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General Mills, Inc. (NYSE:GIS)

F1Q08 Earnings Call

September 19, 2007, 8:30 AM ET

Executives

Kris Wenker - VP of IR

Stephen W. Sanger - Chairman and CEO

Donal L. Mulligan - Sr. VP and CFO

Kendall J. Powell - President and COO

Analysts

Kenneth Zaslow - BMO Capital Markets

David Palmer - UBS

Eric Serotta - Merrill Lynch

Todd Duvick - Banc of America

Andrew Lazar - Lehman Brothers

Christopher Growe - AG Edwards & Sons, Inc.

Terry Bivens - Bear Stearns

Eric Katzman - Deutsche Bank Securities

Robert Moskow - Credit Suisse

David Driscoll - Citi Investment Research

Jonathan Feeney - Wachovia Securities

Pablo Zuanic - JP Morgan

Vincent Andrews - Morgan Stanley

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the General Mills First Quarter Fiscal 2008 Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded Wednesday, September 19th, 2007.

I would now like to turn the conference over to Ms. Kris Wenker, Vice President of Investor Relations for General Mills. Please go ahead.

Kris Wenker - Vice President of Investor Relations

Thank you, operator. Good morning everybody. I am here with Steve Sanger our Chairman and CEO; Ken Powell, our President and Chief Operating Officer; and Don Mulligan, our Executive Vice President and Chief Financial Officer. I am going to turn you over to all of them in just a minute.

First, I've got to cover my usual housekeeping items. The press release on first quarter results was issued over the wire services earlier this morning. It's posted to our website, if you still need a copy of that. We have also posted slides on our website that supplement today's prepared remarks. The conference call will include forward-looking statements that are based on management's current views and assumptions. The second slide in today's presentation lists factors that could cause our future results to be different than our current estimates.

And with that, I will turn you over to Steve.

Stephen W. Sanger - Chairman and Chief Executive Officer

Thanks, Kris, and thanks to all of you who have joined us this morning. As you can see from the financial results that we released today General Mills continues to generate good growth and operating momentum in fiscal 2008.

Slide 4, summarizes results for our first quarter. Net sales grew 7%; segment operating profit increased 9%; earnings after tax rose 8%; and earnings per share grew 9% to reach $0.81 for the quarter. Margin expansion remains a focus area for us, and our efforts continue to produce results. Our first quarter gross margin represented a 40 basis point gain versus the comparable period a year ago. Our segment operating profit margin expanded as well.

This operating margin growth includes a strong increase in consumer marketing. You can see on slide 6 our first quarter consumer expense grew 11% this year, and that was on top of an 8% increase last year; and now on the bottom-line, diluted earnings per share of $0.81 for our first quarter represented a 9% gain, which also came on top of a strong growth in last year's first quarter.

So, I'd summarize our first quarter performance this way. We had broad based sales growth across our businesses. Our operating profit grew at good rates in all three of our business segments; US Retail, International, and Bakeries & Foodservice, and in the process we expanded our margins, and invested in consumer marketing to build our brands going forward.

With this good start we expect to meet our objectives for the full year, and I will say a little bit more about that and about our annual outlook in a few minutes, but first I want to turn you over to Don Mulligan for more details on our financial results, and following that Ken Powell, will provide some operating highlights for the quarter. So, Don?

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

Thanks, Steve, and good morning, everyone. This is my first quarterly results calls, and I am glad to have some great numbers to report. Let's start on the top-line of the income statement; our 7% sales growth in the first quarter reflects solid volume gains up 3%. Price and mix contributed an additional 3 percentage points of growth, and foreign exchange added one point.

On a segment basis, US Retail sales were up 6% and the International segment posted 19% growth. Bakeries & Foodservice sales declined slightly in the quarter as reported, but that's due to discontinued product lines. Sales for continuing product lines grew 2%.

Slide 12 shows you the detail of our segment operating profit. US Retail profit increased 6%; International profits grew double-digits and so do the profits for Bakeries & Foodservice. Now when you look at our profit growth in dollars; our US Retail business generates just over half of the total. The remaining profit growth came from International and Bakeries & Foodservice segments.

Restructuring, impairment, and other exit costs totaled $14 million in the quarter compared to $2 million of income last year. And with higher debt levels our interest expense was up 8% this quarter.

Our tax rate in the first quarter was 3 percentage points lower than last year. This decrease was primarily due to foreign and other tax credits. We still expect that our annual effective tax rate will be between 34.5% and 35%. The benefits from this quarter's tax rate was largely offset by a reduction in net earnings used to calculate EPS. This reduction was due to $8 million of capital appreciation earned by holders of the B1 minority interest we repurchased during the quarter. Net capital appreciation is a reduction in retained earnings and is excluded from net earnings available to common shareholders. So, our diluted EPS is calculated from net earnings of $281 million not the full $289 million earned in the quarter.

After tax earnings from our joint ventures totaled $22 million in the quarter, like last year's first quarter, these results include $2 million after tax charge related to previously announced CPW restructuring in the UK. Excluding those charges in both years, joint venture profits grew 14% to $24 million.

We are continuing to buyback shares in line with our goal of reducing net shares outstanding by an average of 2% per year. In the first quarter of fiscal 2008, we repurchased 20.9 million shares at an average price of just over $58. This is a somewhat higher level of activity compared to prior first quarters, that's because we do expect to issue approximately 14 million shares in October under a forward contract that we have with Lehman. Lehman will pay us $750 million in cash, which we will use to reduce debt that we took out in the first quarter to support these share repurchases. We remain untracked to meet our 2008 goal of 353 million average diluted shares outstanding, which would be 2% below last year's average shares. That's net of stock options and net of the shares to be issued next month.

Let's move from the income statement to the balance sheet and core working capital items. In total core working capital was up 6% versus last year. The increased inventories balance reflects higher grain inventory prices and levels, as well as increased levels of finished goods. On a trailing 12-months basis, core working capital grew slightly less that our growth in net sales in line with our expectations. For the full year we expect core working capital growth to be in line with sales growth.

I'll next highlight a shift on our balance sheet that has simplified our capital structure. We repurchased a net $897 million of minority interest during the quarter. The repurchase in our share buybacks were funded with commercial paper, which will increase debt for the quarter. Next month we expect to pay down some of this debt with the cash from Lehman. And so at the end of fiscal 2008, we expect total debt plus minority interest to be down versus last year that consistent with a guidance of mid single-digit growth in interest expense for the year that we gave you in June.

Our operating activities generated $20 million in cash in the first quarter, compared to $111 million last year. The change reflects increased working capital use due to seasonal increases in core working capital, and decreases in other current liabilities, primarily from payments for interest and compensation and benefits.

