General Mills, Inc. (GIS) Management Presents at dbAccess Global Consumer Conference (Transcript)

Jun. 15, 2022 2:28 PM ETGeneral Mills, Inc. (GIS)
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General Mills, Inc. (NYSE:GIS) dbAccess Global Consumer Conference Transcript June 15, 2022 10:00 AM ET

Executives

Jeff Harmening - Chairman and CEO

Analysts

Steve Powers - Deutsche Bank

Steve Powers

All right. Thanks and welcome back. Welcome especially to General Mills and Jeff Harmening, Chairman and CEO, who’s joins us at the conference. Thank you very much for being here. We’re going to run today’s session as a just a Q&A between Jeff and myself and we will -- without further ado, we’ll get going.

Question-and-Answer Session

Q - Steve Powers

Jeff, I should say, I will issue just a reminder that General Mills is in their quiet period. So we won’t be talking about anything that pertains to the current quarter that will be reported at the end of the month.

Let’s start just with a little bit of reflection on the last couple of years of -- that has been tremendously eventful and tumultuous. I guess, as you and look, we are -- as most of the conference has established, we’re exiting one period of turmoil and potentially going into another very different period of turmoil. So, I guess, from where you sit, just in reflecting back on what the company has accomplished over the last couple of years? What do you think? What do you take out of the most recent period that sets you up, gives you confidence as you go into the future?

Jeff Harmening

Well, first, thanks for having me here Steve, and it’s been quite a couple of years. And what -- I guess, I would say, if I go back over the last four years, we’ve really shifted toward focusing just on profit to kind of staying in the middle of the boat and balancing growth and profitability and we’ve been able to do that over this last period of time and, probably, three major ways, three reasons.

The first is, to become a lot more competitive in our current categories. And we’re really pleased that in the categories in which we participated, we’ve grown market share and our priority categories about 65% to 70% of those categories in each of the last four years.

In addition to that, while we have done that, we end this period with a great deal of confidence, because while we’ve competed effectively in our current categories, we’ve reshaped quite a bit of our portfolio and that’s actually worked quite well. And so, whether it’s buying Blue Buffalo or the Tyson Pet Treats business or divesting brands like Yo Play or the proposed divestiture of Helpers and Suddenly Salad. I mean, we’ve really turned over our portfolio, which has added another 100 basis points of growth to our long-term algorithm.

And I think the third is that that we’ve continued develop our culture and capabilities. And so it’s one thing to compete effectively in the here and now. But General Mills has tremendous people, and we always have and we still do, and we’ve developed them, we’ve developed our culture, but we’ve also invested in capabilities, and data and analytics, and strategic revenue management.

And so as we come out of this current period and enter to whatever comes next, we are confident not only that we can compete well, but we’ve made the investments necessary to compete for whatever comes ahead.

And I think one of the things we found out about ourselves during the last couple of years is, just our ability to pivot quickly. And I’m not sure we would have said that four years ago, but certainly now we can say that and that’s really important, because we get asked, what’s going to come next and none of us really has a crystal ball if we’re completely honest. But we can always adjust to what comes at us. And one of the things we’re pleased is that, no matter what has come at us, whether it’s a pandemic or a war or social unrest, we’ve navigated those waters well and it’s really our ability to pivot quickly when circumstances change.

Steve Powers

Are there things that that you’ve done at the leadership team level, like you and your direct reports that have made it easier to pivot quickly, just different ways of working, as you’ve evolved and learned from the past? I mean, there is, obviously, data capabilities and information flow within the business that gives you better information? But are there ways of working at the leadership team level that facilitate agility?

Jeff Harmening

Yeah. For our -- so, first, we have an excellent group of individuals on our leadership team and there are a blend of people who have been with General Mills for a while. We have four different operating segments, as well as seven functional leaders on my team.

And as I said, a good plant -- blend of people who have been with General Mills for decades and have seen lots of things in the food business, as well as bringing new people to do things like data and analytics or supply chain.

And so but as good as those people are, I think, the success -- our success in the leadership team has not been tied to individuals, but more, first of all, as a team sport. If you want to be a leader in data and analytics, it can’t just be the person who does data analytics, it has to be tied to business outcomes and business results. If you want to have good innovation, it can’t just be marketing people having ideas. It has to be your leader of your R&D organization being able to develop those products. So it really is a team sport.

