Ladies and gentlemen, thank you for standing by. Welcome to the fiscal 2015 fourth quarter earnings conference call. During the presentation, all participants will be in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded, Wednesday, July 1, 2015. I would now like to turn the conference over to Jeff Siemon, Finance Director, Investor Relations. Please go ahead.

Thanks, Tina and good morning, everyone. I am here with Ken Powell, our Chairman and CEO, Don Mulligan, our CFO. Kris Wenker is here too but she has put herself in listen-only mode. I will turn the microphone over to Ken and Don in just a minute, but first let me cover our usual housekeeping items. Our press release was issued over the wire services earlier this morning. It's also posted on our website if you need a copy. And you can find our slides on our website that supplement our remarks this morning. These remarks will include forward-looking statements that are based on management's current views and assumptions. The second slide in today's presentation lists factors that could cause our future results to be different than our current estimates. With that, let me turn the call over to Don.

Thanks, Jeff. Welcome to your first earnings call. And hello everyone. Thank you for joining us today. Before I get into the numbers, let me just take a moment to recognize Kris Wenker's tremendous 35 years with General Mills and her terrific, differential leadership of our Investor Relations efforts. She will be missed, both inside this building and I know by many of you on the phone after today. We wish her all the best. As noted in our press release today, due to the business in hand, General Mills' operating performance in fiscal 2015 was mixed. Our convenience stores and foodservice segment had an excellent year with segment operating profit increasing 15% to reach a record high of $353 million. And our international segment posted good margin expansion and profit growth in constant currency. But sales and profit declined for U.S. retail, our largest operating segment. Our business performance strengthened in the second half of the year as our Consumer First efforts gained traction and we took important strategic actions during 2015, including the acquisition of Annie's and the initiation of several projects designed to increase our speed and agility while reducing costs. These actions have positioned us to deliver stronger growth in 2016 and beyond. Our fourth quarter results are summarized on slide five. Remember that this quarter included extra week which contributed approximately six points of net sales growth and $0.04 of earnings per share. Net sales of $4.3 billion essentially matched the year ago results. On a constant currency basis, net sales increased 6%. Segment operating profit totaled $800 million, an increase of 9% as reported and 13% in constant currency. Net earnings and diluted earnings per share were both down on a reported basis, primarily due to an impairment charge taken out of our Green…

All right. Well, good morning, everybody. Thanks, Don. So as we enter fiscal 2016, General Mills is keenly aware of our consumers' changing food preferences and the impact those changes are having on our industry. We remain deeply committed to following the consumer adapting to their evolving preferences and driving growth. And where we embraced Consumer First in fiscal 2015, we saw our business respond whether that's with protein cereals in U.S. retail, Yoplait Yogurt in U.S. retail and foodservice channels or Old El Paso dinner kits around the world. Our plan for 2016 is to expand our Consumer First efforts worldwide to generate sustainable topline growth. So let me give you some highlights starting with U.S. retail. We have four clear priorities for U.S. retail in 2016. They are, first and foremost to grow our cereal business, second to accelerate our performance in better-for-you snacking, which includes both our yogurt and snacks operating units within U.S. retail, third to drive double-digit growth on our natural and organic portfolio by leveraging the combination of Annie's and our heritage natural and organic brands and finally to deliver Consumer First value on select brands in a way that generates positive returns for our business. Let me give you a few details on these priorities, beginning with cereal. General Mills has been leading performance in the $10 billion U.S. cereal category. We gained 30 basis points of value share in fiscal 2015 and have grown our share in seven of the past eight years, gaining 1.6 share points during that time. But our share growth in 2015 did not translate into sales growth for us. So we have more work to do. Consumer First renovation is at the heart of our plans to renew cereal growth. At CAGNY, we told you we are…

[Operator Instructions]. Our first question comes from Chris Growe of Stifel Nicolas. Please go ahead.

Hi. Good morning.

Hi, Chris.

Hi, Chris.

