Good morning, everybody. Hi, all. It's 10 o'clock, the webcast is up and running, so we're going to get underway. For those I haven't had a chance to meet, I'm Kris Wenker, I'm the Investor Relations Officer for General Mills. And I really want to welcome you and thank you for joining us here at the Exchange, also people who are listening on the webcast.
We have a very full program planned today and our remarks definitely will include forward-looking statements, which are based on management's current views and assumptions. The slide behind me is included in your materials and it cites factors that could cause future results to be different than our estimates. We'll have opportunities to take questions from attendees here at the Exchange, that will happen a couple of times in the meeting, please wait for a microphone so the folks on the webcast can hear your questions. Thanks very much for that. And I'll turn you over to Ken Powell.
Okay, well, thank you, Kris. Good morning to one and all, every single one of you. We're very delighted to have you with us for an in-depth discussion of General Mills 2014 growth plans. We will be building on a strong track record of annual growth. Over the past five years our net sales have grown at roughly a 5.5% compound rate, segment operating profits have compounded at 6% and adjusted diluted earnings per share have increased at a 9% average annual rate.
Our business portfolio gives us confidence that we can keep growing at an attractive rate. In recent years we've taken important strategic actions to focus and enhance our business mix. We now compete in five global product categories where sales are growing at a healthy clip. We've got a $4 billion cereal business worldwide, that's including our half of CPW sales. We're the world's second largest yoghurt company with nearly $3 billion in net sales worldwide.
We've built a large and fast growing snacks business that generates $3 billion in net sales. We've got a terrific assortment of convenient meal choices for consumers across the globe and we market one of the world's best loved ice cream brands, Super Premium or otherwise.
We also hold leading brand positions in select categories here in the US markets. Our categories are on trend with consumer demand for great tasting, nutritious and convenient food all at a great value and our brands hold leading positions in these advantaged categories.
We've changed the geographic mix of our business to add international markets, and particularly, emerging markets. Just five years ago barely a quarter of our total sales came from markets outside the United States. Today it's more than one-third. And when you tally up our cereal joint venture sales in markets outside Western Europe and Australia, along with our consolidated sales in China, India, and Latin America General Mills now generates roughly $2 billion of revenue in emerging markets. We've created a strong base for international growth in a very short period of time.
In 2014 and the years ahead, we'll be focusing our efforts on these five global categories. Together they account for more than $270 billion in retail sales worldwide and that total is projected to grow at a rapid rate in the years ahead. So we like our portfolio focus a lot.
Product innovation is the fuel that creates category growth and we've got a strong plan for doing our part to drive category growth in 2014. Established products will be important contributors and we've also got a robust new product plan with more than 200 new items being introduced worldwide in the first half of the year alone. You'll hear much more about these innovation plans over the course of the morning.
Holistic margin management remains at the heart of our business plan. HMM encompasses the three levers a food company has to offset rising input costs. These are productivity savings, mixed management and pricing. We've used all these levers to protect our margins. The slide behind me shows our gross margin trend over the last five years, excluding mark-to-market valuation effects. In a period of high input cost volatility, we've held our underlying margins relatively steady. In fact, the 80 basis points decline in 2013 was entirely due to the change in business mix as we added Yoplait Canada, and Yoki.
We're well along in the process of integrating these new businesses and we're beginning to introduce HMM practices in these operations. We've got a full slate of HMM projects underway companywide. So, we feel very good about our plans to expand gross margin in 2014. We plan to reinvest some of our HMM cost savings in consumer-directed marketing initiatives. We're big believers in advertising using both traditional and new digital media. Over the last five years, our media spending has increased by more than 50% to nearly $900 million in 2013. We expect our media spending to increase in 2014, in line with our targeted low-single-digit sales growth.
You'll see some examples of our latest advertising campaigns later this morning. Our 2014 plans include strong collaborative initiatives with our retail customers worldwide. We have top ranked sales teams in the U.S. retail, in foodservice and in international markets, including the Yoki team in Brazil. We know these teams and the capabilities that they bring are a competitive advantage for General Mills. You will hear more about the power of our selling effort from Shawn O'Grady in a few minutes.
We shared the framework of our 2014 financial plans with you two weeks ago. We have a target of low-single-digit growth in net sales, fueled by product innovation across our base business and incremental contributions from new businesses. We expect profits to grow faster than sales with a robust HMM pipeline and stronger contributions from new businesses, and we expect to deliver high-single-digit growth in adjusted diluted earnings per share.
We expect this operating performance to result in another year of robust cash generation. Over the past five years our free cash flow, that’s cash from operating activities less capital investment has averaged over $1.3 billion per year, and in 2013, our free cash flow exceeded $2.3 billion. General Mills has a strong track record of returning cash to shareholders through dividends and share repurchases, and this year our plans call for higher cash returns on both counts. Our dividend rate is going up 15% effective with the August 1st quarterly payment and share repurchases in 2014 are expected to reduce our average diluted shares outstanding by a net of 2%. We see these initiatives as important components of our total return to shareholders and generating superior return for shareholders is our ultimate objective.
Here too General Mills has established a distinguished track record, consistently delivering returns above the overall equity market performance. This includes the most recent five years, which was a particularly challenging period for consumers and for the world's capital markets. In the most recent fiscal year, return to GIS holders was a robust 29%. My team and I are committed to extending the company's record of shareholder value creation in the years ahead. This morning we want to tell you about our plans for generating healthy growth and increasing returns in fiscal 2014.
And here is our agenda, we are going to begin with the focus on our U.S. Retail business, Ian Friendly will give an overview of our U.S. innovation and marketing plans and then Juliana Chugg will give you the details on key initiatives in our Meals division, and Shawn O'Grady will update you on our category management work and other key sales capabilities we are developing to drive growth for our businesses and for our retail partners. After their remarks, we're going to pause to take your questions.
Then we will shift our focus to U.S. Foodservice, Dave Dudick will give you an update on the growth prospects we see for this terrific business. Next, Chris O'Leary will outline our international growth plans for 2014, and then Don Mulligan will review the continuing success of our holistic margin management efforts, along with the summary of our key cash and return plans for this year. I'll sum up the key points and then we will have time for some additional questions from you following the second round of remarks. So that's the plan and I'm going to turn it over to Ian to get us started.
Thanks, Ken, and good morning, everyone. It's a pleasure to be back in New York with you. Over the past year we've seen slow but steady improvement in the operating environment for U.S. food at home. Let me give you a quick recap of our U.S. Retail performance last year and then get into the details of our growth plans for 2014.
U.S. Retail sales grew 1% last year to $10.6 billion, reflecting higher pound volume. We exited fiscal 2013 with momentum. In the fourth quarter, consumer takeaway improved sequentially in eight of our 10 largest categories.
Here are the highlights for 2013. We introduced a strong line-up of new products. Items launched in the last 12 months contributed 5% of net sales in fiscal 2013. We increased average points of distribution 200 basis points. We maintained a high level of brand building support, including leading share of voice in key categories like Yogurt, grain snacks and baking products. And segment operating profit grew 4% to expand operating profit margin 60 basis points.
Turning to 2014, across the food at home retail landscape, pricing and unit volume trends have stabilized. Consumers are starting to feel better too. We have a strong line-up of consumer focused product news and innovation plans including new cereal, new yogurt items and robust plans for other categories including dinner mixes, baking products and snacks.
We expect input cost inflation to be manageable and HMM savings to be strong. So our plans call for low-single-digit growth with faster operating profit growth and margin expansion for the year. We are confident about our growth plans in part that because we compete in categories that are on trend and with consumer demand for great tasting foods that are nutritious, affordable and easy to prepare.
In the U.S., the vast majority of households nationwide shop these categories. Our categories also benefit from the significant technology and marketing expertise of the branded food players in them and the growth in our category is driven by branded product news and innovation. So, private label market share in most of our large categories is well below the average for U.S. packaged food and beverage in total. We have a full slate of product news and innovation that we're bringing to market in 2014.
Let me tell you about our plans for the first half of the year starting with cereal. After a five year period of sales and market share gains for our U.S. cereal business, we give up a bit of ground in 2013, but our performance last year did include good growth on a number of established cereal brands. For example, gluten-free positioning contributed to double-digit growth for our Chex franchise. The Cascadian Farm cereal line also grew double digit, this brand now generates over 1% of cereal category sales and increased adult consumption drove nice sales gains for Lucky Charms and Reese's Puffs.
Over the last few years we have maintained strong levels of ad support on our cereal brands. While cereal share of total food and beverage spending has declined, our share of cereal advertising is up to 41% of total category spending over the latest 12 months period. We have some great new advertising coming in 2014. We are particularly excited about our Cheerios campaign.
Let's take a look at two of those spots.
Our plans also include a robust level of new product innovation. Honey Nut Cheerios Medley Crunch was just launched in January and continues to perform very well, it's the biggest new cereal item introduced in the category this calendar year. We are expanding the Chex line with the vanilla variety. Hershey's Cookies 'n' Creme cereal taste terrific and has 14 grams of whole grain per serving.
