General Mills, Inc. F4Q08 (Qtr End 05/25/08) Earnings Call Transcript

| About: General Mills, (GIS)
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General Mills, Inc. (NYSE:GIS) January 8, 0000 ET

June 25, 2008 9:00 am ET


Kris Wenker – Vice President Investor Relations

Ken Powell – Chairman, Chief Executive Officer

Don Mulligan – Chief Financial Officer

Chris O’Leary – Chief Operating Officer International

Ian Friendly – Chief Operating Officer US Retail


David Palmer – UBS

Andrew Lazar – Lehman Brothers

Terry Bivens – J.P. Morgan

David Driscoll – Citigroup

Robert Moskow – Credit Suisse

Eric Serotta – Merrill Lynch

Ken Zaslow – BMO Capital Markets

Kris Wenker

Good morning everybody, we’re going to get ourselves started here. I’m Kris Wenker, for those of you that I haven’t had a chance to meet, I’d like to welcome you, everybody here in the room joining us in Chicago as well as the people who are listening in via the webcast.

Here with me are General Mills Chairman and Chief Executive Officer Ken Powell, our CFO Don Mulligan, Chris O’Leary who’s Chief Operating Officer for the international businesses and Ian Friendly who’s our Chief Operating Officer for US Retail.

Before they begin their presentation, I get to do the reminder that our presentation will include forward looking statements. These are based on current estimates and assumptions and as the slide behind me illustrates, there are factors that could cause our future results to be different than our estimates.

We issued a press release earlier this morning that contains our fourth quarter and our full year 2008 results. You can find a copy of that press release out on our website if you haven’t yet pulled one. The slides from today’s presentation are also on our website. There are a few slides at the end of the packet that reconcile non-GAAP measures that we’ll be referencing today.

And that’s the end of my housekeeping, with that I’ll turn it over to Ken Powell.

Ken Powell

Well, good morning to one and all. I want to thank all of you for joining us this morning and I’d thank you all very much for your continuing interest in General Mills. I’m very pleased to be here to give you this update on our 2008 performance and as you know we’ll be talking about our plans for continuing our growth in 2009.

Fiscal 2008 was a strong year for General Mills, particularly on the top line. Every one of our operating divisions and business segments posted a sales increase for the year and we finished well with net sales in the final quarter up 13%.

This sales performance drove fiscal 2008 results to exceed our original targets for the year. Last June in Minneapolis, we outlined 2008 plans calling for a low single digit sales growth, mid single digit growth in segment operating profits and diluted earnings per share in the range of $3.39 to $3.43 per share.

Our actual net sales grew 10%. We were able to counter higher than planned input cost inflation and still deliver 6% segment operating profit growth. And earnings per share came in well above target at $3.71 per share. This figure includes non-cash mark to market and tax gains that Don will talk about in more detail in just a minute. Excluding those gains, EPS would be $3.52, up 11% from last year’s results.

This performance met or exceeded the key metrics in our long range growth model. This model isn’t the best we can do in any one year. The model is about the performance we believe we can and should deliver consistently over time. We think this level of compound sales, operating profit and EPS growth combined with a dividend yield of between 2-3% should result in double digit returns to shareholders over a long period of time.

We adopted this model at the start of fiscal 2006. And as you can see from this chart, our results over the past three years have tracked at or above our long term growth goals. We also have a goal of delivering our targeted sales and earnings growth while improving our return on invested capital.

Here we are targeting an average increase of 50 basis points per year. In 2008, our return on capital excluding the mark to market and tax gains increased by 50 basis points. And over the past three years, our return on capital has improved by 160 basis points. We’re driving this improvement in part through strong discipline and returning cash to shareholders.

In fiscal 2008, we returned $2 billion in cash to shareholders through dividends and through share repurchases and over the past three years, these cash returns have exceeded $5 billion.

Our total return to shareholders in 2008, combining dividends and stock price appreciation was 4%. This was below our long term target but it was good relative performance in a difficult year for the equity market. And over the past three years, our average annual return to shareholders met our double digit goal.

We believe our opportunities to generate continuing growth and increasing returns are excellent. We compete in growing categories that are on trend with consumer demand for healthy, convenient foods.

Our brands hold strong and growing market positions in these great categories. And today this is true for General Mills not just in the US but in markets all over the world. We’re going to tell you more this morning about our plans for continuing growth.

Here’s our agenda for the morning. We’ll begin with Don who will provide a bit more detail on our 2008 performance and share our key financial targets for 2009. Then Chris O’Leary is going to give you an update on the continuing growth of our international business. Ian will follow him with a review of our growth plans for the US. And then I’ll wrap up with some overall comments on our growth outlook for 2009 and we’ll open the floor to all of you for questions.

So with that, Don, over to you.

Don Mulligan

Thank you Ken and good morning everyone. I’d like to join Ken in thanking you for being with us this morning. We do appreciate your interest in General Mills. And I’ll start off a few specifics on the fourth quarter then I’ll add to Ken’s comments about annual results and discuss our key financial targets for fiscal 2009 and then I’ll move to a discussion of our three operating segments.

General Mills ended fiscal 2008 with a very strong fourth quarter. Net sales were $3.5 billion, up 13%, segment operating profit was up 5%, this included a 20% increase in consumer marketing spending as well as our most significant quarterly percentage increase in input costs for the year.

Earnings after tax were $185 million and diluted earnings per share were $0.53. These reported earnings include a reduction of our mark to market valuation of certain commodity positions. This reduction was primarily due to key commodity market price declines from the prevailing levels at the end of the previous quarter.

Excluding this mark to market impact which was $0.20 per share in the quarter, fourth quarter diluted EPS would have been $0.73, up 18% from the $0.62 we reported a year ago.

Our sales growth for both the quarter and the year reflects positive contributions from volume, price and mix. Volume contributed 3 points of growth in both time periods. Price and mix added 5 points of growth for the year and more in the latest quarter. In addition, foreign exchange gave us two points of growth in both the quarter and the full year.

While three of our business segments contributed to the strong top line growth trends, US retail sales were up 9% in the fourth quarter and 7% for the year with good volume contributions in both periods.

International continued its strong growth, up 21% for both the fourth quarter and the full year. And bakeries and food service sales grew at double digit rates in 2008. Pricing actions related to higher input costs more than offset moderate volume declines in the quarter and for the year.

Our gross margin was up through the first three quarters of the year but we did give some back in the fourth quarter. The first factor was a $111 million reduction in the mark to market valuation during the quarter. Including that impact, gross margin was 29.7%.

Excluding the mark to market reduction, our gross margin would have been 33%, still below last year. Most of this decline was in our bakeries and food service segment. For the year, our gross margin declined 40 basis points. Excluding mark to market gains, product recall expenses and $18 million of accelerated depreciation as part of this year’s restructuring activity, our gross margin would have been 35.6%, down 50 basis points from last year.

We remain committed to protecting our margins because we believe it’s critical for the long term health of our business. We won’t be able to grow our margin each and every quarter, but we will stay focused on this metric. And that’s because strong gross margins give us the resources to invest in our brands.

We’re committed to supporting our brands with strong levels of consumer directed marketing. Our consumer marketing spending was up 13% for fiscal 2008, representing a third straight year of increasing investment.

And so over the last four fiscal years, we’ve experienced sustained pressure from rising input costs, including 7% inflation in 2008. We’ve also steadily increased levels of consumer marketing support for our brands.

And still we’ve largely maintained our segment operating profit margin since 2005. Finally, we’ve met our goal of increasing total segment operating profits at a mid single digit rate in each of the past three years. This continuing growth drove profits over the $2.4 billion mark in 2008.

Our joint ventures are also making increasing contributions to our overall earnings. Joint ventures contributed after tax earnings of $111 million in 2008. JV results for both this year and last year included items associated with the CPW plant consolidation in the UK. This year, the net impact was a gain of $8 million, last year it was an $8 million expense.

Excluding restructuring items from both years, JV earnings were $103 million in fiscal 2008, up 27%. This good growth reflects strong net sales gains, with CPW sales up 23% and Haagen-Dazs JV sales up 16% for the year.