And I think what’s able us to pivot quickly in this environment has been that, we all believe in the accelerate strategy. And for us, it’s not a document we put up on a wall and we pass by once a year, it’s a habit, we update this, it is something we really live and that command intent has allowed us to delegate responsibility to lower levels of the organization so that the leadership team doesn’t have to make all the decisions.

I’ll give you an example and when COVID first started, we said, one of our command intents, we had to keep our people safe. That was our number one command intent. We need to keep our people safe and so we developed the COVID policy. We soon realized -- someone realized, I didn’t realize that, we didn’t need, people didn’t need two weeks of COVID leave, what they needed was a couple hours to take someone to the doctor. So we pivoted and said, okay, instead of just having a COVID leave, we’re going to make it a couple of hours. And it’s things like that repeated over and over again throughout the organization.

For example, we said, we’re going to be a leader in data and technology. I didn’t tell Bethany Quam, who runs our Blue Buffalo business to develop an app called Buddies. They took the command intent, we need to be a leader in data analytics and developed an app for pet parents and so those are the kinds of things that I think have enabled us to be successful.

Steve Powers

That success probably it builds on itself, because it becomes part of the culture, right, as people…

Jeff Harmening

Well…

Steve Powers

… get more comfortable making decisions that maybe before they were looking for someone to give that directive?

Jeff Harmening

It is, I’d say -- and it’s a -- I would say it’s a confident team, but it’s also a humble team. I’d hate to be an arrogant group in this environment. And the combination of confidence that you can take on what comes at you with the humility as you might not know exactly what comes next, but you know you can participate well in that environment is compelling.

Steve Powers

Right. So portfolio reshaping, last three years to four years has been a huge part of the story, as you said, enabling better growth, normalized growth algorithm going forward? As you think about the next three years to four years, is it going to be equally an important part of the General Mills story, and if so, from here how do you prioritize sort of the acquisition versus divestment criteria?

Jeff Harmening

So as we look over the last few years, we’ve reshaped about 20% of our portfolio, which is to say 20% of our sales are from different places than they were four years ago, which is quite a bit. And it’s added over a point of growth for context. So before the pandemic, we are growing at roughly 1%. Now we think on an ongoing basis for growth, we’re going to grow it 2% to 3%, which is not guidance for next fiscal year. It’s just what we think when -- whenever the new normal comes, we think we’re in a place to go 2% to 3% and that’s important because we want to get to 3% growth.

And so when you ask about, are we going to -- do we look at doing more M&A? The answer is, yes. We will look at doing more portfolio shaping. We’re pleased with the results so far. The things we’ve acquired have worked well. We have executed well against the businesses we’ve divested so far and so for us to get to that 3% plus growth rate we think it’ll require more acquisitions and potentially divestitures. But we feel good about what we’ve done and we’re confident that we can do that. The key is going after assets that are both a good strategic fit, but also one that we can execute at a price that will add value for our shareholders. I mean, we need to do both of those things…

Steve Powers

Yeah.

Jeff Harmening

… at the same time. And so looking for assets to acquire that are growth accretive and tangential of things that we’re already doing will be our goal. And then, to the extent that we need to shedding assets where somebody else is probably a better owner than we are and they’re dilutive to our current growth.

As you looked at it -- as you talked about, how do we evaluate our -- the acquisitions and divestitures? We do look at the long-term. We’re looking at internal rate of returns and discounted cash flows. What we don’t look at really, when we look at it, but it is not part of a decision criteria is, how much dilution is it going to cause in the next fiscal year? Well, we’ve been around 155 years and so we are going to play the long game. So we’ve been really pleased and we think there’s more on the -- we think there’s probably going to be more on the horizon.

Steve Powers

Great. You got several growth platforms. I think most a lot -- we fall -- I fall into the trap oftentimes of focusing almost exclusively on pet, but technically pet snack bars, Mexican food, even serialized cream. I guess, from your perspective, in that new normal, how do each of those platforms contribute to growth and profitability and how does the company prioritize investment across them and not enough onto the trap of overly -- over investing in sort of the highest growth platform?

Jeff Harmening

So as we think about our global platforms, we have five global platforms, and probably, the fastest growing is going to be pet, which is why you say you maybe people focus on that quite a bit. But if you look at them in aggregate, they will in aggregate grow faster than the norm of the company. And that’s important, because they’re also high margin businesses or global businesses, they made billion dollar brands.

The fastest growing will probably be pet. The slowest growing will probably be cereal. Although, it’s grown into the last five years, so we’ve anticipated them to keep growing. And then you have things like Haagen-Dazs and bars like Nature Valley…

Steve Powers

Yeah.