New Nature Valley granola cereal has 10 grams of protein per serving and we are expanding distribution of BFAST. This is a shelf-stable breakfast shake that delivers the balanced nutrition of a bowl of cereal and milk in a convenient drinkable format. These new introductions are just starting to hit stores shelves across the country and we will have another set of new items in the second half. We are excited about this new product lineup and with the more balanced promotional calendar versus 2013 we expect our cereal business to get off to a good start this year. Some of you question the long-term health of the cereal category. We believe the $10 billion U.S. cereal market will continue to grow. Here is why.
The number of breakfast meals eaten per person is growing, people are skipping less often. Breakfast at home is thriving representing over 80% of all breakfast occasions last year. Cereal remains the most popular at home breakfast by far and demographic trends favor the category. Over the balance of the current decade children and adults 55 and over are projected to drive total U.S. population growth and these groups have the highest rates of per capita cereal consumption. So we like the growth prospects for our cereal brands in this big on trend category.
Let's turn to yogurt. We've still got work to do here, but we made good progress in 2013 in a number of areas. Yoplait Greek 100 Calorie yogurt is a clear success. Year one projected retails sales are expected to surpass $140 million making it the biggest product launch in Yoplait history. Unit turns for Yoplait Original and Yoplait Light improved behind product news, innovation and merchandize price points better aligned with the competition. We expanded our Kids Yogurt lineup with GoGurt Twisted and we expanded regional distribution of our Liberte brand.
With these actions Yoplait division net sales improved sequentially through the year and grew slightly in the fourth quarter. 2013 sales for our Greek Yogurt business significantly outpaced the segment and we added almost three points of market share. With new capacity coming online we intend to build on this momentum in 2014, we're adding new multi-pack varieties of Yoplait Greek 100 calorie yogurt and we're launching a new full-calorie line of separated Yoplait Greek yogurt. This product’s point of difference is superior taste. We have some here for lunch today, see what you think.
Our 2014 Yogurt innovation plans extend beyond Yoplait Greek. We're launching Yoplait Fruitful with one-third of cup of real fruit in every serving. We're having a new high protein variety of GoGurt and we're continuing the regional roll out of Liberte Greek and Mediterranee varieties. We expect 2014 to be another dynamic year in U.S. yogurt. This is a category with multiple segments and consumers shop all of them. We are a leading supplier in many of these segments. With another terrific innovation lineup and increased marketing support planned for 2014, we expect our yogurt business to renew sales growth this year.
Now cereal and yogurt are the two businesses you ask me about the most. But we have a terrific product news and innovation in the other parts of our portfolio too. Let's start with baking. The refrigerated dough and dessert mix categories generate a combined $4 billion in retail sales and our Pillsbury and Betty Crocker brands are the clear baking category leaders. We've just wrapped up a great fiscal 2013 on this business with growth in volume, sales and profit.
Our 2014 innovation efforts include several new gluten-free refrigerated dough products. We also have some great dessert mixes featuring the irresistible taste of Hershey's chocolate. We'll be supporting our baking business with the new advertising campaign that help consumers how to make any eating occasion path with Pillsbury.
In frozen food, our Totino's BOLD Rolls have been a hit in the club channel. We'll be expanding distributions to other channels and adding a Jalapeno Popper variety. New Old El Paso entrees bring great tasting Mexican meals to the freezer taste. These 8 SKU lines start shipping in early September. And our Pillsbury breakfast items have been a big hit in foodservice so we're bringing them to grocery stores. These product offer heat and eat convenience, they can be microwaved right in the package.
We're seeing terrific growth in our U.S. snacks business. And we've been leading growth in the grain snacks category with terrific innovation. Six of our recent new product launches have exceeded $30 million in year one retail sales. As a result, these added nearly 10 points to our grain snacks market share and we've got a strong lineup of new items in 2014, several are here today for you to try.
Beyond grain snacks, our new Green Giant vegetable snack chips are off to a great start. We launched the first flavors in January and we'll expand the line this summer. We're adding a new variety and a new package size to our Chex Mix business and we're expanding our food snack business with new flavors and new equities.
Net sales for our Small Planet Foods division have been increasing at a double-digit rate. New flavors of our LARABAR Uber and ALT protein bars hit store shelves this summer. We're also quickly expanding availability of our Food Should Taste Good savory snacks including two new varieties launching this month.
Across all of U.S retail, we expect to launch more than 100 new products in the first half of 2014 with more to come later in the year. Our innovation reflects the benefits of the new organization structure we put in place last year. Our level of new product activity is up across our portfolio including a significant increase in our new created baking products and frozen foods division.
To wrap up my remarks this morning, we anticipate continued improvement in industry pricing volume trends during 2014. Our plans call for low single-digit growth with contributions from both established products and new items. We're targeting another year of record level cards HMM which will offset our expected 3% inflation. We're investing to support our brands with strong levels of advertising with the particular emphasis on our U.S cereal, yogurt, snacks and dry dinners businesses and we expect to grow operating profit faster than sales.
I'll now turn the program over to Juliana Chugg who will review our growth plans for our U.S. Meals business. Juliana?
Thanks, Ian, and good morning, everyone. I'm really pleased to have the opportunity to tell you about our meals business and the strong growth plans we have in place for 2014. As part of the reorganization we announced last year our Meals division is now solely focused on our key incentive store meal items. In 2013 net sales for this business increased 2% to nearly $1.5 billion. Our three largest businesses Progresso soup, dry dinners and Old El Paso Mexican food comprised the majority of the Meals division sales and profit.
Looking at our results over the last few years our performance has admittedly been a bit mixed. We've delivered strong net sales and share growth in soup, maintained share in Mexican foods and have lost share in dry dinners. We are confident we can generate growth across our meals portfolio in 2014, in part that's because demand for convenient meal offering is growing. Today consumers devote less than 30 minutes to prepare and cook the eating meal, so convenience is very important right after taste in deciding what to make the dinner. And demand for convenience is greatest amongst Millennials and Boomers. The two demographic groups projected to led US population growth over the balance of the current decade. More importantly our confidence for 2014 lies in the strong plans we have in place to drive growth in each of our meals businesses in 2014.
Let me walk you through our plans in detail starting with soup. We entered this category when we acquired the Progresso brand in 2002. Over the past decade we have led growth in the ready-to-serve segment with great tasting flavors, the launch of our juice calorie foods and fantastic advertising. As a result we've added 14 points of market share reaching 40% of segments serve today. We plan to continue our strong momentum on Progresso in 2014. On our (inaudible) product line we are launching three new flavors and we are expanding Progresso Light into two new cream based varieties and we are supporting our entire Light product line with our Progresso advertising campaign for the great tasting food at a 100 calories or less per serving.
Our 2014 product innovation also extends to other key consumer targets. We must have always enjoyed the great taste of Progresso and Progresso heart healthy product line features varieties like southwest black beans and vegetable and these flavors are bold not blend. A year ago we extended Progresso into cooking sauces with the introduction of recipe starters. We are increasing digital marketing and launching a new pouch format to better appeal to Millennials and we are entering the premium food segment with the regional launch of Progresso artisan food. We think this product tastes fantastic. You will get a chance to sample a (inaudible) variety at lunch today.
In recent years growth of the food category has been led by the ready-to-serve segment. We expect this trend to continue moving forward as consumers take the combination of convenience, great taste and variety the ready-to-serve segment provides and with a strong line-up of product news and innovation on our business we are targeting another good year of Progresso sales.
Let's turn to Mexican food. This category is very important to retailers, generating $4.4 billion in annual retail sales and nearly 15% of annual meal profit on annual meal all profit. Mexican foods are important to consumers too. They can be found in the majority of U.S. households and in-home consumption of Mexican meals is growing. Old El Paso is the leading brand in the Mexican food aisle. So we are uniquely positioned to deliver product innovation, consumer marketing and category management expertise to accelerate category growth.
Let's start with innovation. A new Old El Paso standard dough soft flour tortillas are easy to fill for adults and kids of all ages. We are also launching a new line of Old El Paso cooking sauces in three flavors. We're supporting an entire Old El Paso product line with increased levels of digital support. To-date we have surpassed 450,000 fans on our Old El Paso Facebook page and these fans find our meal ideas exciting and highly shareable, exposing Old El Paso to an increasingly broader audience. We plan to nearly double our digital investments this year. We're also expanding our use of traditional media, including advertising targeted to Hispanic and Millennials consumers that highlights the fresh and exciting ways to experience Old El Paso. We expect our television advertising investment to increase at a double-digit pace in 2014.
Last year, we began working with retailers to improve the shopability of the Mexican aisle. In stores where our category management recommendations were implemented, Mexican aisle sales have increased in average a 3%. We're looking to double the ACV of this initial stage in 2014. This category is also very responsive to event driven merchandizing. So we're adding a back-to-school event and we're partnering with Corona Beer for football game days this fall. After all, what goes better together than a Taco and a Corona.
With a strong new product lineup, increased advertising and category leadership we expect to accelerate growth on our Old El Paso business this year. The business I want to cover this morning is dry dinners. In recent years we shifted our focus away from our core Hamburger Chicken and Tuna Helper variety in to more value added product offerings like restaurant favorites. These new offerings were unsuccessful and drove the vast majority of our dry dinner sales decline over the last three years. We intend to renew momentum on our dry dinners business in 2014 by focusing on our core Helper's product offering, with a comprehensive marketing plan featuring something new products, new packaging and new advertising.