Dividends grew to $132 million in a quarter reflecting two increases in the quarterly rate. Capital expenditures totaled $68 million for the quarter. We continue to estimate that for the full year capital spending will total $575 million, including capacity additions to support growth we are seeing in our businesses such as grain snacks and yogurt, as well as productivity projects.

So, our financial results for the quarter were strong led by growth in net sales and operating profits. Our capital structure was simplified by the repurchase of minority interest. And for the full year we are on track with our uses of cash including share repurchases, dividends, and capital expenditures.

With that, I'll turn it over to Ken, for some details on operating performance. Ken?

Kendall J. Powell - President and Chief Operating Officer

Thanks, Don, and good morning to one and all. Let me highlight what's driving our operating momentum beginning with the US Retail business. As you heard earlier, both US Retail net sales and operating profits increased 6% in the first quarter.

Slide 23 gives you our net sales growth by division for the first quarter. As you can see net sales are up from the prior year for our six largest divisions. Only Small Planet Foods showed a slight sale declined and that was against strong growth of 34% in the first quarter of fiscal 2007.

Earlier this month, we provided you with an update on Big G Cereals. Net sales for this business grew 5% in the first quarter, in part this growth reflects the good execution of our initiative to reduce box sizes, align suggested retail prices, and increase price per ounce across our Big G Cereal line. At this point in the conversion, more than 80% of Big G packages scanned and checkout are the new boxes. We're also seeing solid reflection of the new suggested retail prices on shelve. And through this period of transition our customer service levels have remained very high.

Slide 24 shows our new cereal products; Cheerios Crunch, Chocolate Chex and Curves that launched recently. These products contributed to our net sales growth in the first quarter, but they've not yet had a significant impact on Nelson reported retail sales. Advertising supporting these launches is just beginning to run this month.

Yoplait posted net sales growth of 3% in the first quarter led by core 6-ounce cup lines. We just shipped several new products. Yo-Plus probiotic yogurt, Yoplait Kids beverages with Omega 3 and Fizzix carbonated yoghurt. So, their full impact on results is yet to come. Yoplait's second quarter will include strong levels of consumer support. Media weight on core cup business will be up double-digit versus last year, plus there will be dedicated media supporting our new products.

September and October are also the months of our annual Save Lids to Save Lives promotion supporting breast cancer research. We expect these consumer marketing initiatives to drive good retail sales performance for Yoplait in the second quarter.

Our Progresso soup line grew retail sales 16% in the first quarter, and base lines were up 12%. The recent launch of Progresso Light soups, which carry a zero-point endorsement from Weight Watchers, is off to a strong start, and we have an array of other new products from the Meals division, including offerings from Green Giant and the new Wanchai Ferry Chinese dinner kits.

Our grain snacks business continues to post substantial growth, up 39% in measured channels. This growth has been generated by, both, the core Nature Valley granola bars, as well as newer products like Fiber One bars, and we have generated good share growth so far consistently during this calendar year.

The first quarter was another good quarter for our Fruit Snacks business, up 3% lead by the Fruit Roll-Ups franchise including the new Stackers product. We've been showing good market share growth in this business too.

Pillsbury also generated growth in retail sales across its portfolio. Refrigerated dough sales were up 4% driven by Sweet Rolls and Cookie Dough as well as new products like Pillsbury Simply Bake bars and Flaky Cinnamon Twists.

Totino's Frozen Pizza and Hot Snacks, both delivered strong growth in the quarter, and retail sales for toaster strudel were up double-digit and that's a continuation of the strong growth on this business since we renewed advertising support.

In our baking products division, innovation has been a key driver of our good results. We brought new convenience to establish categories like Pancake Mixes and Desserts, and supported those launches with consumer spending. Here you can see the turnaround on Bisquick with the launch of Shake 'n' Pour Bisquick and Heart Smart Bisquick, which generated 10% growth last year. And the first quarter of this year was strong again, with sales up 10% in retail channel, where we have data.

Looking forward to the second quarter, we planned a significant increase in media wave against our US Retail businesses. Our GRPs will be up double-digit. The quarter is also an annually strong time for consumer promotions with Box Tops for back-to-school period as well as Yoplait Save Lids to Save Lives campaign. This year we have more brands turning pink. Our new initiative Pink for the Cure is a cross-category promotion with more than 10 brands participating, including, Cheerios, Progresso, Nature Valley and Pillsbury, which will raise additional funds for breast cancer research.

So overall, US Retail generated good top line growth to start fiscal year 2008. And heading into the second quarter, our consumer spending ramps up in support of our new product launches to drive further growth.

Let me shift to bakeries and food service, where we continue to focus on our most profitable products and channels, and with good results. We have proactively managed our mix by exiting a handful of businesses over the past year, as a result, first quarter net sales were down 1% but segment operating profit for Bakeries and Foodservice was up 17%. And as Don mentioned earlier, sales for continuing product lines grew in the quarter.

Our Bakeries and Foodservice segment sells to multiple channels. In convenient stores Snacks, including new products like Caramel Bugles and Hot 'n Spicy Chex Mix, continue to generate growth. We are also excited about our second quarter of launch of Pillsbury Sweet Minis, which are snack-sized cookies, brownies and mini doughnuts, all designed to be purchased warm from heated display cases.

In our Foodservice distributor business, core branded product lines like Snacks, Cereals and Muffins grew, but that strength was offset by product line divestitures. So the net sales were down slightly. And in Bakeries our sales grew 1% in the first quarter. We are using both pricing and productivity initiatives to offset the higher input costs for this business segment. I'd also mention that we recently announced the shift for our Foodservice business to a predominantly direct sales force, although some account coverage will remain with brokers. We believe that this shift will provide us with more direct insights into our markets and our customers. So with these activities to drive top-line and margin growth, Bakeries and Foodservices is targeting double-digit operating profit growth for the year.

In our International segment, first quarter sales rose 19%, reflecting gains across all geographic regions where we compete, and segment operating profit grew 27%.

On slide 38, you see our top-line strength by region. Excluding the impact of foreign exchange, Canada's net sales grew 5%, Europe was up 9%, our Asia Pacific business was also up 9% and net sales in Latin America were up 40% reflecting pricing in key markets. Foreign exchange contributed 7 points of growth bringing the reported net sales growth to 19%.

For fiscal 2008 as a whole, we expect to see continued broad-based net sales growth bolstered by our new product launches. We also anticipate that strong earnings growth will continue for the balance of the year.

