Ladies and gentlemen, thank you for standing by. Welcome to the Third Quarter Fiscal 2019 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, March 20, 2019. I would now like to turn the conference over to Jeff Siemon. Please go ahead.

Thanks, Jason, and good morning to everyone. I’m here with Jeff Harmening, our Chairman and CEO; Don Mulligan, our CFO; and Jon Nudi, who leads our North America Retail segment, who’ll join us for the Q&A portion of the call. And I’ll turn it over to them in a moment, but before I do, I’ll cover a few housekeeping items. Our press release on our third quarter results was issued over the wire services earlier this morning, and you can find the release and a copy of the slides that supplement our remarks this morning on our Investor Relations website. Please note that our remarks this morning 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. And with that, I’ll turn you over to my colleagues, beginning with Jeff.

Thanks, Jeff, and good morning, everyone. There are three things I hope you’ll take away from today’s call. First, we had a strong third quarter with solid execution leading to positive organic sales growth and significant operating margin expansion. Second, our year-to-date performance and fourth quarter plans give us confidence that we will meet or exceed all of our key fiscal 2019 financial targets. Specifically, we are raising guidance for full-year adjusted diluted earnings per share and free cash flow conversion. And we expect net sales will finish toward the lower end of our guidance range, and adjusted operating profit will finish toward the higher end of the range. And third, our improved execution and strengthened performance this year reinforce our view that a balanced approach to top and bottom-line growth centered on our Consumer First strategy will drive long-term value for our shareholders. Now, I’ll turn it over to Don to walk through our financial performance in the quarter. Then, I’ll come back to provide an update on our fiscal 2019 priorities and share a few highlights of our year-to-date performance.

Thanks, Jeff and good morning everyone. Slide five summarizes our third quarter financial results. Net sales of $4.2 billion increased 10% in constant currency, including contributions from the Blue Buffalo acquisition. Organic net sales increased 1% in the quarter. Holistic margin management savings, positive net price realization and mix, continued strong cost control and the addition of the higher margin Blue Buffalo business helped drive significant margin expansion in the quarter, resulting in adjusted operating profit of $730 million, up 25% in constant currency. And adjusted diluted EPS of $0.83 increased 6% in constant currency, driven by adjusted operating profit growth, partially offset by higher net interest expense, adjusted effective tax rate and average diluted shares outstanding. Slide six shows the components of net sales growth in the quarter. Organic net sales were up 1%, driven by positive net price realization and mix across all segments, partially offset by lower contributions from pound volume. Foreign currency translation was a 2-point headwind to net sales. And the net impact of the Blue Buffalo acquisition and the divestiture of our La Salteña business in Argentina added 9 points to net sales in the quarter. Turning to our segment results on slide seven. North America Retail organic net sales were up modestly in the quarter, rounding down to flat. Our consumer takeaway trends improved in the quarter and track more closely to our shipments with U.S. Nielsen measured retail sales flat versus last year and share gains in the majority of our top U.S. categories. Net sales results improved sequentially for all our U.S. operating units. Growth on U.S. Cereal and U.S. Meals & Baking was offset by declines in the Canada, U.S. Snacks and U.S. Yogurt operating units. This net sales performance benefited from recent innovation, including Pillsbury Sweet Hawaiian baked goods…

Thanks, Don. On slide 20, you can see the three priorities we laid out at the beginning of the year: Grow the Core; Transition Blue Buffalo; and Deliver Financial Commitments. I’m pleased to say that through nine months, we’re on track to achieve each of these priorities. At our Investor Day in July, we outlined five keys to growing the core including improving our U.S. yogurt and emerging market businesses, strengthening our innovation, stabilizing our U.S. distribution, and driving greater price mix. Year-to-date, we’ve driven improvement in each of these areas, compared to our 2018 performance. We returned to share growth in U.S. yogurt; emerging market organic sales are up high-single-digits through the first nine months of the year, well ahead of last year’s growth rate; we’ve improved our sales from innovation; we’re growing our share of U.S. distribution; and we’re driving 2 points of positive price mix year-to-date versus 1 point last year. These results are translating into stronger retail sales performance in our U.S. business. On slide 22, you can see that we’ve driven steady improvement in our Nielsen measures sales results with the 2-year trend reaching positive territory in the most recent quarter. We’re also competing more effectively within our categories with year-to-date market share gains in 7 of our 10 largest U.S. categories. While we know there is certainly still more work to do, we’re encouraged by the significant progress we’ve made since fiscal 2017. With that as a backdrop, let me share some specific examples of our year-to-date performance against our Grow the Core priority in each of our platforms around the world. We’re encouraged by the improvement we’re seeing in U.S. Cereal where category trends have improved consistently since 2017. We’re also pleased with our U.S. Cereal retails performance in the third quarter with…

[Operator instructions] Our first question comes from the line of Andrew Lazar with Barclays. Please proceed.