Today, over one million U.S. household each at core Helper's product line each late night dinner and we are on a mission to help the next million household discover Helper's. In fact, we're traveling across the country in Helper's branded fruit truck, given away over 400,000 samples of a great tasting product. Let me bring these efforts to life for you with a short video.
Traveling is just one part of our dry dinner's plan in 2014. We also had terrific new product innovations. We're entering the premium skillet segment with the launch of Ultimate Helper's in chicken and Hamburger variety. These products add a rich, creamy sauce to the Helper's taste experience and we're bringing variety to the premium skillet category with a broad lineup of sauces including Cheese, Marinara, Alfredo and varieties. You will get a chance to sample and new treaties Marinara flavor at lunch today. Chicken is the top selling U.S. protein and since January, we've added six chicken SKUs to our Helper's lineup. Our latest Chicken Helper varieties Crispy Cheddar Bacon with pasta and Crispy Ranch with mashed potatoes, and we're launching a five SKU line of Betty Crocker Mac & Cheese this summer.
We're supporting our dry dinners business with increased advertising to introduce the Helper brand to the next generation of young families. The new advertising leverages both TV and digital to show consumers how Helper's help solve the daily problems of what's the dinner. And with over 40 delicious flavor varieties, late night dinner will never be boring. In total, we are very excited about our plans to restore our momentum in dry dinners in 2014. We are launching a great line-up of new products in new packaging supported by increased advertising and products sampling and we are introducing new consumers to the great taste, variety and convenience of Helper's.
In summary, we are excited about our growth products prospects in our meals business this year. Our categories are on trend with consumers and they are growing. We are launching over 30 new items in the first half of the year alone with more innovation plans in the second half. And we are supporting our entire meals portfolio with a high single-digit increase in consumer marketing investment.
Thank you for your time this morning. I will now turn the microphone over to Shawn O'Grady who will tell you about our U.S. Retail sales organization and how we are leading profitable growth for our customers. Shawn?
Good morning. In my remarks today I will provide you with a brief look at our sales organization and touch on a few of the key elements that we focused on to deliver executional excellence. Well we leveraged our sales capabilities and relationships worldwide and my comments today will focus on how we support our U.S. Retail business.
We employ nearly 2000 sales professionals across the U.S. Our organizations include cross-functional teams at Poland customer headquarters, our retail organization that delivers its impact in store and at the shelf and a centralized support group that provides advantaged capabilities to our teams. We have expertise across 25 different categories and all three temperature states. And if you go into a typical grocery store, you will find about 650 of our items in distribution.
We partner with more than 200 retail customers who operate well over a 100,000 stores of all shape and size across the U.S. About half of our business is with traditional groceries like Kroger, Safeway and Publix. Supercenters like Walmart and Target represent about a third of our business and other channels like Club, Drug, Dollar, Online and Natural Organic outlets represent the remaining 20%.
The mission of our sales organization is to lead profitable growth both for General Mills and for our customers. We work with all of our customers big and small to provide the brands, the capabilities and the customized solutions that drive growth in their stores.
As Ian mentioned earlier, we compete in a broad array of categories that are on trend with consumers today and importantly we hold number one or number two share positions in all of them. Retailers like our brands for several reasons.
First of all, there are staples with many consumers with 97% of U.S. households buying at least one General Mills brand, second our brands drive higher sales. When a General Mills product is in the basket shoppers tend to spend more. And increased, net increase spending translates into increased profit for our retail partners. We also bring industry leading capabilities to our customers. We provide insights into how consumers shop our categories and we translate those insights into the most efficient and effective store and shelf configurations through category management.
We also have strong customer marketing in digital programs including merchandising and promotional events that we can tailor to the specific customer needs to drive growth and increase operating efficiencies. So let me just give you a few examples of how we do that.
The U.S. consumers shop for food in average of a 100 times per year or twice a week, so food itself drives traffic. Consumers are strapped for time and for money so they are willing to purchase food wherever it's easiest to shop and wherever they find the best value. That has led to the expansion of food into virtually every retail format.
Because we have leading brands and expertise across 25 different categories, we can offer a broad perspective on food in general. And more specifically, we can help retailers prioritize the best category opportunities for their format. This expertise impacts the approach to store layout, shelf configuration, brand variety and even merchandising principles.
In the case of traditional grocery customers who provide in-depth category insights. For example in cereal we know how consumers prefer to shop and navigate the section, we know how to set the shelf to provide the best balance of brands, flavors, sizes to maximize both sales and retailer profit. Some in the most typical case we find that stores need to carry at least 250 different cereal items and they need to give sufficient facings to the biggest brands what we would call power brands in order to balance efficiency with overall sales.
We also provide insight into how to best display brands that serve different consumer segments in order to get the most from their in-store merchandising. We continue to have heads placed for growth in our cereal distribution. As you know we generate 31% of the categories dollar sales. If you look at our share of distribution points we represent just 23% of the category or if you look at the number of actual facings on the shelf which we do through audit every year, we are about a 25% share. Either way we are below our fair share of the shelf and this is because we have some of the best selling brands in the category, but also because we are thoughtful about the sizes and flavors to maintain our efficiency. So with that discipline you would expect that our velocities or trends at the shelf would be stronger than other players and this is the case.
Over the past 52 weeks our cereal brands have been turning on the shelf faster than the category average and faster than the branded competitors. We will be working to drive cereal category velocities and distribution again in 2014.
Let me shift to the yogurt section, with the growth in Greek varieties in the yogurt category and the increasing yogurt consumption overall, it's critical that retailers expand their yogurts section. We have worked with customers to build this section by taking space from slower growing categories in the very aisle and over the past year more than 6000 stores have expanded their yogurt section and we expect to see another 3000 stores at shelf space in 2014. Customers who have done so have experienced category growth at twice the rate of those who have not expanded their yogurt set.
But it's not all about just expanding the shelf, it's also about maintaining a balance assortment. We work with our customers to help them understand the best mix of space for all of the segments of the yogurt category in order to maximize overall sales. As this slides shows category growth is optimized when retailers maintain a balanced mix of yogurt varieties on the shelf; this will be an ongoing effort of our sales team given the amount of new products activity coming in the yogurt category in the year to come.
Another competitive advantage for us is our customer marketing capability. We have proprietary marketing platforms that customers can tailor to their mission and shopper preferences. Box Tops for Education is a great example of this. Through this program consumers can raise money for their local schools by clipping Box Top logos from our packages.
Over the past year we partner with Walmart to promote this program through in-store TV, digital advertising, customized packages and strong merchandising and we saw significant growth across our brands at Walmart during the events in fiscal ‘13. We also partner with our customers on their proprietary events to drive growth. For example, we help Kroger create what is now their premier annual promotion called cart buster. This event spans numerous categories across the store involves the few select manufacturers and offers coupons and other merchandising events to drive store traffic.
We worked with Kroger on how this event should look in-store and how to do with the most efficient distribution and store logistics in order to maximize both our and their profit. We believe our sales capability is a competitive advantage for General Mills and our customers seem to agree.
In the latest Kantar PowerRanking survey our sales force maintained the strong number three position amongst consumer products companies, punching above our way and continuing to close the gap between our score and that of the top two players. By leveraging our strong capabilities and all trained sales force, we are delivering executional excellence. We continue to increase our distribution points and display frequency while improving our merchandising effectiveness with strong cost discipline.
Let me take a minute and just go a little deeper on each of these. We've been able to drive a steady increase in the number of products that we have in stores over the past several years. In fiscal 2013, we average 645 SKUs per store with gains in key categories such as cereal, soup and grain snacks. With our strong merchandising events in fiscal ‘13, we were able to increase our share of in-store displays as well. Display activity in our categories was up 15% in fiscal ‘13. Our display activity grew 24% increasing our share of the total displays in store by nearly 2.5 point.
Being the number one or number two player in our categories means that our products get noticed when they are on display. This year our merchandising events drove 15% more incremental sales, that sales above and beyond what a consumer would have normally bought, than the average incremental sales generated by all other merchandising events in our categories.
Now we did see an increase in our trade cost per case over the past year compared to 2012. This was expected as we sharpen price points for several of our product lines particularly Yoplait Original and Light yogurts. Trade cost per case is still essentially in line with our average performance over the past five years and we expect it to remain flat in the coming year.
We've been increasing our sales effectiveness while maintaining good cost discipline as well. Over the past four years, we've seen a steady decrease in our sales administrative cost as a percentage of our total company sales. As we've implemented HMM, we've generated cost savings by standardizing and centralizing several of our key administrative processes, better aligning our human resources with where the customer growth is and balancing the use of our General Mills sales employees with brokers in our in-store retail effort. In total, these actions make our sales force extremely cost effective.
So, to summarize my comments this morning, we're focused on growing our business across all retail channels from the traditional grocers to retailers who are just beginning to sell food for the first time. We're maximizing the incremental sales and distribution that we drive from this year's strong line-up of new products innovation that Ian shared and we continue to deliver executional excellence across our categories with the special focused on Big G Cereals, our Yogurt brands and the great meals initiatives that Juliana just took you through. Thanks for your time this morning. And I'll turn it over to Ken for some Q&A. Thanks.
