General Mills' Management Presents at Morgan Stanley Global Consumer & Retail Conference (Transcript)

Nov.20.13 | About: General Mills, (GIS)

General Mills, Inc. (NYSE:GIS)

Morgan Stanley Global Consumer & Retail Conference Call

November 20, 2013 8:00 AM ET

Executives

Donal L. Mulligan – Executive Vice President and Chief Financial Officer

Analysts

Matthew C. Grainger – Morgan Stanley & Co. LLC

Matthew C. Grainger – Morgan Stanley & Co. LLC

Good morning, everyone. I think we’re going to get things started now. I’m Matt Grainger, Morgan Stanley’s U.S. Food Analyst and I’d like to welcome you all back to the second day of our Global Consumer & Retail Conference. We have an additional 12 presentations today. We’ll end the formal schedule with our lunch time keynote from André Calantzopoulos, the recently appointed CEO of Philip Morris International, but right now, I think it’s fitting that we – that the breakfast is accompanied by a business update from General Mills.

And despite a challenging consumer environment, company is targeting both sales and earnings growth in line with its long-term algorithm in fiscal 2014, it’s notably stepped up both cash returns and innovation this year. So we’re very happy to have back with us, Don Mulligan, Executive Vice President and Chief Financial Officer; and Kris Wenker, Senior Vice President of Investor Relations.

And with that, I’ll hand it over to Don. Thanks.

Donal L. Mulligan

Well, thanks, Matt, and good morning, everyone. It’s our great pleasure to be here in New York today and we appreciate the opportunity to give you an update on the General Mills business in fiscal 2014. First things first, let me remind you that our comments will include forward-looking statements that are based on our current views and assumptions. As this slide lays out, numerous factors could cause actual results to differ from our estimates.

At General Mills, our fundamental goal is to generate healthy growth for our businesses and superior returns for our shareholders. Our long-term growth model calls for low single-digit growth in sales – in net sales, mid single-digit growth in segment operating profit and high single-digit growth in adjusted diluted earnings per share. We expect this earnings growth to drive high single-digit stock price appreciation overtime at on a dividend yield of 2% to 3% and we expect to deliver double-digit total returns to shareholders.

Our performance over the last five years has been consistent with this growth model. Net sales have actually grown faster than our low single-digit target augmented by the acquisitions of Yoplait International and Yoki in Brazil. Both segment operating profit and adjusted diluted EPS have grown at the high end of our targeted range and our free cash flow and dividends have increased at double-digit rates during this period. In total, General Mills delivered 13% compound annual returns to shareholders over the last five years. This was more than double the S&P 500’s 6% compound annual rate of return for the same period.

Our plans for the current fiscal year, which began in June, as Matt noted, called for continued growth in line with our model. We were off to a good start in the first quarter. Total company net sales increased 8% as reported, including five points from new businesses, segment operating profit grew 6% in the first quarter driven by mid single-digit growth in our U.S. Retail segment and double-digit growth in our Convenience Stores & Foodservice segment and our adjusted diluted earnings per share grew 6% for the period.

We’ll complete our second quarter this Saturday – this Sunday and we plan to report our results on Wednesday, December 18. So we’ll provide you with a detailed financial update at that time, but I’ll make a few general observations today. First, the growth rate for food and beverage sales across our key developed markets has slowed a bit in the second quarter. In addition, input costs remain a headwind. We continue to expect 3% input cost inflation for fiscal 2014, but this inflation is front loaded with inflation in the second quarter expected to be the highest of the year.

We’re also comparing a strong profit growth in last year’s second quarter. Our U.S. Retail segment is lapping 9% operating profit growth and Convenience Stores & Foodservice is lapping a 24% increase. All that said, as we finished the first half, General Mills is on track to meet our key fiscal 2014 targets and we continue to expect adjusted diluted earnings per share in the range of $2.87 to $2.90. We have confidence in our growth prospects for 2014 and beyond. In part, this confidence is based on our business model, which is grounded on holistic margin management or HMM. This discipline applies to all aspects of our business. COGS, mix, pricing, consumer trade and admin spending are all levers we use to offset input cost inflation and protect our margins.

In 2010, we established a goal to deliver $4 billion in cumulative cost of sales savings via HMM by 2020 and we’re well on our way through 2013. We expect to deliver another year of significant HMM performance from all these areas of our business in 2014. We reinvest HMM in our brands and our capabilities while still delivering strong earnings growth.