And so on the bottom line, we delivered earnings of $3.71 per share this year. Excluding the mark to mark and tax gains, our earnings per share were $3.52, up 11% from the $3.18 we reported last year. That’s our second year of double digit earnings per share growth exceeding our long term growth model.

Let’s shift briefly to the balance sheet. We made significant progress on our core working capital in the quarter. But it did grow slightly faster than sales for the year, largely because of higher inventory values and sales growth acceleration in the fourth quarter.

Now despite this higher capital working need, our cash flow from operations exceeded $1.7 billion and nearly matched prior year levels. We simplified our capital structure this year and reduced our level of debt plus minority interests.

For 2008, total debt plus minority interests was down more than $100 million to $7.2 billion. And our debt today is more fixed rate and longer tenured than a year ago. As we look forward to fiscal 2009, input cost inflation will remain a significant challenge for us. We expect fiscal 2009 inflation to be higher than recent years. Our estimate for the year is 9%.

To remind you, this chart looks at total supply chain inflation, including raw materials, energy, wages and benefits and other expenses. Within the 2009 estimate is $500 million of commodity and energy cost inflation. That compares to $345 million in fiscal 2008. We expect the strongest year over year increase in costs to fall in the early part of 2009.

And we’re currently 60% covered on our anticipated commodity and energy needs for fiscal 2009. We have a strong pipeline of cost saving initiatives in place as our first line of defense against this inflation. We’ll also continue to actively manage our mix and lastly, recent prices actions will offset part of this inflation.

In total, our plans include a balanced approach to productivity, pricing and mix that we expect will allow us to protect our margins this year. So for fiscal 2009, we expect another year of good earnings growth, consistent with our long term model. We expect continued improvement in return on capital and will certainly maintain our cash discipline.

Let me give you some additional detail on each of these objectives. Here’s our overall guidance for fiscal 2009. We expect a mid single digit increase in net sales that’s ahead of our long term model, primarily due to pricing and mix. We’re also targeting a mid single digit increase in segment operating profits that’s in line with our long term model.

Restructuring and associated costs have been running between $30-$40 million per year in each of the last three years and we’re estimating a comparable figure in 2009. We think interest expense will show a low single digit increase next year and we’re using a tax rate estimate of 35%.

We expect JV earnings to be comparable to fiscal 2009 results, which remember included the $8 million net gain from the restructuring activity I mentioned earlier. These factors, combined with our planned share repurchases resulted in targeted earnings per share before any impact of mark to market valuation in the range of $3.78 to $3.83 for the year.

As Ken said earlier, our goal is to couple good earnings growth with improving return on capital. Our fiscal 2008 return on capital was 12.1% as reported. Excluding mark to market and tax gains, our return on capital would be up 50 basis points to $11.6%. These results are consistent with our target for an average return on capital improvement of 50 basis points per year.

For fiscal 2009, we are again targeting 50 basis points of improvement in our underlying return on capital, assuming again no mark to market valuation impact. We invest some of our cash to support high return capital projects for cost savings and growth and to cover essential fixed asset maintenance.

In fiscal 2008, our capital investments totaled $522 million or 3.8% of sales. For fiscal 2009, we’re targeting capital expenditures of $550 million. Over a three year period our capital spending should average just under 4% of sales.

General Mills has a strong tradition of returning cash to our shareholders through dividends. This Monday we announced a $0.03 increase to our quarterly rate, effective with the August 31 payment. With the new annualized rate, we’ve grown dividends at a 9% compound rate since 2005.

We also return cash to our shareholders through share repurchases. Here, our goal is to reduce net shares outstanding by an average of 2% per year. We’ve exceeded this target over the past three years with our average shares outstanding down 9% from 2005. We plan to continue our share repurchase activity in fiscal 2009 with the goal of reducing net shares outstanding by 1%.

That share reduction includes just under 1million shares issued to purchase Humm Foods, makers of Larabar. These are all natural bars made with simple ingredients like unprocessed fruit and nuts. Larabar has a strong presence in the natural channel and it will be a great addition to our Small Planet Foods division.

This acquisition reflects our strategy of growing our natural and organic portfolio and is consistent with our interest in pursuing strategic bolt on acquisitions in categories we know well.

Let me summarize what I’ve said about General Mills’ financial performance. In 2008, we delivered strong sales and volume growth. We continued to invest in our brands, creating momentum as we head into our new fiscal year. We increased our segment operating profits by 6% and we exceeded our earnings per share target despite significantly higher input costs. So as we look ahead to 2009, we see excellent prospects for continuing growth in line with our long term model.

Next we’d like to talk a bit more about our 2008 results and 2009 growth plans for each of our three operating segments. I’ll cover bakeries and food service and then turn it over to Chris and Ian to talk about International and US Retail.

Let’s talk about the bakeries and food service industry first. And the food service industry is clearly challenged by current economic conditions. As we look at the latest economic data, sales growth is slowing for restaurants and the growth that is projected for the near term is primarily driven by pricing.

And as we are seeing in our US retail business, there is some evidence of consumers buying more food in supermarkets and eating at home. But we compete in a number of food service channels beyond restaurants and some of these channels are demonstrating good resilience. Although sales in workplace cafeterias are projected to decline in 2008, sales in the lodging, recreation, education and healthcare segments are expected to grow.

These channels tend to be less cyclical. They are our focus and represent a good portion of our business. We also have the advantage of levering some of the strongest brands in the industry. Roughly 60% of our business is branded products.

In 2008 sales were up on our key branded products, reflecting both volume gains and pricing. Cereal sales increased 8%, yogurt was up 6% and snack sales rose 4%. Net branded growth plus aggressive pricing to offset inflation in our bakery flour segment drove 11% sales growth in 2008.

This represents our third consecutive year of top line growth in bakeries and food service. So despite the challenging environment, we’re targeting another year of top line growth, albeit modest growth for bakeries and food service in 2009. We expect earnings to be flat to 2008 when strong grain merchandising profits contributed significantly to our results.

It’s important to remember that despite the current industry challenges, over $500 billion are still spent on food eaten away from home in the US and that figure continues to grow. We believe there’s a good opportunity for our brands in this segment and will continue to focus on our most profitable customers and our branded products offerings as we move forward.

And now I’m going to turn you over to Chris O’Leary who will share our plans for delivering continuing growth in our International segment. Chris.

Chris O’Leary

Thanks Don and good morning everyone. It’s great to be here to review our International results and share the exciting growth prospects ahead for this segment of the business. In fiscal 2008, our combined international businesses generated sales of $3.8 billion. About one-third of those sales represent our proportionate share of international JVs, that’s our cereal partners worldwide, a venture with Nestle and our three Haagen-Dazs JVs in Asia.

The remaining $2.6 billion in sales is from our wholly owned businesses outside of the United States. Let’s look at these consolidated businesses first. Our wholly owned international business has achieved good growth these past few years. Since 2005 our combined net sales have increased more than $800 million and have grown at a compound rate of 14% a year.

Foreign currency exchange has been a contributing factor but even without that benefit, our growth over this period would still average a very solid 9% per year. In 2008 we had all of our major regions where we compete growing. On a constant currency basis, Canada was up 2%, sales in Europe rose a very strong 10%, sales in the Asia Pacific region grew 15% and sales in Latin America increased 28%.

In total, sales are up 12% on a constant currency basis, foreign exchange added 9 points of growth driving reported net sales up 21%. Operating profits grew faster than sales, increasing 25% as we continue to expand margins with favorable product mix and the benefits of increasing scale.

Our strong growth in 2008 was a result of many factors but I’d highlight these. First, we achieved strong performance across Europe where we saw strong growth in a majority of our major markets.

Second, our business in Greater China is booming as we expand our Wanchai Ferry and Haagen-Dazs businesses there. In Ferry we reported gains in Canada, led by cereal and grain snacks.