Hi. Just two questions, if I could. The first would just be, you have a lot of cost savings coming through this year, in particular on the HMM cost savings as well as obviously the restructuring related savings. Just wanted to get a better sense of, if you could give an idea like how much of these are being reinvested, how much do you expect to come to the bottom line and maybe a breakdown of those savings roughly between cost of goods sold and SG&A? If I could just add one other question, it would be a different question, in relation to, you mentioned an investment in Yoplait in China and I guess just to get a better sense of when that's going to start hitting, when we should see that in the market and any expectations for that business? Thank you.

Sure. Chris, this is Don. I will take the cost saving reinvestment. Obviously we see this year, talking about 2016, we do see a step up in the cost savings contribution the incremental value of those this year. We are selectively reinvesting. We are, as we think about how we have built the plan this year, it was really about balancing, reinvesting to derive sustainable topline growth with increased efficiency in margins and then returning cash to shareholders. And as we balance all that, we did some opportunities for some specific investments. As you do your modeling, it is probably going to be 50% plus in the phase this year will go back into the business. And that's going to be across both COGS, in media, in consumer support more broadly and then as some SG&A capabilities. So for example, as you think about gluten-free Cheerios, removing artificial colors and flavors across our cereal brands, the sugar reduction in yogurt, getting our value right on Betty Crocker and Helpers launching Yoplait in China that you refer to. Plus there are some things we didn't talk about today that we are improving our capabilities to reach Hispanic consumers in the U.S. and putting some chaos in our categories against some faster growing channels like e-commerce. And so we have been very targeted where we see the greatest growth opportunities and the commonality of all those is where we see Consumer First opportunities to grow our business for the long-term and that's where we are putting the reinvestment. We do expect to see a return to comparable top line growth this year. As I said, if you remove the one week, it's going to be up 1%, but I also want you to think about this being a two-step process. We are going to see part of the benefit of those reinvestments this year. We expect to see another step as we get into 2017. Because we are building the base for growth for the long-term and we will start seeing that infection and change in trajectory this year.

And just to add to that, Chris, Yoplait China would be a good example of really looking at the long term and to build businesses that are going to sustain over many, many years. I think you know we have been planning to enter China for a number of years. Interested, of course because it's a very large multibillion dollar category already in China and so we began shipping from our own plant last month. The products are on the shelf in retail stores in Shanghai. We are offering a couple of traditional spoonable varieties. These are very, very high quality building on the French heritage of Yoplait. We are also offering a drinkable product. So there will be basically three platforms. They are on the shelf. They look great. We are really excited by it. We are going to do what we have always done in China, which is to really learn about the business model in Shanghai and then as we success we fully intend to expand that business into other major cities in China.

Thank you. Our next question comes from Eric Katzman of Deutsche Bank. Please go ahead.

Hi. Good morning, everybody.

Hi, Eric.

Good morning, Chris.

I guess, I am not sure if we calculated this correctly, but if you exclude the acquisitions and you exclude the extra week, was the fourth quarter volume down mid single-digit? And if so, was that within your expectations for the quarter?

Eric, your math is pretty good. It's probably around 4% when you back out the extra week in Annie's and so forth. It was actually. And there's two things that I would just point. One is, in our C&F business we did exit a line of low to no margin businesses and that had an impact in the quarter. And then in U.S. RO, we actually were lapping a build of retail inventory from a year ago. So we had anticipated both of these when we gave our guidance. Our sales actually came in pretty much in line with what we expected including the volume component of our sales. So we enter 2016 in the position that we expected to when we first started building our plan back in the spring.

Okay. Thank you. And then, maybe I could ask about this value initiative and just how should we think about that? It seems like it's mostly some of the baking goods, baked goods products that are being affected and is this kind of a straight out price cut? Or are you promoting? Or is it like a combination of trying to drive some of those, I guess, center of the store brands that have struggled a bit?

