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

And now, in good keeping with CAGNY tradition that spans more than 4 decades, we begin with the conference with General Mills. Today, we are pleased to welcome Chairman and CEO, Jeff Harmening; and CFO, Kofi Bruce. This is an important moment for General Mills as the company continues to make solid progress in improving organic growth, improving its affordability to the consumer and thoughtfully reshaping its portfolio. Please join me in thanking General Mills for sponsoring this morning's breakfast and in welcoming Jeff and Kofi to the stage to officially kick off CAGNY 2026.

Thanks for that introduction, Steve, and greetings to everyone here and on the webcast. I'm pleased to be joined today by Kofi Bruce, our CFO; and Dana McNabb, our Group President for North America Retail and North America Pet. Before we begin, I'll remind you that our remarks today include forward-looking statements that reflect our current views and assumptions. This slide as well as a supporting presentation on our Investor Relations website list factors that could cause our future results to be different than our current estimates. There are three messages that I hope you'll take away from our presentation this morning. First, we are executing against our Accelerate strategy and investing behind remarkability as the primary lever to restore organic sales growth for our business. Second, we've made progress improving our growth trends in North America Retail and North America Pet, our top two focus areas within our portfolio. And while we still have more work to do to reach our goals, we know that we are moving in the right direction. Dana will go deeper into these two businesses in a moment. And third, as you saw in our press release earlier this morning, we've updated our outlook for fiscal 2026 to reflect a challenging and still volatile consumer environment, which is driving a slower volume recovery at a higher cost than we had initially expected. While the recovery may take longer than we previously anticipated, we remain confident that enhancing the remarkability of our brands is the best path to restoring consistent and profitable organic sales growth. And by pairing stronger growth with our long track record of cost efficiency, free cash flow generation and capital discipline, General Mills will drive attractive shareholder value over the long term. Kofi will share more on this at the end of our remarks. At our Investor Day last fall, I talked about how for nearly 160 years General Mills has been innovating to deliver on consumer needs and make food the world loves. Over that time, we've grown into a $19 billion company with a portfolio featuring 8 billion-dollar brands, and we've established leading positions across our categories, all backed by a world-class team committed to our purpose and values. Our Accelerate strategy remains the playbook for how we create value. With our purpose as our North Star, Accelerate guides both where we play including our core markets, global platforms, local gem brands and our commitment to portfolio reshaping as well as how we win by boldly building our brands, relentlessly innovating, unleashing our scale and standing for good. At the center of how we bring Accelerate to life is the Remarkable Experience Framework. We use this framework to assess and improve each of our brands across five key areas: product, packaging, brand communication, omnichannel execution and value. It's how we translate our strategy into specific actions in the marketplace that will drive consumer preference for our brands and, ultimately, result in long-term growth for our business. At our core, we lead by staying relentlessly focused on the consumer. We actively anticipate their changing needs and desires and we adapt our brands to meet them in meaningful ways. As we think about evolving consumer needs, we see several megatrends that we expect to impact our industry over the long term. Let me walk you through how we are thinking about a few of them. Changing demographics are playing a critical role in consumer values and lifestyles. The U.S. population is aging with more than 40% of food and beverage sales coming from households over 55. It's also becoming more multicultural. In fact, Hispanic consumers make up nearly 1 in 5 Americans and are uniquely shaping our food culture. We see a heightened focus on value, particularly for middle and lower-income consumers. Cost of living and housing pressures are reshaping spending patterns and value is a core expectation that is here to stay. Health, wellness and weight management priorities continue to evolve with consumers looking for food that delivers functional benefits. We expect GLP-1 and other anti-obesity medications to have a lasting influence in the food and nutrition landscape, nudging some consumers toward smaller portions and more nutrient-dense protein and fiber forward foods. The humanization of pet food is a continued megatrend with pet parents increasingly viewing pets as members of the family. This continues to be a tremendous opportunity for our portfolio of pet brands, including Blue Buffalo, Tiki Cat and Edgard & Cooper. And lastly, AI and digital integration will continue to be powerful drivers of innovation. E-commerce and omnichannel shopping are standard, and AI is reshaping product discovery through agentic commerce, where AI-powered tools help consumers discover, choose and purchase food and pet products. Our goal is to ensure that our innovation agenda, portfolio choices and capability investments align to these macro trends. At the same time, we will