And finally we had strong top line growth in Latin America, particularly Venezuela and Argentina, fueled by volume growth and by pricing. As I look ahead to fiscal 2009, our priorities remain the same. We will drive strong top line growth through innovation and geographic expansion.

We will continue to improve our margins. We’ve made good progress but we have plenty of opportunity remaining with growing our margins. And we will keep building our infrastructure to support continuing growth. I want to spend most of my time sharing how we are driving our top line growth.

Our plan is focused on three product platforms, super premium ice cream where we compete with Haagen-Dazs, world cuisine where our Old El Paso and Wanchai Ferry brands are making ethnic foods convenient and healthy snaking where Nature Valley granola bars are our leading business.

Currently we compete in more than 100 countries, those highlighted in blue on this map. But as you can see that still leaves a lot of room for us to grow. Let’s look at Haagen-Dazs our most developed brand. It represents affordable luxury and is often introduced to consumers in the form of Haagen-Dazs scoop shops before we make it available to the retail trade.

Haagen-Dazs is currently in about 60 markets, those that appear in brown on this map. That leaves plenty of expansion opportunity. For example this past year we launched Haagen-Dazs in Brazil, re-launched Haagen-Dazs in Brazil and expanded our presence in Germany and Turkey and in China.

Nature Valley granola bars are currently in 54 markets outside the United States, shown in green on this map. In 2008 we invested in a new Nature Valley production line in Spain to support the European rollout and we launched Nature Valley in the United Kingdom where sales have exceeded our expectations.

Old El Paso Mexican foods are currently available in about 20 markets outside the United States, those shown here in yellow. For consumers in these markets, Old El Paso is often their introduction to Mexican food and taco night works for families from Stockholm to Melbourne. And though we probably won’t be taking the brand to Mexico anytime soon, you can see there are plenty of other opportunities for us to grow. In 2009 we will continue to expand these three multinational brands.

On Haagen-Dazs, we will increase our consumer spending and work to keep our affordable luxury position relevant and fresh. We continue to open new shops and expand to new markets with new shops planned in Eastern Europe, Turkey and China in 2009. We will also continue to launch innovative new flavors to drive consumers to our shops and to our retail stores. Next year we plan to extend our successful dolce product launch with more flavors, including Mont Blanc, a well know European dessert.

For Old El Paso, the key to success if strong innovation and effective marketing. We have a great new product lineup for 2009. First we’ll bring successful items to new geographies, including our very successful crispy dinner kit. Crispy chicken performed well in Australia and this year we will introduce it in Canada.

And second we continue to look for ways to expand the Old El Paso equity. In fiscal 2009 we will test several new items in Europe that bring OEP to a new section of the grocery store.

Nature Valley has been a tremendous growth engine for us and we’re just frankly getting started. 2009 will be another year of good growth. First we’ll drive distribution, focusing on Europe and Latin America. Results have been good everywhere we’ve entered so far. And second we will continue to expand our product line.

We’ve only launched the original Nature Valley crunchy bars in most markets, but there’s a whole pipeline of US varieties we can add. We are launching Chewy bars for the first time in 2009 and in short we’re very excited about the growth opportunities in our Nature Valley business.

Let me focus briefly on Greater China, which has also been a tremendous source of growth for us in the past few years. China had another great year in 2008. Sales were up 30% to $250 million US dollars. We have a profitable business established in China today and we are working hard to expand it.

In 2008 we expanded into new cities, Wanchai Ferry added distribution in ten new cities as we built our presence in second tier cities. We also opened nine new Haagen-Dazs shops in China over the last 12 months. And we also extended our brands with new products. We launched Wanchai Ferry three delicacy series this past year and although our dumpling and wonton business is our key focus, we are also selectively expanding our brand into other frozen dim sum items.

For 2009 our plans in China include more of what is working for us, continued product innovation and expanded distribution. On Wanchai Ferry we will introduce exciting new product varieties such as corn flavored dumplings and black sesame [tao yen]. And we will continue to expand distribution, reaching consumers in new cities.

On Haagen-Dazs, we will increase our distribution as well, expanding coverage to five new cities and we will add new ways for consumers to buy our products, our Haagen-Dazs product, including ecommerce and gift shops located in shopping malls. We will also introduce new flavors, such as a new rainbow moon cake which is our successful seasonal business that Don spoke to you about this year at CAGNY.

For the international segment in total, we plan to continue growing profit faster than sales. This slide shows our margin trend over the last six years. We have made significant progress with our margins, but as you can imagine we’re not down. WE have lots of opportunity remaining and I’m confident we can expand our margins for many reasons. But I’m particularly excited about the opportunity we have with holistic margin management.

We have just launched HMM internationally and as you know we’ve been doing it in the US for several years now. And what I can tell you is I like what I’m seeing so far and I think the same benefits that we’ve seen in the US will materialize in overseas markets as well. And you already know that our global brand platforms have good margins. Better, in fact, than our company average. So as we focus and growth these businesses internationally, they help drive overall margin expansion for our international segment.

Now at CAGNY a few months ago, Don shared our goals of achieving $350 million in segment operating profits by 2010. We’re well on our way to that goal and I’m confident we will continue to drive strong profitable growth on this business.

As we look ahead to 2009, I see a continuation of the trends we have just discussed. We will continue to drive strong top line growth. We will continue to expand our distribution and we will remain focused on improving our margins with holistic margin management, the benefits of scale and pricing actions where needed.

Now let me shift for a minute and talk about the other rapidly growing part of our international business and that’s our joint ventures. I said earlier cereal partners worldwide is our 50/50 partnership with Nestle. This venture was established in 1990 to sell breakfast cereal outside the United States and Canada.

We currently reach more than 130 markets and as I show you in a minute, CPW has leading market positions in a number of those countries. We also have three Haagen-Dazs joint ventures in Asia, the largest one which is in Japan. Our JVs are increasingly important contributors to General Mills growth. This chart tracks earnings from our continuing JVs since 2005.

In the latest year, these joint ventures contributed over $100 million in after tax earnings for us. They are also generating cash for General Mills. This table summarizes cash flow from our JVs over the past three years. The use of cash as you see in 2007 here was our share of the Uncle Tobys acquisition in Australia.

In both 2006 and 2008 however, our JVs generated strong positive cash flow for us. We expect that trend to continue in the years ahead. Let me talk a bit more about CPW as it drives the majority of our JV sales, profits and cash flows.

CPW as I said is now in its 18th year of operation and this business continues to generate strong top and bottom line growth. In the most recent three years, net sales have grown 15% a year to exceed $2 billion and that’s on a 100%, so our share of sales is now over $1 billion.

This growth is being driven by strong core brands, including those pictures here, Fitnesse, Nesquik, Cheerios, [Chocopie]. Through health news and innovation we have been growing and expanding these brands. The result has been strong share positions in cereal markets around the world.

In key established markets, we have a solid number two share of cereal market sales. CPW has been in the United Kingdom, France and Mexico since the early 1990s when the JV was formed. More recently we significantly expanded our market share in Australia with the acquisition of the Uncle Tobys business.

CPW also has established a strong presence in many emerging markets. As you can see on this slide, we have been in markets such as Eastern Europe, Russia and the Asian countries for a number of years and had the leading share position in most of these markets.

We see great growth opportunities ahead in both established and emerging markets and that’s because cereal per capita consumption is still quite low in many of our markets. And while the United Kingdom and Australia are well developed, similar to that of the United States and Canada, but after that as you can see, per capita levels leave lots of room for us to grow.

So the outlook for CPW is very positive. We see continued category growth as per capita consumption expands and we expect to achieve share gains as we invest in product innovation and consumer marketing. And we are targeting earnings growth ahead of sales as productivity and increased scale both drive margin expansion.

So as I look at our international opportunities at General Mills, whether wholly owned or JV, I see great growth ahead. We now have an infrastructure across the globe to support this growth. Looking at just our wholly owned businesses, we do business in more than 100 countries. We have more than 12,000 people outside the United States working on these businesses.

We are sharing more across geographic borders and leveraging our collective experience and we have manufacturing facilities in more than 20 cities around the world to support our growth. We are also focused on strengthening our systems and our processes and have several improvement projects underway.