Jeff Harmening

… and Old El Paso somewhere in the middle. And in addition to those global brands, we also have some local brands that are really good, Pillsbury is a billion dollar brand, which has been growing rapidly here in the U.S., Totinos, Pizza Rolls and Pizza, in China, Wanchai Ferry. And when it comes to where we invest, I mean, first of all, they have to earn it.

Steve Powers

Yeah.

Jeff Harmening

It’s called an investment. So we’re looking for returns on those investments and the key is to have good ideas. Now we highly encourage our team to have good ideas, our big important brands, but we don’t just invest, because it’s a big brand or important brand, we invest behind really good ideas.

Steve Powers

Yeah.

Jeff Harmening

And that I think is the key, and fortunately, I can say across all the brands I just named, we have really good growth ideas and we’re executing well against them.

Steve Powers

Yeah. On cereal, the confidence that you can continue to grow relative to maybe the pushback that it was artificial -- the growth has been artificially inflated categorically from at-home consumption during the pandemic that will normalize lower and free for yourselves from share gains from disruption and other competitors. As you look forward, what -- where does the confidence come from that you can continue to grow, despite those potential headwinds?

Jeff Harmening

Yeah. So a very fair question. So if I back up a little bit. I mean, we’ve grown our cereal business for, this will be the just ended the fifth year in a row, which preceded the pandemic. So I don’t think it cause -- pandemic cause our cereal growth I think…

Steve Powers

Yeah.

Jeff Harmening

…with all respect, we call it our cereal growth. It may have been heightened during a pandemic. But we have grown cereal because we prioritize it. We’ve got great brands, we’re out innovating our competition and we’ve got really good marketing ideas.

That formula successful carried into the future. And whether that -- whether that’s on our U.S. Retail business or our Foodservice business than U.S., which is also growing share, we’re growing share in Canada, and of course, our CPW business has also been growing. And so all around the world we are growing our cereal business.

And that formula will work over the long-term, notwithstanding we had a major competitor, this year had a big disruption for a couple of quarters. And so, our -- in the second -- in our second quarter this year and our third quarter, we have really tough comps where we grew a couple of share points and those are easier.

We may not grow share during that period of time. But if you look at over time, we’re confident the formula we have, we have four to five biggest brands in the U.S. there, but that combination of having great brands, really good marketing ideas and really good innovation will win the day, even if for a couple quarters it does, because the comparisons are really, really difficult.

Steve Powers

Got it. And on pet we’re -- I guess may ask you, how much further runway do you see in pet and I think part of your answers just says tremendous whitespace opportunities not only in -- as a growth for the core, but it was growth around the core and whitespace. And to the extent that there is opportunity to enter into that whitespace, how much can be done with the existing brand portfolio versus the need to continue to come out and use as a source of M&A?

Jeff Harmening

Yeah. So, I mean, Blue Buffalo has been really successful over the last four years. We’ve roughly doubled the household penetration. It’s about 20% of U.S. homes now. And so, it’s been a good success.

What I’m most pleased with our Blue Buffalo acquisition is that, we’ve proven we can grow just beyond growing distribution. I mean, a few years ago, when we bought it, people thought, okay, when you get distribution, you’ll grow, but after that the whole thing was stopped and it turns out, it hasn’t.

And that’s for a couple of reasons. One is that the humanization trend is really the key trend around the world in pet food and Blue Buffalo is very well positioned. In addition to that we’ve proven we can innovate. We -- we’ve transformed our cat food business here in the U.S. with a Tastefuls brand. I think last quarter we grew to 75% and the only reason it didn’t grow faster is that we kind of ran out of capacity at that point.

And so, we’ve proven that we can grow Blue Buffalo. We’ve added an acquisition like the Tyson business and we’re growing that as well. And so, we think there’s a lot of room here in the U.S. to continue to grow. It’s a big category. It is $35 billion or $40 billion category. Almost half the global market is here in the U.S. So we can grow that organically.

Having said that, this humanization trend is a global trend and so there are other markets in the world where we think that the Blue Buffalo proposition can play well. We have a test market going on in China right now, which is the second biggest pet food market in the world. It’s a small test. They won’t add meaningfully to the results this year, but we’re encouraged by what we’re learning in that market and so whether it’s a…

Steve Powers

Is it more cat centric.

Jeff Harmening

It is more cat centric…

Steve Powers

Yeah.

Jeff Harmening

… in China and getting more cat centric every day, which makes sense if you think about the number of people living in apartments and how well suited cats are to apartments versus dogs. But the humanization trend is the same for cats as it is for dogs even in a market like China.

