The operator welcomes participants to the General Mills Second Quarter F ‘24 Earnings Call and reminds them that the conference is being recorded. Jeff Siemon, Vice President of Investor Relations and Treasurer, thanks everyone for joining and mentions that forward-looking statements may be made during the Q&A session. He is joined by Chairman and CEO Jeff Harmening and CFO Kofi Bruce. The first question, asked by David Palmer from Evercore ISI, is about North America Retail margins and whether they can hold steady despite volume declines. Kofi Bruce responds by mentioning potential factors such as negative mix effects from high margin categories like dough, but also mentions accelerating productivity gains.

The speaker, Jeff Harmening, explains that the margin improvement in the company's business has been largely due to strong delivery from HMM and stabilization of the supply chain. He expects this trend to continue but at a slower pace as most of the disruption-related costs have already been addressed. When asked about the pet business, Harmening states that the company is working on four areas to improve its performance. They have already seen improvements in the Life Protection Formula and Treats business, but there is still room for improvement. The speaker mentions that they need to focus on improving a couple of businesses to see better results.

In the back half of the year, General Mills is looking to improve their wet pet food business through the introduction of value and variety packs and repositioning the Wilderness brand. They also plan to focus on performing better in the pet specialty channel while continuing to invest in the food, drug, and mass channel. However, they may not see immediate results due to inventory build in the third quarter. The company also has some EPS flexibility due to lower compensation expenses compared to last year.

The speaker is responding to a question about the company's share repurchase and whether they should focus more on long-term growth rather than a specific EPS range. The speaker emphasizes the importance of maximizing long-term shareholder return and mentions investing in consumer spending and capabilities for future growth. They also mention maintaining discipline on HMM and using AI in supply chains. Despite a guided down sales for the year, the company will still invest in these areas and maintain their profit guidance of 4-5% growth on EPS.

In this paragraph, Andrew Lazar asks Jeff Harmening about the normalization of shelf availability for General Mills' products. Harmening explains that while they anticipated this to be a headwind, their supply chain has held up better than their competitors. However, their competitors have now caught up and their on-shelf availability has improved. As a result, their disruption costs have decreased.

The company has seen a negative impact on their distribution due to the pandemic, but their teams are executing well and their share of distribution is actually up. The company is excited about their upcoming innovation in various product categories and believes it will further improve their distribution. The promotional environment has been rational and the company has seen an increase in promotions, but the quality and ROI have also improved. The frequency and depth of promotions are still below pre-pandemic levels.

Jeff Harmening and Kofi Bruce are discussing General Mills' recent announcement to repurchase more shares than originally anticipated. This decision does not reflect a change in the company's view on capital allocation, as they are still investing in the business and increasing their dividend. If they see potential for strategic acquisitions, they will prioritize that over share repurchases. The current low stock price is allowing them to get more leverage out of their repurchase activity.

The company expects to have enough flexibility for mergers and acquisitions despite the impact of diluted share count and front-loaded acceleration. The high level of switching costs in the pet food category may not be as strong as previously thought, especially in the specialty channel which is currently facing challenges. However, the feeding part of the pet food business is relatively inelastic, while treating is more elastic and subject to consumer behavior during economic downturns.

The speaker discusses the impact of a 30% increase in input costs and the pet specialty channel on their business in the short term. They mention that their Blue brand is strong and well-positioned to capture the trend of humanization in the pet industry. When it comes to promotional lift, they note that it has improved compared to a year ago, but it is not at the same level as four years ago.

The speaker is responding to a question about the company's updated guidance for the year. They mention that their organic sales outlook is $800 million lower, but they have narrowed their EBIT growth guidance. They attribute this to higher HMM savings and other offsets in the P&L. The speaker and another person will take turns explaining the details.

The company's guidance for revenue indicates that hitting the lower end would require similar top line performance as seen in Q2, while hitting the higher end would require improved categories due to lapping certain events from the previous year. The HMM adjustment is a significant contributor to profitability, along with improvements in inflation and supply chain stability. The company has seen sequential improvement in supply chain related disruption costs over the last four quarters.

The company is adjusting its incentive pay based on last year's high performance and is confident in keeping expenses within the projected range. Gross margins have returned to pre-pandemic levels, but the company expects less expansion going forward due to volume deleverage and the completion of SRM actions. However, there is still some disruption-related costs to be reduced in other businesses.

During the earnings call, the company's CFO, Kofi Bruce, mentioned that the current elevated level of HMM savings is a result of stable supply chain conditions and is expected to continue at least at the historic level of 4% of COGS. As the company begins to lap the rebuild of competitive distribution, which will be included in the base by the end of fiscal 2024, CEO Jeff expects their dollar market share performance to improve, as they are already holding and gaining share in the majority of the distribution. However, there may be other factors, such as consumer behavior and list price gaps, that may need to be addressed as the share of shelf normalizes.

Jeff Harmening, CEO of a company, is pleased with their share gain in North America Retail over the past five years. He believes that their success is due to their brand building, innovation, and in-store execution. However, their share performance has not been as strong as they would like, but they are still growing in pound share in 40% of their categories. Harmening also mentions that their pricing trailed inflation but they were more agile than their competitors, providing them with a dollar share benefit last year. He expects their share performance to improve in the future. In terms of shelf availability, Harmening notes that it is improving for competitors but there may still be some headwinds to come. He also mentions that the promotional environment is currently challenging.

The speaker discusses the company's strategy regarding volume and promotions, stating that their on-shelf availability is equal to their competitors and will remain stable. They also mention an inflationary environment and the possibility of future pricing increases. The company's focus is on creating long-term value for shareholders through strong brands and product availability.

The speaker discusses the impact of retailer inventory destocking and predicts that it will not reverse, but may decrease further in the third quarter. They also mention that price/mix will remain positive in fiscal 2024, but could potentially turn negative in the near or medium term due to mixed dynamics or increased promotional activity. They also expect an improvement in category growth, potentially due to lapping SNAP benefits.

The speaker, Jeff Siemon, responds to a question about the company's price/mix and explains that mix is a headwind due to the growth of certain segments. CEO Jeff Harmening adds that there are some headwinds affecting growth at the category level, such as consumer behavior and the lapping of SNAP emergency allotments benefits. He also mentions that they will start to lap those benefits in the next month. The call is ending and the speaker wishes everyone happy holidays and encourages them to reach out to the IR team for any follow-ups.

The operator concludes the conference call and thanks everyone for participating. They ask that all participants disconnect their lines.

This summary was generated with AI and may contain some inaccuracies.