One of the strategic capabilities we continue to invest in overtime is our sales force. We believe this team has an advantage in the marketplace and our retail partners seem to agree. In the latest, Kantar PoweRanking Surveys, we were recognized by our retail partners as one of the top manufacturers in the U.S. CPG industry overall and we received the top rankings for best sales force/customer teams and best supply chain management. General Mills ranks second on most important consumer brands to retailers. That’s a reflection of our ongoing investment in product R&D and consumer marketing.

I like to spend our remaining time this morning highlighting some of the brand building efforts currently in the market. I’ll start with our home market, the U.S. In our fiscal year-to-date, trends in the 25 categories where we compete near the broader food and beverage industry, growth has a slowed bit. Nevertheless, our categories are still growing and importantly, we’re seeing growth in both units and pricing. This is a challenging operating environment to be sure with an improvement from the recent past, when sharp commodity inflation resulted in above average food price increases across the grocery store. Today’s more stable in-store environment is one where product news and consumer marketing can be effective.

For example, at over $9 billion in measured channel sales, Cereal is our largest category in the U.S. With leading growth in this category in recent years, adding a four point of market share since 2008, but overall category sales have declined slightly over this period. As Jim Murphy, President of our Big G Cereal division shared in our first quarter earnings call, we believe cereals are category that needs product news and effective consumer marketing to grow. We’re bringing both in 2014.

Historically, Cereal category sales have been sparked by new product benefits, from vitamin fortification to the cholesterol reducing benefits of whole grain oats. This year, Big G is bringing protein to the cereal aisle with Nature Valley Protein Granola. These cereals deliver 10 grams of protein per serving. That’s more than twice the cereal category average. Nature Valley Protein Granola tastes terrific and we are excited about the early results. After just five months in market, it is already among the top turning granola items in a segment that’s growing 17% year-to-date.

Halloween season brings a monster invasion to the cereal aisle, and this year, we brought two monsters back from the dead; Frute Brute and Yummy Mummy were last on the shelves in 1982 and 1992 respectively, returning to take their places next to Boo Berry, Franken Berry and Count Chocula. These cereals have a strong fan base and this year’s social media campaign generated fantastic responses, including mentions on the TODAY show, in The Wall Street Journal and article blogs and social sites across the web. The results have been anything, but scary. We expect this Monster franchise to deliver a third consecutive year of strong double-digit growth in fiscal 2014. With the right messaging, product renovation can work just as hard as innovation to drive growth for the cereal category.

Here’s a great example, in 2010 after a number of years of decline, we brought gluten-free news to the Chex franchise. Retail sales have been growing ever since and are up another 6% in current year-to-date, including contributions from the new vanilla variety. We provide strong levels of consumer directed marketing support for our Big G brands, including traditional TV, digital media and Hispanic focus to advertising. Current examples include our Must be the Honey campaign; the category’s top selling brand, Honey Nut Cheerios; our Hello, Cereal Lovers campaign, including the inaugural National Cereal Lovers Week in mid October, which reminds consumers why they love this delicious, nutritious category.

Lucky Charms advertising to adults, who surprisingly account for nearly half of that brand’s consumption, this advertising has helped to drive a 9% increase in year-to-date retail sales; and digital support for many brands, including New Hershey's Cookies 'n' Creme, which is off to a great start after launching in June. We have more new products and marketing initiatives coming in the second half. We’ll talk about those on next month’s second quarter earnings call. Overall, we feel good about the prospects for Big G sales and profit growth in fiscal 2014 and beyond.

Let’s turn to the U.S. Yogurt business, where news innovation continued to drive strong category growth. Greek Yogurt varieties are leading this growth, and I’m pleased to report that the sales of our U.S. Greek Yogurts continue to significantly outpace this segment. Our momentum started with last year’s highly successful launch of Yoplait Greek 100. Year one retail sales for this reduced calorie line reached $150 million and we are seeing continued sales growth for this product line in the current fiscal year.

This summer, we launched Yoplait Greek blended yogurt. Advertising for this new line focuses on its winning taste profile. Distribution on shelf at several large national accounts didn’t begin until August and September. So we anticipate sales momentum for this new line to build over the remainder of fiscal 2014. We’re also seeing continued improvement in our Core Cup business trends. Based unit sales on Yoplait Original have turned positive this quarter driven in part by increased levels of advertising. This includes our Swap One Snack campaign, reminding consumers that yogurt can be a great tasting and better-for-you snack option.