And so there’s a lot of whitespace in the U.S. to grow organically, there’s a lot of whitespace around the globe to grow, a lot of what we can do organically by doing things like launching Tastefuls. But to the extent that we see an opportunity to grow in organically, we’re open to that too, just like we did with the Pet Treats acquisition.

And as I said, we’re pleased that we could grow the core Blue Buffalo, while integrating this new business at the same time. So we think there’s a lot of runway ahead of us even over the medium- and long-term in pet for us,

Steve Powers

How do you think about, what’s the -- what are the market prerequisites for high end pet food to be a viable market for entry? Is there household income per -- GDP per capita type of threshold that says, okay, these are -- those are markets that are ready for entrance, because it seems like, pet food, that as an opportunity -- a growth opportunity has been there on paper for a while, but it’s taken -- taking time to evolve?

Jeff Harmening

Basically and that’s intentional on our part, we felt as if we had a lot to prove with the Blue Buffalo business in the U.S. and that -- if we didn’t prove that, then nobody was really going to care about what we would do outside the U.S.

Steve Powers

Yeah.

Jeff Harmening

But if we could prove that we could grow the Blue Buffalo brand in the U.S., which I think we’ve proven at this point, then we can turn our sights in not only growing here in the U.S., but more broadly.

As we look at markets across the world, the humanization trend is the same. The size of the premium market may differ according to the wealth of a country. But the trend toward humanization is very clear in every market that we’ve looked at. And so the only question then is going is really, okay, how big a business can it be in different markets?

Steve Powers

Yeah.

Jeff Harmening

And how fast can it be and making sure that you’re citing the investment with the opportunity, but we see the opportunity in many, many markets around the world.

Steve Powers

Yeah. You mentioned a number of…

Jeff Harmening

Yeah.

Steve Powers

… local regional brands that are not necessarily small, like, Pillsbury. How -- what’s the -- how does the overall company prioritize investment behind global initiatives versus those local regional initiatives? How does that process work as those different issues compete for funding?

Jeff Harmening

Yeah. I mean, it’s really up to the business leaders to prioritize those. In the case of Pillsbury, it’s a billion dollar brand with good margins. And so to the extent you have good ideas, it’s pretty easy to prioritize spending against that. We’ve got we’ve got great ideas on Pillsbury. In fact, I think, over the last couple years, we’ve grown it by $300 million in the topline.

And so, and I think that’s one of the things, that one of the reasons we’re successful is that when we see ideas and we see ideas working in the marketplace, whether it’s a global brand or a local jam like Wanchai Ferry. We’re introducing some new advertising on Wanchai Ferry in China that we’re excited about. We have the resources and scale to go after those ideas.

Steve Powers

Is a potential recessionary environment a time to double down on investment, stay ahead of competition and position yourself to be to emerge stronger or is it a time to pull back? What’s the philosophy of the company?

Jeff Harmening

It -- for us is really a time to -- we -- I don’t -- we don’t feel as if we should choose between doing well on the present and preparing our well for the future, for us is an end. And so it’s not really a time to pull back, it really is a time to make sure we’re executing well in the current environment, which we are by virtue of the market share gains I talked about earlier, but also investing in capabilities like strategic revenue management or data and analytics capabilities.

We’ve invested over $100 million in our data and technology capabilities over the last couple of years, because our goal which we think is eminently achievable as it come out of the pandemic stronger than we went in. And history has shown that those companies that can not only perform in the current but also bake -- build capabilities that set themselves up for the future, are the ones that come out of times like this even stronger.

Steve Powers

What’s the most measurable or tangible way that those investments in, for example, data capabilities have driven results? What’s the like -- show the return? So is it measured in speed to market? Is it measured in sort of consumer insights that produce more greater success rates on new initiatives? Just how does -- how do those investments get measured by return?

Jeff Harmening

So the -- when we look at our investments in data and technology, first of all, we look at returns like we would any other kind of capital investment or marketing investment. And importantly, some of the investments we make are dedicated to growing topline sales faster.

So I’ll give you an example, the Buddies app we have for Blue Buffalo or the Box Tops for Education app we have or how we’re tying our stores together with Haagen-Dazs retail outlets in China. Those are all growth facing and so there are certain set of metrics we look at in order to make sure that, that we are -- those are achieving what we want them to be from an investment perspective.