It’s a strong and profitable foundation for growth and much of that growth still lies ahead for us. International has been the fastest growing segment for General Mills over the last three years and I don’t intend for that to change. We have a strong core business in place, we’ve developed a profitable growth model that has worked for us as we expand into new geographies and I see no shortage of good growth opportunities ahead.

With that, I’ll turn it over now to Ian Friendly who will review the growth prospects for our US retail business.

Ian Friendly

Thanks Chris and good morning everybody. It’s my pleasure to give you an update on our US Retail business. In fiscal 08, US Retail net sales cross the $9 billion mark for the first time and we generated sales growth of almost $600 million, roughly half of the company’s total sales increase for the year.

This was a continuation of the top line gains we’ve achieved in recent years. Since 2005 our net sales have increased at a 5% compound rate on a good blend of volume growth, favorable mix and pricing.

Our strong growth in 08 was the result of many factors, but I’d highlight three in particular. First, our Big G cereal business had a very fine year, posting sales growth, margin expansion and increased market share. Second, we had a great year on new products.

And third, we did a good job driving balances growth with fast growing food retailers. Let me say a bit more about each of these points. One year ago today, Big G implemented the right sized right priced initiatives. That effort combined a low single digit price increase with reductions in our package sizes and shelf prices to better align them with competitive offerings.

Year one results from this initiative were excellent. Big G net sales grew 5%, that’s above our goal of low single digit growth. The number of Big G packages sold increased 6% and so Big G pound volume was within a percentage point of last year’s, despite the smaller package sizes.

Our trade spending for cereal was down on a per case basis and also down in terms of overall dollars. Meanwhile, Big G’s investment in consumer marketing went up 6%. Operating profits for Big G grew faster than sales. That’s including the consumer marketing increases, plus $30 million in onetime costs for the right sized, right priced conversion.

And our share of cereal category sales grew slightly for the year in measured channel and grew overall as we delivered strong performance in non-measured outlets. This strength includes 2% growth in base line sales and contributions from many of our core cereal brands.

We’re very pleased with this progress from Big G in 2008 which sets a great foundation for continuing growth in 2009. New product success was the second highlight to the year for US retail. Some of you attended our midyear meeting in January where I talked about these metrics we’ve established to improve our new product performance.

We measure each new item on the following criteria, its contribution to net sales, the incrementality of those sales, that’s whether the product is bringing in new users to the brand or extending it to new eating occasions. We track a new product’s impact on margin, with a goal of having new items match or exceed their division’s average margin.

We want more items that generate at least $50 million in ongoing net sales and finally we track the annual net sales generated per SKU launched. We adopted these new product metrics in 2006, posted improvements on each measure in 2007 and we made progress again in 2008.

In particular, this year’s new products contributed more than 5% of net sales, great performance considering the strong overall sales figure and we estimate that 55% of those sales were incremental to our existing business.

The third key to this year’s success was our growth with key customers. In 2008 our sales with traditional grocery customers increased at a mid single digit pace. That’s the best growth we’ve seen with these customers in some time. And our sales to supercenter customers, club stores, drug and discount chains and dollar format stores all grew at double digit rates.

Retail sales to the ultimate consumers of our products were also strong in 2008. For the year, we posted gains in nearly all of our major product categories and 6% growth overall in channels where we have data.

And our consumer trends strengthened in the latest quarter, with overall retail sales up 10% and stronger demand across the majority of our product lines. We’ve been driving this good sales growth while increasing the efficiency of our trade spending. We reduced our trade promotional dollars per case of product sold in each of the past two years and we lowered it by a mid single digit rate in 2008.

That reduction was powered by the right sized, right priced program in Big G. At the same time, we’ve been increasing our investment in advertising and other consumer marketing programs. In 2008 we increased our US consumer marketing spending by 12%. We believe this strong brand support is the key driver of our net sales growth overall, particularly the good growth we are seeing in baseline or non-promoted sales.

So as we begin working on 2009, it probably doesn’t surprise you that we’re staying focused on the priorities we set in 2008. First, we plan to generate the resources we need to fund our growth through our holistic margin management efforts. Second, we are focusing on our innovation efforts on our best growth opportunities. And third, we are actively extending our leading brands to new categories, new channels and new usage occasions.

Let me say a bit more about each of these 2009 efforts, beginning with margins. Don spoke earlier about the sustained headwinds we faced in recent years from commodity and fuel cost increases. In general, we’ve held our margins fairly steady, despite that inflation.

This year we gave up 60 basis points on our operating profit margins. It’s important to note that not all of that was due to input cost pressures. It also reflects the strong levels of brand building investment that I discussed earlier, including a 20% increase in our fourth quarter consumer marketing expense.

And remember that this year’s profits were reduced $24 million by product recall expenses. Absent the recall expense, our operating margin would have been 22%, in line with recent years, despite significantly higher input inflation and heavier brand support.

Our business plan for 2009 includes HMM projects across our divisions that are expected to generate a record level of cost savings. We have also taken price increases in most of our key categories since the beginning of the calendar year, including recently announced increases in soup and cereal.

These price increases will offset a portion of our higher input costs. Together, we expect HMM savings and pricing to offset our supply chain inflation in fiscal 2009 and protect our margins.

Our second key strategy is to focus on our best growth opportunities. This includes keeping our biggest and most profitable established brands vital and growing. That certainly includes Cheerios. In 2008 retail sales for Cheerios varieties in outlets where we have data grew 8%, well ahead of the overall market growth.

Sales for Yellow Box Cheerios grew 7%, sales for Honey Nut Cheerios grew 12% and sales for Multigrain Cheerios grew 14%. We also introduced a great new Cheerios variety, Oat Cluster Crunch. For the year, our Cheerios franchise accounted for more than 12% of category sales and recorded a market share increase of 50 basis points.

The next largest franchise in the category has a 5% market share. We see plenty of growth ahead for the Cheerios family and in 2009, we’re focusing in particular on Multigrain.

Our Canadian business hit on a consumer message for Multigrain that centered around weight management and the brand took off, adding a half a point to its market share. We borrowed that idea and put a similar ad on air in the US beginning this January. As you can see from this chart, the brand responded here too. So we have a strong full year media campaign planned for Multigrain in 2009.

We’ll also have a good level of new product activity in the cereal aisle this year. This slide shows our first quarter introductions which include a fruit and nut variety of Curves Cereal, new varieties of Cocoa Puffs and Total and two new granola cereals from our Cascadian Farm line of organic products. We’ll have additional new cereal products coming later in the fiscal year.

Let me turn now to yogurt where we got off to a slow start in 2008, but after we turned on our advertising for new Yo-Plus symbiotic yogurt and supported the core business with great marketing, our results have picked up.

Then in January we launched Fiber One yogurt and started communicating that product news. As you can see, our innovation and brand building resulted in a strong second half market share performance, up half a point. In 2009, we will continue to build on the Fiber One and Yo-Plus products we launched last year, while also adding new indulgent flavors to our rapidly growing light line.

Let’s move to the soup aisle where we’ve had great innovation driving our business. That’s more than a one year story, it started with Rich and Hearty varieties launched back in fiscal 2004, followed by reduced sodium options.

This year we created a light segment in the soup category with zero point soups. Collectively, this innovation has increased Progresso’s share of the ready to serve soup category by 6 points in recent years.

In 2008, Progresso Soups generated 34% of category sales. The light soups we introduced last summer are on pace to generate over $100 million in year one retail sales. We’ll build this new light segment in 2009, with four new varieties of zero point soup, including a reduced sodium SKU and three microwave bowls.

But, the big news is that we’re introducing five new SKUs of one point soup with meat and just 80 calories per serving. About 75% of soup consumption is centered on varieties that include protein. So this takes our light business into a much bigger part of the soup category.

Progresso is also entering the broth segment in 2009 with three all natural varieties in aseptic packages. Broth is a $500 million market segment today with sales growing at a double digit rate. Margins for broth are higher than the average RTS soup margin and we think the Progresso brand is a great fit in this segment of the category.

