General Mills (GIS) Q1 2027 earnings call

Hello, everyone. Thank you for joining us, and welcome to General Mills' Fiscal 2027 Q1 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again.

I will now hand the conference over to Jeff Seaman, Vice President, Investor Relations, and Corporate Finance. Jeff, please go ahead.

Thank you, Warren, and good morning to everyone. Thanks for joining us today for this live Q&A session on our first quarter, Fiscal 27 Results. I hope you all had time to review our press release. Listen to the prepared remarks and view our presentation materials, which we made available this morning on our Investor Relations website. Please note that in our Q&A session, we may make forward-looking statements that are based on management's current views and assumptions. So please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliation's of non-gap information, which we may discuss on today's call.

I'm here this morning with Jeff Harmoning, our Chairman and CEO, Dana McNabb, our COO, and Kofi Bruce, our CFO. With that, we'll go ahead and open it up for Q&A, so Warren, can you please get us started?

We will now begin the Q&A session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device.

Please stand by while we compile the Q&A roster. Your first question comes from the line of Andrew Lazar with Barclays. Your line is open. Please go ahead.

Good morning, Andrew. Thanks for the question. Our focus is really on continuing to improve dollar share trends. I'm not going to get into quarterly Nielsen estimates, but we are pleased with the improvement. We saw a two-point improvement in dollar sales. We did improve our share performance in the majority of our categories. But as you probably noticed, we're not all the way to growth yet, so we still have work to do.

Where we're focused is really the first thing you'll see is we expect an improvement in price mix. If you recall in Q1, we hadn't lapped our base price investments yet. We will start to do that in Q2 and we like the plans we have against product mix, premium innovation, and price pack architecture.

We also will see accelerated innovation and renovation. And we really like how our marketing is performing right now. We'll continue to focus on that. So again, we still have work to do. We had the Totino's business that was a problem for us all last year. We've cut those declines in half. That's an area we'll continue to focus on. And we expect to see improved dollar performance throughout the year.

Well, as you mentioned, we were in a tough spot last year. And this year we have seen pretty good improvement and we're encouraged by the momentum.

We saw improvement in the majority of our categories. And I'll give you a couple examples. I look at cereal. We're last year in Q1. Our share was down point nine. This year in Q1, we're only down point one. Sue, but another big business. We were down point four and share this year. We're only down point one. So we really do like what we're seeing. And we're not to growth yet. We know we still have more work to do. And that's going to be an emphasis on price mix and innovation and renovation.

The two spots that we're keeping our eye on where we need to see more improvement is totinos, which I've already talked to. Please, again, that we cut those declines in half, but we have more work to do and we have really good product innovation, blasted roles. We have some better merchandising. We have strong innovation or sorry, strong renovation companies. We feel good about that. And then we have some challenges on fruit snacks.

Now the category is growing remarkably fast. It's up about 13% in Q1, but we're really seeing some small insurgent brands enter and drive that with increased distribution. And so we need to up our game there. We're going to really leverage our Annie's grand to bring some very strong new products to market. We've just launched Nature Pals, which is a high fiber fruit snack. Great taste. We have some great renovation coming on our core business. So totinos and fruit is where we'll focus on. And then we expect to see continued improvement in the rest of our brands.

Your next question comes from the line of Peter Galbo with Bank of America. Your line is open. Please go ahead.

Sure. Pete, thanks for the question. Just to just to give you some texture, we did see inflation roughly within the range. Maybe a touch lower than we expected in Q1, but at the low end of our range around 4%, which if I look forward, you know, in taking account sort of our heads positions. Well, I would expect Q1, Q2, Q3 to be roughly similar and Q4 to be just a touch outside the range at around 6% based on everything in front of us right now.

Sure. Let me start with white bridge first. I think as is consistent with most of our past acquisitions of any size, we generally are on a one month leg until we hit systems integration. And then we do a catch up that almost always that is always flown through organic sales. So that that was expected at some point one month.

So, and then the other point I would tell you is that worth about a point of growth on pet, maybe 15 basis points for the company. So not, not frankly, all of that all that large on inventory. What, what I would tell you is, you know, this is, we've been doing this long enough and the challenge is just on pet. There's a lot of volatility quarter to quarter.

I do think based on the customer mix progression that we still expect, you know, a low single digit headwind from inventory over the course of the year, mainly as our mix skews more and more towards customers who carry lower inventory levels. Can't, can't probably get too precise on a quarterly basis about how that's going to flow. So we would still stand by that, that, that forecast for the full year, however.

You bet.

Your next question comes from the line of Robert Moscow with TD Cowan. Your line is open. Please go ahead.