At the same time, we’re also using data and analytics in order to help improve our cost structure. And so in the supply chain, for example, we have used data and analytics capabilities in our global sourcing function. And we look into how much money can we save and what kind of efficiencies can we drive there just as we would a regular holistic margin management program.

So I think the most important for us is that, we do measure the investment, we’re doing it both to grow the topline and consistent with our strategy to kind of stay in the middle of the boat and make money while we grow our topline. We’re also investing in data and analytics capabilities that help us become more efficient as well.

Steve Powers

Is -- are investments against ESG initiatives viewed through the same lens or is that just more integrated into the day-to-day fabric of who General Mills is?

Jeff Harmening

So the answer is both. I mean the…

Steve Powers

Okay.

Jeff Harmening

We’ve had a Public Responsibility Committee on our Board of Directors for 50 years, 50. So, ESG did not just come to us in the last couple of years, we’ve been doing this for a long time, and we keep getting better at it, which I think is the encouraging part.

For us, importantly, ESG is woven into our strategy. So it’s a strategic pillar, just like brand building or innovation or driving scale as a strategic pillar. And I think that’s important, because what that means is that we analyze the returns on that, on those investments, just as we would on brand building and other things, we prioritize them the way we would other things.

And so we have a Global Council that oversees which initiatives will go after, but also how they go through the organization and I’m the Chair of that Council. And not only am I on that Council, but we have a Chief Sustainability Officer, the Head of our North America Retail business, the -- our Chief Strategy and Growth Officer.

And so, when we make a commitment to, let’s say, reduce greenhouse gas emissions. We are very clear about the prioritization of the kinds of things that we look at. But then it also allows us to not only create a glide path to hold the organization accountable for achieving what we said we’re going to achieve.

Steve Powers

What -- is there -- so you recently dedicated a full investor session to being a force for good.

Jeff Harmening

Yeah.

Steve Powers

How -- is there a way to crystallize how being a force for good enables you to win up and down the value chain with consumers, but also with retailers, with suppliers, because it’s clearly, as you say, it’s part of, you dedicate a lot of intellectual capacity across the company, a lot of financial resources to it. What’s the punch line as to how that generates a return for General Mills shareholders?

Jeff Harmening

Yeah. I think the best way to articulate that would be to give a couple of examples. So, for example, regenerative agriculture, General Mills is probably the leader in regenerative agriculture globally and we know we need to do this for the health of our company many decades from now.

Having said that, we also need to generate returns in the current and so brands like Annie’s and Epic Bar and Laura Bar and Nature Valley, they all leverage regenerative agriculture many times on the packaging, to tell consumers about what we’re doing with regenerative agriculture.

And so while we have a commitment to generate a million acres of regenerative agriculture by 2030 and we’re 350,000 acres in after a couple of years. Importantly, we’re driving that through some of our biggest most important brands, because the consumers of those brands really care about regenerative agriculture and our retailers do as well.

So when we talk to our retailers about what we’re doing, as long as it makes sense with the brands and is consistent with what they’re trying to achieve, they want to work with us on programs like that. So the regenerative agriculture, I guess, would be one example of ways in which we drive it through our system.

I’ll give you one more, which would be recyclable packaging. We have plastic packaging, just like everyone else. Now, it’s only about 11% of our packaging. So it’s relatively small. But by Nature -- you’d expect a brand like Nature Valley to have recyclable packaging, because its Nature Valley. And we made all the wrappers recyclable in this last year and we partnered with retailers in order to do that and share that information with consumers.

Steve Powers

So as -- across the spectrum of capabilities investment, if I lump in some of these sustainability initiatives as capability investments, but also consumer insights and data and digital, to what extent does the company rely on its own resources to make progress against those capabilities versus working with third parties and has that third-party involvement and engagement gone up over time, gone down over time? What’s the build versus buy decision making that you guys go through?

Jeff Harmening

So as we look at our capabilities, I mean, we look at, are we going to build or buy or rent on a case-by-case basis and if I -- I will give you a couple of examples of how we think about that. So strategic revenue management, we didn’t have much of a capability in that five years ago and so we brought a few people in from the outside who are experts in that. But we also combine them with people who had been at General Mills for a long time at a strong analytical bent. So we could take the theory and actually apply it to our business.

And so we’ve developed that capability internally, but we did it using some expertise from the outside combined with our own teams. When it comes to developing apps, like, the Buddies app for Blue Buffalo or Box Tops for Education, that’s not center to what we do and so we work with third parties in order to help us design what it is we’re trying to accomplish, but we combine that with business people from those businesses, because they can set the objectives on what it is we’re trying to accomplish, what do pet parents really want and then you can have designers from the outside come in and contract with them to get that up and going.