Cereal Partners Worldwide, our joint venture with Nestle, posted a strong quarter with an increase of 26% in net sale. Foreign exchange contributed 7 percentage points of growth, and Uncle Tobys cereals acquired in Australia added 8 points. But organic sales growth was the biggest factor, up 11%, led by key franchises such as Fitness.

So, we have made a good start toward our key operating objectives for 2008, which we shared with you in June. Our plans call for another year of broad based growth on the top-line with contributions from unit volume gains, mix, and more net pricing than in 2007. We want to build on last year's success in the newer retail formats and in Foodservice channels. We are targeting strong sales growth and margin growth for our International businesses in 2008. We have a solid line up of cost savings projects designed to help us offset the higher input costs that we are seeing. And finally, we are targeting strong levels of investment in media and other consumer-directed marketing programs to build our brands, and fuel continued top-line growth.

So, now I'll turn you back over to Steve to wrap up our comments today.

Stephen W. Sanger - Chairman and Chief Executive Officer

Okay. Well, as you have heard from Don and Ken, we are off to a very solid start in fiscal 2008, and we expect to achieve our full year of targets of low single-digit net sales growth, mid single-digit segment operating profit growth, and we are reaffirming our earnings per share guidance of $3.39 to $3.43 per share which would represent high single-digit growth from last year's EPS of $3.18.

Our estimates take into account continued inflation in our input costs over the year ahead. The charts you see here, covers total supply chain inflation, including raw materials, energy, wages, and benefits, and some other expenses. These costs have been marching upward for several years now, and we've assumed a further 5% cost increase in our fiscal 2008 business plan, as I said back in June. This overall number includes an estimated $250 million of inflation in ingredient and energy costs.

We worked to offset supply chain cost pressure with a combination of pricing and productivity. Our plans include price realization through a continuing list of price... through a combination, excuse me, of list price increases, reduced merchandise price discounts, reduced promotional frequency, and positive sales mix. Now, we've already taken pricing in a number of businesses during calendar 2007, including the low single-digit price increase for Big G cereals, which you've heard quite a bit about. A mid single-digit price increase for Yoplait, which we announced in July, mid single-digit pricing across our Bakeries and Foodservice business, and increases on selected SKUs across a number of other businesses that are indicated on the slide.

We are actively monitoring the need to pass on additional input costs pressures as they arrive. We'll also continue our company-wide focus on margin expansion and productivity. This is an effort that we call holistic margin management. And these initiatives include launching higher margin new items, eliminating slower turning or lower margin products. We've reduced our trade expense per case in each of the last two years, and we have a target to reduce it again in 2008, and we are simplifying our ingredient requirements and streamlining manufacturing steps to eliminate non-value-added costs. This is an ongoing focus for us, and we continue to add projects to our list of cost saving ideas.

These margin improvement initiatives allow us to increase our level of brand building investment, particularly advertising, and we are doing so in markets worldwide. We believe this consumer-directed spending drives awareness and trail for our brands and it supports growth and sales at everyday prices rather than at promotional discounts.

In 2007, we increased our consumer marketing investment by 8%, and we have plans to raise our investment level again in 2008.

So, I'd summarize 2008 and the operating outlook for General Mills this way. We are looking to deliver another year of quality sales and operating profit growth, consistent with our long-term model. Our plans include broad-based volume and net sales gains. We plan to continue funding strong levels of consumer marketing support across our brands. And we will continue to focus on holistic margin management to help us grow profits faster than sales. We are encouraged by the momentum we are seeing across our business portfolio today. And we feel we have a strong lineup of new products and marketing programs for the balance of 2008.

That concludes our prepared remarks today, and I will ask the operator to open the line for questions.

Question And Answer

Operator

Thank you. [Operator Instructions]. Our first question comes from the line of Kenneth Zaslow from BMO Capital Markets. Please proceed.

Kenneth Zaslow - BMO Capital Markets

Good morning, everyone.

Kris Wenker - Vice President of Investor Relations

Hey, Ken.

Stephen W. Sanger - Chairman and Chief Executive Officer

Good morning.

Kenneth Zaslow - BMO Capital Markets

Hey, I just had a couple of quick question for you, with the recent increase in wheat and oil prices, is there any risk to the $250 million in commodity cost inflation, and would you be more inclined to take any another round of pricing?

Stephen W. Sanger - Chairman and Chief Executive Officer

Well Ken, this is Steve. We don't really comment on future pricing expectations, but I would say that we are watching that carefully, and it is very possible that $250 million will rise. And so if it does, we will have to... we are monitoring closely whether we need to pass those costs on, and we are also very aggressively pursuing those holistic margin management goals. So, I would say that's on our radar screen, but we are reaffirming our guidance for the full year, which reflects the fact that from what we can see now, we believe we can manage that if it occurs.

Kenneth Zaslow - BMO Capital Markets

So you can manage the higher wheat and oil prices. And then the second question just is the advisory fees in the B1 limited costs, those are one-time in nature, we are not going to see those again, just to confirm?

Stephen W. Sanger - Chairman and Chief Executive Officer

That's correct, one-time.

Kenneth Zaslow - BMO Capital Markets

Great. Thank you very much.

Operator

Our next question comes from the line of David Palmer [UBS]. Please proceed.

David Palmer - UBS

Thank you. The question is on the Cereal category. And I know these are early days with Right Size, Right Price, but have you seen a measurable impact or a measurable response in terms of the retailers with regard to that, perhaps there has even been a competitor response to it... has there been one, and if not, do you expect it? Thanks.

Kendall J. Powell - President and Chief Operating Officer

This is... good morning, David, this is Ken Powell. I would say the markets --

David Palmer - UBS

Hi, Ken.

Kendall J. Powell - President and Chief Operating Officer

The Cereal market's been very calm. As you know our Right Price, Right Size conversion initiative has gone very well. I think when we talk to you a couple of weeks ago, we reported that 75% of the products that we were shipping were the new products, and I mean as of this week it's over 80%. So, it's going very, very well. It's difficult, still, to have good detailed information on some of the Nelson Diagnostics, but we believe that are baselines are improving, and that's something that we were counting on, and we are seeing some of that. So, that's very encouraging. And promotional spending in the category is very stable and consistent.

David Palmer - UBS

Ken, just a quick follow-up on that, is there somewhat a bit of a nail biter here about the consumer repeat ultimately here, because, obviously, if you have less volume per box, the bet is that you can step up the pace of repeat on the number of boxes, and for this essentially to be a sustainable benefit. Is that's... or how concerned are you about that repeat?