Yes. So Eric these, as you know, we are not trying to win on the basis of pricing and merchandising, but in the case of some of our baking products and also Helpers, for example, we simply found ourselves not competitive from a merchandising standpoint as the year unfolded. That was also true for soup where we didn't enter the season with the right price point. So I would just describe this as getting our merchandising price points and frequency in line with competition, tactical adjustments. In the baking area, for instance, we are adjusting prices on some of the more value oriented parts of the line anyway. So think cake and frosting. Other parts of the line maybe brownies and cookies and these sorts of things, we will leave those prices as is. So these are really just tactical adjustments to move us into the competitive zone and we think that that will benefit in much better volume performance.

Okay. I will pass it on. See you in Boston.

Yes.

Thank you. Our next question comes from Bryan Spillane of Bank of America. Please go ahead.

Hi. Good morning, everyone.

Hi, Bryan.

Hello, Bryan.

Hi. I wanted to follow up on Chris Growe's question, just with regard to just making sure I have got all the pieces on the cost savings that are incremental this year and then trying to sort of figure out how much is being reinvested, because I think back of the envelope, I was looking at between HMM and the three programs, the incremental savings for this year should be somewhere in the $500 million to $600 million range. Is that right?

Yes. That's correct. That's what will impact COGS. That will impact in total, sorry, not just COGS, but in total, yes.

In total, yes. And then implied, I guess, in the operating profit growth currency neutral is mid single-digit operating profit growth is like $150 million or so of operating income. So if you are reinvesting half of the savings but there is $150 million of operating profit growth, it just seems like there is something I am missing in between. So could you just help bridge that?

Yes. You see, there is inflation. We have 2% inflation in COGS. We will have normal inflation across the remainder of our SG&A. And again, the reinvestment is going to be over half of what the cost saves are. So you have got to roll that in as well. And then the last piece that you might not have is for our pension expense with the change in mortality table, it's going to increase our liability, increase our expense, non-cash by about $70 million next year. That will not all flow through because we have some things that will partially offset that. But it is some thing that we will have to absorb next year.

Okay. That helps. And I guess the 53rd week is also another $30 million or $40 million of OI that you have to lap?

Yes. That's going to take a point plus off your growth rate.

Okay. Great. Thank you.

Thank you. Our next question comes from Robert Moskow of Credit Suisse. Please go ahead.

Hi, Rob.

[indiscernible] for myself out there. A question on --

We lost you, Rob.

Mr. Moskow, we are unable to hear you, sir.

Can you hear me now?

Yes. We can hear you now. Okay. Now we have lost you again.

All right. I will hop out. Thanks.

We will go to the next question. Our next question comes from Kenneth Zaslow of BMO. Please go ahead.

Hi. Good morning, everyone.

Hi, Ken.

I just have two questions. One is, every couple of quarters or several quarters you guys start looking again at the cost savings opportunities throughout different pieces of the businesses. Are there any businesses that you are in the process of reviewing to go another level of cost savings? That's my first question. My second question is, can you discuss the different sales trends for cereal in retail versus foodservice? Is there any insight to be gleaned from the different growth trajectories of those two?

So you want to take the question?

Yes. Ken, on the cost saves side, it's an ongoing effort, it's an ongoing practice within the company to look at where we are not as competitive as we think we could be and as opportunities present themselves that are material enough for investors to have different guidance on, we obviously disclose that as we did with Project Compass just a couple of weeks ago.

And on your cereal question, Ken, I think part of it is just rooted in the fundamentals. As you know, our convenience and foodservice business is very, very targeted to the channels that we think have longer term growth potential and so we are highly focused in schools and universities and healthcare and all of those channels are growing anywhere from 2% to 4%. So a part of it is that we are just seeing there is a little bit of a tail wind there and I would say the second part is that our innovation has just worked terrifically well in those channels. We have great tasting cereals. The whole grain benefit of our Big G cereals has been extremely important to school foodservice operators and has given us a real competitive advantage. We have a little over half the share in that segment. So I would say, it's a combination of some tailwind in those channels, very well targeted innovation and that's why we are very encouraged by the innovation that we will be bringing to the general market in 2016. We think that's very well targeted, very focused on consumer trends and we are going to see revenue growth that will result from that innovation.

