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

Okay, everybody. If we could just find our seats, we'll kick off our next fireside. Welcome back, everybody. Thanks for joining us, and thank you to General Mills for joining us once again on our conference stage. From the company, we've got Chairman and CEO, Jeff Harmening, along with COO, Dana McNabb. Jeff and Dana are going to kick it off just with some opening remarks, and then we'll get right into the Q&A. Thanks again. Jeff, over to you.

All right. Thanks, Andrew, and we'll keep it brief. We just wanted to provide a couple of opening points of context, and we'll do the Q&A. But the -- we thought we'd talk mostly about building on our foundation of fiscal '26 and then how we're going to continue to improve our organic growth in '27 and then beyond. We did issue a press release this morning reiterating our guidance for the year. What I would say about that is, just some additional context. We're really encouraged by the first quarter and the momentum we have in the first quarter of this year, especially on the top line. It has been pointed out to us that inflation has been increasing throughout the first quarter. What I would say is that for -- as a reminder, we guided to 4% to 5% inflation at the beginning of the fiscal year for us back in June. And -- but we're largely covered. And so even if our inflation at this point, we would still see it between 4% and 5%, even if it's tipping to the higher end of that range, it's still within that range. And so we -- when we reiterated guidance is with that in mind, I'm sure we'll get into the drivers of that probably later on. The other thing is, I would say we started the year with 3 priorities. The first is to strengthen our organic growth. The second is to accelerate our transformation. And the third is to remain disciplined on our capital allocation. And I'm really pleased to say that we're well on track as we end Q1 here on each of those 3 priorities. Of course, there's always more work to do on all those fronts. But as it stands right now, we felt confident enough in what we've seen so far in Q1 to reiterate our guidance. And I can tell you that we're largely on track. So with that, I'll turn it over to Dana.

All right. Well, thank you, Jeff. Good afternoon, everyone. What I thought I would do is just give you some context for what we did to improve the foundation of our business in F '26 and then what we're going to do to accelerate growth in F '27 and beyond. And I think every person in this room is aware, painfully aware of the challenges the food industry has faced in the last couple of years. If you think about a stressed consumer, changing food values, increases in GLP-1, inflation, geopolitical, you name it, we have faced it. But what we want everyone to understand is that in the face of all these challenges, General Mills is not standing still. We are making significant changes to address the changing food landscape and to make sure that we're serving consumers. And as you think about, you're all aware of what we did in F '26, where we invested in price in order to improve consumer value. We've also accelerated the pace of our innovation and renovation, and we've taken moves to improve our cost structure. And what I will tell you is that it is working. Now we are not declaring victory. We're still in early innings, but what we believe is the moves that we've taken are the right ones. We're seeing the strategy play out the way that we expected. We're addressing the cost structure in a way that will allow us to meet our financial commitments in face of all this volatility, and that includes our capital allocation priorities and includes the dividend. So we believe that we are on the right track, and we really took some actions to try to get there. So I want to give you some context for why we have confidence. The first is that we took decisive action to fix our base prices and fix -- get under key cliffs and fix gaps relative to the competition, and we are seeing improved results from that. We use the remarkable experience framework as our guide. We saw that gaps to the competition and cliffs were our biggest issue. We made the bold decision to invest, and we were the first food manufacturer to do that. And as we exited our fiscal '26, our business is in a better place. We've seen household penetration get back to growth. We've seen stabilized base volume, and we saw that we grew pound share in the majority of our categories. So we're in a better place. The second action we took was really accelerated the pace of innovation and renovation. What we saw when we looked at remarkability experience framework again is that we simply weren't remarkable. Our products were just not good enough relative to the competition. We had to invest to get back to what the consumer values, give them benefits that they were willing to pay for. And we didn't just sprinkle protein on everything. What we've done is we said, what does the consumer really value? Where is the growth going, bold flavors, humanized pet trends, clean label and yes, some fiber and some protein. And when you look at fiscal '27 with that base price investment behind us, we are now focused on accelerating the innovation and renovation. And over 2 years, our innovation will be up 50% on big items like Honey Nut Cheerios protein or renovation on our Haagen-Dazs Belgian chocolate ice cream brand. We're going to bring big renovation on Blue Buffalo, something we haven't done in a long time. And we're even launching emerging brands. So think La Tiara, which is more authentic taco shells and sauces or bringing Wanchai Ferry frozen snacks into the United States. So we're making progress on this front. We're not saying it's perfect, but we're making progress. And then we're also improving our operating profit and getting back to sustainable profitable growth. And that's when we announced $3 billion in transformation, $2 billion of which is our HMM and $1 billion is significant transformation efforts that are focused on one of the big areas reimagining our supply chain. And that entire effort is about improving our margins, reducing our leverage, accelerating our cash flow and really giving us more strategic flexibility. So I took a little more than 3 minutes. So but I just want to be clear that what I hope you hear at the end of this session is that while we are not satisfied with how we performed financially in the last 2 years, we have made significant changes. We are seeing improvement in our results. And I really like the playbook that we're executing against, and I think we will get back to sustainable profitable growth.

