Release Date: June 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- General Mills Inc (GIS, Financial) delivered on its updated guidance for fiscal 2024 by enhancing efficiency and improving volume performance in the second half of the year.
- The company achieved industry-leading holistic margin management (HMM) cost savings, allowing continued investment in brands and meeting profit and cash targets.
- General Mills Inc (GIS) generated more than $2.5 billion in free cash flow with a 96% conversion rate, enabling significant shareholder returns through dividends and share repurchases.
- The company made progress in its ESG goals, including enrolling over 500,000 acres in regenerative agriculture programs and achieving a 7% reduction in greenhouse gas emissions across its value chain.
- General Mills Inc (GIS) plans to drive another year of strong HMM cost savings in fiscal 2025, targeting 4% to 5% savings in cost of goods sold, which will be reinvested into brand growth and innovation.
Negative Points
- Organic net sales for fiscal 2024 were down 1%, reflecting a moderation from the previous year's double-digit growth.
- The company's overall competitiveness fell short of expectations in fiscal 2024, impacted by challenging consumer sentiment in core markets, including human and pet food categories.
- Fourth quarter organic net sales were down 6%, driven by unfavorable trade expense timing comparisons and lower pound volume.
- International segment performance was pressured by difficult market conditions in Brazil and China, resulting in a 10% decline in fourth-quarter organic net sales.
- General Mills Inc (GIS) expects ongoing macroeconomic uncertainty and higher-than-historical inflation rates to continue impacting consumer behavior and input costs in fiscal 2025.
Q & A Highlights
Q: Can you provide more details on the factors that led to the decline in organic net sales for the fourth quarter?
A: (Kofi Bruce, CFO): The decline in organic net sales for the fourth quarter was primarily driven by a 3-point headwind from trade expense timing comparisons, a 1-point impact from lower retailer inventory, and a 1-point impact from slower net sales trends in international markets.
Q: What are the key priorities for General Mills in fiscal 2025?
A: (Jeffrey Harmening, CEO): Our key priorities for fiscal 2025 are to accelerate organic sales growth by delivering remarkable consumer experiences, generate strong HMM cost savings to reinvest in our brands, and continue to drive strong cash generation while maintaining disciplined capital allocation.
Q: How does General Mills plan to improve its competitiveness in fiscal 2025?
A: (Jeffrey Harmening, CEO): We plan to improve competitiveness by increasing brand investment, enhancing product quality, offering compelling value, expanding omnichannel availability, and improving packaging. Specific initiatives include new marketing campaigns, product innovations, and targeted value offerings.
Q: What are the expected inflationary pressures for fiscal 2025, and how will General Mills address them?
A: (Kofi Bruce, CFO): We expect input cost inflation of 3% to 4% of cost of goods sold, primarily driven by labor inflation. We plan to offset these pressures through strong HMM cost savings, targeting approximately 4% to 5% savings in our cost of goods sold.
Q: Can you elaborate on the performance of the Pet segment and the plans for fiscal 2025?
A: (Jeffrey Harmening, CEO): The Pet segment faced headwinds in fiscal 2024, but we plan to return it to growth by increasing media investment, optimizing price points, launching new products, and expanding distribution. We aim to drive top-line growth through remarkable brand communication and innovation.
Q: How did General Mills perform in terms of cash flow and capital allocation in fiscal 2024?
A: (Kofi Bruce, CFO): We generated more than $2.5 billion in free cash flow with a 96% conversion rate. This allowed us to invest in growth initiatives, reshape our portfolio, and return over $3 billion to shareholders through dividends and share repurchases.
Q: What are the expectations for category growth in fiscal 2025?
A: (Jeffrey Harmening, CEO): We expect volume trends in our categories to improve gradually, but overall category dollar growth will be below our long-term projection of 2% to 3%. We anticipate balanced contributions from volume and price mix.
Q: How is General Mills addressing the challenges in international markets, particularly in Brazil and China?
A: (Kofi Bruce, CFO): We faced difficult market conditions in Brazil and China, impacting our net sales. In Brazil, we are addressing consumer and customer headwinds from significant multiyear inflation. In China, we are focusing on improving consumer sentiment and shop traffic for our Haagen-Dazs brand.
Q: What are the key assumptions underlying General Mills' fiscal 2025 guidance?
A: (Kofi Bruce, CFO): Key assumptions include gradual improvement in category volume trends, strong HMM cost savings of 4% to 5%, input cost inflation of 3% to 4%, significant brand-building investment, and a 2-point headwind from resetting incentive compensation.
Q: How does General Mills plan to leverage digital capabilities for efficiency gains?
A: (Jeffrey Harmening, CEO): We are expanding the use of artificial intelligence to reduce waste in manufacturing and logistics. In fiscal 2024, we reduced waste by 20% on some manufacturing lines and plan to roll out these tools to more sites in fiscal 2025. We also aim to optimize our logistics network, reducing miles on the road by 1 million annually.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