…one in the back. So if you could raise your hand I'll get a mic to you for this.
Andrew, go ahead.
Andrew Lazar - Barclays
Thank you. Shawn showed us a slide around - in cereals specifically with velocity has been up nicely, points of distribution up nicely as well. I know that you pointed out earlier, share this past year where it was off a bit. So I'm just trying to square some of those things, what was it I guess specifically as you look back on the year, you were here last year talking about a lot of new products in yogurt, but elsewhere as well. So first off, I guess just squaring that in cereal and then was there a common theme in some of the areas where share wasn't what you wanted it to be this past year around some of the new product efforts was not enough against the core versus incrementally new items, if there was a common theme there it would be helpful. Thanks.
Thanks, Andrew. I'll hand but part of that and maybe Shawn will want to add in. Yeah, I think our biggest problem last year on cereal was really quite early in the year where our merchandising pressure in our first quarter was extraordinarily low and that had something to do with the Olympics which our competitor was tied into it had something to do with some of the smaller players in that category who had been less active in merchandising, picked up their activity and sort of that confluence of events caused our first quarter to be low.
And so by the end of the year, we had cut off then all our merchandising that we wanted in cereal. But it's not as healthy to have it concentrated in those last three quarters, even two quarters. So, much better to have it even throughout the year for the efficiency of it, which is what you'll see this year. But I'd say that was our biggest issue in cereal last year early on in the year. Shawn, I don't know, if there's anything you wanted to add to that part?
The only thing I'd add is that our innovation strengthened throughout the year as well. The Cheerios, Honey Nut Medley was received really well by customers and that helped build back some of the innovation that we wanted on the category and that in combination with the merchandising strengthened the back half and kind of left us in a much better position by the end of the year.
And on your question as it relates to innovation that may not have lived up to expectation you know you sort of have that every year new products are like that. The ones Juliana touched on was recipe starters which we had thought it did all right but we thought would be quite a bit larger, but what we found is the concept took more explanation and so she showed the packaging change in the pivot and we are marketing that in the different way and we think we still have very high hopes for that but we've learned that it needed to be marketed and packaged a little bit differently.
And some of our items in the freezer case, ultimately the freezer case itself had very slow traffic last year and I'd say those items underperformed relative to our expectations. On the plus side our snack items did terrific and in many cases greatly exceeded our expectations as I mentioned in my remarks Yoplait we had very high hopes for Yoplait Greek 100 but that too has greatly exceeded our expectations, our new cereal items that were launched in January are doing quite well. So it's always a mixed bag but that would be how I would highlight some of the ones that were less than we were expecting.
The only other thing I would add to that Andrew and you asked you know our assessment in terms of common themes going over the course of the year just to point out something that we've discussed many times we did a year ago at this point in time our merchandise price points were really not where we needed them to be across a number of a categories and so we entered and unit volumes as you all know not only for our business but for many players in the category were low.
And so as we addressed the price value issues over the course of the year we saw across our categories baseline strengthened sequentially and unit volume strengthened sequentially. So as we stand here before you today we feel much better about the value equation that we have across all of our core brands and we feel very much better about the base line that we are seeing on our businesses as we go into F14 so I think that was another important sort of underlying theme.
Raise your hands if you are looking for this here.
Alexia Howard – Sanford Bernstein
Can I ask about the yoghurt category, I know we've spent a lot of time focusing on that this time last year, I think the plan in fiscal '13 was to see sales growth in that category and I think you fell a little short at that. Given the slowdown in innovation they were a boatload of new products last year, what do you see is the outlook there in fiscal '14?
And then just secondly touching, we talked about promotional activity and how displays are up across the portfolio, do you anticipate continued increase in promotional activity as we go forward. Thank you.
So Ian, I think –
Sorry, I had a hard time hearing it, so I'm hoping I'm answering what you asked. First question was on yoghurt and our outlook for the next year. And the category now is growing really robustly and our projection for next year is certainly a return to category, I shouldn't say category but for sales growth. And we'll have to see what that means in terms of share. It's been hard to peg what the yoghurt category was exactly going to grow. But we think we're going to, we're definitely going to have a positive sales growth here. The elements are now in place between our core is solidifying. We have a very strong player in the Greek segment now and we have a great new product coming to Greek and we're getting a new capacity which has constrained us to some degree on the Greek which will allow us to go to different sizes and formats. So it will be an interesting dynamic category without a doubt. I think the category is going to grow well and I think we're going to grow well on the yoghurt side.
Your other question was on our forecast for the promotional environment. Our outlook which was in our remarks and Don I think touches on it a little bit later as well is that next year on the input side is inflationary. And you know not too different actually than this year. It's a manageable level of inflation but it is inflation and I generally put a pretty good discipline on promotional activity. The ones, the years that are – that have been proven to be trickier is actually the deflationary years. But we don't foresee that and we have a pretty good line of sight on a good chunk of the year and so my projection is going to be very competitive as it always is but I wouldn't characterize it as too different than the last few years.
So I would just add to that. Alexia, I think you commented on or made a comment on the relative level of the innovation in Yogurt this year versus last year, we're quite enthusiastic about the innovation that we have going in to the category this year. You know, first of all, we only started advertising Yoplait Greek 100 I think in October. So we look at that product, it's very early in the trial phase and well ahead of what we thought it would do and so the fact that and our customers now are saying, guys, this thing is turning. We need multi-packs to satisfy the heavy using customers and so actually that's a very promising sign for us.
So we're going to ship those which, you know, will help us to continue to expand shelf space on that product and we know that light yogurt from our experience in the category is a very compelling benefit. So we think there is an opportunity to continue to build that and then we just love having a blended full calorie offering, we think consumers will respond very well to that. We think it has a very different and very positive taste profile in comparison to other products in the category.
So we think that that's going to be a winner. Our customers are very happy and then we continue to expand Liberté, which is a, we're doing -- marketing that in a different way to millennials and digitally but it's turning well, it's expanding. We're going to have more distribution on that. So we actually feel we've got I think more arrows in the quiver this year as we continue to proliferate innovation primarily in the Greek segment.
I have a question for you, a follow up on yogurt if I could as well. In this past year, you had very good unit turns on your base business. You did lose some distribution as well. So that, so I'm just curious if you look at 2014 and the next year or so, do you expect that your core yogurt business would have stabilized it's distribution in the category, maybe can even grow a little bit because you had such good turns in the existing business? And then my other related question would be, do you need to gain share in Greek this year to grow your sales in yogurt. Is that an important component of your yogurt growth expectations?
Yeah, you're quite right, our unit turns on our core yogurt have been quite strong and yet that was on a base of distribution losses as you can just imagine how significant the [fee] [ph] change has been in the yogurt category as Greek is now well over 40% of the category dollar wise. In fact, there's been a lot of shelf shift. And the most important thing to get going is to get that turns number positive, and high single digit positive, and we've been doing that now for quite a long time and eventually that's what really - I would characterize next year as probably stabilizing our core cup distributions. I think the action is still going to be pretty heavily in the Greek segment and indeed we do expect to gain as we did this year share in the Greek segment. We obviously have less of a base than the market leader in that segment. So there is share to be gained and that is an important but not the only part of our plan.
Ian, hi, just wanted to come back to the cereal category again and the issue of demographics. So you have a broad range of innovation out this year including some items like gluten-free and granola offerings, that I think do seem directly geared toward adults but given what seems to be some ongoing headwinds for the category among the adult demographic, specifically do you think you or your competitors, the category in totality is doing enough to try and revitalize consumption among older cereal consumers?
Yes. I actually see there that the destiny of both the category and adult consumption is entirely within the players in the category's hand. I don't think there is any underlying issue with adult consumption of cereal if we innovate right, bring meaningful benefit and support the brand. Last year had an atypical decline, pretty significant one in total support for the cereal category and it's one of the most supported dry food categories in the store. So we have to make sure that all of us in the industry are increasing our support behind the category in innovating and I think the innovation lineup not just for us but across the category is stronger this year than last year.
And there is more than enough benefits. It's ironic that one of our biggest growth drivers is - this past year was on Lucky Charms advertising to adults. So, I just don't buy into that adults still want to eat Cinnamon toasts or Lucky Charms or adult cereals, it's really are we doing things that are exciting and meaningful brand by brand. And when we do that well we do, the cereal category has seen this for a 100 years and it will respond to good innovation and good marketing support.
I've got the next one over here.
Thank you. Shawn you mentioned trade cost per case was up, what looks like about 4% the last fiscal year, it seems like that increase in trade spending has driven some pretty nice improvement in what have been some weaker volume as Ken alluded to, are we still in that place where the higher than normal or this higher than normal responsiveness to trade spending? And how are competitors across the portfolio responding to sharpening up those merchandise price point as Ken alluded to?
First of all I think, in many ways the increase in trade cost per case for us was heavily getting our yogurt business, our core yogurt business back to the spot we felt like it needed to get to and in that category, in yogurt, we have really seen a response to that; for the most part Greek has traded above a dollar and regular yogurts have been pretty stable with the exception of us getting our product back into the right spot.
Overall, we're in, like I said we're in 25 categories. If you ask me what is that merchandising environment looked like, either proactively or reactively I would say it looks pretty stable as Ian indicated before. We are seeing an increase in the number of displays that we see in store. And as I mentioned through our retail organization, we've been able to outperform in that area. But overall the kind of the price pressure piece of it seems very stable.
