General Mills, Inc. (NYSE:GIS) Q3 2024 Earnings Call Transcript

General Mills, Inc. (NYSE:GIS) Q3 2024 Earnings Call Transcript March 20, 2024

General Mills, Inc. beats earnings expectations. Reported EPS is $1.17, expectations were $1.04. GIS isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning. My name is Audra and I will be your conference operator today. At this time I would like to welcome everyone to the General Mills Third Quarter and Fiscal Year 2024 Earnings Call. Today’s conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to Jeff Siemon, Vice President of Investor Relations and Treasurer. Please go ahead.

Jeff Siemon: Thank you, Audra, and good morning to everyone. Thank you for joining us this morning for our Q&A session on our third quarter fiscal 2024 results. I hope everyone had time to review the press release, listen to our prepared remarks, and view our presentation materials, which we made available this morning on our Investor Relations website. It’s important to note that in our Q&A session, we may make forward-looking statements that are based on management’s current views and assumptions. Please refer to this morning’s press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today’s call. I’m here this morning with Jeffrey Harmening, our Chairman and CEO; and Kofi Bruce, our CFO. Let’s go ahead and get right to the first question. So, Audra, if you can get us started, please.

Operator: [Operator Instructions] We’ll go next, oh sorry, we’ll go first to Andrew Lazar at Barclays.

Andrew Lazar: Great, thanks very much. Good morning, everybody.

Jeffrey Harmening: Good morning, Andrew.

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Q&A Session

Andrew Lazar: Hi there. Jeff, in the prepared remarks you mentioned the expected impact in the fourth quarter in terms of reported results from the lapping of the trade expense benefit last year. If we put that aside, which sort of seems like more mechanical. How do we think about momentum for the company in the fourth quarter in terms of what you’d expect in terms of in-market performance and consumption right as the company looks to really build momentum going into fiscal ‘25? Would you expect sort of an acceleration from what we saw in fiscal 3Q or something similar to 4Q?

Jeffrey Harmening: Yes, thanks Andrew. And I would agree with you. The timing of the trade phasing is more mechanical in nature. So I think you’re right about that. You know, more broadly, you know, I would say is, I mean, we’re encouraged by the third quarter results in the improvement that we saw in underlying performance, particularly the level of competitiveness in the North America retail and improvement we saw in pet. And as we said, you know, said kind of going into the quarter in the back half of the year that there we thought there would be three external factors which would, you know, play a role in our performance. The first was lapping of pricing of last year. We thought, you know, we’d see a benefit from doing that.

We’re seeing that benefit in the third quarter. The second is that, you know, lapping the reduction snap benefits from a year ago, which we said we’d probably start to see in March and April. And there’s a little bit of evidence to suggest that we’re starting to lap that and see a little bit of benefit. And then the third would be lapping on shelf availability. And so those are the three factors we’ve seen, you know, the first play out a little bit in our third quarter results. So we are encouraged. You know, I would say is that outside of the trade phasing kind of mechanical issue you referenced, I mean, we’re assuming that our fourth quarter in terms of sales would look about like the third quarter in terms of year-over-year performance. And it’s hard to say exactly because we have inventory movements and things like that.

But our expectation would be that it would look pretty similar to the third quarter. But I would also say that there are a lot of moving pieces right in the fourth quarter. And we just have to see how those moving plate — pieces play out in terms of the external environment.

Andrew Lazar: Got it. Got it. And then obviously Pet was a significance source of upside to organic sales versus at least sort of street expectations. What really drove the outperformance and I guess more importantly do you see this as sustainable? I didn’t know if you had like an all channel consumption number for Pet this quarter and whether you see that sort of continuing to improve sequentially from here? Or should we not get ahead of ourselves based on what we saw on 3Q. Thanks so much.

Jeffrey Harmening: Yes. Well, the third quarter of Pet results were pretty good, I mean, which is to say that they’re better than maybe even we expected. The movement was a little bit better and, you know, paced by a life protection formula, which was up, but also Tastefuls our cat dry business, which also shows some improvement as well — as well as an improvement in our wet business. We still have a lot of work to do in Pet, and we know that. And particularly with regard to Wilderness and specific channels, what I feel good about the third quarter is what it shows that the area that we put emphasis on, we’ve seen [Technical Difficulty] and certainly improvement, which tells us the Blue Buffalo equity is good and that we’re working on the right things.

And on Wilderness, we kind of know what the challenges are and we know what to do to get it back on track, you know, but it’s not going to take a month or two to get that back where you want. It’s going to take a couple quarters. So I’m not going to get ahead of myself. I don’t think it’s time to declare a victory on Pet, even if we’re encouraged that the things that we have done have seemed to work the way we wanted to. I would note the other thing on Pet is that we drove some good profitability increases in the quarter. Our productivity levels are quite high in Pet, and we had a lot of disruption costs during the pandemic that we’ve had to get out. And we’re in the process of doing that. And you see that in the results in the third quarter.

So really pleased by that. We’re kind of getting our feet undressed from an executional standpoint. So while I’m encouraged by the third quarter, I think it’s probably a little bit early to say, kind of, what’s going to happen from here on out, but we do see some green shoots in Pet.

Andrew Lazar: Great. Thank you so much.

Jeffrey Harmening: Yes.

Operator: We’ll move next to Ken Goldman at JPMorgan.

Ken Goldman: Hi, thank you. You know with the understanding it’s too soon to quantify or really even discuss next fiscal year. I just wanted to clarify something at first. And that’s at CAGNY, I believe you said you were hoping for a year, even though it’s too early, that was relatively benign. And with the understanding, again, no numbers at this time, I assume, what does relatively benign mean in the context of your longer term algo? And I’m asking because you have easy comparisons in Pet, you’re hopefully still performing well in market. You said previously you’ll have H&M savings above 4% or you hope to. Inflation should be you know disinflationary for lack of a better word. You’re going to get help from lapping snap. I could reel off a lot of potential positives into next year, but you weren’t yet ready to kind of say it would be on algo and I’m just trying to get a better sense of, you know, a month later than CAGNY you’re in a little bit of better position to be somewhat more specific about how to think about maybe some of the puts and takes for next year?