Good morning, everybody.

Good morning, Andrew.

Hi. Don, just a quick one for you. Just kind of back of the envelope math, it would seem that sort of pricing in North America Retail maybe because it could have accounted for maybe roughly one half of the base business gross margin expansion that the Company saw in fiscal 3Q, does it seem broadly sort of right to you? And I think at the CAGNY you’d said that maybe a higher portion of pricing moving forward would be of a more of the list price variety. And is that playing out sort of broadly as you expected, including your thoughts on elasticity to volume? Thank you.

Sure, yes. As we -- we’re delivering on the second half drivers that we outlined in our Q2 call and that we reiterated at CAGNY, and it’s a combination of things, Andrew. It’s increased HMM savings. We said global sourcing will continue to drive higher benefit to us. We’re seeing that come through. It is the positive price mix that you referenced. We saw an uptick from 2% to 3% in the quarter, continued strong cost controls across SG&A and increase to contribution from the higher margin Blue Buffalo business. So, all of those came through, as we expected in the quarter. And I wouldn’t necessarily put one out there kind of equally weighted, I wouldn’t pull one out as a particular driver but they all benefited our margin and they all came through largely as we expected.

And then, elasticity, is that generally -- I think, it was -- in North America Retail it was positive 2% price mix, negative 2% volume. I don’t know if that’s roughly in line with how you expected it to play out, or as improvements in yogurt and snack bars continue maybe that elasticity looks even a little less onerous as we go forward?

Well, I’ll let Jon maybe speak to what we’re seeing in the market. But, if you look at our third quarter for North America Retail versus the first half, price mix was -- contributed 2 points again, but volume growth was 2 points better. There was some strengthening of the volume while we held our price contribution.

Yes. Andrew, I would just say -- I’d say elasticities are playing out as we expected. And remember, obviously we did take some [indiscernible]. We are really leveraging the full toolbox of strategic revenue management as well, so, pack price architecture as well mix and promotional optimization. So, as you pull each of those levers, they have a different impact to the volume. And I would say our models keep getting better and better, and they’re very much in line results -- our results are in line with what we expected.

The next question comes from the line of John Baumgartner with Wells Fargo. Please proceed.

For Jeff or Jon, I just wanted to come back to North America Retail, just given the improving Nielsen baseline takeaway and the elasticity that Andrew mentioned. But, I guess, in light of shipments versus takeaway noise in Q4, can you speak to the performance just in light of focus on non-price promo this year? I guess, to what extent are you seeing improvement in terms of shelf stays or quality merchandise, again? I guess, what metrics should we be looking at in gauging the conversion of those efforts going forward?

Yes. Just generally, I guess, as we look at our business, I mean we feel like the fundamentals continue to get better. So, as we think about SRM outside of [car lot] [ph], again I think that’s driving several of our businesses and big businesses at that. And again, as we make some of those moves, I think the distribution is playing out as well. So, as we look holistically at our business, new products are working really hard for us. And that’s driving our business, which we feel really good about. SRM is playing out the way that we hoped as well. And then, the middle of the P&L HMM is really delivering too. So, as we look across our businesses, we like the momentum, the top-line, like the middle of the P&L. And again things seem to be playing out as we expected. And importantly, again, I think, we’re looking for consistency moving forward. And we think that we’ve got a business model now that will drive consistent top-line, performance across the business and make sure we deliver on the bottom-line as well.

And then, Jon, just on the cereal business, when -- I mean, you outperformed the category in the quarter. How do we think about shipments versus takeaway in Q4? And then, the category itself has softened in terms of volumes. How much of that are you seeing from your increased substitution from your QSR breakfast or frozen breakfast versus just something more just kind of transitory in nature?

So, John, maybe I’ll start with just the question about shipments versus takeaway. So, for Q3, our RNS was ahead of our takeaway by a couple of points. If you remember back to Q2, it was actually the opposite. So, for the year, our takeaway is actually very much in line with the reported net sales, and that’s in line with what we’re seeing across the segment as well. So, there’s really nothing notable from an inventory standpoint. We actually were encouraged by what we’re seeing in the category. So, Q3, we saw the best category performance we’ve seen and several years down only a half point. There’s a lot happening underneath the category in terms of pack price architecture, both from ourselves, as well as some of our competitors. But, if you look at underlying pull-through and the way that consumers are responding to innovation as well as our marketing, we’re actually quite encouraged about the category and very encouraged about our business, which is performing much better than it has over the last several years.