Hi, Ron. Thanks for the question. You're right. When you look at our pet business right now, we're really pleased with the growth that we're seeing on our cat business. Our treats business has inflected to growth, and we've seen significant improvement and love made fresh, but the area that we're having challenges in our dry dog business. From a dry dog perspective, the category was down about mid single digits. As you said, life, life protection formula pretty much hung in there with the category. And it was wilderness where we saw declines accelerate and wilderness is a place you will have heard on the prepared remarks where we've actually applied our remarkable experience framework testing to that business to try and diagnose the challenges.

And we see that we really have to relook at the entire proposition of the product, the packaging, the marketing, the communication. We have work to do. And we had the same challenge on our cat tasteful business a few years ago, and it took us about 18 to 24 months to improve it. And that business is back to growth now. So the main challenge we see is on wilderness and on life protection formula, we have some really good product news and renovation and new products coming in the back. Half that we really emphasize our ingredients superiority with benefits we know parents are looking for, and I really like the plans that are coming in the back half.

What dog food is doing as as we expected, it is down about 4%. But that is not worse than we had planned. And I'm actually not familiar with the challenges that you're talking to. As far as I know, our plans are on track.

Your next question comes from the line of Leah Jordan with Goldman Sachs. Your line is open. Please go ahead.

So, thanks for the question from a new products perspective, and we're really encouraged with what we're seeing. And we've stepped up the amount of new products. We've increased by about 50% over the last two years have gone from 3% of net sales to 5% of net sales. And we really are focused on bringing new products with benefits we know the consumer values and will pay for. So when we look at the new products that have launched in Q1, we've seen really strong performance behind our protein cereals, particularly honey net Cheerios.

Our blasted Totino's roles that are bringing new bold flavors are doing really well. Our latiar launch is also working really well in the Mexican category. And of course, we've seen love made fresh and prove pretty significantly. So again, we're still one quarter in, but we're encouraged by the trial and repeat that we're seeing on those new products. And as we look more to the back half of the year, I already mentioned that life protection formula has some great innovation coming with benefits. We know the consumer values.

We're leaning into significant new products in our snacks categories. So our bars categories, we're going to lean into more protein innovation there on nature valley on Laura bar. We're scaling up our ghost bars business and we're even launching a meat snack in our ethics business. And we'll continue to bring really strong marketing behind all of that. So I really think we understand what the consumer values, and we are bringing them appropriately to the categories that we play in, and we'll continue to see improved momentum going forward.

Yeah. So in aggregate, if it's at the macro level, if you, if you take our inflation guide and our guidance on HMM cost savings, so still roughly, we will, we expect offset over the full year. Set aside any of the phase and commentary I gave you. I think the other important thing to call out are the mechanical factors around 53rd week, which will, you know, obviously have an impact on gross margins as we move through the back half of the year just solely on that comparison. If you strip that out, actually, we would expect a gross margins net to be roughly flat.

Ex that mechanical factor. And then at operating margin, we would just add the incentive comp reset as an additional mechanical factor on top of that, but, but all things equal. Those are kind of the big puts and takes I'd be, I'd be watching.

Your next question comes from the line of Chris Kerry with Wells Fargo securities. Your line is open. Please go ahead.

Good morning, Chris. Thanks for the question. Well, as you know, we did a lot of work last year to adjust our everyday prices, and that was really important to stabilize our base volume and to help us get back to household penetration growth. And so with that investment behind us as we move to fiscal 27, we're really focused on driving positive price mix. And that's with particularly strong contributions from product mix from premium innovation from price pack architecture and we're seeing that work on things like Cheerios protein love made fresh checks mix tubs etc. So that is where we're focused. As Kofi did mention is prepared for our so we expect input cost inflation in the higher end of what we previously communicated in the four to five percent.

And as we always do, we're going to work on all levers to address higher costs, whether that's through cost savings or through price mix.

So HMM is always our first defense against inflation, then we have some transformation, but we have a very strong strategic revenue management toolkit as well. And given this level of inflation, I would assume all levers in that toolkit are on the table, trade, mix, a list pricing, etc. Okay.

Yeah. So look, I obviously am not going to get into guidance for next fiscal year given we're still in the first quarter of this one. I would tell you our construct over the long term is still built around HMM being the primary bulwark against inflationary pressures. If I just take the last three to four years, we have run in HMM at the high end of the fourth 5% range.

I have every confidence that that is the range that we would expect to carry with us as we go forward from here. Now, obviously, anything related to SRM and the combination of price and mix, we would expect to be in the mix of how we manage through the year and frankly how we drive growth at the top line.

What I can't do is give you a sense of what 28 is going to look like from an SRM perspective, other than just acknowledge what Dana said, which is we will use all the tools in our toolkit. And the environment remains frankly a little volatile with respect to cost. So it's probably a little early for us to get too deep into the discussion beyond that.