continue to respond to near-term value pressures in remarkability and precision, category by category and brand by brand. Our work to respond to the consumer and amplify remarkability has resulted in encouraging improvement in our competitiveness through fiscal '26. However, this improved competitiveness has come against a challenging operating backdrop, characterized by historically low consumer sentiment, heightened uncertainty and significant volatility. The cumulative impact of inflation, SNAP benefits reductions, geopolitical uncertainty and other factors have led to significant consumer stress, especially for the middle and lower income groups. These factors have translated into year-to-date category growth that has been below our initial expectations, most notably in cereal, snacks and dog feeding, though we have seen some improvement in each of these categories in our Q3. Additionally, we said on our Q2 earnings call, we are seeing financially stressed consumers buying more of their products on promotion and less at everyday prices despite the fact that our frequency and depth of promotion are broadly in line with a year ago. This has led to a more costly mix of volume this year. At the same time, we continue to manage what we can control with a sharp focus on cost discipline. We remain on track to deliver industry-leading Holistic Margin Management cost savings this year, and we're continuing to advance our global transformation initiatives to streamline our end-to-end processes, modernize the way we work and create more organizational agility and efficiency. We expect the combination of HMM transformation and other efficiency efforts will generate $600 million in total cost savings in fiscal '26, which we are using to offset input cost inflation and reinvest in growth. With these factors in mind, we've adjusted our full year outlook for fiscal '26. We now expect organic net sales to be down between 1.5% and 2%; adjusted operating profit and adjusted diluted EPS are now expected to be down between 16% and 20% in constant currency; and we still continue to expect free cash flow conversion to be at, at least 95% of adjusted after-tax earnings. As I said, we remain confident that our focus on enhancing the remarkability of our brands is the best path to restoring consistent and profitable organic sales growth. We are focused on what's within our control to navigate the current macro backdrop, even if the current environment results in a slower pace and higher cost of top line recovery than we initially anticipated. The prevalence of financially stressed consumers only reinforces our view that working to bring consumers more value is the right approach. And it's important to reinforce that price is just one aspect of how consumers define value. Our approach is more holistic, delivering value through all five elements of our remarkability framework. One of the most significant ways we're driving remarkability for consumers this year is through innovation. And that doesn't just mean launching new products. It also means innovating on how we innovate, by investing in our capabilities to deliver bigger, more impactful ideas that resonate with consumers. For example, we're now leveraging artificial intelligence to support new product development: from using digital personas to better understand consumers and customer problems, to image generation that creates prototypes in seconds, to conversation tools that can get real human consumer feedback faster than ever. Our teams are now moving from generating hundreds of potential consumer solutions to thousands, helping improve the quality of our ideas while increasing our speed of idea generation. In fiscal '26, we expect our net sales from new products to be up roughly 25% with strong contributions across each of our billion-dollar brands. Our innovation slate is specifically targeted at three trends that are driving growth in food today. We know consumers are looking for bold flavors with more than 60% of U.S. consumers being more likely to buy food with spice or heat. And we're delivering that on trend with new products across Totino's, Old El Paso, Chex Mix and more. Consumers and pet parents are also driving strong demand for better-for-you functional benefits, especially for protein and, increasingly, for fiber. And we're responding with launches across brands like Cheerios, Blue Buffalo, Progresso, Annie's and GHOST. Finally, we're seeing increased demand for familiar and fun food experiences that help consumers find joy and comfort amid ongoing uncertainty. We're launching innovation on brands like Pillsbury, Haagen-Dazs, Gushers and Mott's to meet this growing trend. To make our remarkability investments work harder, we're leaning into three scaled capabilities we highlighted at our Investor Day that are built on top of our best-in-class digital infrastructure. First, we are accelerating our advancements in data-driven marketing by shifting to an audience-first model and using data and AI tools to determine which brands and messages within our portfolio should be targeted to which consumer audiences. This portfolio-based targeting approach is helping us drive a nearly 40% improvement in the cost of acquiring incremental households and a 14-point increase in the share of buyers that are new to our brands, ultimately resulting in higher incremental sales for General Mills. Second, we've continued to advance our Strategic Revenue Management, or SRM, capabilities since we first launched it more than 5 years ago. Our SRM tools help us determine where to use price pack architecture, where to adjust base prices and where to