Kendall J. Powell - President and Chief Operating Officer

We are not really very concerned about that, David, we were... our big concern was just, sort of, executing the change and getting it done with all of our customers. But because we tested this idea on a number of brands prior to implementing the program, we've seen the way that consumers respond to... we've targeted... this targeted prices. And also remember that as our mix changes... as we strengthen our baseline, these are more full price boxes that we're selling and fewer of the discounted promotional boxes. So, we have... our expectation is for low single-digit growth in units, stronger, better mix and those higher prices, and we think that will all come together into a sustainable program for us.

David Palmer - UBS

Thanks very much, Ken.

Operator

Our next question comes from the line of Eric Serotta from Merrill Lynch. Please proceed.

Eric Serotta - Merrill Lynch

Good morning.

Stephen W. Sanger - Chairman and Chief Executive Officer

Hey, Eric, good morning.

Eric Serotta - Merrill Lynch

Hi. Just want to follow-up on David's question with respect to the repeat purchase, and your comment that you're not too concerned. Are you seeing the low single-digit increase? I know it's early days, but are you seeing the low single-digit increase in unit shipments that you guys have been expecting in building into the plan?

Kendall J. Powell - President and Chief Operating Officer

From what we can tell, Eric, is we're seeing those low single-digit increases. We're seeing the better base lines that we had hoped for, and so far we're very happy with what we're seeing on the Right Size, Right Price conversion.

Eric Serotta - Merrill Lynch

Great. And how much of the 30... approximately, how much of the $30 million conversion costs for Right Size, Right Price were incurred in the first quarter?

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

Well. I think we said that maybe two-thirds of those would be incurred in the first quarter, Eric, and --

Kris Wenker - Vice President of Investor Relations

It's like $17 million to $18 million.

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

Yes. So, a little more than half, and from everything I'm hearing, Eric, we're absolutely right on target with that. I think that's going to... the expense related to the conversion is going to be just about where we thought it would be.

Eric Serotta - Merrill Lynch

Okay. And two more quick questions here. Yoplait, your sales in the quarter were little bit below trend, you commented on strong growth in the core cup business and the new products coming in later in the quarter and the advertising just kicking in. Do you think Yoplait is still on track for high single-digit increase for the full year in terms of net sales?

Stephen W. Sanger - Chairman and Chief Executive Officer

I think we'll have strong growth in Yoplait this year, Eric. We did have a quarter of 3% growth and I believe that that compared to very strong double-digit growth of 17% or 18% in the quarter a year ago. So we knew we had that tough comp and as we go into the second quarter, we really do have a very, very strong lineup of new products that we are just starting to advertise... we are just starting to advertise now, but additionally we have new advertising campaigns on our core business. This is the Pink for the Cure promotion, which is, the so called Save Lids to Save Lives is really proven to be a powerful event for us. And so we are feeling quite good about the business as we enter, go into the second quarter here.

Eric Serotta - Merrill Lynch

Great. And then just a quick one for Don; you mentioned higher finished goods inventory. Could you just give me some color as to the drivers of that? Was that largely new product preparing to go into the channel or was there something else behind that?

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

Well. It was a combination of both new products, but also it's our seasonal build as we buy the vegetables for our Green Giant and Cascadian Farm brand. So you'll see that every year, this time of year as the crop comes in.

Eric Serotta - Merrill Lynch

Okay. And it wasn't a year-over-year increase in new product and it wasn't a year-over-year increase in finished goods inventory.

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

It was a year-over-year increase in finished goods.

Eric Serotta - Merrill Lynch

Okay.

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

Obviously the volume is higher as well, it was commensurate with that. And again the large increase in the quarter is easily driven by our purchase of the Vegetables frosty [ph] brand.

Eric Serotta - Merrill Lynch

Okay. Thank you so much, and I will pass it on.

Operator

Our next question comes from the line of Todd Duvick from Banc of America. Please proceed.

Todd Duvick - Banc of America

Yes. Good morning.

Kris Wenker - Vice President of Investor Relations

Hey, Todd.

Todd Duvick - Banc of America

I had a quick question. First of all, Don congratulations on your new appointment.

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

Thank you, Todd. It's good to hear from our fixed income guys.

Todd Duvick - Banc of America

Thank you. Appreciate you taken the call. I had a question, I think, Don, you mentioned that you expected the debt balance to be down at year end, and I wanted to know if you can just kind of briefly outline how we are going to get there or how you're going to get there?

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

Yes. To be clear, it's the combination, it's the combined total of debt and minority interest. So GAAP debt will be up largely because of the minority interest we repurchased this period. And if you think about the balance of the year, we are going to have $750 million in cash coming in, in October from Lehman, which will be used to pay down some of the commercial paper that we issued in the first quarter. And then we have our normal seasonal cash flow trends, which strengthen the back half of the year, as we work down the inventory that we are currently building for our key selling season.

Todd Duvick - Banc of America

Okay. All right. And then, I guess, with respect to the refinancing needs, you do have $500 million coming due in November, and I think you probably... after you get the cash and you'll probably have some availability under your credit facility. What are you looking at in terms of timing for deciding whether to tap the capital markets, and when you might come to market?

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

We continue to monitor the credit market, see when the best time was. As you're aware, we had a debt issue at late August. The result of repurchasing, the B1, and also what we thought was an attractive window in the credit markets to issue a five year paper. We'll continue to monitor that as the next few months unfold. We would expect to be back in the market during the balance of F'08 to term out some of the commercial paper that we have, and as you allude to, to refinance the $500 million in maturities we have in November.

Todd Duvick - Banc of America

Okay. And then just one final question and then I will turn it over. But at the Analyst Meeting in June, you had a change in financial policy, where previously you had talked about growing into low A credit rating and then the change was basically, no, you are happy at high BBB. And I just wanted to know if you can confirm that that is still your expectation that you just want to say, keep your credit rating about where it is?

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

That is correct, and our actions to end the year with lower total debt and minority interest are commensurate with that target.

Todd Duvick - Banc of America

Right. Okay, very good, thank you.

Operator

Our next question comes from the line of Andrew Lazar from Lehman Brothers. Please proceed.

Andrew Lazar - Lehman Brothers

Good morning.

Kendall J. Powell - President and Chief Operating Officer

Good morning, Andrew.

Stephen W. Sanger - Chairman and Chief Executive Officer

Hi, Andrew.

Andrew Lazar - Lehman Brothers

Just a quick one on gross margins. You noted that they expanded in the quarter, and obviously despite the onerous input cost arena, and perhaps some of the costs around the cereal conversion and such. I guess, I am just curious, on a little more detail on some of the puts and takes. I guess, is there a way to think about how much of it was, let's say price and productivity driven versus was there any significant impact let's say from, I don't know, building inventory of the new cereal box sizes, which could have impacted plant utilization in the quarter in a really positive and help gross margins but might not be as sustainable over the next three quarters?