And so we’re very pragmatic, but it has evolved over time and so we’re using a combination of external resources or people brought in from the outside combined with people who know our business and our brands very well. And we find that to be the most productive -- the productive path, and again, it’s a team sport, and we find that having outside expertise combined with knowledge of General Mills is a winning formula a lot of times.

Steve Powers

Is there a scenario where you would actually think about acquiring capabilities as part of an M&A strategy, maybe it’s an R&D component, maybe it’s something around data and digital. But would you go so far as to actually look for companies to acquire to enhance your own capabilities?

Jeff Harmening

I mean, we haven’t done that so far and I suppose it’s possible. What I would say is that, there are a lot of companies out there with great capabilities that may or may not be proprietary and that -- and the magic is linking the capability itself to your own business. And so, I’m not going to say that we would never do that. We certainly might at some point, but it’s probably not the first instinct that we have.

Steve Powers

Yeah. Okay. So strategic revenue management and HMM Productivity Program, hugely important to the current General Mills and they’ve evolved, as you were discussed discussing. Are there examples as to what you can do against those initiatives that you couldn’t do three years, four years ago? How have -- how has the company’s ability to sustain and evolve and accelerate those programs progressed?

Jeff Harmening

Yeah. I think, importantly, you link strategic revenue management with holistic margin management, because holistic, I would say that, one is actually a subset of the other. The ability to price effectively is actually a subset of holistic margin management.

Steve Powers

Yeah.

Jeff Harmening

And we look at those capabilities are very similarly. In fact, when we built our strategic revenue management capability, we looked at what we did for holistic margin management and applied it. And the important component of that is that, our productivity is not episodic, it is something that we do all the time and the same is true with revenue management now. That was not the case four years or five years ago.

And so, and with holistic margin management, we’ve developed three-year roadmaps of things we want to do to generate productivity. We do the same sort of thing with pricing now. Having said that, over the last couple of years, I think, we use about six years worth of ideas in about two years, because the environment has dedicated that, we could not have done five rounds of pricing, which is basically what we’ve done in the last year, five years ago.

There’s no chance that we could have done that. But because we have an always on capability, because we have a pipeline of ideas, because we’ve applied data and analytics, it has allowed us to be successful in that in this environment.

Steve Powers

So, as I mentioned at the open, you’re in your quiet period. So let’s recognize that. But in the current environment, how is the company generally balancing investment needs to support growth strategy versus and I know you’ve discussed those sustained, those are still being prioritized, but what’s the process by which you balance those strategic investments with the need to deliver bottomline and free cash flow?

Jeff Harmening

So, yeah, again, without giving guidance on next year, what I would say, over the longer term, our -- we’ve been very clear that our sales guidance growth is 2% to 3% inflationary period notwithstanding, which can lead -- which leads to mid single-digit operating profit growth and mid-to-high single-digit EPS growth and then combine that with a dividend you get a really good return for shareholders.

So that is our model and within that model, we want to make sure that we’re investing in an activities that can help us achieve that model and generate the free cash flow that is necessary and our free cash flow conversion has been really, really good over the last number of years.

And the key is to make sure we’re investing in some areas, while deprioritizing others, so it’s not just spend more, spend more, spend more, it is actually invest to generate return and then sometimes quitting activities that aren’t generating the returns that we want in order to do things more like data and analytics that we think are going to be more important to us?

Steve Powers

What about capital allocation? To the extent that -- I think the capital allocation priorities of the business are relatively clear cut. But if we go into a more difficult environment, does that force a reprioritization at least temporarily?

Jeff Harmening

Yeah. So, we started the conversation by, things we’re pleased with and kind of getting back into the middle of the boat on growth and profitability. I will say in other areas that we’re pleased that we have returned to a more normal capital allocation period after having acquired Blue Buffalo a few years ago. And so, our first call on capital is going to be growth for the current business and we’ve got some growth businesses, we’ve invested in that and we’d like to return profile.

After that it’s growing dividends, roughly in line with our sales growth and it’s something we don’t -- it may be clear, but it’s something we don’t take lightly. We’ve maintained or grown our dividend for 94 straight years as a public company and if you look back when we were private, about 120 years. So that’s not -- this is this is a commitment.