Great. Thank you.

Thank you. Our next question is from Robert Moskow of Credit Suisse. Please go ahead, sir.

Hello, again.

I hope that --

Rob, you have got to try. You have got to get on a different phone. We are not hearing you.

You are going to find a pay phone.

All right. Thanks. I am out. I will try again later. Bye, bye.

Okay.

Thank you. Our next question is Matthew Grainger of Morgan Stanley. Please go ahead.

Hi. Good morning, everyone.

Hi, Matt.

Hello, Matt.

Hi. So just two questions. First, I wanted to see if you would give any more context on the rationale for the Green Giant impairment? It is a brand that obviously has very high awareness. You have done some testing out of the branded snacks. Just how did you assess the pros and cons of continuing to try to enhance its credibility in more of a health and wellness context? And with the impairment, what are the implications for the future of it in your portfolio, whether that's just prioritization or other alternatives?

So Matt, we do continuously review where and how we are allocating our resources and resources defined as R&D investments and marketing investment and capital investment. So as you can imagine, we are just constantly looking very closely at that. And we have, you have already heard about a number of opportunities that we have around the world in cereal and yogurt and snack and you will hear more about it in July. And we are dedicating resources to drive growth in those businesses and that necessarily means that other businesses are getting less and we have highlighted Green Giant. The fact that we have done that shouldn't take away from the fact that Green Giant know is in fact a profitable business for us. As you said, it's a really good brand. We are going to be bringing news and innovation to Green Giant, both in the U.S. and in international markets in F16. So sort of reallocation doesn't mean not doing things. We like that equity. And we think there is innovation opportunity there. So we will have news coming, but we have just shifted some of the resources to areas that we see as higher growth and that's resulted in the impairment analysis that we have highlighted.

Okay. That helps. Thanks, Ken. And then, Don, just briefly to come back to your comment on the prior year comp, from an inventory standpoint. Can you just give a sense of where retail inventory stands at the moment as we go into the year? Because there were some retailer inventory reductions earlier in 2015 and we have heard a fair amount of public discussion around inventory practices at some key retailers changing. So just whether you feel you are at normalized levels, whether we should expect any volatility?

A good question, Matt. I appreciate the chance to clarify. We do think we are at normalized levels in the retail trade. The issue is that we had some billed inventory at the end of last year. We had that inventory then depleted during this year. So we ended up taking two hits, one for the depletion this year and one for lapping last year's increase. But we think as we enter 2016, the retail inventories are going to normalize level.

Okay. Great. Thanks, Don.

Thank you. Our next question comes from David Driscoll of Citi Research. Please go ahead.

Great. Thank you and good morning.

Hi, David.

Good morning.

I had kind of one major question and then just a couple of little details. First one is about cereal, both U.S. and international. Ken, you said a lot in your prepared comments about it, but when I look back at the track record in cereal and the category, it's just been such a tough category. So I would just kind of like to ask you what gives you real confidence that this is the turn that you are going to grow the business? And if you could delineate between your confidence and growth in the U.S. versus international, that would be helpful. And is this a General Mills specific positive or is this a category comment that you will also participate in?

Well, so let me start by saying, first of all, I think that the category in the U.S., as we look at that, still declining but the levels, the rate of that decline is moderating. And so we are, David, encouraged by that. And if you just look at last 12, last three, it was a little over 3% decline for the year. For the quarter, it was a little less, 1.5% decline and okay. And I think as you know, the latest month was an easier comp, but there was actually a little bit of growth there. So we do see the category rates of decline moderating, not only in the U.S., but we are also seeing that in Canada and other developed markets around the world. So I think that's an important factor. The second point is that we think we have a very good understanding for the new preferences that consumers have for breakfast and we have talked about this with you many times for products that are simpler, products that are more filling, products that taste good, products that address very specific issues that consumers have like gluten and artificial colors. And as we address those things and as we bring innovation that address those, we are seeing growth. Our granola business is growing really well. We think Muesli is going to do really well for us. We see products that have had taste improvements grow extremely well. Our Cinnamon Toast Crunch, which is the third largest brand in the category grew at double digit this year. So I guess just the second part of my answer to your question, David, is that we think we are really good theory on what's going on in the category and as we addressed it with Consumer First, we are seeing a response. And then to your last point, we were very single-mindedly focused on growing our business and we think we have very, very strong innovation in order to do that. Of course it will be, as we see other players in the category invest more in innovation, as we see stronger investment in media and we think we are beginning to see that, these of course are going to be very helpful as well. So as the entire category focus is on these things and we get the consumer support back in the category, that's going to make a big difference as well. So anyway, long answer, but hopefully give you our rationale.