make changes to promoted prices or promotional frequency, all at the product and customer level. As Dana will share, we've been encouraged by the results of our SRM execution, resulting in volume elasticities running at or ahead of our expectations across roughly 90% of the business where we have made investments. And third, we're continuing to further digitize our supply chain. We built a connected data foundation, deployed autonomous planning and implemented AI-enabled execution in logistics and manufacturing. These tools have helped us optimize throughput, reduce waste and improve service. In fact, bringing these digital capabilities to our supply chain has resulted in significant acceleration of our Holistic Margin Management productivity program from a 4% historical annual savings run rate to an industry-leading 5% HMM savings level in recent years. As I mentioned, our work to improve remarkability is gaining traction in fiscal '26 with improved competitiveness, which we measure through volume growth and market share across our businesses. In North America Retail, or NAR, we're gaining or holding pound share in 8 of our top 10 categories year-to-date. Our retail volume has consistently improved over the past 18 months from down 4% in the first half of fiscal '25 to down just 0.5% thus far in Q3 of fiscal '26. Equally importantly, we started to see the pound-to-dollar gap narrow as we begun to lap initial price investments we made last year with our Nielsen-measured price/mix improving by 1 point from Q2 to Q3. We've also delivered good competitiveness in our other three segments in fiscal '26 with 80% of our North America Pet business growing or holding dollar share, 88% of our North America Foodservice and 38% in International. While we are pleased to see the step-up in our competitiveness, we know we have more work to do to fully return our business to growth. We expect to drive continued improvement in our retail sales trends in the second half of fiscal '26, supported by increased innovation, stronger media support, compelling product and packaging renovation and improved in-store and digital execution. And while it's early, we're bullish about the plans we're building to take our remarkability to the next level in fiscal '27. With that, I'll turn it over to Dana to walk you through how we're bringing this to life in North America Retail and North America Pet.

Thank you, Jeff, and good morning, everyone. General Mills is a leader in North American human food and pet food. And with that comes a responsibility to lead growth for our categories. To do that, we're focusing on what we can control, and that is how our brands show up for consumers. Despite a softer consumer and macro backdrop and categories growing a bit slower than we expected, I am proud of the way that we are executing in both North America Retail and North America Pet. We're making real tangible progress against our strategy. While we're not yet at the finish line, I have high confidence that the actions we're taking now and the progress we're seeing in the short term are building a foundation for growth in the long term. This progress is evident in North America Retail, where 8 of our top 10 categories are gaining pound share year-to-date. We're starting to see the gap between pounds and dollars narrow with Nielsen-measured price/mix improving by 1 point from Q2 to Q3 as we begin to lap our initial price investments last year. And critically, we're growing household penetration in 7 of our top 10 NAR categories with a focus on winning with key multicultural and 55-plus consumers. This progress is also evident in North America Pet, where we're gaining or holding share in 80% of our business. We can link this progress directly to the work we've done to enhance the remarkability of our brands. We're investing in what matters most to our consumers using the Remarkable Experience Framework as our guide. Let me dive a little further into how this is working in North America Retail. We knew heading into this fiscal year that one of our biggest opportunities was to address price cliffs and gaps across our portfolio to help keep our brands in the consideration set of today's financially stretched consumers. After careful and significant research, we acted with conviction to adjust base prices on roughly 2/3 of the NAR portfolio, allowing us to get below key price cliffs and narrow gaps to the competition. And we are seeing measurable positive results from these investments. Where we have invested, our nonpromoted volume has improved by 8 points and 90% of our business has elasticities pacing at or ahead of our expectations. Refrigerated dough is a great example here. We identified key price cliffs across 6 critical SKUs using our Strategic Revenue Management analytics. After investing to move those items below the price cliffs, we've seen nonpromoted volume trends improved by 23 points compared to the pre-investment period. But price alone does not make consumers prefer our brands. We also need to make sure our product offerings are remarkable. We are not making small incremental moves on product this year. We are making big bets in areas that matter most to our consumers. This includes strong innovation plans with NAR's net sales from new products expected to be up roughly 25% this year. We saw great results in the first half on new items like Cheerios Protein, Progresso Pitmaster soup, Pillsbury Big Cookies and new bold flavors of Chex Mix. We're bringing more big innovation in the second half against the largest consumer trends. This includes the launch of our new La Tiara Mexican products and providing