I'm going to sneak one last one in here and then we'll switch.
Hi, question for Juliana. Just in the Dry meals category, I guess you've seen some more competition or new competition in that arena over the last year or so; Velveeta has kind of encroached on what was traditionally I guess Helper's sort of domain, you're introducing a Mac & Cheese, and my understanding is, well I guess my question is just how the competitive, how competitive in the nature of the competition in that dry meal segment now, I was under the understanding the Kraft has responded in Mac & Cheese with some sharper price points to try to sort of address the new competitive threats, so if you could just talk about the dynamics in that category and how competitive it actually has been?
Sure, well great question, basically what we have seen is our response into Mac & Cheese, but we know that, what's been critical is that we drive innovation to drive total growth within the category. And I think Kraft did a good job with their introduction to the add to make segment with the Velveeta offering and we are responding with the innovation that we are bringing out this year and we know that with us driving gross with innovation within the segment that we are the dominant leader within that we can drive different requests within that segment. So there's been no question that there has been competitive response to our interim Mac & Cheese and but as I said, I think innovation is what's going to fundamentally drive growth within the category and that's where we're really focused.
So please join me and thanking this group and we're going to switch to group number two here.
The statements in - you can kick this after so you want me to just jump --
No we're just going to jump right in.
Oh, everybody is just - a moment (inaudible).
Okay, let me get (inaudible).
(Inaudible) so let me join you at some point (inaudible) Q&A okay. All right, we're going to start up again, so Dave?
Yeah, well good morning everyone, it's a pleasure to be here with you today. I am going to kick off the second part of our meeting with an update on our Bakeries and Food Service Business segment. Let me start with the reminder of how we've transformed this business over the past five years. We've sold or exited lower margin product lines, streamlined our supply chain and implemented a direct sales force. We've also focused our resources on a highest margin product in the most resilience channels.
As a result of these efforts we significantly improved the profitability of this business. Since 2008 segment operating profit is increased at a 14% compound growth rate and our profit margin is expanded nearly 600 basis point, this is top tier industry performance. Our momentum continued in 2013 net sales decline modestly driven by lower pound volume but operating profit increased by 10% driven by favorable product mix, lower input cost and grain merchandizing earnings.
Our operating profit margin exceeded 16% for the year. We're pleased with our strong performance last year and here are few of the highlights. Sales for our snack items increase to the mid single digit rate lead by strong new product performance and distribution gains in the convenience channel.
We expanded distribution of our bulk yogurt business into to new products and new channels driving high single digit growth in net sales and our net sales of our frozen breakfast portfolio that's lead by our lineup of Pillsbury branded, Waffles, French Toast and pancakes grew at a the strong double digit rate.
Our business is focused on the product lines and away from home channels that offer the best opportunities for top line and bottom line growth. In fact we recently changed the name our organization to convenient stores and food service to better reflect the strategy. Today our business is focused on 6 key product platforms, snacks, cereal, frozen breakfast, yogurt, biscuits, and baking mixes.
These products account for nearly three quarters of our segment operating profit and represent our best prospects for long term growth. We're also focused on the channels where food and beverage sales are expected to grow ahead of food service industry rates. For convenient stores food products are becoming an increasingly important contributor to channel sales and profit, it's gasoline and tobacco products are on the decline.
In the education channel, the K through 12 breakfast (inaudible) is expected to grow at double the overall channel growth rate of 2% and our college and universities to collective the purchasing power of students with $76 billion and rising and the healthcare channels projected to grow ahead of the industry rates and response to the growing needs of the ageing U.S. population.
As we enter a new fiscal year, we continue to encourage by some near term trends levels of disposable income are increasing, unemployment rates are falling and consumer confidence is rising and while U.S. food expenditures still favor food at home today, away from home foods sales totaled over a $0.5 trillion per year.
So this market provides significant opportunity for growth for General Mills and our brands. In 2014, we'll continue to focus our efforts on the most profitable products and the fastest growing food service channels. Our six key product platforms for are consumer branded, this are snack, cereal, frozen breakfast and yogurt.
Let me tell you bit more about our efforts against each one of this businesses beginning with snacks. Through the focused efforts of our convenient store direct sales team, we've increased our snacks distribution in the each of last five years and added two points of market share.
In 2014, we're leveraging our best in class category management capabilities including optimization of in-store display active to drive snack sales and isle growth for our convenient store customers. We also have a strong lineup of new items including Chex snacks chips, Betty Crocker brownies, Nature Valley Soft Baked Oatmeal Squares and we're targeting another year of strong distribution growth for our Food Should Taste Good natural snack items that's the business that we acquired in 2012.
In Cereal, we're optimizing our College and University spend assortment to ensure we have the right varieties on hand at each school. We're also planning another year of our Outnumber 100 initiative, with every student Cereal purchase on Campus General Mills will donate to a local food bank. In the K through 12 channel where the Cereal category leader in breakfast programs, recent USCA legislation for the K through 12 school nutrition program recommends more whole grain of breakfast. And since all of our Big D Cereals contain more whole grain than any other single ingredient we have a great opportunity to expand our distribution and our sales in the education channel in 2014.
And this recommendation for whole grains is good for our K through 12 frozen breakfast platform as well. Our Pillsbury brand of waffles, pancakes and French Toasts are each an excellent stores of whole grain with 16 grams to 24 grams per servings. These products are easy for operators to prepare. They simply heat them and hand them right over in the package to be served. In January, we added Pillsbury Breakfast Flat Bread and Pillsbury Mini Muffins to our lineup. And we have more product innovation slated to the second half of fiscal 2014. Today frozen breakfast offerings are only found in roughly 20% of K through 12's schools nationwide. So we see terrific growth prospects ahead for this platform.
In Yogurt, we're providing operators and consumers with solution based innovation. Yoplait Parfait Pro gives food service operators an easy way to prepare layered yogurt parfaits. We've recently added Greek in large size varieties and we continue to expand our Parfait Pro business to convenient stores and other food service channels. We're expanding our Greek Yogurt assortment in hospitals convenient stores and in colleges and universities to include the Yoplait Greek 100 and we're adding the new full calorie line of separated of Yoplait Greek yogurts that Ian mentioned earlier to our away from home lineup as well.
In addition to great brands and strong brands we also bring strong set of capabilities to our customers. Our direct sales force provides pricing recommendations, unique consumer insights, category management expertise and supply chain capabilities. We're leading efforts to drive category sales and profit growth for our customers. In fact this past year we saw 67% increase in convenience store advisorships. So we believe this sales team is a competitive advantage for General Mills. And our customers who tend to agree in fact in 2013, our Bakeries and Food Service division was recognized by customers and industry organizations with 30 awards, reflecting our ability to provide our customers with great brands and unique insights to drive category growth.
We also expect to deliver continue profit margin expansion moving forward and here what gives us confidence. First we'll continue to invest behind our most profitable products in the fastest growing food service channels. Second we're leveraging the same HMM principles as our U.S. retail counterparts identifying and removing ways to need redeploying the captured savings to drive our business. Third, we continue to review our product portfolio for additional opportunities to refine and focus our efforts. And finally, and we've built market share during a very tough economic period. So we're well positioned for sales and profit growth as the economy recovers.
With that let me wrap up my comments on our convenience stores and food service business. Food service industry sales we are expected to grow at a mid single-digit rate in 2014 outpacing traditional U.S. retail channels. Our strategy of focusing on the highest margin products and the fastest growing channels is working and for fiscal 2014 we will be continuing to focus on product mix.
We expect to generate net sales growth across those six key product platforms but we've planned declines elsewhere across the portfolios, so we're forecasting a modest decline in overall net sales. We expect segment operating profit to increase at a mid single digit rate resulting in continued margin expansion.
I'm very optimistic and excited about the future prospects for our Convenience Stores and Food Service business and now I will turn it over to Chris O'Leary and the growth plans for our International Operations. Chris?
Thanks, Dave and good morning to everyone. I'm pleased to be here to review the growth opportunities we see for our international businesses. We compete in great categories around the world and we are bringing strong level of innovation to our categories which will contribute to sales growth and margin expansion for our international segment in fiscal 2014.
In the past two years we have made significant acquisitions most notably, Yoplait Int'l in fiscal 2012 and Yoki in 2013 that have accelerated our overall sales growth. But our base business has been growing too, excluding acquisitions our net sales have increased at a high single digit compound rate over the past six years. And if you include our proportionate share of revenue from joint ventures our total international sales reached $6.5 million in 2013.
We're focusing on five global growth platforms that Ken mentioned earlier. These categories represent approximately 75% of our international sales if you include our joint ventures. These categories are on trend with consumer demand in both developed and in emerging markets.
Let me describe how we're building these categories around the world and I will start with cereal. Cereal Partners Worldwide, our joint venture with Nestle is in its 23rd year. This business generates more than $2 billion in annual sales. CPW operates in more than 130 countries and holds a 22% value share in the markets in which they compete. Developed markets still represents a majority of CPW sales but emerging markets now account for 40% of the total.