Innovation has been driving strong growth in our grain snacks business too. Over the past two years, we’ve increased our share by 5.5 points to 27% of sales in this $1.6 billion category. In 2009, we’re adding new flavor varieties to our Fiber One and Curves bar lines and we’re introducing a new line of grain snacks called Chex Mix bars in indulgent flavors like turtle and chocolate chunk.

This new line is an example of our third focus strategy which is to extend iconic brands like Chex into new categories or usage occasions. We took Cheerios into the snack aisle in 2008 and our first flavor of Cheerios snack mix is on pace to exceed $20 million in year one retail sales. This month, we began shipping a new Honey Nut variety.

We’ve been extending our Fiber One brand with great success. The first stage was to expand the Fiber One cereal line with additional varieties. In 2008, retail sales for Fiber One cereal surpassed $75 million, making it one of the top selling high fiber brands on the market.

We took Fiber One to the grain snacks category and Fiber One bars were a smash success, with 2008 retail sales of $110 million in just the channels where we have data. And as I mentioned earlier, we launched Fiber One yogurt in January. It’s off to a great start and will contribute incremental sales for Yoplait through the first half of fiscal 2009.

In 2009, we’ll take Fiber One to yet another new category, toaster pastries. It might surprise you that more than 40% of toaster pastry consumption is by adults. And nearly half of that is in households without kids. We think adults need a better toaster pastry and Fiber One delivers with 16 grams of wholegrain per serving and 5 grams of fiber. Plus, they taste great. I hope some of you tried them this morning at breakfast.

In total, we’ll be introducing more than 60 new products across our US Retail division in the first half of 2009. Retailer response to our product lineup has been very positive and we’re excited to get these products out there and start marketing them to consumers.

In summary, I think we’re positioned for another year of good growth in 2009. We like our lineup of product news and innovations, we’re targeting mid single digit growth in net sales. We’ll protect our margins with record levels of HMM cost savings and selected price increases.

We also expect the healthy growth of our categories to provide a tailwind again in 2009. For more on the strength of our categories, I’ll turn you back over to Ken.

Ken Powell

Thank you Ian. So we’ve now heard Ian, Chris and Don share details of our growth plans for 2009 and I’d like to conclude our presentation today with a summary of the key factors that we see driving our continuing growth.

First and foremost, the categories where we compete are a strategic advantage for General Mills. Consumers around the world today want foods that taste great, are quick and easy to make and offer health and wellness benefits whenever possible.

Our major food categories are a great fit with these consumer trends and demands. Because these categories are on trend, they’re growing. In the most recent quarter, consumer takeaway for our major categories in US retail grew 5% overall, including gains of 12% for the yogurt category, 7% for frozen vegetables, 6% for frozen hot snacks. These growth rates are in Nielson measured outlets. Growth including non-measured channels would be even faster.

Prices are rising in virtually every food category in the store due to increasing ingredient and energy cost and that’s part of this growth story. But the good sales trends in our categories also reflect the fact that these products are staples in most households. This chart shows the US household penetration for products ranging from ready to eat cereal to grain snacks.

As you can see, two-thirds or more of all US households shop each of these categories for their families. Our brands hold leading positions in these attractive food categories. In the US our brands are either number one, or a strong number two in 12 major retail categories across shelf stable, refrigerated and frozen formats. And in 2008, we grew our composite share in these US markets.

And as you heard during Chris O’Leary’s presentation, we are growing our sales and share of these categories in international markets as well. We’re excited about these growing share positions outside the US where brand strength is just as meaningful to our retail customers as it is in the US.

With rising food prices, I know many of you are comparing trends for branded foods and private label offerings. For our 2008 fiscal year, private label share across our 12 major US product categories averaged 13% and it grew one-tenth of a share point. Our brands grew their composite share by 30 basis points last year to nearly 31%.

In the most recent quarter, private label share performance did accelerate a little bit. Composite share for private label in our key categories averaged that same 13% and grew three-tenths of a point for the quarter. However, our composite share grew faster. We were up nine-tenths of a share point during that same period of time.

I think that reflects the fact that even with the price increases we’ve taken to partially offset higher input costs, our brands remain high quality, very affordable choices for families. That’s true when you consider the price per unit or the price per serving as shown for a selection of our products on this slide.

Because fuel and commodity cost inflation is continuing, we may need to take further pricing actions in our portfolio. But our ongoing focus is on holistic margin management as the first line of defense for our margins and that approach should continue to help us keep pricing moderate.

More broadly speaking, we think that our company-wide focus on holistic margin management is the key to our good business momentum. Besides offsetting higher input costs and protecting margins, our HMM savings generate the resources we need for consumer marketing, which reinforces and builds brand equity.

That in turn drives growth of the top line which gets more dollars flowing to the bottom line and points us to new areas for holistic margin management. Our balanced approach of cost savings, brand building and moderate pricing actions is working for us. It’s our game and we’re sticking to it.

In our presentation this morning, we’ve addressed our five key operating growth drivers: first, supporting our brands with strong levels of consumer marketing; second, winning with key customers across multiple channels; third, driving growth for our brands in international markets; fourth, innovating on new and on our established brands; and fifth, expanding our margins over time.

Now our business plans for 2009 include a solid lineup of new products and marketing initiatives. In total we’ll introduce more than 300 new products around the world this year and we’ll be expanding our brands to new categories, like you’ve seen with Fiber One and new international markets like you’ve seen with Nature Valley.

And we have a talented and experienced team to lead our businesses forward. This slide shows the ten senior leaders that report directly o me. On average, they have 19 years of experience with General Mills and 24 years of experience in our industry. And when you look at our business division presidents and key functional leaders, the picture is very much the same.

This group of leaders averages just 47 years old but they have deep knowledge of our brands and the market categories where we compete. And I would say very strongly, it’s the collective talent of General Mills people company-wide that is our greatest competitive advantage.

Let me wrap up our prepared remarks today with a quick summary of today’s General Mills update. Fiscal 2008 was a strong year for the company with results that exceeded our expectations. Our business momentum is broad based with growing sales and profits across all three operating segments.

We have solid growth plans for 2009, with a promising lineup of new products and marketing initiatives behind established brands. In short, we think our prospects for delivering continued good growth and increasing returns are excellent in 2009 and beyond.

So I’d be happy now to join Don, Chris and Ian in answering questions that you might have. Kris, we’ll bring you a microphone so that you can be heard clearly by our webcast listeners.

Question-and-Answer Session

David Palmer – UBS

You said in the pricing actions that have happened, they were soup and something else where you.

Ken Powell

Ready to eat cereal and soup which we’ve taken just very recently.

David Palmer – UBS

Could you give additional detail about the magnitude of those at all?

Ken Powell

Well what I can tell you is that on cereal it was the price increases across most of the line and is in the low single digit range and we took that increase, I think we announced it within the last week or two weeks. And soup was also within the last few weeks and also low single digits. So those have been announced and are out there.

[Unknown Analyst – Unknown Firm]

On the uses of cash, it seemed as though the share repurchases are slowing down a bit in fiscal 09 versus where they’ve been historically and capital expenditure is obviously going up slightly higher, could you talk a little bit about how you think about the uses of cash going forward and particularly acquisitions as well.

Don Mulligan

As we think about our cash use, we generated this year $1.7 billion in operating cash comparable to what we did last year, the first order of business is to reinvest back in the business. We expect our capital expenditure to average over, you know any multiyear period, just a little under 4% of sales. It was 3.8% in F08.

It will go up with our mid single digit growth in sales next year, it will stay in that same 3.8-3.9% range. In terms of the increases for next year, we have some more capacity coming online for some of the growth that we’ve seen in grain snacks and in soup. So we’re putting money behind that. We also have a bit more money behind our HMM initiatives. And that’s what’s driving that.

You will also notice that our capital spending for this year at $522 million was lower than what we had been expecting for the year. And that’s really a factor of it was much of our activity was later in the year and that reflects the cash that went out the door. Most of our activity still went on as planned. So many of the bills if you will will come due in F09. So some of that is a bit of shift between the years as well.