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

Andrew, this is Don. I will take that one. There wasn't any one specific thing that we would point to. We think it's a continuation of the trend that we have been seeing for the last several quarters, actually for the last couple of years. We obviously did see favorable price mixes, we saw in the sales line, which does benefit our gross margins. But there isn't one particular item that we would point to that drove the gross margins outside of the... outside the overall... continue to look at pricing as well as our holistic margin management.

Andrew Lazar - Lehman Brothers

Got it. Okay, that's helpful, I appreciate it. And then one last one on... with respect to sort of consumer brand building, that's something that you have, obviously, been talking about in the last couple of quarters or more, and have been picking the pace up on that whether it's inline with or above the rate of sales growth. I know you don't look at it necessarily as, you know, overall consumer spending as a percent of sales versus your peers. It's kind of, I guess, brand-by-brand, and you build it up from the bottom up. Generally speaking is there a way to sort of say where you are or what your comfort level is, sort of corporate-wide with your levels of brand building versus where you think they need to be. In other words, is the goal, over the course of the next... whatever it is, going forward to continue to try and raise that inline with or at a greater level than sales or not?

Kendall J. Powell - President and Chief Operating Officer

Andrew, it's Ken. We've had increases... I think this is now the... we are entering the third year where we are seeing solid increases in brand building, and so we are... we like that trend a lot. As you've heard Steve say, we are also getting some trade spending efficiencies that's allowing us to slowly reduce that trade cost per case, as... over the last several years. And we really like that combination of factors an awful lot, a steady gradual reduction in trade, nice increases in consumer spend, and we still see... we still see a number of brands where more advertising and more sampling would be better and would drive more top-line growth, so we are going to keep the focus on increasing at that high single-digit level, and I think we're... we still think there is some headroom there for us.

Andrew Lazar - Lehman Brothers

Great. Thanks very much.

Operator

: Our next question comes from the line of Chris Growe from AG Edwards. Please proceed.

Christopher Growe - AG Edwards & Sons, Inc.

Hi, good morning.

Stephen W. Sanger - Chairman and Chief Executive Officer

Hey, Chris.

Kris Wenker - Vice President of Investor Relations

Hi, Chris.

Kendall J. Powell - President and Chief Operating Officer

Hi, Chris.

Christopher Growe - AG Edwards & Sons, Inc.

Hi, guys. I just had a couple of questions for you. I just was curious, if you look at like your measure of retail sales for Big G, so what that gap was between shipments and takeaway from a retail sales standpoint?

Stephen W. Sanger - Chairman and Chief Executive Officer

I think what we have said previously, Chris, is sales where retail sales were 5%.

Kris Wenker - Vice President of Investor Relations

Our net sales --

Stephen W. Sanger - Chairman and Chief Executive Officer

Our net sales... thank you, Kris... were 5%, consumer takeaway was between 2% and 3%, so there was a gap there and the vast proportion of that gap was due to the fact that we were shipping new products at the end of the quarter in advance of retail sales, and so those products are now in-store on shelf, and for most of them we have just started the advertising, and we will see the impact of those new products this quarter, so that was the gap.

Christopher Growe - AG Edwards & Sons, Inc.

Okay. And that could be corrected a bit, it sounds like in the second quarter.

Stephen W. Sanger - Chairman and Chief Executive Officer

Beg your pardon, right.

Christopher Growe - AG Edwards & Sons, Inc.

Yes. And then just the last one, I don't want to keep going on Big G, but just one more on Big G, and that was just... if you could sort of characterize a level of promotion that occurred in the first quarter, it seemed quite heavy, although you mentioned there was some stronger baselines, I wonder if you could just, kind of, characterize your experience in the first quarter with promotion?

Stephen W. Sanger - Chairman and Chief Executive Officer

Our promotion was very, very comparable to the year ago quarter, Chris. In fact, if anything, it was just a very tiny ditch down. So, the levels of promotion were very, very comparable. The merchandise price points were actually a little bit higher, and so... as I said earlier in the report. That was... I would say that was very much in line with what expected, and nothing unusual on the promotional side for us.

Christopher Growe - AG Edwards & Sons, Inc.

Okay. Okay. And I just had one more question that's... relative to the Foodservice division and you had mentioned some business that you moved away from is that just like, sort of, like an SKU rationalization, was there some sort of small divesture there, what led to the decline in sales?

Stephen W. Sanger - Chairman and Chief Executive Officer

These were sales of couple of par-baked, so these are frozen bread businesses, Chris, that we divested over the course of the year and so those are out of the comparison now.

Christopher Growe - AG Edwards & Sons, Inc.

Okay, I got you. Thanks so much.

Operator

Our next question comes from the line of Terry Bivens from Bear Stearns. Please proceed.

Terry Bivens - Bear Stearns

Good morning, everyone.

Stephen W. Sanger - Chairman and Chief Executive Officer

Hey, Terry.

Terry Bivens - Bear Stearns

Two quick ones, Ken, just one more brief one on the Big G line. 80%, I guess, on the shelves, I know it's still kind of early days on this, but of the missing 20, is that SKUs that you want to take down in price or take up on the box size?

Kendall J. Powell - President and Chief Operating Officer

Well the 80% number, Terry, just is a aggregate number of the percentage of products on shelf that is... that are the new SKUs, and I don't think we've given, and I'm not even sure we know, the details of which, how much is Cheerios and how much is other products, as already mentioned, it's very much meant to be an aggregate measure. My guess is that although I don't have documents, but my guess is if you were to look at that you'd see that probably Cheerios franchises are a little bit higher, and some of the other franchises might be a little bit lower, but on average its 80% right now, which is ahead of where we thought it would be at this point in time, and we expect that in a very short period of time we will be virtually concluded on this changeover.

Terry Bivens - Bear Stearns

Okay, fair enough. And just a quick question for Don... congratulations on your new job by the way.

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

Thank you, Terry.

Terry Bivens - Bear Stearns

Cash conversion cycle, if you look at it, I think, we're now into the fifth quarter where it's kind of moved the wrong way. Can you talk about that a little bit? I'm going to put you on the hot seat right away but --

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

I would say we clearly have the focus on core working capital growing in line with sales, we held to that over the last several quarters. I can't quote directly our cash conversion, but be happy to get back to you on that, but as I alluded to you, as we look at this year, we are confident our core working capital will come inline of growth and core working capital will come in line with our growth in net sales.