In 2013 CPW sales in emerging markets grew 11% and CPW holds a leading market positions in many of these fast growing markets from Indonesia to Russia to Turkey. This isn't just a percentage growth story. Many of these emerging cereal markets are generating the largest absolute dollar growth too. In fact Mexico, Brazil and Russia posted the strongest cereal category sales increases in the last 12 months. It's also worth noting that the UK is still one of the largest cereal markets in the world, so even low single digit growth on that sales space is quite significant.
We expect continued sales growth for CPW in 2014. We'll introduce new products like Nesquik, (inaudible) in Russia, Fiber Fitness in Mexico and Plus cereal fortified with calcium in Australia. We'll continue to educate consumers in emerging markets about the health benefits of cereal. And our plans call for margin expansion in 2014 and we're using HMM principles to improve manufacturing efficiencies and get the best results from our consumer spending.
We believe in the growth potential of the $26 billion global cereal category. As you heard Ian say cereal is nutritious. It's convenient, affordable and it taste great. Today the four largest cereal markets account for over half of cereal volume but just 6% of the world's population. Rising per capita consumption in many markets will provide great growth through the category and for cereal partners worldwide.
Let me now shift to our international segment where sales and operating profit grew at double-digit rates in fiscal 2013. These results do include contributions from new businesses. Excluding new businesses and foreign exchange, sales grew 7% and we still posted double-digit growth in segment operating profit.
Canada is our most established developed market. Net sales grew 22% in fiscal 2013 with the addition of Yoplait. We're now the fourth largest food manufacturer in Canada. We're bringing new store categories with product introductions such a Fibre 1 Almond & Cluster Delight cereal and a Canadian version of Honey Nut Cheerios medley crunch and strong health messaging should drive growth for Nature Valley and Fiber 1 snack bars.
The Canadian yogurt category grew 10% in fiscal 2013, driven by great varieties. We have a strong line up Greek offerings, from Liberté to Yoplait Source. In total, we hold more than 30% share of the Greek Yogurt segment. This summer, we will launch Yoplait Yopa blended Greek Yogurt in the unique flavors like strawberry cheese cake.
We're adding weight watchers endorsement to our stores reduce calorie yogurt and we have new flavors of Yoplait tubes and (inaudible) beverages for kids. We also seeing good opportunities to expand margins on our yogurt businesses through manufacturing efficiencies between the Yoplait and the Liberté brands.
Yogurt is our largest category in Europe. In the UK and France are the largest yogurt markets in the region. We posted good sales and share gains in these markets in 2013, and we have strong levels of innovation coming in 2014. There are many segments to the yogurt category in Europe. We're focusing on the fastest growing ones. In France, we're innovating in the health benefit section.
Our successful Calin Yogurt, which promotes bone strength is expanding in to beverages. We're also expanding our line of [Yap] yogurt drinks for kids and introducing new varieties of (inaudible) yogurt. In the UK, we recently launched Liberté Greek Yogurt. We'll introduce new flavors of Weight Watchers yogurt and increase our digital advertising on Calin yogurts.
Yoplait was recently named one of the 50 most chosen consumer brands around the world by Kantar World Panel, a market research firm. With such strong brand recognition, we see great opportunities to grow our yogurt portfolio in the UK and in France. We also, we see good growth opportunities across our other global platforms in Europe as well.
Sales for the Old El Paso Mexican foods grew 11% in 2013. This summer, we'll launch Mexican rice kit one pan meals and new [zeasty] flavors of our Squeezy sauces. We're supporting the brand with a new advertising campaign that's all about bringing people together over dinner.
Nature Valley Granola bars posted 25% growth in fiscal 2013, reflecting it's sponsorships of the London Summer Olympics last year. We'll have new flavors of our sweet nutty bars coming in 2014. Secret Sensation mini cups help drive 6% sales growth for Häagen-Dazs in Europe in 2013. This year we will introduce pint size versions of this [deck it in] desserts in a Tiramisu variety. We're also launching a new global advertising campaign featuring the actor Bradley Cooper. Let's take a look at this ad and I think you'll see why it works well all over the world.
Ice cream is one of our key growth platforms in China. We opened 68 new Häagen-Dazs cafes in 2013 and plan to open over 70 more in 2014 as we expand in to 13 new cities across China. We'll add some seasonal ice cream treats to our menu along with special occasion ice cream cakes.
As our shops grow so does our business and food retail outlets. This year we'll expand Häagen-Dazs, Häagen-Dazs brands in food stores in 28 more cities across China, we're installing new in-store freezers to highlight the brand. And we will add new flavors like mango, raspberry.
Convenient Meals is our second growth platform in China. Sales from Wanchai Ferry frozen food grew at a double-digit pace in fiscal 2013, or introducing some new regional flavors including a line of mushroom dumplings from the Yunnan Plateau in China. And we're launching the (inaudible) variety with a colorful filing and a translucent wrapper, this first to market innovation should be popular for the Chinese new year this fall.
Our constant currency net sales in China have grown at a double-digit compound rate over the last five years. Exceeding $600 million in fiscal 2013 and we expect another year of double-digit sales growth this year.
On Briefly mentioned India, our business here is just over $70 million in sales today, but it's growing in fiscal 2014 we are focusing on maintaining our well establish out of flour business, growing Häagen-Dazs and increasing trial and awareness of Parampara meal starters.
We are taking a city by city approach to growing our business in India much like our successful strategy in China, as the modern trade expands in India we think our brands will drive significant growth.
In Latin America, we doubled our sales in fiscal 2013 thanks to the Yoki acquisition. With nine months under our build the integration of Yoki has been going well and we are seeing good growth across our portfolio.
We believe we can generate $1 billion in net sales in Latin America this year. We are focusing on expanding Yoki's distribution in 2014, we are prioritizing the top 100 Yoki in tunnel products that should be in every growth restore across Brazil, our strong sales force is increasing in-store sampling in merchandising for example Festa Junina, or June festival is a traditional celebration and marks the beginning of the Brazilian winter, between April and June we setup thousands of in-store displays in conjunction with this national celebration.
We're also adding new products, last month we launched Kitfacil dinner kits in Brazil combining Yoki seasonings inside dishes into a convenient all-in-one kit. And yes think Hamburger Helper here and we are launching new flavors of pop-corn, sups and beverages, we will have more product news coming throughout the year.
And we recently introduce HMM concepts to our 5000 employees in Brazil. We have already identified cost saving opportunities in several of our manufacturing facilities there. I look forward to telling you more about them as the year progresses. So the Yoki integration is off to a strong start.
As we fine tune our portfolio, leverage infrastructure of our plans and distribution centers and possessing this business for solid sales growth and margin expansion ahead. Our international segment has been generating 15% compound profit growth in recent years. And our operating profit margin has averaged around 9%.
As we continue to grow our base business integrate new businesses and further develop scale, we believe we can increase our profit margin overtime, here is what gives me confidence we can achieve margin expansion in 2014.
We have a variety of HMM initiatives underway that should generate significant productivity savings this year. For example in Europe, for combining shipments of Green Giant, Old El Paso and Nature Valley products to generate savings. And we are bundling our media this year in this region as well. And we are combining the purchasing of chocolate for our Yoplait and Häagen-Dazs businesses across Europe, Australia and India.
We are increasing our organizational efficiencies. We call this project boost. We have realigned our geographic regions and create a two strategic business units to provide global marketing coordination for a Yoplait in our Häagen-Dazs brands.
We captured some savings from this initiative in fiscal 2013 we will see see additional benefits in 2014 and 2015. So to summarize my comments this morning we generate $6.5 billion in international sales today when you include joint ventures. We're focused on five key global growth platforms which we believe have great potential for future expansion.
We're targeting another year of strong growth in 2014 our plans call for mid single digit after tax earnings growth for more joint ventures on our cost and currency basis. Sales for our consolidated international segment should grow at a high single digit rate in cost and currency and we assured close margin expansion this year fueled by our ongoing HMM efforts in project boost.
My team and I are sharply focus on driving growth across the portfolio we have built and we see great opportunities in developed and in emerging markets. Thank you for your time this morning and I'll now turn it over to Don Mulligan.
Thank you, Chris, and hello, everybody. So you heard a great deal this morning about our plans for increasing General Mills' sales and operating profits in 2014. We also reaffirm our goal of extending margin this year. Let me say a bit more about the efforts supporting that objective.
Without a doubt the single biggest challenge in food companies' profit targets in recent years is the input cost inflation and volatility. As the slide behind me shows, our input cost inflation has average between 4% and 5% in recent years, but that's been with tremendous volatility around that longer term average. And that's made for some uneven performance across the food industry over that same time period.
Our response to these rising costs and volatility is been HMM, we worked on business mix and we've taken some pricing as part of our efforts to protect margins. But the primary focus of our HMM efforts has been to identify non-value adding cost in our manufacturing processes and other activities across the company.
Then we've eliminated these cost and used the savings to offset higher input cost and to reinvest in advertising, R&D and other activities to drive sales growth and keep the virtuous cycle going. We're confident we can keep HMM savings flowing for years to come, as approach isn't based on one time cost cuts, didn't come from closing plants in eliminating jobs, our approach is innovation process, fueled by our great people and their ingenuity.