So the first order of business is a little under 4% of sales on cap ex. Then we have dividends that we expect to growth with earnings as we have, 9% annually over the last couple of years. And we continue to expect to grow that with earnings and that’s in the $500 million plus range annually. And then the balance will go to share repurchases. And you know smaller bolt-on acquisitions like we with Larabar this year and Uncle Tobys a couple years back.

If you look at the share repurchases for F09, what we’ve indicated the 1% decline, it really is a bit of a rolling over last year. Last year we heavied up our buying in the first quarter of the year because we knew we were issuing shares with the Lehman forward contract in October.

So it’s a little bit of rolling that over. So if you think about phasing for our share off take this year, there will be less, in matter of fact it may be a slight increase in share count early in the year, but then a more normalized 2% decline in the back half to average about that 1%. So you’ll see a little bit of a phasing difference. It’s really the anomaly of last year that we’re rolling over than anything else when you look at the F09 share count reduction.

[Unknown Analyst – Unknown Firm]

Can I just sneak in a quick international question? Phenomenal growth this year, particularly in Latin America. How do you think about how sustainable that is, particularly around pricing? Obviously wages are going up over there, pricing has been a big feature of growth over the last year or two, is that really sustainable over time and do you see this kind of growth rate continuing across the international business going forward?

Chris O’Leary

We have seen tremendous growth. You know we have such an opportunity to grow outside the United States. And maybe it will change where it exactly comes from and what the mix is between volume and pricing mix and so forth. But I don’t see it slowing down. I think we can grow at the rates we’ve been growing at for some time.

And the beauty of our growth plan is we’re growing in both established markets, the fact that Europe is delivering the kind of growth we’ve got. China is continuing to look good as is Latin America and we’re just getting started in other Asian countries and India and markets such as that. So our plan is to keep it going. It’s never easy but it’s fun, that I can tell you.

[Unknown Analyst – Unknown Firm]

Regarding the gross margin, if you look at the fourth quarter and it being down, excluding those mark to market gains, with the stronger level of price and mix realization coming through I was surprised about it being down that degree. So I guess I’m looking more forward to 09 and how we should think about the gross margin. I know you’re trying to protect it with your margin management program and pricing, what’s the way to look at that for 09?

Don Mulligan

Let me address quarter four first. As we signaled at the end of our Q3, we had some historically high grain merchandising profits come through. And grain merchandising to refresh everybody is the vertical integration that we have in our milling around oats and wheats which is really the heritage of the company going back 130-140 years.

Because of the run up in wheat costs in the third quarter in January and February, we had some outsized gains which we knew when we reported our Q3 results were going to reverse in the fourth quarter because the wheat market had already come off some at that point.

That was the largest contributor, outside of the mark to market reduction, that was the largest contributor in the fourth quarter. And that is primarily in our bakeries and food service division. That’s why most as I said, most of the decline in the, the vast majority of the decline in the gross margin in the fourth quarter was in bakeries and food service.

As we look to 09, we think that portion will normalize. Which means we’ll, in bakeries and food service, we’ll earn a little less in 08 than we did in 09, but a more normalized level from a total company standpoint as we look at inflation, cost savings, mix and pricing.

As we said, we are targeting to protect our gross margins and give us the opportunity to reinvest in the brands at the same kind of above sales growth levels that we have over the past couple of years. So our clear goal for 09 is to protect our gross margin percentage and grow that with our sales level.

[Unknown Analyst – Unknown Firm]

The extra week in 2009, should we think about that being mostly reinvested back into marketing sort of across the year and then Q4 shows all the benefits from that extra week? Is that the way to look at it?

Don Mulligan

That’s right. As we’ve said before, we plan to, we do have an extra week this year and we are planning to reinvest that margin in brand expansion.

[Unknown Analyst – Unknown Firm]

First can you explain the policy and the adoption of the mark to market, it doesn’t seem like other companies in the industry that are more packaged food oriented have adopted this or have nearly the volatility. So why is it that you’re so different?

Don Mulligan

Our adoption started with F08 and it really went down to the administrative cost of applying FAS 133 or the hedge accounting which became burdensome for the really non-economic benefit of it. It protects if you will the volatility of our P&L but it doesn’t really add any economic value to the accounting of FAS 133.

So we decided to move away from it and the markets also became much more volatile which meant some of the correlations in our categories became more difficult to prove which is what drove the administrative cost side.

Now what drives that, it’s really four factors, it’s how far out you cover, it’s what kind of pricing you get on that coverage and it’s the vehicles you use and it’s the market price at any point in time.

I can’t speak to others’ accounting, but it could well be that their practices are different. They may not have as much coverage, they may not have the same kind of pricing verse the market that we have and they certainly don’t use as much of the derivative coverage that we use which is what drives it.

If you have fixed price contracts, you’re not going to have or physical inventory, you’re not going to have the mark to market, it’s when you have the futures contracts and the options in place. And we’ve used those because we’ve found them to be very effective in terms of helping us mitigate the cost.

They’ve been very effective in terms of helping us lower cost of taking those positions who don’t have to actually take the physical inventory. And even if you have a fixed price contract with a counter party, there is a risk premium that’s applied to that pricing that’s not imbedded in the options that we take.

So we found it to be much more cost effective. And we’ve been using them for years, so they’ve always been part of our way of doing business. The accounting reflection is different, the P&L accounting reflection is different.

[Unknown Analyst – Unknown Firm]

So if, let’s say, the expectations of continued volatility and inflation are wrong, do you then have the option to go back to a non-mark to market accounting? Or is it kind of like a LIFO, FIFO thing, where it’s a onetime deal and that’s it and then you have to live with it?

Don Mulligan

No, if the circumstances change, we could decide to change the treatment for it. But we don’t see that, the administrative costs as we’ve looked at them are not going to recede materially, even if the volatility of the market may recede and it really depends on what instruments you’re using.

It’s not just the volatility, that’s a component of it but it’s also the instruments you’re using to do the hedging and it requires both on our accounting staff and on our buyers staff to maintain a lot of records and do a lot of correlations but again it’s not value added from an economic standpoint but is needed to apply the accounting. So we could go back to it, we’ don’t have any intention of going back to it at this point.

[Unknown Analyst – Unknown Firm]

So you’re saving money on the admin side but asking us to look through the volatility of adopting this process and we’re helping you do that by delineating out exactly what those mark to market gains and reversals are? Okay. Different question to Ken, one is, ten direct reports, that seems like a lot relative to your peers, do you see a need to change that or is that a good number? Because that seems like a lot of information flow directly into you.

And then second, I think unrelated but a lot of companies in the industry are more focused on gross profit dollars at this point yet you seem to be kind of emphasizing, no, we’re gross margin percentage. Why do you think that you’re different in that way?

Ken Powell

Well, in terms of the number of reports, no, it feels like, it’s a very comfortable number. Three of those reports have, three reports who have the line operating responsibility for the company so Ian has all of US Retail and he has six or seven division presidents reporting into him. Chris has all of the International, including our JVs and he has a number of reports.

And so between those two gentlemen, you have the bulk of the operations of General Mills. And then Jeff Rotsch who’s not here today but who is the head of our global worldwide sales organization has the sales team and the food service division. So that’s all, I think very well concentrated.

And then the rest of my direct reports are, I think the ones that you would expect, Don, the CFO, General Counsel, Public Affairs, HR, sure I’ve left something out. But I mean it’s those very traditional functions. And so it doesn’t feel at all burdensome to me and with that concentration of the operating side in three individuals, I think that’s very manageable.

Your question on concentration on margin, I mean we’ve just found that that margin piece is something that we can drive visibility to very deeply in the company across all divisions and across all business segments.

And that’s the piece that really allows us to bring into the focus the supply chain contribution, the marketing contribution, the top line contribution. I mean that’s the measure we think that gives us the best focus across all those different functions and what we’re finding is that focus on gross margin is doing a number of things for us. It’s generating the fuel that we need, helping us to generate the fuel that we need to drive top line.