You bet.

Your next question comes from the line of Alexia Howard with Bernstein. Your line is open. Please go ahead.

Good morning, Alexia. Thanks for the question. Thank you. I appreciate the question, Alexia. I would expect it will take us on pace with the combination of all the work we're doing on HMM and transformation savings at least a couple of years to work ourselves back to our target of three times. That debt to you, but setting aside any impact from extraordinary items like, you know, if, for example, the best to chairs, which we have in the course of the past couple of years used to help reduce leverage. So all things equal. We expect to make sequential progress over the next couple of years. I can't give you an exact end date, but just know that in the back of our transformation goals through 2030 is is our plan reduction back to target.

You bet.

Your next question comes from the line of Scott Marks with Jeffries. Your line is open. Please go ahead.

Thanks. Well, good morning. And thanks for the question. I think first just stepping back, you'll remember in the prepared remarks that we committed to delivering $750 million of cost savings in this fiscal year and 3 billion in total by fiscal 30. And how that breaks out is 2 billion of HMM and a billion of transformation and the way we're thinking about transformation is not just about cutting costs. It's about how do we get our organization to a place that's fit for future growth. Part of that will be reimagining our supply chain and that's looking at capacity utilization, our manufacturing network logistics.

And part of it is the example that you just called out in terms of what do we need to stand up in order to get at growth faster. And so our way of doing packaging innovation today is quite inefficient. We have just recently signed on a partner and external partner in order to help us get it more packaging innovation more efficiently and effectively and at better pace. And that will allow us to accelerate our growth in e-commerce where we know the majority of the food growth is going. So we're still very early days. I don't have a lot more details to share with that. But I really like the approach the team is taking.

Well, first, thanks for calling out the progress that you've seen in cereal. We're encouraged by the two point improvement. We signed Q1 and the team has done a very good job with packaging innovation. We have the cups that allow us to have an opening price point for consumers. We have large sizes. We have bags. We are launching granola and tubs. And all of this innovation just allows us to deliver unique benefits that the consumers willing to pay for. And I would say we've taken that approach across every business. As part of our strategic revenue management plans, what we do is we have to have a minimum three year pipeline of ideas with price pack architecture.

And so you'll see that come in our salty snacks business where we put our snacks in tubs and that was highly incremental. You will see it come in our Pillsbury business where we know single family households that don't have a lot of kids are looking for portion sizes to be better. And we've launched unique innovation there. Old El Paso dinner for two great innovation there. And so really, I would say the team has applied this strategic principle across every category. It starts first with understanding what the consumer will value and then figuring out how to launch it in a way that maximizes total consumer benefit.

Your next question comes from the line of Michael Lavary with Piper Sandler. Your line is open. Please go ahead.

Appreciate the question. Wheat is a touch higher than our inflation expectations for the year, obviously, as part of the basket of things along with freight and fuel and fats and oils and maybe packaging where we're seeing that incremental pressure that puts us to the higher end of the range. You know, I would say broadly that on our food service business, this is a dollar margin neutral exercise where the wheat or the flower that we sell on market effectively is index priced and changes on a pretty regular basis roughly weekly.

To market and was passed through straight just based on the commodity price. So that does have an inflationary impact. It's been about low single digit headwind. The past year, we'd expect that to be flipped to a tailwind this year in a roughly similar range of low single digits. So that is probably still roughly unchanged, which is a touch higher, but we were expecting that coming into the year. I would expect, obviously, as we work our way through the year, we are mostly hedged on wheat, just similar to the rest of the commodity complex. We're about three quarters hedge through the year and have visibility that far out and obviously beyond that, then the spot and future prices become a little bit more inflationary in the back end of our year.

Well, thanks for the question. It is an important one. I think first let's start with e-commerce and omni channel. We know that whether it's human food or pet food e-commerce is driving the majority of the growth. We see that over 20% of sales in human food and at 30% in pet food and we expect that to accelerate.

And we've really been focused on making sure that we have stood up the organization with the capabilities necessary to win there. And so far in Q1, we saw our e-commerce positions and our improved even faster than bricks and mortar. As it relates to agentic, we are really working hard to stay ahead on that. We know just in this last month alone that 40% of consumers use an AI tool to make a purchase in food.

And right now, I mean, who knows, but our early estimates are that agentic commerce will be about 20% of food sales by 2030. And so it's really about making sure that we are staying ahead on the basics. And that's about making sure that our products are discoverable. It's making sure that the information is accurate and that they're easy to buy. And if we focus on those three areas first, we will stay ahead.

But again, it is still very early in the agentic space and we have lots to learn.