We set a $4 billion target cumulative target for HMM savings this decade across our worldwide supply chain. And I am happy to report that we're tracking solidly on pace for this target. Cumulative savings from 2010 to 2013 sold roughly $1.4 billion and estimate for this year HMM savings represents a record annual level.
We've got some great projects underway, for example in Europe we're folding Yoplait purchasing power in with that of our other needs as we buy media and syndicated data services. In the U.S. we developed cereal packaging; we have the same amount of product in a smaller box.
In Food Service, we're redesigning shipping cases to reduce product damages, and here's a fun one, Yoplait uses a lot of milk, but doesn't need the cream, on the other hand our Häagen-Dazs business is all about cream, we are now leveraging that symbiotic relationship in our dairy purchasing for some nice HMM savings.
Our commitment to HMM has been the key to protecting on gross margins through a period of intense commodity cost inflation when you look at our gross margin is reported are excluding mark-to-market valuation effects, the trend is relatively stable over this period, and that's including the change in business mix that Ken noted earlier.
In HMM, productivity isn't just the supply chain discipline; we work to capture cost savings in all activities company wide. You can see the benefit of that effort as you look at the SG&A line. We're deliberately growing our investment in advertising and R&D, those are brand building activities. Exclude those investments in total SG&A and the remaining expense was roughly 13.5% of sales last year. That's down over the last two years and a slight uptick in 2013 reflects the pension expense headwind we had last year. I know some of you track SG&A cost efficiency across the peer group and you've noted that we stack up pretty well in that comparison.
We'll stay focused on HMM in the years ahead. And as we've noted for 2014, we expect our HMM efforts to drive some margin expansion for our business overall. Our businesses are nicely profitable and they generate strong levels of cash flow as well. This chart shows the net cash generated from operations over the past six years. It totals over $12.5 billion, where an average of more than $2 billion per year. And remember this is net of voluntary contributions to our pension plan in several of these years.
The first call in our cash is capital investment to support the growth up that you see across our business to fund cost savings projects and to essential maintenance. Over the most recent three years our capital spending has averaged right around 4% of sales. And in 2014 we're estimating roughly $700 million in capital spending, which should be just a bit below that 4% average. Key growth projects in our plans include additional separated Greek yogurt lines, more snack product capacity and our new R&D center under construction in Shanghai.
At the capital investment, we prioritize cash returns to shareholders. Over the past six years, cash use for dividend and share repurchases has totaled over $10 billion and as you know our plans for 2014 include a 15% increase in dividend along with share repurchases design to reduce our average diluted share count by 2%. And I'm sure that someone once ask me our M&A fits into our plans for next year.
In 2012 and 2013, we made several strategic acquisitions including two sizable transactions. Our focus this year is on execution across our newly enlarged business portfolio. We don't have M&A activity in our plans for 2014. longer term, we're excited about building our five global businesses. In both on acquisitions, we'll play roll that effort. But we have nothing our plans today, we're focused on a very attractive organic growth opportunities we see across our existing businesses.
With good earnings growth plan for 2014 and with much of our operating cash flow targeted to go to shareholders. We expect to post a higher a return on capital for the year. Our long term goal is to improve ROC by average of 50 basis points per year. We gave up some ground in this metric in each of the last years, as we prioritize the strategic acquisitions of Yoplait and Yogi. But that was a temporary shift, over the long term, we remain committed to increasing ROC and delivering a good balance of growth and return to shareholders.
I close with a summary of our key financial targets for 2014. We plan the year with healthy levels of sales and earnings growth. We see margin expanding a bit and we see advertising support for our brands growing in line with sales. We expect interest expense to be at mid to high single digits. This reflects growth in our overall debt levels, because our business has grown as well as changes in mix as we refinance and turned out debt. We expect to generate strong cash flows from operations again in 2014 and much of that cash return to shareholders through dividend and share repurchases.
I hope you got a clear sense of our confidence about General Mills growth prospects in the new year and beyond. With that I'll turn it over to Ken to wrap up our commentary. Ken?
Okay. I'll just be, I'll be very brief and make a few closing comments on the growth plans that we've established which are very for 2014, which are very consistent with our long term model and I think you're all familiar with our model. It calls for low single digit growth in net sales, mid single-digit growth in operating profit and high single-digit growth in adjusted diluted earnings per share. We expect this earnings growth to translate into high-single-digit price appreciation for General Mills stock and this price appreciation coupled with an attractive dividend yield should result in double-digit returns to our shareholders over time.
As we've noted many times this model doesn't reflect the absolute best we can do in any given year. Instead it outlines the kind of healthy growth we expect to deliver consistently for shareholders year end and year out. We reinforced this growth model with our compensation system. Annual incentive pay at General Mills is driven by a corporate rating for the year. That rating is determined by our performance against these four key metrics equally weighted. We measure our results against our own plan targets and against the performance of our peer group of large cap consumer staples companies. We believe these four metrics are the key drivers of value creation and General Mills people do well in years when all shareholders do well.
The last five years have been a period of healthy growth and value creation for General Mills. Over this period the average annual return to holders of GIS has been 13% more than double the overall market's return. All of us at General Mills are working together to extend this winning streak into the future.
Let me wrap up our comments to you this morning. At General Mills we pursued growth plans and strategic actions in recent years that have made us a bigger company with a stronger, more focused portfolio built for healthy growth in the years ahead. In 2014, we plan to generate growth across our business fueled by strong levels of product and marketing innovation. We have a robust plan of HMM initiatives that will help us protect and grow margins for our businesses. So we see a good year ahead in 2014 and our prospects for healthy growth over the longer term are excellent.
So with that, we will open up again for additional questions from you and Kris I think you are going to do the navigating with the microphone.
A question for Ken. I think it was a few years ago that you established a fiscal '15 EPS goal of $3.38 and you know I think the company is tracking a little bit behind that maybe a little bit ahead and other measures. I just wanted to know how seriously does management take that goal, is it at all involved in your executive compensation or not and is it possible the next couple of years that if performance starts to improve that you might be able to catch up to it? Thanks.
You've kind of asked and answered the question away. We are very committed to the goal. You are right we are ahead of it on our top line measure as a result of some of the acquisitions that we've made so we are well ahead on top line and on margin, we are a little behind on EPS. The way we look at it and we are still committed to that goal. We've got a couple of years to go to still get there and so we would very, very much like to do that.
Executive comp really is tied to the grid that you saw you know that annual grid which is very closely benchmarked to a set of I think Don is it 20 peer companies. And if you look at, if you ever looked at our disclosures in the proxy, our compensation moves very closely with the performance of the company over time. This is very much a pay for performance company, it's almost entirely externally benchmarked to what really constitutes top tier in any given year. And as a result you know the ratings vary quite significantly year to year as they should. And so we think that that is well calibrated and have had many positive comments externally on the transparency of that approach and also the variability of the approach from year-to-year which I think is what you really need to see to be convinced that it's truly pay for performance.
I'll just add maybe two points there, I think Ken if the operating lines well in terms of sales and operating profit, EPS has been dragged down by pension expense which has been driven down by lower interest rates that we've seen in the marketplace since we set that target. So to get I would say it get all the way back to the 3.38 target would require some normalization of those rates and the resulting benefit on our pension expense. But if you strip that out, it tends that we are very – still very committed to the underlying target.
The other thing I would reference is our cash flow per share. We thought about EPS, earnings per share but cash flow per share which I showed on one of the charts has risen dramatically faster than earnings. And if you think about value creation, you know, that's something I would actually take a look at. If you look at our cash flow per share back in 2010, we set the target and grew our earnings rate, would be something in the high $2 per share for operating cash flow per share and our results last year actually close to $3.50. So while EPS because of the accounting of our pension expense may not get to the 3.38, our cash flow per share is dramatically ahead of whatever expectation I think it would have been had held internally or externally in 2010.
Dave, question for you in terms of the USDA's (inaudible) push international school program. How do you see that evolving and how does Mills participate, given a lot of the innovation has been around low calorie versus kids varieties. I think, Chris, that is the follow up, in terms of China. Wanchai Ferry, Häagen-Dazs good local brands are growing well, don't hear a lot about yogurt and we've seen the non-launch of joint venture, the category is growing, focus on premium, (inaudible) about the buying efficiencies, nice premium yogurt. What happens in more of a push in yogurt in China?
Let me jump in on the yogurt question, the Greek Yogurt question and K-12 as well. I think that store is still being written because I think they are right now still playing with the idea. There is a lot of folks in the Senate that are pushing that angle. Here is what I think you will see moving forward. I think yogurt will continue to be a very important piece of the diet for K-12 schools and the question will be around cost because we all know how strapped K-12 programs are. And if you look at the cost, then the angle they are pushing is protein.
So you are trying to compare it to a chicken paddy or something. It's actually much more expensive Greek Yogurt no matter how you cut it than the chicken paddy, than peanut butter and a lot of other options. So it's going to be interesting to see how they go about it and now they are looking at pushing it under commodity program, which is kind of an odd deal because usually that's something that is relegated to more commodity items, not branded items. So we're still waiting on that one. We're poised if they do make a move. We think we're well positioned because we're actually drafting up at Ian's team success and some of their new products and right now we're the yogurt leader in K-12, pretty dominant leader. So we take down seriously but we will see how that plays out.