In total, our U.S. Yogurt business is stabilizing. Consumers sales in Nielsen measured outlets have been improving sequentially and reported net sales have been slightly above the year ago levels in the most recent two quarters. We expect our sales momentum to grow in the back half of this fiscal year, as distribution for Yoplait Greek blended continues to build and we launch a full suite of new yogurt items. So we see yogurt return to growth in 2014, and the long-term prospects for our business and the U.S. Yogurt category overall are excellent.

Let’s move to Snacks. We created the Grain Snack category back in 1975 with the launch of Nature Valley Granola Bars. This category is growing at an annual rate of 4% over the last three years and now generates more than $3 billion in retail sales in measured channels alone. Our sales are outpacing the category. We’ve added almost 10 points of market share over the past five years through increased news and renovation. This business is off to a strong start in 2014. Retail sales are up almost 10% and we’ve added nearly four points of market share year-to-date. The driver here is terrific product innovation with items like Fiber One Lemon Bars, Nature Valley Soft-Baked Oatmeal Squares, and Nature Valley Greek Yogurt Protein bars, all launched in the first half.

In recent years, we’ve added some great natural and organic items to our better-for-you snacking portfolio. A lot of our brand of all-natural fruit and nut bars now includes new ALT protein bars. The outline has been in natural channel since January, where it’s turning in the top half of the nutrition bar category and is now expanding into traditional retail outlets. We are increasing availability of our Food Should Taste Good savory snacks and adding new varieties like these Dipping Chips and sales of Cascadian Farm organic grain snacks continue to grow.

In total, retail sales for these snack lines are going at a double-digit pace across the traditional and natural and organic channels. Totino's is the leading brand in the hot snacks category, and we’re leveraging news innovation to fuel growth again in fiscal 2014. Our Bold varieties launched nationally in July are helping to drive year-to-date retail sales growth of almost 5% for this business. As we sit here in mid November, consumers have gone back to school, colder weather has arrived and the holidays are coming. That means busy families are looking for hot food, convenient dinner solutions and ideas for key baking season.

Dinner mixes are a pantry staple from many time-crunched consumers. The growth in this category has paused in the recent months and we are losing share overall in the dry dinners. We’re working to bring some product news and variety to the Add-to-Meet segment of the market, where our Helper mixes competes and we’re gaining share in this segment, driven by our new Ultimate Helper’s SKUs and the Chicken Helper varieties that were launched this summer. We expect to continue to grow our share in this segment over the course of the year, as new item performance continues to build and as the tail of non-core SKUs diminishes.

Ready-to-serve soup is another convenient meal solution. We’ve led growth in this category over the past decade with great tasting flavors, the launch of reduced calorie soups and effective advertising. As a result, we’ve added 14 points of market share reaching 40% of segment sales in 2013 and we’ve added another 30 basis points of share in fiscal 2014. As we enter this year’s soup season, Progresso has added delicious new items to the light and rich and hearty lines. We’ve got some bold not bland heart healthy soups targeted at boomers and we’ve entered the premium soup segment with a regional launch of Progresso Artisan soups, which were the market here on the East Coast.

Over in the Mexican food aisle, we’re building on our leading position in fiscal 2014 with share gains year-to-date. This reflects strong early responses to our breakthrough Stand 'N Stuff Soft Tortillas. This innovation is generating numerous mentions in food magazines and blogs and rave reviews in social media. And we’ve taken Old El Paso to the freezer case this year with the launch of a line of frozen multi-serve Mexican dinners. It’s still very early, but we’re excited about the potential of bringing this leading Mexican brand to the frozen meals category.

Refrigerated Baked Goods is another category, where we are clear leader. We’ve been finding new sources of growth recently by posting on different consumers. For example, we’re reaching Hispanic households with targeted advertising and sampling. This effort is paying off with increased household penetration and buy rates. And before I wrap up the U.S., let me say a quick word about our away-from-home food business. As I mentioned earlier, our Convenience Stores & Foodservice segment has a difficult comp in the second quarter, lapping 24% segment operating profitability a year ago. But we continue to make good progress, growing our higher margin, priority platforms with year-to-date sales gains led by yogurt, frozen breakfast, snacks and cereal items.

