusted operating profit toward the higher end of the range of down 2% to 4%. Constant currency adjusted diluted earnings per share towards the higher end of the range of flat to down 2%, and free cash flow conversion of at least 95%. In closing, I'm proud of what we accomplished in fiscal '21, and I see fiscal '22 as a continuation of the momentum we've built by making food the world loves and needs. I'm encouraged by where General Mills is today and where we are headed, guided by our Accelerate strategy. I firmly believe we will emerge from the pandemic, a stronger company with exciting opportunities to accelerate growth and create sustainable value for you, our shareholders. And with that, we will now begin our Q&A session. To give as many people as possible the opportunity to participate we opened up the virtual meeting portal for question 10 days before the annual meeting. If you have a question that you have not previously submitted online, we would encourage you to submit your question now by following the instructions on your computer screen. We will limit questions to 1 per shareholder. We'll also only be responding to one question per topic. Please keep your questions brief so we can cover as many subjects as possible. We will start with responding to the questions we received prior to the meeting.

[Audio Gap] [indiscernible] shoes and top shoes [indiscernible] brands accelerates our move to be the #1 natural crease player in the category by adding a highly complementary business. These are really exceptional products with loyal buyers. We plan to use Blue Bumble as proven go-to-market model to expand awareness of these brands and to use our omnichannel capabilities to broaden availability across channels. These brands are also an excellent fit from a product standpoint as all of the acquired products meet our true blue standards. In addition, the acquisition provides access to manufacturing capacity and know-how in jerky and meat-first snacking. While we are still in the early days, the business is off to a really strong start, and we have been very pleased with the initial results. The next question is, "How do you see consumer behaviors changing post anemic versus the pre pandemic period?" I started to say this in our prepared remarks, but we see a few ways consumers are changing what we think could be at least somewhat steady. These changes include a new normal, and we'll include more people working from home more often with increases in food and home sales. Consumers are learning new cooking skills and baking skills and buying small appliances. And so any barriers to entry for some of our categories have been over come. Which could keep consumers coming back to these categories more often. In addition, there has been an acceleration in the adoption of e-commerce, which we believe will stick for many consumers and which tends to favor leading brands like ours. And finally, brands and product renovation work we've already done seems to be working for many consumers, which could make them come back more frequently. We received some questions with concerns about employee welfare at a supplier facility in the West Bank of Israel. As a reminder, General Mills is a signatory to the United Nations Global Compact and has a long-standing commitment to protecting human rights throughout our supply chain. We provide every employee with full social benefits without prejudice to race or religion or nationality. Nearly half of our workers at our suppliers' facilities are Palestinian and many have been employed for several years, working alongside Israeli colleagues and reporting continued satisfaction. The next question is, "Have your employees started to return to the office?" The last 18 months have taught us that we can work differently than we ever thought possible. At the beginning of September, we officially "Reopened" our headquarters for our global based employees and formally kicked off our new ways of working with guiding principles that we call work with heart. We have communicated with employees that we prioritize results not face-to-face time. And work with heart allows for generous personal and team flexibility, allowing our employees to work from home, the office and elsewhere based on their own needs and the needs of the business. We're empowering employees to do what is best for General Mills and what is best for them. In a few weeks in, the vast majority of office employees are still working from home. But we have seen a step-up in the number of employees coming to the office to create, collaborate, connect and to celebrate. I think we have time for one more question. Our final question is, "Do you believe you can create a competitive advantage through your environmental, social and governance initiatives and if so, why -- how?" The short answer is yes. Leading in ESG increases relevance of General Mills and our brands in the eyes of consumers, driving increased loyalty. This is especially true for consumers or brands such as Annie's and Larabar and Epic. But it's also true for consumers of Cheerios and Nature Valley, Blue Buffalo, Yoplait and Häagen-Dazs. ESG also builds our business and planetary resilience, ensuring we have access to inputs, so we can make products for another 150 years. And like ESG investors, we take a long-term orientation to driving business growth and shareholder returns. So with that, we will now formally close the question-and-answer session. I would like to note that we did receive a few additional questions that we did not have time to answer today. Responses to those questions will be posted on our Investor Relations website by the end of this week. I'd like to thank you for participating in today's meeting and for being a shareholder of General Mills. We look forward to seeing you next year.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.