Good. Great. Thank you both for that. Maybe we'll start the Q&A with a question for you, Jeff. Dana mentioned this a bit, but let's zoom out and consider the significant change we've seen in the food industry over the past 10 years. Having seen multiple cycles during your career, which you started at 14.

I did.

How do you distinguish between what's cyclical pressure that should eventually normalize and what may be more durable change, particularly across consumers and your center store categories? And maybe what gives you the confidence in the long-term trajectory, frankly, of the food industry and General Mills within that?

Yes. Well, thanks for that first question. I mean the -- yes, I've seen a lot of trends and cycles over the last 30 years. I've been with General Mills. But look over the last 10, we've seen plenty. I mean when I -- and that's about how long I've been in this role. I mean, when I first became the CEO of General Mills, we were kind of exiting the 3G era, if you will, where it was all about cost savings. We knew we had to get back to some form of sales growth as well as discipline. And so I call it getting back to the middle of the boat. We did that for a year or 2, and then we had this global pandemic hit. And shortly after that, we had supply chain disruptions and then we had 10 years of inflation in about 18 months. And for the last 3 years, we've had what I would call the long hangover from that inflation where we had so much inflationary pressures, but consumer wages weren't keeping up. And so it created value proposition. And so talking about what's structural and cyclical in such a volatility is kind of an important question. And I'll tell you how I think about it. And I think it's important because as human beings, we tend to take what happened in the last year or 2 and extract it all the way into the future, which I would submit is probably not the best approach. And so what I think about it, I think what are the things that have stood the test of time. And in the food business, there are 4 things that we know are true. People care about taste, they care about health, they care about convenience, and they care about value. And I'll touch on those briefly here in a second. Pet humanization. It's been going on for more than 2 decades. And can you imagine saying, well, we think people are going to treat their pets less like humans? No. I mean, this is a trend that we know is going to continue. And then there's just a math of demographics. Consumers are aging. Here, all over the world, the population is aging. And in the U.S., it's becoming much more multicultural, and it will stay that way. And so these are the trends that are the lasting ones. And so as we think about the 4 that I mentioned at the beginning, look, taste is something that is evergreen. Consumers care about taste in their food. We see a lot more flavor variety now, a lot more significant flavors, especially as the Hispanic population grows in the U.S., and there's an Asian influence on flavors as the world becomes smaller, which, by the way, is great. And so we see that preference changing. Convenience is now about e-commerce and about Agentic commerce. That wasn't the case 10 years ago, but it's about convenience. When we think about health, it's all about protein, it's about Fiber One, about fiber. Hopefully, Fiber One is about fiber and protein. And so those are the big and clean labels. Those are the big health trends and then value is something that we see right now, particularly in this environment where inflation is still tracking a little bit ahead of wages. And so I talk about those things. The great thing is that everything I just talked about, we can address. I mean General Mills has been around 160 years, not because we failed to address those things, but because we have because people are still going to eat. We don't know what they're going to do with technology 10 years from now, but we know they're going to eat. And these are the trends that I think are the durable ones. People like to talk about other things, but these are the ones that I think will stand the test of time.

I know many in the audience are focused on closer-in trends and the current consumer backdrop, and we'll spend some time on that. But Dana, you've now been in the CEO role for a bit. Can you take a minute maybe to help us walk through your initial observations from an operational perspective? What's been working? And where do you have more work to do?