And of course, if we’re driving and protecting margin, that of course translates into a very healthy bottom line. So it’s just the metric for us that we think that gives us the best visibility and aligns everybody best behind what we’re trying to do as a company around productivity.

Andrew Lazar – Lehman Brothers

You talked a lot about the HMM and it’s giving you a lot of firepower which is a good thing. I’m curious if you look across your categories and you think about, I guess the question is, do you think General Mills is keeping pace when we look at net price realization, so the combination of rate increases as well as discounting and such.

So do you think General Mills is keeping pace with net price realization on average across your key categories with where the category’s net price realization is? Because on one hand one could look at HMM and say that’s giving you a real competitive advantage, on the other hand one could say you’re also leaving money on the table if you will in an environment where maybe it makes sense to get it while you can.

Ken Powell

I think that HMM does we think give us a competitive advantage. And we have many, many people across the company involved in that initiative. We have thousands of HMM initiatives, we have very good visibility as you know, two to three years ahead on the kinds of productivity that we’re expecting to come. And it really is sort of the main stay of our approach to this inflationary period.

Now of course we have to price on top of that over the last couple of years in order to protect margins and we’ve done that. But certainly the HMM activity and I think our pricing has generally been in line with what we’ve seen across the categories, but the HMM activity I think gives us a certain amount of flexibility that we think is very beneficial.

And these, our brands are they’re big powerhouse mass market consumer brands and we want to keep them as affordable as we can and we’re very aware, as we’ve said in the past of the quality of private label out there and we want to, we’re aware of that choice the consumers are making. So this HMM focus and the productivity that we’re generating I think allows us to keep it all in balance.

And balance pricing and our desire for volume growth and our desire to have the fuel to put into increased brand building, it all plays out I think in a very good way for us. But I think the bottom line is that our pricing I think is certainly sort of within the brackets of the category.

Andrew Lazar – Lehman Brothers

In US Retail in the third quarter I remember the skew in terms of volume versus pricing, was skewed quite a bit more towards volume and I think there were a lot of questions on that at the time and a lot of that was explained around some of the heavier products, seasonally and what have you.

And I think we did see a little bit more of a skew back towards a better balance between pricing and volume. But maybe if you could address that if you’re seeing that go the way you want it to and how we think that’ll play out next year?

Ian Friendly

That’s quite accurate Andrew. I would say as we think about how the next few years play out, it won’t be too dissimilar but on balance I think we’ll get a little bit more out of both mix and pricing and a little bit less out of pound volume increases particularly in this high inflation year.

Terry Bivens – J.P. Morgan

For Don, given the way the grain markets have behaved, I was hoping you could give us a little bit more color now on the size of the grain merchandising operation, perhaps expressed as a portion of overall divisional sales and profits.

Don Mulligan

We’re not prepared to break out that piece but what I would tell you is that if we look at the F08 performance of bakeries and food service, that the underlying business ex the grain merchandising sustained its profitability from a year ago, its profits from a year ago and the incremental growth came from the profits we earned in grain merchandising.

We expect that to more normalize next year and while we’re saying that our expectation this year that the earnings will be flat in F09 versus F08, it really is a combination of that less from grain merchandising and more from our core business. And so we will see the reversal of that trend in F09. But we’re not prepared to start breaking out the grain merchandising piece of that business.

Terry Bivens – J.P. Morgan

For Ian, as you know many of us are keenly interested in what you do with Progresso for a variety of reasons. And it looks like you’ve once again have a pretty impressive new product slate as we go into the fall. What I was hoping to get is an indication of how this has been greeted by the retail trade in terms of what kind of shelf space you’re seeing, what kind of out of aisle opportunities perhaps you might do with the new broth line. Just a general question on how is this being received and prospects for that line.

Ian Friendly

I think our retail customers have been quite delighted by the growth that they’ve seen in the light line in particular I think really hit the bell with not just consumers but also the retailers. So they’ve been very supportive of our initiatives. I will say that generally speaking the impact on shelf space tends to lag the impact on market share, but it does occur, but there is a lag effect, so that our market share has grown faster than our share of shelf. But steadily we improve our share of shelf as well.

As it relates to outside the aisle opportunities, we’ve been getting very effective merchandising from our customers. Again they’re particularly excited when you bring great innovation to the marketplace and bring in new users and bring in category growth. And so we’ve enjoyed very strong support by our retail customers.

David Driscoll – Citigroup

On restaurant side, you gave some charts in there, I think it was dollar sales and your expectations on different food service channels and restaurant channels. But I’d like to talk about volumes here specifically on that side. Right now what’s the best insight that you can give us in terms of volumes, traffic trends, however you’d like to put it at the restaurant side?

Ian Friendly

They’re down a little bit. The traffic counts, volume is down maybe 1-2%. So down. Not down a lot but down and in contrast to two or three years ago we might have seen traffic growing at 1-2% a year. So it is down. And that is I think clearly a reflection of the economic environment.

And we think what’s happening, the signals are is that fewer people, a little bit fewer people are going into restaurants, a few of those people are, more of those people are going into grocery stores. And that trade down we think is very much apparent to us now.

We see it that restaurant data, we see it in what’s happening in, you know what’s happening at Wal-Mart, I think Kroger announced their results in the last couple of days ahead of expectations, their same store sales were up by 6%. They talked about good customer counts. So I think there are signals out there that there’s a little bit of a shift away from food away from home and to the grocery store.

David Driscoll – Citigroup

Critically, do you see the negative trends in restaurants accelerating?

Ian Friendly

Well it’s very hard to say. I mean we saw, we had a similar sort of recessionary period if you will post 9/11 and which was a cataclysmic event and the economy softened. So we saw food away from home drop off by I think similar amounts, 2-4% declines in count.

It may decelerate a bit but I personally think that food away from home at $0.5 billion is very deeply ingrained and entrenched behavior in the US economy and I think that it will hold up in its own way. But right now it’s a little soft and the grocers are benefiting from that.

David Driscoll – Citigroup

Can I then get you guys to reconcile Ian’s comment a moment ago about price, mix and volume and the fact that you’re looking for a little less volume I think is what you just said Ian, but given what seems to be a worsening trend on the restaurant side, theoretically pushing volumes back to the grocery store, it doesn’t seem intuitive to me your comment.

Ian Friendly

Well I think that’s a fair push back actually. I will tell you that the reason we expect a little bit less is based on all our elasticity models and various things we’ve worked over years as we’ve been taking pricing, we expect that to have some impact on volume off take. The thing that may surprise us which is I think is an upside is the macro trend of movement towards eating at home if it’s in a large degree may counter more greatly than we’ve modeled the micro trend of the elasticity of our pricing.

And that remains to be seen, but we’ve approached our planning for the year on probably a more conservative basis where we expect to, and this is on balance, but we expect on balance to achieve terrific sales results but do it with a little bit more mix, a little bit more pricing and a little bit less volume. It may play out differently for the reasons you just stated.

Robert Moskow – Credit Suisse

Can you remind us a little bit about compensation and what are the metrics that you use? I believe its profit growth but there’s also a market share component to it. The reason I mention market share is that I also remember a couple of years ago I think Steve Sanger kind of dismissed market share in breakfast cereals because it was so hard to measure. So to what extent is compensation at General Mills driven by profit growth, sales growth and market share?

Ken Powell

Corporately we, going back a few years, we had a number of measures that were sort of incorporated into our overall assessment of the corporate rating and incentive rating. Three years ago we simplified that and today we’re evaluated on net sales growth, operating profit, earnings per share growth and return on capital growth. So four measures equally weighted, very highly focused, it’s very clear.

And those measures were selected as we looked across our industry and our peer set and said look these are the measures that are most closely correlated with total shareholder return. And so we think it’s been very beneficial to simplify and focus that corporate incentive grid as we call it. Now as you go down deeper into the organization, the incentive grid is equally simplified because we found that getting people focused on a few things is very, very good, but can vary and has additional components.