Terry Bivens - Bear Stearns

Okay. And would you expect that to kind of trend down over a certain period?

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

The core working capital?

Terry Bivens - Bear Stearns

The cash conversion. Cash conversion is more where I was interested in.

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

Well, I think it's probably... if I were to ph look at it, fairly stable if our core working capital continues to trend with our sales growth.

Terry Bivens - Bear Stearns

Okay. Fair enough. Thank you.

Operator

Our next question comes from the line of Eric Katzman from Deutsche Bank. Please proceed.

Eric Katzman - Deutsche Bank Securities

Hi, good morning, everybody.

Kris Wenker - Vice President of Investor Relations

Hi, Eric.

Stephen W. Sanger - Chairman and Chief Executive Officer

Hi, Eric.

Eric Katzman - Deutsche Bank Securities

I had a few questions. I guess, one, what is the new estimate, if there is one, on your total restructuring for '08?

Kris Wenker - Vice President of Investor Relations

I'll jump in and answer that, we gave you guidance in June to think about that restructuring line as being comparable, so what you've seen the last couple of years, so it's somewhere between $30 million and $40 million. And when we announced the first quarter restructuring actions, we gave you an annual estimate puts it about $37 million, so it's pretty comparable.

Eric Katzman - Deutsche Bank Securities

Okay. And then second on kind of going back to input costs, I guess the one thing that was not hedgeable, you guys have obviously done a very good job of hedging on selected items, but dairy and Yoplait that hasn't been a hedgeable item, and I'm kind of wondering what are you seeing in non-fat dry powder milk and, do we have, do you have more concerned or less concerned on that item?

Stephen W. Sanger - Chairman and Chief Executive Officer

Well, I'd just say, we do... this is Steve, Eric... we do take positions on dairy. We can do that. And it helps us to manage it. But it has... it's running higher than year ago by quite some amount, part of that was build into our plans, part of it's been covered with the price advance we announced in Yoplait and... I don't give specific coverage percentages on any individual commodity, but I'd say that we are watching it, and we'll cover as necessary with passing on additional prices, if that's required.

Eric Katzman - Deutsche Bank Securities

Okay. Thanks Steve. And then I guess... when did you raise selected soup pricing, on ready-to-serve Progresso? And how much was that?

Kris Wenker - Vice President of Investor Relations

It was earlier in calendar '07.

Eric Katzman - Deutsche Bank Securities

Okay.

Kris Wenker - Vice President of Investor Relations

Ken, and I apologize, I can't remember the month --

Eric Katzman - Deutsche Bank Securities

Okay.

Kris Wenker - Vice President of Investor Relations

But certainly, benefiting us this year, nor do I remember the percentage, I am sorry.

Eric Katzman - Deutsche Bank Securities

Okay. And then the second for last question, I got to say my FAS... my FASB accounting knowledge is not great, but the last footnote that you have in the release, there is a lot of big numbers there with the adoption of FAS 48 --

Kris Wenker - Vice President of Investor Relations

It's actually, FIN 48 --

Stephen W. Sanger - Chairman and Chief Executive Officer

FIN 48.

Eric Katzman - Deutsche Bank Securities

FIN 48. Is that have any impact on cash flow that we need to think about longer term?

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

Yes. Eric, this is Don, you don't need to worry about the cash flow from FIN 48. The way I would characterize that, it's a change in the standard in terms of the threshold for uncertain tax positions, the net for us was no change on the P&L or in cash flow, but there were some re-classes in our balance sheet in large amount about $750 million that was re-classed out of other current liabilities to goodwill other liabilities and additional paid in capital, but from the cash flow standpoint it won't impact us this year.

Eric Katzman - Deutsche Bank Securities

Okay. And then my last question, I will pass it on. I guess the part of the Bakery and Foodservice divisions includes products that you might normally characterize as being more aligned with your US Retail. And as you kind of scale back the Foodservice and Bakery part of that business. I guess... is there a question that's reasonable as to whether that's properly segregated, like why shouldn't you report the C-store, and the vending branded product sales in US Retail if it's becoming a bigger and bigger percentage of that segment. Do you see what I am getting at?

Stephen W. Sanger - Chairman and Chief Executive Officer

Eric, I --

Eric Katzman - Deutsche Bank Securities

I don't know, maybe it isn't the big percentage at all, but I always thought it was a... it seems to be a growing percentage, if anything.

Stephen W. Sanger - Chairman and Chief Executive Officer

Historically, branded items have been the largest part of our Foodservice business, and that includes items that are sold to commercial, and institutional feeding situations: colleges, and universities, and such. Convenience stores is kind of the one that's in the grey area, and the reason we classify that with Foodservices is because very increasingly the things we sell to the convenience store channel are consumed for immediate consumption, Ken, just mentioned the most recent innovation that we are introducing there, which is the warm doughnuts, brownies. These are ready-to-eat, and they are in the warmer. So people come in, and grab a cup of coffee, and grab a cup of cookies. And so this is the way we think about, the way it is organized within General Mills, the way we balance the profits. All of that is done within the context of Foodservice. And the fact that its branded really is not unusual, because most of... the better part of our Foodservice business is branded, some of it isn't, some of the dough that, and it's all branded as we sell it to the bakery operator, but that brand doesn't come all the way through to the consumer and most of the bakery business. But I think it's really just a function of how the products are used and how we organize to develop them and market them.

Kris Wenker - Vice President of Investor Relations

And just to quantify that a little bit, so you had $1.8 billion in sales in Bakeries and Foodservice in fiscal '07, 10% of that in convenience stores and vending.

Eric Katzman - Deutsche Bank Securities

Okay. So it's still a pretty small percent.

Kris Wenker - Vice President of Investor Relations

Growing rapidly, you are right about that. But still a relatively small percent, more of the branded products flow through that much bigger distributor segment.

Eric Katzman - Deutsche Bank Securities

Can I ask one more? I apologize, but --

Kris Wenker - Vice President of Investor Relations

Why not?

Eric Katzman - Deutsche Bank Securities

I guess, Steve, we have talked in the past about your financial targets and that we're clearly in this period of inflation, the Company has done a great job of pricing up and passing through when necessary. But I guess to what extent do the... do your long-term kind of sales targets, to what extent are they not meaningful, if there is so much pricing and/or promotional reductions, which as you know is a deduction to net sales or gross sales versus net. I mean, why shouldn't we kind of assume, in this inflationary environment, kind of, mid single-digit sales growth. Because that seems to more accurately reflect, kind of. What's going on and what could very well go on for several years if we continue to have this kind of input cost volatility?