As you can see, we’ve been working hard to bring a wide array of remarkable products to U.S. consumers in the first half of the year and we have an exciting slate of additional new product news and innovation coming in the second half. We’ll share details about that next month.

So to summarize today’s update on our U.S. business; we’re off to a good start, we have a comprehensive array of product innovation in market and we’re supporting our brands with strong levels of advertising and other consumer directed marketing. Our U.S. Retail segment is on track to deliver low single-digit sales growth for the full year with segment operating profit growing faster than sales and our Convenience Stores & Foodservice segment is targeting mid single-digit operating profit growth for the year.

Let’s turn to our business outside the U.S. As a result of the strategic actions taken in the recent years, we have dramatically increased our international exposure, fully one-third of our sales, more than $6 billion, including our proportionate share of joint ventures are now outside the U.S. in fast-growing, attractive categories. One of these attractive categories is yogurt, which became a global platform for us with the Yoplait International acquisition in July 2011. This acquisition launched us into the Canadian yogurt market with Liberté brand.

Then just over a year ago, we acquired the Yoplait license in this market. Canada’s yogurt market generates almost $1.5 billion and is growing at a high single-digit rate. We hold a 32% share of total category sales today and are a leading player in Greek at almost one-third of the Greek segment. Now that we’ve lapped the transition period on Yoplait, we’re once again gaining share in this market. So in total, we expect our yogurt business to contribute good incremental sales and profit in Canada this year.

In Europe, yogurt is now our largest category. The UK and France are the largest yogurt markets in the region. We posted good sales and share gains in these markets last year and we have strong levels of innovation working for us in 2014. In France, we’re innovating in the health benefits segment, our successful Calin plus yogurt, which promotes bone strength, is expanding in the beverages. We’re also expanding our line of Yop yogurt drinks for kids, introducing new variety is Perle de Lait yogurt.

In the UK, we recently launched Liberté Greek yogurt, we’ve introduced new flavors of Weight Watchers yogurt and are increasing our digital advertising on Calin yogurts. Yoplait was recently named one of the 50 most chosen consumer brands around the world by Kantar Worldpanel, a market research firm. We’re very pleased to have acquired this business and see excellent prospects ahead for market expansion and long-term sales growth.

Last year’s Yoki acquisition gave us access to large and growing food categories in Brazil like salty snacks, convenient sides, seasonings and beverages. It also provided critical infrastructure, including a national manufacturing and distribution network and a direct sales force of more than 1,000 employees that has a national reach.

Equally importantly, it gave us strong brands with high consumer awareness. Household penetration of the Kitano brand is 70% and is nearly 90% for the Yoki brand. Thanks to these strong brands. Our business in measured channels has grown at twice the rate of some already fast-growing categories over the past 12 months.

As we continue to fuel this growth with innovation, this summer, we launched Kit Fácil dinner kits, combining Yoki seasonings and side dishes into a convenient all-in-one kit. And we’re launching new flavors of popcorn soup and regional variations on our market leading farofa sides business. We’ll have more product news coming throughout the year.

One year in, we’re excited by the growth of our categories and pleased with our business momentum. The combination of Yoki and General Mills makes us the 15th largest food company in Brazil, significantly expanding our presence in this significant and this important market. Yoki acquisition more than doubled our business in the Latin America last year. In fiscal 2014, we expect to generate $1 billion in net sales in the region through our leading share positions in growing categories.

Let’s shift to another important emerging market, China. Our constant currency net sales in China have been growing at a robust double-digit rate over the last five years, exceeding $600 million in 2013 and we’re on track to deliver another double-digit growth year in 2014.

We have an excellent portfolio with Häagen-Dazs and Wanchai Ferry making up the majority of our sales. The Häagen-Dazs business is continuing to expand geographically with more than 70 new shops and retail presence in 28 new cities this fiscal year.

Changing regulations in China and public sector gift-giving did impact our Häagen-Dazs mooncake business during the Mid-Autumn Festival. But we were able to offset this with good growth in other channels and we still expect Häagen-Dazs and China to grow in the second quarter and to deliver double-digit sales growth for the full fiscal year.

Our second key business in China is Wanchai Ferry frozen foods. Today, Wanchai Ferry dumplings are available in more than 130 cities across Greater China. Our expansion into additional high growth segments like wonton, tangyuan, baozi, mantou and frozen noodles is just getting started.