Your next question comes from the line of Nick Modi with our recent capital markets. Your line is open. Please go ahead.

Yeah, it's a fair ask. Without getting too specific, what I would tell you is, you know, fertilizer costs, given where we are in the planting cycle, more likely to be headwind and affect crop planting decisions as you go into late spring next year next calendar year. So that would be the place where, you know, as farmers are making trade-off decisions about their input costs, they might switch to lower fertilizer to reliant crops such as soybeans and swap out of grains, which, you know, obviously that affects the supply of some of the grain complex, which are more fertilizer reliant. So I would expect that's how it plays out, and that would, you'd start to see that pressure show up maybe with more clarity as we work our way through and into the calendar year next year.

Yeah, Nick, this is Jeff. Let me take that one. You know, I think that I would start off by saying that the biggest trend in pet food is the same one that it has been for the last couple of decades, which is humanization. And, you know, which is why we're really thrilled with the development of love made fresh and how that's worked, why, you know, we bought tiki cat and that's grown double digits since we bought it. And again, it's growing strongly this year, we just gained distribution on that one. So that's really taking off. And we even have our treat business back to growth and we've got a good fall lineup of innovation on that.

And so I think that the biggest trend as we as we think about what's what's going to drive our business forward is a humanization trend and they have mentioned briefly. Some innovation we have on coming up like protection for me on the second half and that'll hit on that trend as well. So we feel great about that. As you say in the short term there, there's a shift in diamond dynamics and that there are fewer dogs being purchased than there were before. And that, you know, there are smaller dogs rather than larger dogs and we actually blew both a little actually over index is the smaller dogs and so we'll see how that plays out but there are more cats.

And certainly people return back to the office and the economics of cat works out and we have a strong cat business as I mentioned I mentioned tiki cat data reference tasteballs earlier that, you know, one time was a headwind for us, but we've kind of redone all the pieces of the marketability framework and got that going again and so as we think about our pet business, we're encouraged by the start of the year there is work to do certainly on on a wilderness so we don't deny that. But we feel as if we've got good offerings and we see some momentum in places where pet humanization is taking place and where we like our innovation for the second half of the year.

You great time for one more one. Understood. Thank you. Your next question comes from the line of Matt Gumport with BNP Perry bar. Your line is open. Please go ahead.

Yeah, thanks for the question. I think this all stems from the fact that we still see the consumer being very stressed, especially the middle and lower income consumer and how that translates into behaviors is yes, they are still waiting to buy products on sale, rather than waiting to buy them on every day shelf price. We haven't seen that accelerate. We'd say it's pretty similar to what we saw in the back half of last fiscal.

And so when we set our guidance for this year, we assumed that that would continue throughout the fiscal year.

Well, as you mentioned, we really focused on improving our base prices last year to bring more value to consumers and we saw it worked. Our base stabilized our penetration grew. But as you rightly pointed out, the environment is more inflationary. And so we operate in 25 categories. And each one requires a specific set of actions. So what we do is we use the remarkably framework will assess the price value relative to the competition and will continue to adapt as the environment adapts. And that's where as I've talked to our Strategic Revenue Management Toolkit is really important because we will lean and mix. That's the primary lever we want to use, but also will continue to evaluate both trade and list pricing going forward.

And I would say just to add on to what Dana said, as we think about the momentum for the rest of the year and she talked about our continuing momentum. The thing I'm most excited about really is that having got our prices in line is the rest of the elements of the marketability framework, you know, particularly our innovation renovation on our core and our pills very business, you know, 70% of us being renovated. We've got really good innovation in the second quarter. We talked about life protection formula and the good innovation we have coming on that as well as distribution increases on tiki cat, you know, the marketing on big G has been phenomenal. I mean, lucky charms is back to growth and and Reese's pops is back to growth, a cinnamon to toast crunches back to growth and that has nothing to do with anything to do with pricing and has to do with really good marketing and really good product news.

And so as I look at the rest of the year, while I'm encouraged by the first quarter, I'm also encouraged by, you know, what we're doing on the rest of the elements of the marketability framework that don't tie back to value. Whether it's more protein this you talked about, whether it's both flavors, where it's more fun on certain categories. So that's what got me excited about our ability to compete increasingly effectively as a year goes off.

All right, I think that's a good place. Thanks, Max and Warren. I think we can wrap it up here.

Thank you. We have reached the end of the question and answer session. I will now turn the call back to Jeff Seaman for closing remarks.

All right, Warren. Thank you. Appreciate everybody's good interest and and discussion this morning. The team is available throughout the day for anyone that has follow ups. We look forward to continuing to show good traction as we go through the rest of the year. Have a great day, everyone.

This concludes today's call. Thank you for attending. You may now disconnect.