And in terms of China, you are right to point out, we've been very focused on our frozen foods business and our ice cream business and why we've been focused on that is because we see such tremendous opportunity there. But remember we're still only in 50 cities with Häagen-Dazs and we're in 100 cities with Wanchai Ferry and we are over 200 cities with our snacks business. So there is a lot of inherent growth, but you are right to point out that yogurt is a big category in China, we know that and it is growing very nicely, we know that. And two years ago when we purchased Yoplait, we did it with the notion of expanding it more around the world. So number two global yogurt business, then Olds got about a 20 shares, the Yoplait mix with the 7. There is a lot of room between seven and 20 and by the way, seven and 20 ends up with 27. So there is a lot of room for the multinationals to grow share around the world. China is a market we had looked at. We're looking at it aggressively over the last year and a half, you know first six months we are getting. I just have nothing to report right now but it is a very attractive market.
Don, a question for you on cash. I think you highlighted the strength of your cash flow which is indeed quite impressive last year. A good chunk of that came from working capital inflow. Can you help us understand what the drivers for that working capital inflow and how we should think of that cash flow impact to working capital this year and beyond?
Sure, working capital has been a contributor for the last few years. We expect to continue to contribute in the near term. Two things that have really driven it. One is inventories. You know part of HMM and carrying apart a process to seeing what wasted is not on the cost side, it's also have been how much inventory you have to carry, your production capabilities. So we've seen the abilities inventory out of system by better understanding the processes of where we produce, where we ship our internal warehouse, and where we ship to customers' warehouses and as a result we all take our inventory levels down, the unit levels down.
That's one, the other and more recent one has been in our accounts payable, we've been successful in extending terms with our vendors, and we've extended our terms to the point where I think, this past year we had about a $200 million of benefit in our accounts payable from extending the terms with our suppliers and that's an ongoing effort, because we're still only a minority the way into our entire supplier base.
So that still has room to grow again and I think the inventory piece, still has some opportunities we continue to mine that through our HMM tools.
Great thank, you. Two questions the first one is going to go on CPW, so you laid out, Chris, some nice growth plans, but when we see the guidance for fiscal '14, I think that the joint venture line is indicating just comparable earnings growth versus the earlier. So maybe can you explain perhaps why CPW isn't going to be stronger in terms of earnings growth within that line, perhaps it has something to do with the other joint venture you have, your Japanese joint venture, I don't know, but maybe there is an explanation there?
And then the second question would go to Don, and just relates to Yoplait Canada and Yoki, you talked about the 80 basis points of margin impact that those businesses had, how significant is the margin improvement story for those operations in 2014 and beyond can you dimensionalize what that opportunity is for us?
I'll let Chris answer the JV, question, first just one thing to clarify our guidance for the joint venture income, it's actually up high single-digits, but then we have ForEx offsetting that so the comparables this year is ForEx driven it's not operating driven. Operating earnings are quite strongly next year, on a local currency basis, we driven through very step by CPW, so basically...
Yeah. So CPW, thanks for the clarification on that, how you guys are seeing the earnings number, the core operating business is growing, it's doing well, we would like to see a growth faster in western Europe, but it is growing in these two key markets, France, and the UK. We're actually gaining share but the category there is quite depressed and that still 60% of the total on the emerging market side as I mentioned in my remarks this growing double-digit and we are very pleased with that. So it's a balance of that and the other joint venture Häagen-Dazs Japan, coming off a superb 2013, we are just entering the key summer months there. But we anticipated and having another solid year not at the record, [you rip it] Europe at high single-digit that's not to happen every year, I mean we wish it would, but [we are not in Japan], we're here.
But I think we will have solid operating performance there, so it is this foreign exchange thing that's dampening the total (inaudible), but thank you.
As far as the gross margin in fact of Yoplait Canada and Yoki and it was the reason that we saw the decrease in our gross margin this year based business essentially flat.
We will see that, obviously we will see gross margin total spend next year, Yoplait Canada and Yoki will be contributed to that couple of reasons, one is there are some kind of year 1 or transition costs embedded that number for example, the cost we had with our former licensee and our co-packer in Canada that hit us an (inaudible) will not obviously reappear in F14, and as Chris alluded to we're going to implement our HMM practices in both of those business and we will start seeing benefits from that next year as well.
So they will be contributed to the margin expansion in ‘14.
(inaudible) have you got it?
Yes. Good morning I have a two part question on Brazil, if I may, that the starts one for Chris. Chris, you sounded rather optimistic on Brazil despite the fact that it looks like food inflation is running at twice the rates from last year that, and that we may have a second year of well below trend line in GDP growth in the country, so is your optimism is predicated on category growth is it on gaining market share, is it new product introductions?
Yeah. So thanks for that and yes, I would say all of the above. We are seeing, we are not seeing food categories, we're watching obviously the same numbers you are in terms of total GDP et cetera, but the food categories, the once we are competing and we're not seeing dramatic slowdown, we're seeing mid single-digit growth rates and we're able them to grow frankly double-digit on top of that. So we're seeing that within that even though we bought (inaudible) food business there and the big food company, we are under developed in the North East part of Brazil you know as I mentioned our distribution on the supply strength in southern we have taken that up north, so we're actually, we've seen an acceleration of growth in first nine months and I can tell you we're off to a great start because that Festa Junina big promotion season, we are starting to see early returns on that and we are able to drive increased display coverage which is accelerated volume.
Innovation is up and then remember we've got this holistic margin management, so I feel good about the top line, I feel good about the bottom line and I am watching the macro environment, we are not seeing if the past food growth as we sit here today.
And then my second part of the question is actually for Don, Don you reiterated again that's for fiscal 14 M&A is not going to be a part of your algorithm, yet with the Bovespa down almost 26% year-to-date, I would imagine that valuations in your sector also coming down in brazil, would there be a point in time, where you say look the valuations become so attractive and we remain optimistic on the potential for the country, that you actually might start looking again that opportunities if there are any in that country?
Fair question, I would say two responses to it. One is it, we just bought a big business less than a year ago, as Chris has talked about the we're bringing in -- up our practices and our operating principals to bear to improve its performance and we're building on what was already a very strong base, so our focus is in brazil right now is very much by integration and [getting] down the business.
And the other on the currencies at end of the day if you business in Brazil if the real is 26% lower you may make the purchase price lower but also makes the earnings and the cash you generate lower in dollar terms. So we don't necessarily try to time the market with currency standpoint when we get in.
(Inaudible) back here, do you have something to ask?
Did you say that the HMM will actually fully offset the cost inflation is here and then second have you seen any returns on HMM plateau in any regions around the world, just to trying to get some color on that?
Yeah, what we said is we're going to expand margins this year and we have about 3% inflation and we think about HMM is the productivity is the mix management, if pricing in years where we needed or where we have certainly – product benefits, we can bring forward and get pricing on. This year as we look at the business it's going to be primarily a volume driven topline year, we will be little bit of mix plus and certainly we'll see some of that of that in our margins I think in Dave's business probably most notably as we he discussed, so our product mix will play a beneficial role as well our ongoing productivity.
In terms of that ongoing productivity as I mentioned we see another record year in 2014 and we treat that it is an innovation process and we treat it just like our new product innovation process, and what I mean by that is, we look at each of the businesses continue to develop multiyear our pipelines of ideas, that are going to help drive margins and we review it, just like we do on new product pipeline. And so as a result of that we do have a pretty good understanding, I want to say in the near term in next couple of years, so how that were unfold, and that's what gives us confident that only in what we'll be able to generate in 2014 but also to reiterate our decade long goal of driving $4 billion in supply chain savings.
So we don't just like any innovation process with the right tools and the right people and their creativity, there's still a lot to go further, so I think what I would add to that or the only thing I would add to that is in terms of the orchards, so we can look for HMM, there is lot of course there is what we can do within our on four walls and we talked about Don commented on and Chris commented on some initiatives within our production sites and also our administrative focus internally on HMM, so we can also push upward into our supply chain is over $10 billion of year of stuff, that we're buying in around the world and there is a best as the huge opportunity for us to partner with our many suppliers to figure out where the waste is in their supply chain, and so we do that and there is obviously a big place for us to look for, and to look from margin opportunities.
We also and Shawn commented a little bit on the search that we have with our retail partners and to figure out ways that we can take out cost that between our joint supply chain and logistic supply chain as we're moving products from our warehouses to their store shelf, there's is a lot of cost there. And so, we have developed capability to be able to really look in detail where the cost is added there, where value is created and not created and we're looking to take that out there as well to the benefit of both of us. So, there are a lot of places to look. And we're sort of mapping out, we're looking at all times have a three year sort of time flow and as Don said it's pretty visible. And so that's why we're so confident in regularly giving these numbers and with Chris's operation so much larger, there is a lot to go for internationally. So we feel pretty good about the HMM Prognosis.
So, let me jump in here and do just a little bit of housekeeping we're at the end of our web cast window. So we're going to say stay well to people who were listening to the meeting. Thank you very much for that. Then I'm going to give you a little bit of how lunch is going to work. So first, so join me in thanking group number two here.
So let me say I appreciate the fact that some of you may not be able to stay for lunch, we hope you can, but if you can't, don't forget to take a goody bag on your way out the door
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