familiar and fun offerings, like Fruit by the Foot Splitz and Nature Valley PB&J bars. We're also leaning into better-for-you benefits and GLP-1-friendly products with innovation focused on protein and fiber, including Honey Nut Cheerios Protein, GHOST performance nutrition bars, Annie's Nature Pals with fiber and multiple new lines of granola. But we're not just launching new products. We're also stepping up our product superiority with a broad slate of renovations across our portfolio. We're improving taste, nutrition, ingredients and packaging in ways consumers can see and feel, like Protein One and Fiber One GLP-1 renovation, Cheesier Annie's Mac & Cheese, improved flavors on Chex Mix and our Pillsbury refrigerated dough that bakes up noticeably bigger. And you'll see more renovations launching later this year as we make progress against our commitment to remove certified colors from our portfolio by the end of 2027. Packaging is one of the most powerful levers we have to strategically drive volume growth and price/mix appreciation. To do that, we're providing options that give consumers genuine choice. From entry price points when wallets are stretched to small sizes to deliver for GLP-1 diets to more premium trade-up format for consumers seeking value beyond just price, whether it's Chex Mix tubs, which have been more than 60% incremental to the salty snacks category or new Gushers packaging, which brings the brand into new occasions and helped drive high single-digit volume growth this year. In total, we're doubling our net sales from price pack architecture changes in fiscal '26, delivering new pack sizes, format and seasonal items that make our brands easier to find and to shop. Better price, products and packaging, combined with improved AI capabilities, are amplifying the impact of our communications and omnichannel execution. Our media ROIs are up double digits on our biggest brands this year, and we've tripled our growth in e-commerce across our top 5 e-commerce retail partners in recent months. We're also putting a sharp focus on optimizing our offerings at shelf, expanding distribution on our most productive 300 items and rationalizing the tail of our portfolio. So what does this look like when we bring it all together? Let me share how remarkability is strengthening two key platforms for General Mills, cereal and pet food. The U.S. cereal category generates roughly $10 billion in annual retail sales, and we are the clear market leader. However, the category has been challenged recently with increased competition from protein offerings at breakfast. And while we have gained pound and dollar share from the prepandemic period through fiscal '25, we knew coming into this year that we needed to lean into our leadership position, adapt to the consumer and help drive improved trends for the category and our business. To do this, we've been focused on improving our remarkability across three main areas: product, value and communications. On product, we've increased our innovation in the fastest-growing spaces in cereal, which are also driving positive price/mix. Our protein-forward cereal portfolio will soon reach $200 million in retail sales, having nearly doubled in size over the past year. And we have two great new products, Honey Nut Cheerios Protein and GHOST Cinnamon Toast Crunch Protein cereals launching in the second half. We've also recently launched 11 new granola items to build on our leading position in the granola segment, which has seen double-digit retail sales growth this year. As we innovate into growth segments, we're also optimizing our cereal portfolio by removing approximately 20% of our least productive SKUs and expanding distribution of our more profitable core items. On value, we're delivering for cereal consumers by ensuring we have the right price points and pack sizes, being mindful of key price cliffs and serving a wide range of needs and occasions. Our cups and small boxes provide variety and attractive entry price points in key channels while larger boxes and bagged formats deliver compelling value for larger households. And on communications, we're investing behind our biggest cereal brands across TV, digital and social. And we're leveraging culturally relevant collaborations like KPop Demon Hunters to drive buzz and reach for our brands. By pairing strong consumer messages with our data and analytics capabilities, we've driven double-digit increases in lift and ROI on both Cheerios and Cinnamon Toast Crunch. This focus on remarkable experiences has driven encouraging improvement in our cereal performance recently with our Nielsen-measured pounds up 1% and dollars down modestly so far in Q3. And we're helping drive improved category results too, with category pounds and dollars roughly flat during that same period. Importantly, household penetration for our cereal business is up in fiscal '26, indicating consumers are responding to our improvement in remarkability. While there is still more work to do, we're encouraged by the progress we're seeing and excited about our plans to further strengthen our leadership in this category going forward. Now let me show you how remarkability is working for our pet business. Pet food is a $56 billion category in the U.S. and $142 billion category worldwide, representing one of our largest opportunities for secular long-term growth. In fact, the premium portion of the category, which is where our brands play, has historically grown at a mid-single-digit rate. And that's the growth opportunity we see for our pet business over time. Today, our strong brands generate nearly $4 billion in U.S. retail