Very helpful. Just two quick ones for Don. What's the Annie's revenue contribution in F16? Is it about one percentage point to growth? And then on media, I think in your guidance slide you said it was down but then in response to one of the Q&A you said that there was reinvestment in -- and I forget what word you used -- advertising, media from the cost savings initiative. So apologies, I am confused. Is media down and I think it is and then why did you say that there was reinvestment in it from the cost saves?

Media is down. I will get that question first. Media is down and what I said is our total consumer will be up. And just let me parcel that out. So media is obviously what you see on air, what you see in digital or in print. It will be slightly down, essentially I think about it as flat on a 52 to 52 week basis. So we lose a week obviously this year. Importantly it's going to be up on key growth platforms where we have clear ideas. Ken just talked about cereal in U.S. and internationally, our snacks business in the U.S., yogurt in the U.S., natural and organic in the U.S. Internationally, we see it in Old El Paso in addition to the cereal businesses and in emerging markets. So we will have media up on platforms where we have strong growth ideas. And then total consumer will be up low-single digit. So when I talk about total consumer, that takes into things like in-store events. We have many of those in the emerging markets. We are doing Häagen-Dazs in-store displays in Southeast Asia markets. Obviously Yoplait displays in China, Yoki in Brazil. So a lot of opportunity to get more exposure in the store itself. And then sampling falls into it as well. Again think about Yoplait in China as we are launching that brand. We are going to see a lot of our natural and organic businesses getting supported by increased sampling this year in the U.S. So there is a number of vehicles that don't hit media nor a consumer vehicles that don't hit media that we will be increasing or invested on this year.

The only think I would just underline on that is, Don's comment on sampling. Sampling is perhaps the most powerful penetration driver that we have and many of our natural and organic businesses are not really driven in the traditional media. They are in fact driven almost entirely by getting the products into people's mouths. So that's a growing part of our marketing mix and one that is not really counted in the media thing. So that's an important highlight for you.

What was Annie's?

So the other question was on Annie's sales contribution. It was about 1% in both 2015 and in 2016 because we had it for roughly half a year in both instances.

Perfect. Thank you. I will pass it along.

Thank you. Our next question comes from Diane Geissler of CLSA. Please go ahead.

Good morning.

Hi, Diane.

I wanted to ask a question just about the cereal category in general. I know you are probably category captain with a variety of retailers, but obviously cereal sales have been weak for a number of years. And I am just trying to gauge where the retailer is at, in terms of the category and some of the alternatives to the category such as the granola products you are launching which I think are quite a bit different than the regular sort of boxed cereal, but also what you have been doing on the bar business? How does that all shake out at the retailer? Are they increasing square footage, linear feet for some of these new products and decreasing the amount of shelf space for the core products? Or is the granola and bar growth kind of incremental? And then I have part two to the question which is, we have seen a lot of manufacturers come into that bar category. I think SKU proliferation there has been pretty massive over the last few years. And so, what are you seeing in terms of some of these more protein enriched granola snack bars that have been launched over the last few years?