While the overall Chinese economy maybe slowing a bit, the demand for branded consumer food products continues to expand. Increasing numbers of Chinese consumers, one food that offer quality, nutrition, taste and convenience at a good value, and for our business in China, we’re seeing robust growth in both existing and new cities.

So we expect growth for our products to remain strong in this important market. We’re excited about the attractive categories and markets that comprise our consolidated international business segment, but don’t forget that we also have a significant international business in a growing category through cereal partners worldwide, our joint venture with Nestlé.

CPW is a strong number two cereal player globally, with more than $2 billion in net sales and a 22% value share in its markets outside of North America, and while cereals are often thought of as a developed market category, you can see that a significant and growing portion of CPW sales come from emerging markets.

As cereal consumption grows in emerging markets, CPW is well placed to benefit. The business enjoys number one share positions in many important growing markets, including Turkey, Russia, Poland and in number of countries across Southeast Asia and Central Europe.

So to summarize my comments on our international operations, we generate over $6 billion in international sales today including joint ventures. For fiscal 2014, our international segment remains on track to meet the objectives we shared with you at our Investor Conference in July, namely high single-digit growth in net sales and constant currency with profit growing faster than sales. And the strategic investments we’ve made in the past two years and global yogurt and branded foods in Brazil provide us with the great platforms for growth in the years ahead. We’re supporting our established new brands around the world with strong levels of advertising and media investment.

Let me show you just three quick examples. Our Honey Nut Cheerios spot that’s lifting base turns. Our Fiber One snack bars and that’s turning heads, and an advert for Betty Crocker in the UK.

[Advertisement]

All right, with that, let me summarize today’s update. As we wrap up our first half, General Mills’ performance is tracking broadly in line with our expectations, although foreign exchange is a headwind. We’ll report details in our first half performance on December 18. We have strong levels of product innovation, consumer marketing and in-store merchandizing underway around the world in support of our brands with more to come in the second half.

We’re on track to meet our targets for growth and significantly increase cash returns to shareholders in fiscal 2014. And beyond 2014, we see our portfolio better positioned than ever to deliver balanced global growth for shareholders consistent with our long-term model.

Thank you very much for your attention this morning for your interest in General Mills. Now I believe we have at least a couple of minutes for questions. and Matt, if you want to get it started?

Question-and-Answer Session

Matthew C. Grainger – Morgan Stanley & Co. LLC

Thanks, Don. So I just wanted to get your thoughts on some recent industry dynamics first. We heard yesterday from one of your competitors who offered some additional evidence of retailers just managing inventories even more tightly in recent months, I just wanted to know is this something you’ve observed in your own categories, how concentrated would you characterize it as being across the retailer sort of footprint and just any sense of whether it’s more seasonal fluctuation or a more sticky structural reduction that could impact industry volumes this year?

Donal L. Mulligan

All right. Yeah, very topical question, obviously, we’re not immune to some of the industry trends. I mentioned the categories have slowed a bit in this – our second fiscal quarter. I would include inventory reduction is one of those that we are not immune to, it’s – and particularly with one large customer. You’re going to see inventory fluctuations from retailers from time-to-time. It’s something that we deal with fairly regularly; and as we think about our full year results, it doesn’t – it certainly doesn’t impact our ability to deliver our full year. Whether or not it sticks to the last part of your question, that’s going to be up to the retailers, but again, we see – we see that kind of fluctuation fairly regularly year-to-year in our business.

Matthew C. Grainger – Morgan Stanley & Co. LLC

Okay. On the consumer level then, just your thoughts on how consumer behavior in sort of the broader food industries evolved over the past few months. It seems that for a variety of reasons perhaps related to government shutdown, supplemental systems, benefits, the environment may have become a little bit more challenging for consumers. What are you doing, I guess, either on the innovation or the tactical side to adapt what you’re seeing?

Donal L. Mulligan

Yes, well, I was catching CNBC this morning and I heard Ben Bernanke say that while the economy in the U.S. has improved, it’s still a long way from where he wanted to be and I think that’s probably true of a lot of industries; ourselves included. So the consumers are still challenged there. They’re still being cautious with their dollars.

The good news as I noted in the presentation for our categories, we still are seeing growth in both units and pricing on a fiscal year-to-date basis and that was after seeing similar growth, actually slightly faster growth, a year ago. So the growth environment is there. We think what will differentiate performance will be innovation and marketing and good in-store execution, that is getting the right merchandizing at the right place and the combination of some of the news I shared with you this morning, as well as the strength of our sales force, which we outlined with the Kantar rankings, we think puts us in a very good position to tap into that growth.