And then after that we’ll look at M&A and to the extent we can do M&A, we will do that. And to the extent we don’t see that, what we see just small M&A opportunities, we’ll also do share repurchases as well. And we really got back to doing that in fiscal 2021 and we’re doing, we’ve applied that capital allocation approach this year and I suspect we’ll apply a similar thinking into the next fiscal year.

Steve Powers

Yeah. If the consumer does face more pressure, well, let me ask you one -- let me ask you before we get there, just in general -- as you look out over the horizon and look at the macro landscape that we’re all looking at, what’s your level of caution and concern, just philosophically, as you look at the U.S. economy, the European economy, all of your end markets? What is your scenario model? Has the bearish -- bear case scenario is getting more bearish? And what’s your -- what’s the kind of the lens through which your view in the current environment?

Jeff Harmening

Well, it -- I don’t think I’m going to go out on a limb and say, the economic outlook for many developed market…

Steve Powers

It is not positive.

Jeff Harmening

…is not highly positive.

Steve Powers

No.

Jeff Harmening

And so I don’t think that’s a record setting statement. We tend to operate well in environments though where the economics get difficult. And the reason for that is, is that, like during the last recession, consumer’s trade out of away from home eating and at-home eating. And our categories tend to grow a couple percentage points faster. Forget about inflation, a couple percentage points faster in periods where the economy is not doing as well, because it cost to eat out-of-home is about 2.5 times what it is to eat at-home.

And so when people talk about trading down a lot of times they start with, okay, what’s private label going to do? That’s actually not the best starting point. The starting point is, where are people going to eat, and increasingly, they eat at-home. And we’re actually starting to see that already, even over the last month or two, the percentage of food occasions that are at-home have grown by a point or 2 even over the last couple of months when people are itching to get out, but they’re concerned about the economic scenarios that face them cause them be at home more.

Steve Powers

And what is this -- what is that history in terms of the across your portfolio as it stands today, the benefits from essentially trade into the category versus migration up and down and around the category by consumers and maybe in and out of your brands?

Jeff Harmening

Yeah. What we -- certainly what we saw in the last recession and not everybody listening is probably aware of what happened during the last recession, but I’m acutely aware, I was at General Mills at the time. What we saw was that consumption shifts at-home by a couple of points or a category as an aggregate grew a couple of points faster. We did see the private label gain share as consumers look for value. But we also saw that we held share.

And I think the lesson learned there is that, if you have strong brands and you apply good capabilities and good branding with that, you can hold share in an environment that’s growing a couple points faster, your business looks pretty good.

And it’s the brands in the middle that gets squeezed or the companies who aren’t investing are the ones that then ended up on the wrong side of the ledger and we’ve applied that thinking to the current environment and we’re really pleased with our brand performance and our capability development.

Steve Powers

And from a -- I guess maybe from two perspective, price elasticity and market share momentum, how does -- in a recessionary environment and we can debate the magnitude of recessions and the like. But where would you advise investors to expect more volatility in your trends versus more sustained momentum?

Jeff Harmening

Well, I would advise investors that, I mean, look, our goal is to be competitive wherever we compete and we’ve done it for four years in a row before a pandemic and during a pandemic. And if you’ve done both of those things, I wouldn’t want to bet against us that we can do it after a pandemic ends and during a recession, because we’ve proven that we can.

I think that’s the most important thing and I would tell you that, it’s be clear that food consumption at-home is not going to decline anytime soon to the extent that we have that recessionary outlook, probably, I will refrain from going category-by-category.

But I will say that even during the last quarter, we’ve seen elasticity hold up quite well. That doesn’t mean there’s no elasticity. There’s no such thing as no elasticity. But the elasticity isn’t held up well to what they were doing in the three months and the six months prior to that. So even with the amount of pricing that we see in our categories now, which is our double digits over the last quarter, we actually haven’t seen meaningful change in elasticity.

Steve Powers

As we go forward, do you, I mean, there’s been a lot of concern since Walmart, Target reported about the ability for CPG companies to continue to take price? Do you see that just because there’s more burdens building on the consumer and because of burdens that have built on the retailers? Do you see that as a fair concern and as you think about the potential need to achieve more price in the future, does the industry and General Mills alongside it, have to rely more on SRM and less on list price or is that not -- it is not that simple?

Jeff Harmening

Yeah. When it gets to the recent announcements by retailers or probabilities of them speak to their announcements independently, I won’t speak on behalf of them. But what I would say is that, when it comes to pricing, we’re all concerned about whether consumers going. I mean, our main job is to satisfy consumer needs.