sales, which equates to 7% of the total U.S. pet food category. Our ambition is to be the growth leader in pet, and we're encouraged by our improved competitiveness this fiscal year. We're growing household penetration and we're holding or gaining dollar share in 80% of our U.S. pet portfolio. While that has translated to 1% all-channel retail sales growth so far this year amid a slower-than-expected category backdrop, we are confident that as the category returns to more historical levels of growth and as we continue to leverage remarkability to drive share gains, this business will be a differential growth driver for our portfolio. And here's why. The humanization of pets and premiumization of their food has been the key driver of category growth over the past 2 decades. And our portfolio is built for this environment. Blue Buffalo has been at the forefront of humanization for more than 20 years, founded on the promise to love them like family and feed them like family. With our recent acquisitions of Tiki Cat and Edgard & Cooper, we further expanded our portfolio of premium humanized products. Our playbook for strengthening pet is similar to North America Retail: invest in the remarkability of our brands. So far this year, we've made notable progress with room for continued improvement across our core and our new fresh growth platform. We're bullish on the long-term growth opportunity we see from our core, which includes Blue Buffalo, Tiki and Edgard & Cooper. Within the core, dog feeding represents roughly 55% of our total retail sales, led by the Blue Buffalo Life Protection Formula line. LPF is a brand that was built on ingredient superiority and educating pet parents on why quality ingredients matter. We're reinforcing that message through remarkability initiatives focused on product, packaging and brand communications. Beginning with superior product. We're expanding our support behind our new LPF salmon innovation, which is our biggest launch in 3 years and the third largest new product in the entire dog feeding segment. We've also expanded the assortment on our LPF senior dog food line. On packaging, we're introducing new sizes to better position LPF within the e-commerce channel, which is driving the majority of pet category growth. And on communications, we're leaning into compelling campaigns and pet parent education, highlighting LPF's ingredient superiority. These efforts are driving results with household penetration growing and LPF retail sales up 2%, which is outpacing the dog feeding segment that is down 1% so far this year. While we're encouraged by our results on LPF, we know we have more work to do to stabilize our performance on Wilderness, our more premium dog feeding line. Following the same playbook, we're strengthening our brand proposition by rebuilding every element of remarkability across product benefits, packaging, communications and omni execution with new initiatives rolling out in fiscal '27. Shifting to cat feeding. It's a $17 billion market in the U.S. and is growing faster than dog feeding. Cat parents are increasingly viewing their cats as family members and they're increasingly willing to spend more on premium, high-quality food. Today, cat feeding makes up roughly 25% of our pet retail sales, and we continue to drive strong growth with retail sales up 6% and market share increasing so far in fiscal '26. Our Blue Buffalo Tastefuls line is driving growth behind investment in brand communications, focus on ingredients and taste superiority. Our latest product innovation, Tastefuls Gravy, provides pet parents with a versatile product that can be served wet or dry. We're excited about this unique offering, which will roll out later this spring. And Tiki Cat is accelerating our performance, delivering double-digit retail sales growth behind strong omnichannel execution in pet specialty and e-commerce, growth on our Tiki Baby and Tiki Silver life stage lines and good early performance on our latest innovation, Tiki Solutions. Finally, on Love Made Fresh, we're proud of how we've executed the launch, rolling out nationally into 5,000 coolers, building awareness at scale and delivering pet parents a line of high-quality, all-natural products from a brand they trust. We're still just a few months in and we're learning more every week. Based on our learnings so far, we're sharpening our remarkability in a few different ways. We're ensuring our communications are working hard to drive conversion to purchase. We're improving our in-store execution by increasing our team's frequency of touch points in stores to ensure we're optimizing our availability for pet parents. And next month, we'll launch a third packaging format, a stand-up resealable pouch, which is a format that makes up more than half of fresh sub-category retail sales. We remain committed to the opportunity for Love Made Fresh over the long term, and we believe Blue Buffalo has a strong right to win in the fresh segment that is expected to continue to grow double digits well into the future. Putting it all together, it's clear we're making meaningful improvements across all levers of remarkability. And we're seeing this played out with improved household penetration, market share and retail sales trends for our North America Retail and North America Pet businesses. And while there is certainly more work to be done and we know it won't happen overnight, we are confident that we are on the right things, pivoting where needed and making the right choices to drive consistent, profitable growth for General Mills and our shareholders. Thank you. And with that, I'll turn it over to Kofi.