Okay. Well, Diane, so let me start my answer by reminding everyone that cereal is $10 billion category in the U.S. So it's very, very large and as you know, it's been declining for the last couple of years, but still very, very large and still about a third of all breakfasts include cereals. So I think the first point is, it's very, very important to the retailer and basically what they want from us is innovative ideas that will drive growth in that category. And so they are very enthusiastic about the initiatives that we are bringing. I can assure you that you will see lots of in-store support and activity this summer and going into the fall, for example around gluten-free Cheerios. Cheerios is by far the largest brand in the category. They are highly enthusiastic about that initiative and it will get a lot of support because they see it as great news for the whole category. So I guess the first point is, it's big and our retail partners really want us to bring innovation. And so they are quite enthusiastic about what we are doing. In terms of SKU proliferation in these targeted areas of granola or protein or things like this, those initiatives are working for us. And so that's exactly what our retail partners want. They see those trends as well in other parts of the store. It makes sense to them and we are getting nice support from them on those brands. Of course, both of us are constantly looking at what are our top turning items, what are the bottom turners and making sure that we are pruning. But as you have heard from us before, in general, our cereal items are very high churning and so we have held our share of distribution. We have actually grown our share of distribution over the last several years because we have really strong brands. So does that kind of get your question, Diane?

Yes, because some good color on what the retailer is thinking about those two categories. I also wanted to ask about the cash repatriation and the tax charge on that. I guess the question is that obviously you didn't need those funds to grow the businesses internationally, otherwise you wouldn't have repatriated them, but is there an expectation about future repatriation? Or was that done because of some kind of timing with regard to tax rules? If you could kind of frame that for us, that would be helpful. Thanks.

I appreciate you flagging at it. This is a one-time repatriation. It was $600 million. We look at the economic cost of bringing that money back for some of the cash need that we have in the U.S. for restructuring actions of Annie's that we did last year. We brought it back and while effective tax rate charge was $79 million, it carries $24 million cash charge to it. So it was low cost from that standpoint. It is one-time. It doesn't change our perspective in terms of how we are going to manage the rest of our cash internationally nor does it reflect -- it doesn't reflect anything on our investments internationally. We have some robust investments internationally, but we also have a very cash generative business internationally.

That's great. Thank you.

I think we have time for one more question.

Thank you. Our next question comes from Ken Goldman of JPMorgan. Please go ahead.

Hi. Good morning, everyone.

Hi, Ken.

I am a little bit surprised by how far Green Giant has fallen. I mean it used to be a really good brand. The category is not the greatest but other of your competitors are doing okay. So as you think about what happened there, are there any learnings you can take away from that that you can apply to maybe some of your other brands and categories just to sort of make sure something like that doesn't happen again? Because I know in your words here you are sort of softening what's happening, but it's not every day we see an impairment charge to this degree.

The observation that I would make, Ken, is that it's increasingly kind of a value focused category and the segment that is performing a little better tends to be the commodity oriented, just frozen blocks of vegetables. And so that's the direction that the category has moved in. And of course, as you know, we are also in the canned part of the category as well with our products. So that would be an observation for you. Having said that, we do see our portfolio is primarily more value added and more flavored and soft products and we see opportunities to continue to innovate and adapt with those kinds of products and it tends to be the higher and more innovative end of the category. And so that will be our focus going forward.

And Ken, what I would add to it in terms of learnings is this is one area where the consumer preferences have shifted pretty rapidly. And a large focus of ours, from a Consumer First standpoint, is moving as rapidly as we can against those. Some times you are constrained by the number of resources you can put against the business. And so the cost saving initiatives that we are undertaking to free up resources to get after opportunities like these, I think will allow us to be better and more adaptable and more agile as these kinds of shifts happen as we go forward.

That's helpful. Can I sneak in a very quick one? Cereal reformulation, you talk about no colors from artificial sources. Is that different than saying no artificial colors? I am just trying to make sure I understand that?

No, it's not. We are eliminating artificial. And so any color and flavors that will be, by the end of 2017, will be from natural sources.

Great. Thank you.

Okay. Tina, I think we are out of time. So Kris and I will be taking calls all day. For those of you that don't have my number, you can reach me at 763-764-2301. So thanks every one and have a great day.

Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect all lines. Thank you and have a good day.