Absolutely. I took on the role, and I was confident that we had really good brands, talented people and strong operational capabilities. And as I spent the last few months relearning some of the businesses, assessing where we're at with our capabilities, I'm still confident in those areas. We have iconic brands deeply talented, committed people, and we have an operational powerhouse. I'm feeling very good about those things. If I look at the last 10 years, some of the things I'm really proud of that we've done is first, we reshaped our portfolio. We've turned over about 1/3 of the portfolio, reoriented it to more growth. We just closed our Brazil divestiture last week. I'm proud of that, and it's all under Jeff's tenure. When I look at what we have done from a digital and technology standpoint, 10 years ago, when we had people come in, they told us we were in the bottom 10% of all CPG from a data and tech standpoint. Jeff declared that we were going to be leaders in it, and now we have a best-in-class capability and this opportunity to really use it to get at more growth and cost savings. And then our supply chain is always fantastic with productivity, quality, service reliability and that HMM capability that continues to be a strength. So there is a lot of good. And having said that, we haven't delivered the way we've needed to for the last couple of years. Part of that is challenges that we've seen in the industry. And part of that is execution on us. And when I think about how my leadership in NAR, one of the things that I underestimated was how stressed the consumer was and that our categories couldn't get back to growth as fast as I thought and probably should have gotten ahead faster on fixing our prices and getting that remarkability. And we also had a couple of areas last year where we did not execute to our standards. That was our Totino's business, where that business alone drove 50% of our pound declines last year. So it's hard to see the growth that we're getting in other areas. And so when you take those challenges and you think about the fact that you have sector rotation out of food, it's been just a difficult time for our shareholders. And believe me, our team is feeling it as well. But the one thing that we know about General Mills and our people is they're resilient. They're unbelievably competitive. They love working together to win. And I'm seeing a real energy behind the fact that they are seeing and believing in this momentum that we're driving. And we're very focused on continuing it and just delivering 1 day, 1 week, 1 month at a time. And as Chief Operating Officer, I am crystal clear, crystal clear that my job is to get the company back to sustainable, profitable growth. I am very disciplined and focused on the way to do that. It's from a growth perspective, focus on remarkability and from a cost perspective, get at HMM and extend that to transformation. And my job is to bring everything together and drive pace, drive accountability, drive focus in order to, again, get back at that restore sustainable profitable growth because that's how we get to shareholder return.

In your opening remarks, you talked a bit about adjusting base prices in fiscal '26. Maybe you can talk about like what that actually means, why it was so important, how it addressed the value perception for consumers and I think, frankly, whether it worked in the end.

I am really glad that you asked this question, Andrew, because some of your peers have been writing that...

Some people might say.

Some people might say that the base price investment that we made didn't work and that we're unwinding it, and that is simply not the case. I think it's important to have context that what we were looking at was we talk a lot about base volume. And base volume is what happens when the consumer goes to the shelf and typically buys that product at full price. It is our most profitable volume. It is extremely important to retailers. It is healthy. It's what allows you to get distribution and merchandising wins and have a sustainable business model, and our base volume was declining significantly. Our remarkable experience framework said what we had to do is fix key gaps that we had to competition, get under shelf prices at the shelf. And so what we did was different. We were the first in food to address this challenge. We didn't do it through promotion tactics or through frequency and merchandising, the way that some others in the industry did. This was a very targeted program where our sales team worked with our retail partners, brand by brand, SKU by SKU. It took us about a quarter and get it done well because, again, we needed to see that everyday shelf price change. And what I will tell you is that we are seeing the results from it. When I finished fiscal '25 and we were looking into fiscal '26, our base pound volume was down 10%. When we finished fiscal '26, it was up 2%. We are entering this year with much stronger base foundations, and we still have work to do. And I'm sure the skeptic out there is saying, but Dana, you didn't meet your financial commitments and how can you say this worked? The base price investment worked. It was that we underestimated how stressed the consumer was that our categories wouldn't work, and we had these execution issues that I talked about on businesses like Totino's and Wilderness that drove us missing our financial results. But we are very confident that this base price investment worked and has us positioned for further growth.