And so in all of our retail divisions, all of Ian’s retail divisions, market share is a key component of their performance as well, along with earnings. And so as you get down to that level where they’re driving the net sales and they’ve got the category accountability, we very much have share as a measure.

Don Mulligan

I just want to build on that, Ken what we’re doing in upcoming years with our operating division is we’re, in the component that’s market share based is where we are discretely treating measured channels and then looking at growth rates since we don’t get share data in the unmeasured channels but we can guesstimate what kind of growth rate is required to get share gains.

And so they have in their divisional objective both a share component for measured channels and a growth rate that is tied to share conceptually in the unmeasured channel.

Ken Powell

And I will tell you that our, as you would expect, our Board is very, very focused on our four corporate measures of course. They’re also very highly focused on divisional performance against those market share objectives. So I think there’s very strong alignment and focus inside the company on market share.

Eric Serotta – Merrill Lynch

For Don and Chris with respect to the JV income and cash flow. Clearly the JV line on the P&L is becoming or has become a much larger contributor to earnings. In terms of your guidance for fiscal 09, you’re looking for it to be about flat year on year. Even when you adjust for the, I think it was an $8 million gain in fiscal 08, it seems to imply some slowdown in profit growth from your joint ventures. Could you explain what’s behind that?

Don Mulligan

We intend on CPW we are, we’re not planning on a slowdown in earnings growth coming out of CPW. Our Haagen-Dazs Japan we’re coming off of a very strong year, so that’s slightly less growth, although positive. So we’re anticipating a continuation of the momentum in both of those units which are the majority of the JV line. Then there’s two other very small Haagen-Dazs JVs.

Chris O’Leary

Also the other is that obviously in our plan for next year, little to no FX benefit, just like in our International wholly owned business we’ve seen in our JV business as well.

Don Mulligan

On the cash piece, that’s an important concept to get across because with CPW, we and Nestle have a policy that we remit out as dividends all of the earnings that we can, all of the remittable earnings. And we have the same with our partner in the Haagen-Dazs Japan JV as well.

So we see a steady stream of dividends. You saw a little bit of movement year to year and that primarily related to the fact that in F07 as we were undertaking the restructuring in the UK, there were some funds that were needed. So we limited the dividend that paid out rather than have a dividend and put the capital back in, we just limited the dividend for the year and then we started catching up with that this year.

And then we also advanced some money to the JVs via intercompany loans rather than capital infusions and those loans we’ve been able to get back out. Again the biggest item in F08 was that we had a property sale as we were finishing up the restructuring in the UK, we had a gain on a property sale that was the $8 million gain. All the cash that was associated with that also came back to us as well.

But I think probably the most important line on the chart that Chris showed was that dividend stream and our policy on both our large JVs is to dividend back to the parents all the remittable earnings so that we don’t build up cash in the JVs.

Eric Serotta – Merrill Lynch

My question was going to go to, it seems like the growth in that dividend line, I realize there are reasons for the volatility in some of the others lines and even the dividend line in fiscal 07, but the growth from fiscal 06 to fiscal 08 period, from $77million to $83 million was clearly below the rate of ongoing JV earnings that you have in the line below. How do you see that unfolding over the next several years?

Should we expect growth in cash flow or dividends from JVs to be more in line with the growth in earnings from the JVs?

Don Mulligan

I think it will be more in line with earnings and maybe a little bit ahead of earnings. It also is a country by country, so you can’t look at it as a total JV, so if we have countries where we’re investing, we have losses and may not be able to pull cash out, other markets where we have profits we’re able to pull cash out more readily, we have the earnings. It also depends on what the cumulative state of play is at any given country and what your remittable earnings are.

But over time as the amount of core markets or established markets within CPW gets greater and greater weight, you’re going to see a more close alignment between our dividends and our earnings. So over time those numbers should move in sync, with again the dividends probably increasing a little bit faster in the near term than the earnings.

Eric Serotta – Merrill Lynch

In terms of the overall top line contribution, I think Andrew touched upon the shift back to being more price mix weighted than volume weighted as it was in the previous quarters, could you sort of talk about the components between price and mix, how much of this was with price versus trade spending reductions versus other forms of taking price like you did in Big G versus mix improvement for the year and for the quarter?

Ken Powell

For the year, obviously we had all those with right sized, right priced being effectively a price increase realized very early in the year with no change, actually a reduction in some prices but effectively a price increase. And that I think for the fiscal year kind of skewed a lot of the data given the size and scale of the cereal in our data.

I would answer your question maybe more generally that it is fairly well balanced I would say between list price and or reduction in the level of discounting through the trade expense line. And also I would say we were realizing roughly similar amounts between mix and between pricing in that bucket.

Going forward we’ll continue to use whatever makes the most sense in each category and it really is a category by category decision and some categories it will be, well this year we’ve announced pretty much list pricing across the board, so there’s definitely more list pricing that’s had to go on.

But in some categories we rely even more on a reduction in discounting or trade expense if they’re heavily traded categories and we see that opportunity. And we don’t have anything of the scale of right sized right priced in terms of using package configuration changes in this upcoming here.

Ken Zaslow – BMO Capital Markets

Chris if I look at your international growth outlook for fiscal 10, it looks like it’s only another 10% or so up from fiscal 08 on a compounded annual growth rate. I’d expect as General Mills leverages its infrastructure, that growth rate would actually continue to accelerate almost like what we saw this year. What would it take for you to revise your fiscal 10 international growth rate higher?

Chris O’Leary

What I would say is we have outpaced the last few years so it is making the 2010 goal infinitely more achievable. And I would say that I’ll look to Don and others on when we need to change our external guidance. But we are planning to moving forward grow at the same type of rates that we’ve been achieving historically. The reason why the 2010 goal looks achievable or easy, whatever it is is because we’ve outperformed the last couple of years and we have yet to revise that guidance.

Ken Powell

You might make that comment generally about the total company performance and how that’s looking relative to those five year goals that we set out a few years ago and we’ve outperformed the last several years and are getting close to that 2010 goal.

So as we go into our long range planning process here at the end of the summer and in the fall, that will be a great time for us to reevaluate and have a fresh look at those goals and we’ll see where we come out. But clearly we’ve outperformed them over the last couple years across the company.

Ken Zaslow – BMO Capital Markets

You discussed this iconic brands, taking them to new categories, which brands would you expect to have even more category expansion, which categories would you expect to even go another [length] into, for example you’re taking Fiber One into the toaster pastries. So is that some of that could go even more global. What are views on some iconic brands that you have that can go into other categories?

Ken Powell

We wouldn’t want to talk about specifics because we never really talk about what our new product plans might be. But the fact is is that we have a lot of big iconic brands that we’re demonstrating I think through our actions over the past several years that our brands, many of them are very extendable into different categories.

And so it’s a strategy that has worked for us, it has worked very well with Fiber One, it’s worked very well with some of our cereal brands which have gone into different snacking formats. So that’s a strategy that works.

You guys, you could go down and list yourself some other really big brands that we have that are appealing to consumers and imagine how those might stretch and we’re doing that same exercise with a great deal of discipline, lots of people looking at it and working on it and we just think that that will be something that we’ll continue to do going forward.

Ian Friendly

The only generality I’d make with all of that is when a brand is particularly well positioned it makes it highly, in an odd way, it makes it highly extendable, Fiber One being a great example where it really stands for such great taste you can hardly believe there’s fiber in it. You can bring that fiber benefit and that taste benefit to almost a limitless amount of categories and indeed that’s being expanded rapidly.

But you can go through our list of equities from Yoplait to Green Giant to the culinary nature of Progresso to the entire list and I don’t think it’s too hard to envision ways that some of these great brand names that are trusted and known in specific categories, their ability to broaden their shoulders and carry equity to new areas is really how we go about it.

Kris Wenker

Ken do you want to say goodbye to the webcast listeners and wrap this up?

Ken Powell

Yes, goodbye to the webcast listeners, thank you for joining us this morning. Thanks again to all of you for your attendance this morning, for your interest in General Mills. We greatly appreciate you being here and thanks to all of you. Good morning.

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