Matthew C. Grainger – Morgan Stanley & Co. LLC

Thank you. So you’ve just noted retail inventory reductions, do you expect your shipments to track in line with the Nielsen track consumptions for Q3 and Q4, but the low consumption for Q2?

Donal L. Mulligan

Yes, I think we’ll see when we close the books on Q2, but we – typically because of, even though in the U.S., Nielsen measures the majority of retailers, we also tend to get some pretty high growth in channels that are tracked in Nielsen. and so there can be some fluctuation around our Nielsen offtake from quarter-to-quarter. So I think broadly in line, but there is always going to be a little bit of fluctuation in the quarter.

Matthew C. Grainger – Morgan Stanley & Co. LLC

On the cost side, we’ve seen an increasing number of your competitors move beyond – move beyond ongoing productivity to look more actively at opportunities to take out excess costs and manufacturing capacity. You did a very small restructuring a little over a year ago, that was more G&A related, but can you just give us a sense of the current state of your U.S. manufacturing footprint, whether you’re happy with utilization levels or whether there are potentially some areas where you could think about trying to consolidate that footprint?

Donal L. Mulligan

Well, the – I’d say, for those of us inside the company, the reorganization last summer didn’t feel small, but what I would say is from the manufacturing standpoint, one of our ongoing disciplines with HMM is to continue to look at our manufacturing footprint, our utilization rates, part of mix is looking at where do we have underutilized lines and how can we drive some growth there. I think the Chex example I shared was an important one, because not only did we see growth in the business, but that was a dedicated manufacturing line that a few years ago, there was questions about what was the future of that line. You tapped into a good marketing idea that can drive volume through it and the – not only do you see the sales, but then you have great profit flow through, because of the – because you have underutilized assets that you’re tapping into.

so as part of HMM, we are continually evaluating our manufacturing footprint. We tend to run pretty high utilization rates in the U.S., where we have it, we’ve done some moves and you’ve seen then probably most notably in our Convenience Stores & Foodservice segment, where we’ve downsized pretty significantly over the years, but even in the more recent past, we’ve done – we’ve done one or two smaller moves, so that is part of our ongoing HMM practices. I think the fact that we have a disciplined ongoing – disciplined ongoing rigor around that has allowed us to avoid having to do big one-time moves.

Matthew C. Grainger – Morgan Stanley & Co. LLC

Why don't we do one more question and then move to breakout? Historically, I think you've been very successful taking ownership of some earlier stage businesses in the natural and organic space. We've seen less of that in recent years, maybe as a function of valuation and you’ve focused your M&A activities internationally. What's your current assessment of the landscape for potential acquisitions within the natural organic health and wellness space?

Donal L. Mulligan

Yes, we like that space and are too focused from a portfolio evolution standpoint in certainly emerging markets and higher growth categories like the Yoplait and Yoki acquisitions, but the better-for-you snacking space in developed markets, particular focus here in the U.S. remains attractive to us with the Lärabar few years ago; we had Food Should Taste Good about 18 months ago. Those businesses have integrated well and are helping grow our – particularly our Small Planet Foods division, which is now a $300 million plus business for us. So we still – we continue to look, but you are right, the valuation has to be right, you have to have a willing seller and – to go along with a willing buyer and you have to have a price that makes sense to both parties. Valuations about a year or so ago ticked up pretty markedly and we want to make sure we find the right property at the right place if we’re going to make a move in that regard.

What I also just say is, as we said at the beginning of fiscal 2014, we’re not looking at 2014 as the year that we’re going to be doing acquisitions, we did several significant ones over F 2012 and 2013. This is a year of making sure those got well integrated, which I’m happy to report they are, but also that ensuring that we’re returning cash to shareholders. We feel back a little bit on share repurchase and we’re getting back to our normal pace on that this year. So both kind of strategically our capital allocation standpoint, we’re not looking to do M&A this year, but also we’d have particular space, we like it, but there is valuation challenge as we sit here today.

Matthew C. Grainger – Morgan Stanley & Co. LLC

All right. Thank you again, Don, and we’ll move the Q&A over to the breakout room.

Donal L. Mulligan

Thanks. Thank you very much.

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