Stephen W. Sanger - Chairman and Chief Executive Officer

Well. I think that's a fair question. We have been delivering mid single-digit sales growth and we continue to do so. And certainly if we have the kind of continued pricing pressure that we have seen, you could argue that you need more sales growth to hit that mid single-digit operating profit growth. But, we articulated that model, I think two or three years ago, and we've seen a couple of years of inflation since then. So, nothing is forever, I think one of thing that we want to make sure we are delivering is that high single-digit EPS growth that leads to, coupled with our dividend, over time that double-digit total shareholder return, and if the top-line part becomes a bit bigger because of persistent inflation that's... we will adapt to that, and we will modify what we articulate, if we see that continuing.

Eric Katzman - Deutsche Bank Securities

Okay. All right, thanks for taking all the questions. Thanks you.

Operator

Our next question comes from Robert Moskow from Credit Suisse. Please proceed.

Robert Moskow - Credit Suisse

Hi. Thank you. The aggregate is what matters in US Retail, and US Retail was strong in the quarter, but I was taking a look at Yogurt and here are the numbers I had: 14% sales growth in '06; 6% sales growth in '07, and then you have 3% here in the quarter. And actually, I found that the comparison versus the prior year was 8%. So, it seems like this is kind of a disappointing quarter for the Yoplait division. And then you have the rising cost environment, which is probably higher than you expected, can you... and then, so are you losing market share there? And I guess that's the bigger question. And then secondly, you use to provide consumer takeaway statistics for all your divisions and you are not showing that slide here. Can you show that to us in the future and other quarterly presentation, so we can kind of track consumption versus shipments?

Kendall J. Powell - President and Chief Operating Officer

Rob, this is Ken. It was... we were below our trend, our longer-term trend line in the quarter, and there is no question about that, although, I will say our core business was very, very strong. And we do, we are very happy with the new products that we have just launched that we think those are going to be good... very good entries. We do have very, very strong marketing initiatives. You are coming up for the second quarter. And we think that... so we think that the performance will improve and we are targeting very good performance for the year. So there is, you are right, we were below our long-term trend in the first quarter and we want to see that improve.

Robert Moskow - Credit Suisse

Okay. And what about, just being able to provide for all the divisions the consumer takeaway trends on a regular basis again?

Kris Wenker - Vice President of Investor Relations

Well, we have talked about that before and the problem is as the growth in US retail food sales is increasingly coming in non-measured channel that lining up our net sales growth in a period versus consumer takeaway in only a segment of our customer base is less and less month robust comparison.

Robert Moskow - Credit Suisse

Well. I think increased visibility is part of the reason why no stock has done better in the past year, and that the transparency is improved. And I guess we can make our own assumptions as to what's going on in alternative channels, and I will encourage it in general; just wanted to make that statement. Thank you.

Kris Wenker - Vice President of Investor Relations

Yes.

Operator

Our next question comes from the line of David Driscoll from Citi Investment Research. Please proceed.

David Driscoll - Citi Investment Research

Thank you. Good morning, everyone.

Kris Wenker - Vice President of Investor Relations

Good morning, David.

David Driscoll - Citi Investment Research

On Big G; given the price increase and the 5% sales growth, would it be fair to conclude that Big G margins expanded in the quarter and importantly that the expansion will accelerate throughout fiscal '08 as the box rightsizing cost decline?

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

David, we don't give that kind of detail on margin, but I will tell you that with the efficiencies that we're going to derive from this Right Size, Right Price initiative, we do believe be, that that will be support margin expansion in Big G. So, Right Size, Right Price, coupled with other productivity initiatives that we have going in the division, coupled with the pricing that we've seen makes us believe that we can grow margins in that division.

David Driscoll - Citi Investment Research

Bigger picture on pricing; you had three points of price mix in the quarter. Do you see just that particular component staying relatively constant through '08 or do you have any guidance for us on how it will fluctuate? Hello?

Kendall J. Powell - President and Chief Operating Officer

Yes, here we are. No, I would say... I'll take a shot at it. I mean this is a year, where we did know that we would again be in a challenging inflation environment and so we planned for that challenge with strong productivity. And with pricing that's a bit more aggressive this year than it was last year, and so the plan, kind of, was a function of what we foresaw. And I think it depends to a certain extent on how the COGS environment is going to fluctuate from year-to-year. If it continues at this level for another year or two, I think as Steve commented earlier there is probably going to be a little more net pricing that we have to build into the plan.

David Driscoll - Citi Investment Research

Ken, what I was really trying to drive at was not a question to ask you about future price increases, I know your comments on that, simply that you've given the guidance at $250 million in cost inflation. You have certainly your target for net sales on just the price mix component is just with your stated guidance as of today is the three points of price mix or something fluctuating thereabout, is that approximately correct for how you see Q2 through Q4?

Kris Wenker - Vice President of Investor Relations

I don't think we are going to forecast components of top-line growth, but you know you've gotten a pretty clear indication that as we put the plan together this year as well as looking to get some contribution on the top-line from volume, some from price mix, and this year there is a little bit more price in our thinking.

David Driscoll - Citi Investment Research

All right. The only thing, I'd say, Kris, in the past you have talked about components of top-line growth, but I understand you don't want to give that detail. On the final question I have for you. On the input cost side, would it be fair to conclude that the stock commodities are more than 50% of that $250 million versus the energy transportation and packaging components going into raw material cost inflation. Don?

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

I think we cut it on the $250 million --

Kris Wenker - Vice President of Investor Relations

It's mostly ingredients --

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

Yes, mostly ingredients that is our commodity ingredient inflation factors.

Kris Wenker - Vice President of Investor Relations

And packaging is not the huge driver of that, we are talking egg commodities as a primary driver there.

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

Right.

David Driscoll - Citi Investment Research

And what percent is hedged, will you give us that bit of information for the balance of the year?

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

Yes, we are currently 65% to 70% covered on ingredients, and 75% to 80% covered on energy.

David Driscoll - Citi Investment Research

That's fantastic. Appreciate the help. Thanks a lot, everyone.

Operator

Our next question comes from the line of Jonathan Feeney from Wachovia Securities. Please proceed.

Jonathan Feeney - Wachovia Securities

Thank you. Good morning.

Kris Wenker - Vice President of Investor Relations

Good morning.

Stephen W. Sanger - Chairman and Chief Executive Officer

Hey, Jonathan.

Jonathan Feeney - Wachovia Securities

Just a quick one for Don, of the 300 basis points of price mix across the company can you give us a sense of how much of that was price, and how much of that was mix, total net pricing?