Great. Maybe building off of that, how should investors think about the shift you're making from your fiscal '26 focus, right, on the price investment to a fiscal '27 plan that emphasizes the other aspects of the broader remarkable experiences framework namely product, packaging, brand communication, omnichannel execution? And how is your goal to drive positive price/mix in fiscal '27, not a reversal of the work you did last year?

Well, I think, Andrew, you said it very well, probably better than I could. We -- the biggest area we had to fix first last year was making sure that our price value was correct. That is behind us now. We don't think that we need to do more there across the board. But that's only one element of the remarkable experience framework. And so now we're very much focused on how do we improve our innovation and our renovation and our communication. That is where we think a step-up will lead to further growth across the year and going forward. And price is about, for us, getting mix. We'll always continue to evaluate if there's an opportunity to take list pricing, but we believe the fact that we have better innovation that we can price for will allow us to get mix. We have doubled the price pack architecture that we have had in previous years. tons of really good price innovation, and that's how we'll make the model work and get back to sustainable growth going forward.

Got it. Maybe narrowing in on North America Retail. The story you just laid out highlights a lot of moving pieces, of course, across that business. As you sit here today, how would you frame the health of NAR? What are the 2 or 3 proof points investors should be watching over maybe the next few quarters to determine whether this business is truly moving from, call it, stabilization to growth?

I would characterize the North America retail business as improving, even though our organic sales haven't got back to growth yet. Again, on this remarkable experience framework that we have, you need to have 3 out of the 5 levers better than the competition in order to have sustainable growth. And we're in this place right now where we're still working on the portfolio, getting it from being inferior to parity and then from parity to superior. So we still have work to do. But the work that we have done is driving improvement. If you look at our Q1 retail dollar sales, it has improved by 2 points versus our Q4. If you look at our top categories, 8 of our top 10 categories are improving their dollar share, their dollar sales. And again, on a dollar share perspective, we're not to growth yet, but we are improving, and we like the trajectory. And we're increasing our household penetration, and that's through key areas we've been focusing on, like Hispanics and 55 plus. And this is across big brands, big categories, big businesses. So I look at cereal. Cereal dollar sales, retail sales have improved by 2 points in Q1. We have seen really strong success behind our new products like Cheerios protein and granola. That's up double digits. One of the things I'm most proud of is if you look at our taste forward brands, think Cinnamon Toast Crunch, Lucky Charms, Reese's Peanut Butter pops, those brands dollar sales have improved by 5 points. And every one of those brands have returned to dollar sales growth in Q1. So again, we are seeing improvement. We still have work to do. We are not declaring victory. But what I would say is NAR is improving, and I would focus your attention on continuing to see improvement in dollar sales in dollar share and stabilized household penetration.

When we look at the data, it's clear that new sort of emerging brands or disruptor insurgence have been winning in many food categories in the U.S. recently. I mean the question is, are legacy brands just destined to lose share to insurgence? How do you compete with your big core brands in sort of today's world?

I mean I just don't believe that big brands are destined to lose share going forward. It's not about whether you're a big brand or you're a small brand or you're an old brand or a new brand. What it's about is do you understand what the consumer values and have you improved your remarkability to beat the competition that's out there. And when you are focused on that, you will see the results. And we have examples here in Q1. I've been talking a lot about new products, but we have seen some real improvement in what we would call core legacy brands, which many have written about, feel like they don't have a right to win. Think about brands like Fruit Roll-Ups or Lucky Charms, their dollars -- retail dollars are up 5% in Q1. Betty Crocker Desserts, Reese's Peanut Butter pops. Those businesses are up 2% in Q1. Again, these are businesses that many have said don't have a right to win. And the way that we have done this is being focused on remarkability and how to be better than the competition. And on these brands, in particular, we really got back on our game with marketing. And so things like we have scaled a content studio that uses AI to get better content, faster at lower cost, 20% lower, we can reinvest it. Influencers and social media are the way to optimize your reach. And we've had 2x the influencers that we had this time last year, that's working. We have brought in new creative agencies that have helped us do much stronger campaigns. And we are using AI to get ahead on e-commerce and on Agentic so that we can be easier to find, and we can make sure that our product information is more accurate and easier to buy. And so again, it all comes down to if you focus on what the consumer values and make sure your proposition is better than the competition, you will win, whether big or small.