Thanks, Dana, and hello, everybody. I'll echo Jeff and Dana in that I am proud of how we've utilized our Remarkable Experience Framework to position our brands to offer the right product at the right place and at the right price point. But as Jeff mentioned, we know that we are not where we need to be today. The consumer is pressured, particularly at the lower end, and our category growth has lagged our own expectations. However, we continue to remain competitive, investing in our brands, driving significant innovation and giving the consumer exactly what they are looking for. Now let me share how we think about delivering shareholder value, what we've seen over the past few years and how we create value for our shareholders over the long term. Our strategy for maximizing shareholder returns is grounded in four key areas: sustainable sales growth, margin expansion, high cash conversion and cash returns to shareholders. When looking over the long term, we expect our portfolio to generate 2% to 3% organic net sales growth based on our current mix of categories and geographies. This sales growth, when coupled with modest margin expansion, will produce mid-single-digit adjusted operating profit growth. We then aim to convert at least 95% of adjusted net earnings into free cash flow, returning approximately 80% to 90% of that to shareholders through dividends and share repurchases, leading to mid- to high single-digit adjusted diluted earnings per share growth and attractive total shareholder returns. Consistent organic sales growth is the linchpin of our operating model. While our long-term expectation is for our categories to grow between 2% and 3%, what we're seeing in the current environment is aggregate category growth that is a little bit less than 1%. We think about 1 point of that difference has been driven by reduced price/mix stemming from the current consumer value-seeking behavior, and we estimate that about 0.5 point is from consumption-related headwinds, including lower population growth in the U.S. as well as increased adoption of anti-obesity medications. While these factors are creating headwinds for our categories in the short term, we continue to believe our long-term organic sales growth opportunity is between 2% and 3%. That expectation is underpinned by the mix of our portfolio, including the premium segment of the pet food category growing mid-single digits. Our international and foodservice market is growing roughly 3%, and our aggregate North America Retail categories are continuing to grow about 1% in the medium term. We strengthened our capacity for growth by taking an "Always On" approach to portfolio reshaping. We're proud of our long-term track record, having turned over 30% of our net sales base since fiscal 2018. Bolting on in faster categories of growth and divesting growth-dilutive businesses has increased our underlying growth exposure by more than 1 full point over time horizon, and we'll continue assessing long-term accretive inorganic opportunities to improve our growth profile over the longer term. With a long-term expectation of 2% to 3% organic net sales growth, we only need to drive modest margin expansion to generate mid-single-digit operating profit growth. And we see a few key levers that support our ability to expand margins over time: our Holistic Margin Management productivity program to generate efficiency in our supply chain, our Strategic Revenue Management capability to drive positive price/mix, our transformation efforts to generate efficiency in our processes and ways of working and a small amount of volume growth to drive fixed leverage through the P&L. Our Holistic Margin Management program is at the center of our margin expansion efforts. For a decade and a half, General Mills has built a culture of HMM that has generated 4% average annual savings in our cost of goods sold, which benchmarks at the top of our industry. In recent years, we've accelerated our HMM savings by leveraging our investments to digitize our supply chain. We have good visibility to delivering 5% HMM savings in fiscal '26. And with a robust pipeline of supply chain projects further bolstered by digital and AI initiatives, we have a line of sight to generating at least 4% savings again in fiscal 2027. Beyond HMM, we remain dedicated to finding cost savings through our multiyear global transformation initiative. We expect this and other efficiency efforts to generate $100 million in cost savings in fiscal '26, which we're reinvesting in our remarkability initiatives. And we see opportunity to drive incremental transformation savings in fiscal '27 and beyond. The third lever in our shareholder return model is converting earnings to free cash flow. General Mills has a tremendous track record of driving working capital efficiency, generating nearly $1 billion in cash between fiscal '19 and '25 through reducing core working capital. This has enabled us to achieve an average free cash flow conversion rate of more than 100% over that time frame. Looking forward, we see further opportunities to drive working capital efficiencies in both accounts payable and inventory, which will help us continue delivering our long-term 95% or better conversion target. Anchored in cash generation, our capital allocation priorities thoughtfully deploy capital to deliver attractive returns for our shareholders. Our first priority for cash is reinvesting into the business with high ROI capital expenditures expected to be approximately 4% of net sales over the long term. Our next priority is our dividend. General Mills has paid a dividend without interruption for 127 years, and we are committed to it, expecting to grow our dividend in line with earnings over time. Following dividends, we aim to deploy cash for strategic acquisitions that enhance our growth profile, maintaining a high bar and strict returns criteria for all our deal assessments. And our final priority is share repurchases. We expect to drive 1% to 2% average annual reduction in our net share count over a multiyear time frame. At the same time, we are dedicated to upholding our strong investment-grade credit rating. We're committed to reducing our leverage ratio over the next few years as we work towards our long-term target of approximately 3x net debt to adjusted EBITDA. The final lever in our model is returning cash to shareholders. Between fiscal '19 and '25, we've returned $14 billion in cash to shareholders through dividends and net share repurchases. And we're confident that our model of profitable, sustainable growth and disciplined capital allocation will continue driving strong cash returns to our shareholders over the long term. So let me close by reiterating our key messages for today. First, we are executing against our Accelerate strategy and investing behind remarkability as the primary lever to restore organic sales growth for our business. Second, we've made progress in improving our growth trends in North America Retail and North America Pet, our top two focus areas within our portfolio. And while we still have more work to do to reach our goals, we know we are moving in the right direction. And third, while we've updated our outlook for fiscal '26 to reflect short-term macro headwinds, we remain confident in our ability to drive profitable growth and strong returns over the long term. With that, I think we have time for a few questions. And I'll turn it over to Jeff Siemon.