Kris Wenker - Vice President of Investor Relations

I am sorry, say that one again.

Jonathan Feeney - Wachovia Securities

How much of the 300 basis points of price mix across the company, you disclosed in the slide there, how much was actual net pricing and how of that was mix, roughly?

Kris Wenker - Vice President of Investor Relations

I don't have that detail.

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

Yes. Jonathan, there is obviously a number of actions we take to drive price mix including new products, as well as the price increases that we --

Jonathan Feeney - Wachovia Securities

Sure.

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

These details, we don't breakout the 3%, that will fluctuate from quarter-to-quarter whether it's price or whether it's mix.

Jonathan Feeney - Wachovia Securities

Okay, fair enough. When you talk about 7% and 9% targeted consumer brand building, and I think that's comparable with the 11% you talked about this quarter. I guess, if that's the case, were you spending more this quarter because results were clearly coming in ahead, or was this sort of a planned front-end loading of that kind of brand building spending on the fiscal year?

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

You know, it was planned spending across selected businesses, and so it was a little higher than our goal for the year. It will continue strong as we go into the second quarter, as we bring and begin to support new products, and so, you know, the first quarter was a little bit higher, but I think the important thing is that for the year we are thinking it will be 8% or 9% in total, which is a very healthy level of increase for that US Retail business.

Jonathan Feeney - Wachovia Securities

Thanks. And just finally when you think about the media spend, you talked about different places you have some nice increases... one of the things you talked about back in January that I thought was interesting is how you maybe emphasizing some of the core products with that media spend or maybe in the past a little bit more, you'd expect this proportionally against new products. Could you tell us how do you think about that and are there, when you look at this, the strong performance in like Baking Mixes and Pillsbury USA, some areas where there hasn't been so stronger performances consistently over the past three years, is that what we are saying, is that responding to your increased media spend against those sort of core product?

Stephen W. Sanger - Chairman and Chief Executive Officer

Thank you for that question which is... you make a good point and we do... we are seeing that increasing media and increasing marketing activity against these core businesses are driving baselines for us. And so we are paying very, very close attention to that, as we talked about our Yoplait business, for example, we have very strong media support for our core cup lines, and that will... has driven, and will continue to drive growth there, and then bringing in the new products, and bringing incremental media support to those products, and I think that's the combination that can really drive growth, but we are as you say very focused on making sure we've got the right levels of support on those core businesses.

Jonathan Feeney - Wachovia Securities

Thank you very much.

Operator

Our next question comes from the line of Pablo Zuanic from JP Morgan. Please proceed.

Pablo Zuanic - JP Morgan

Good morning, everyone, and thank you for taking everyone's question. One question here in terms of the resizing strategy. I understand as I went through your profit margins in the year ahead, but can you give us some color regarding the first quarter where resizing was a drive on margins, i.e., without resizing will operating margins in the retail division have been up, is there a way to estimate that?

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

Well I think, Pablo, we have already said that that we have a significant one-time cost associated with the conversion of $30 million, and of which $18 million or $19 million of it was hit the first quarter, and so there was a one-time impact and one-time cost associated with the conversion. However, over time those new boxes and new cases will be more efficient for us, and they will generate some margin improvement for us over time.

Pablo Zuanic - JP Morgan

Now related to that can you give us a sense of whether prices at the retail level, whether they are where you wanted them to be, I mean, you have said that 80% of sales of the nearest SKUs, but are prices on those SKUs where you want them to be and just any metrics there would help?

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

We have... we did complete an audit a few weeks ago, which we... and we presented the information from that to you, and we are very close to our targeted price points, Pablo. We are within... we are within a few cents as of that audit, and so the prices have come down in line with what we were planning for, it is probably a few cents to go there $0.02 or $0.03 or $0.04, but we are very, very close to where we wanted to be, and that reflection, price reflection has gone very, very well.

Pablo Zuanic - JP Morgan

And just to follow-up, I mean, those costs that you are talking about, those $30 million, are they going to be booked... are they being booked on the gross margin line or some of that is on the SG&A line. I am just trying to understand the quarter in terms of gross margins and SG&A trends?

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

It's a mix, Pablo, between gross margin and SG&A.

Pablo Zuanic - JP Morgan

Okay. And just one last one, in terms of... when I think of brand building clearly you're increasing brand building, but can you benchmark yourself against other companies, I mean is this something where you're actually playing catch-up or are you already ahead of your peers and you are extending that lead, just help us put this number in context or if you could give us what percentage is brand building as a percentage of sales that would also help, but some color there would help?

Stephen W. Sanger - Chairman and Chief Executive Officer

Pablo, it's very difficult to benchmark to other companies because their mix of business is different, and so I think each company has a different portfolio of products and the way they work. So, we're focusing on what we're doing, and where we see our own opportunities internally, and the fact is that we see continuing opportunities to invest in brands, to increase advertising support, to add sampling... there just seems to be lots of opportunities for us to expand the penetration of our branded portfolio. So, we're testing our way into these things, we're adding support where we learnt and know that it will really work, and get us a return, and taking a disciplined approach to it, and... but with the belief that higher levels of brand building will drive baseline, and those are the profitable sales, and the most profitable sales. And so we are... that's how we're approaching this. And the comparison to other companies, I think, can be difficult.

Pablo Zuanic - JP Morgan

Okay. Don, and if I may, just one, very last one. Next quarter when you sell those shares back to Lehman at $54, I think $54.24 I calculated the one-time loss is going to be above $50 million, granted it's a one-time item, but how are you going to factor that? Is that going to be another charge or it's clearly no part of that $37 million in guidance on the restructuring costs --

Donal L. Mulligan - Senior Vice President and Chief Financial Officer

Pablo, there is no P&L impact to transaction we have with Lehman; it will all be captured in the balance sheet. We'll issue shares out of treasuries, and we will collect cash. So, what you'll see is a debit to our cash and a credit to treasury shares and additional paid in capital. So, you won't see any impact on our P&L.

Pablo Zuanic - JP Morgan

All right. Thank you.

Operator

Our next question comes from the line of Vincent Andrews from Morgan Stanley. Please proceed.

Vincent Andrews - Morgan Stanley

Thank you very much, everyone, but my questions have been answered.

Kris Wenker - Vice President of Investor Relations

Okay. I think we are kind of passed our time here, so maybe I'll cut it off at this point and people that have follow-ups, please give me a shout and we can help you some more.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect your lines.

Have a great day everybody.

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Source: General Mills, Inc. F1Q08 (Qtr End 8/26/07) Earnings Call Transcript
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