And our first line of defense against having to raise prices is our productivity and General Mills has one of the best productivity rates in the industry, if not the best. I mean, we’ve generated $4 billion in productivity over the last decade.

Having said that, 4% is a good number, but when your inflation is double digits, you can’t really get away from pricing. And so we do see prices going up. I suspect prices will continue to go up as long as inflation continues to rise. And it’s really a matter of our input costs going up so significantly, so even with inflation or even with our productivity efforts, it is just not enough in this environment to go against that.

In terms of how retailers react, I mean, they’re seeing the same inflationary pressures we are and nobody really likes the consumer to pay more, especially when you see a tough economy coming ahead of you. But it’s a reality of the input cost market that we’re in, when -- as we said in our third quarter earnings call, our inflation in our fourth quarter be up double digits. I mean, it’s hard to run a business in that environment without having prices go up.

Steve Powers

A couple minutes left. I want to hit on supply chain, just the supply chain environment. Are you optimistic, is the company optimistic that that environment gets better as we go forward or -- and maybe it’s not a universal statement, maybe there are pockets where you -- you are in pockets where you’re more concerned, but just how your environment -- you’re assessing the supply chain environment -- supply environment, both inbound and outbound?

Jeff Harmening

Steve, I’m generally an optimist by nature, but hope is not a strategy. And we are not hoping that our supply chain situation gets better externally. And even if it may have marginally improved over the last few months, there’s still a record number of disruptions vis-à-vis what we had faced before. And so we’re not counting -- we’re not -- we’re certainly not counting on the supply chain challenges to ease up anytime soon. If they do, that would be great.

But we’re going to operate as if we’re still going to face the disruptions and that we -- it’s up to us to be agile enough to pivot when those disruptions occur and we’ve been very good at that over the last few years and I anticipate will continue to be good at that. But are -- we are not forecasting…

Steve Powers

Okay.

Jeff Harmening

…and then to supply chain disruptions anytime soon, I’d rather plan for them to continue and not have them continue than to plan not to have them continue and then be forced to deal with them when they come up.

Steve Powers

Are you operating a more complicated supply chain environment as you try to mitigate the risk of outages across the supply? So has the -- has what you’re managing become more complicated not because it’s more volatile, but just the scope of how you’ve architected your supply chain?

Jeff Harmening

We -- despite our efforts to simplify what we do and we have greatly simplified what we do the external environment has caused a supply chain, especially as ingredient inputs and inputs into our manufacturing plants, that has certainly become more complicated and we’re fighting that complexity with internal simplification and so not having 80 different kinds of starches or 50 different kinds of vanillas, but kind of ratcheting it up down to really what the consumer needs.

And so we’ve -- one of the things we have done well is, we’ve reformulated our products sometimes more than 10 times over the last year in order to make sure we have ingredients that the product needs, but also fulfill consumer needs. So the worst thing you can do in a complicated environment is fight complexity with complexity. So we have tried to do that with simplifying what we do, and yeah, there’s no question that the external environment is more complicated than it was a year ago.

Steve Powers

Yeah. When you’re facing this kind of complexity and we got a couple minutes left. So when there’s this much complexity and this much uncertainty ahead of you, how do you define success? So like when we can reconvene here next year, what’s the measure of success that you want to be held to over the next 12 months?

Jeff Harmening

No. I would say on that question, the first would be, for the last four years, we’ve met or exceeded our financial guidance. And if you look at the guidance we issued at the end of the third quarter that would have exceeded what we thought we would do at the beginning of the quarter end.

When we’re here a year from now, whatever we issue for fiscal 2023, I think, it’ll be successful, if we meet or beat our financial guidance for the year. That would be the first most important thing, because that’s a promise to our investors that we’re going to do what we say we’re going to do. And I’m really proud of being able to do that over the last four years through all kinds of, of external challenges.

Beyond that the -- while we do that, which is kind of the current term, a year from now, we will build on our capabilities and I’ll have more examples to give you on what we’ve done with data and analytics, and more examples of what we’ve done with pricing and more examples of how we use speed and agility to our advantage.

And so the ability to, and perhaps, more portfolio shaping that we have done. And so our ability to not only meet our current commitments, but be able to talk with you coherently with some really tangible examples about other things we have done to move the ball forward on longer term initiatives. That for me is the signal of success.

Steve Powers

Great. On that note, we’re out of time. So good timing. Thank you. Thank you, Jeff. Thank you, General Mills. Thanks all of you for listening in. Appreciate it and have a great conference.

Jeff Harmening

Thank you, Steve.

Steve Powers

Thank you.

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