Let's see. Can we start over here on the side with Andrew Lazar?

Andrew Lazar, Barclays. Jeff, I guess, what gives you the confidence that the pricing adjustments that you've made this past year, a, were the right call and are delivering the kind of results that you'd expect? And how do you know the changes are sort of enough and won't ultimately need to be deeper?

Yes. Thanks, Andrew. Yes. We're highly confident that the changes we made have positioned us better had we done nothing at all. And we have a couple of reasons for that. First, if you just looked at the elasticities and how they've played out, I mean, 90% plus have played out at or better than what we had anticipated. We've also done quite a bit of modeling on the elasticities, but also the effect of the P&L even recently to say, okay, what would the results have been? And what I can tell you, had we not taken the pricing actions we have taken in a market where consumers really are interested in value, I mean, our net sales would have been the same or a little bit worse on a sales line. The volume would have been a lot worse. And our profitability would have been the same this year. But the reason why we're better off taking the path that we've taken is, even if the financials would have looked similar for this current year, I mean, our household penetration is up for the first time in 3 years. And we're growing pound share in 8 of our top 10 categories. And so as we look into the future, we're confident that we've got the foundation set to go from here. And I will add as an aside. We had a competitor a decade ago who tried a program where they maximized short-term profitability and didn't do anything with sales. And I'm pretty sure they recently announced that they're going to start investing back in the sales of their business again. So I've seen that entire movie. Andrew, I know that you have, too. And I'm looking across the audience. I'm sure a few of you have as well. And so we're confident that we've got the right strategic approach. I'm also confident we're executing well against it. It also is fair to say that sometimes the change in trajectory is not what you had anticipated due to the context that is beyond your control, and that is certainly the case with us. But I want you to hear, we are no less confident in the approach we're taking in fiscal '26 than we were when we started, and I would say, actually more confident because of the way the elasticities have played out the way we had anticipated. But I think it's a fair question. I think it's a really important question. But I want you all to know that we are fully dedicated to the path we're on and confident that it is the right approach.

We'll go to Pete Galbo here in the middle, get the mic down.

Pete Galbo, BofA. Kofi, you opened the door, I think, a little bit on fiscal '27 with the HMM commentary. So I know you don't want to give formal guidance today, but maybe you could give us some of the other building blocks of the knowables today on '27 inflation. Any kind of one-time laps, that sort of thing would be helpful.

Sure, sure. You're absolutely right. You read it well. I don't want to get too specific, but I can give you some of the framing. So if you step back, I mean, our job remains heavily focused on getting organic sales growth moving in the right direction through the remarkability framework. I think no change to our posture with respect to that. As you peel it back and kind of look at the structure of kind of what we see, I would say, our outlook on inflation as we look ahead looks roughly similar to the base inflation we saw this year with an expectation of at least 4% HMM as a partial to offset that and then additional savings contribution, incremental savings contribution on top of the $100 million we delivered on transformation this year. There are a few mathematical components to next year's comps that are probably important to call out, one of which will be the 53rd week and the other of which will be about a month's worth of earnings from Yoplait, which we divested in June of this year. So those are kind of the key building blocks for next year.

I think with about one minute left, I think we'll go ahead and take all these questions over to the breakout room, if that's all right.