The next question comes from the line of Ken Goldman with JP Morgan. Please proceed.

Thank you. Good morning. Two for me if I can. First, there’s a few areas of the business that I think, it’s fair to say, are not working quite as well as you’d like. I think you mentioned U.S. Snacks, Häagen-Dazs Japan, I think in the press release, you talked about France, and maybe Yoplait in France and I’m not sure which categories in France, but Yoplait across Europe and Australia, maybe. Can you just give us a little bit of idea of when you expect some of those businesses to turn around, which ones you think will be maybe a little less onerous in terms of turning around? And then, I guess, that leads to my next question, which is typically on your third quarter, give at least some, what I would call, soft commentary on the out years, is there anything that you can provide right now as we look into fiscal 2020 that’s helpful? Not necessarily quantitatively, but just in terms of headwinds or tailwinds we should be thinking of as we think about modeling into next year.

Let me take the first part of that question and I’ll hand it over to Jon Nudi for maybe some additional commentary on U.S. Snacks and then Don maybe can handle the second piece. On the growth for the year, first, I would say, our growth is largely played out as expected, and even for the low end of our guidance range on sales, I mean it’s a pretty narrow range to begin with. I mean, it’s a 1 point range from flat to up 1%. So, we feel like we’re in the range of what we thought at the beginning of the year. As you mentioned, it’s true, there are give and takes every year to where your volume is going to be. And so, yes, it’s been a tougher year in France, particularly on yogurt but really in France with inflation on ingredients and difficulty in achieving price gains. But, that’s been offset by a really good year for us in the UK, where we’re leading the growth of all food manufacturers in the UK. Obviously, the same thing in U.S. Retail where it’s been a little tougher in Canada but our meals and baking business has done really well. And we talked about Pillsbury earlier this year, but also Totino’s and Old El Paso, and we’ve been as pleased with that as we have other things. So, they’re always offsets like those. The one that really we feel like we need to do better on and we can do better on really starting next fiscal year is going to be our U.S. Snacks business. And I’ll let Jon talk a couple points on that.

Yes. So, Ken, Jeff mentioned this upfront, as we look at our business, really two brands are challenges for us. Fiber One I would say is more structural, as modern weight managers are really looking at four different macros and the products that fit their diet. So, as Jeff mentioned, we are renovating Fiber One and actually quite excited about the product that we’re going to roll out in Q1 -- Q1 of fiscal 2020, and we’ll share more on that as we get closer. Nature Valley, I would tell you, actually we feel generally good about the underlying health of that business. The biggest driver of our underperformance this year has really been innovation. And if you look historically, Nature Valley has really been driven by broad-based innovation that hits on really broad need states. This past year, the need states we went after were a bit more narrow and a bit more niche in terms of the areas we focused on, and the results are much smaller as a result. As we look to next year, we’ve got a great new product coming out actually in Q4 of this year, which is a crispy creamy wafer bars. We’re really excited about that. The retailer response to it has been quite good and our consumer testing looks very positive as well. And then, we will have some more news in the back half of fiscal 2020 as well in Nature Valley. So, I do believe you’ll see Nature Valley trends improve as we move into fiscal 2020. And again, Fiber One has some big news coming there. But, we’ve got some significant work to do on Fiber One.

Ken, anything forward-looking out of -- beyond F19, we typically don’t give guidance and we’re not going to this year until June. But I’ll tell you, as Jeff alluded to at the beginning of our call, we’re very pleased with the execution that we’re seeing this year, and we can certainly expect that to continue to strengthen as we move into next year.

Thank you, everyone.

The next question comes from the line of David Driscoll with Citi. Please proceed.

I wanted to ask a couple of Pet questions. So, on the Wilderness brands, it’s significant news that you’re going to be taking it from exclusive to specialty to moving it into FDM. When you did this with Life Protection, there was a very kind of methodical, progressive rollout of Life Protection throughout the food and mass channels. Will the Wilderness rollout be similar, both in the pacing of how you roll it out to different retailers and in the size of the rollout? Would you expect to get a significant amount of shelf space that’s incremental to what you currently have with the Life Protection in the food and mass channels?

David, let me try to take those kind of one at a time. I hope I hit on all the things you asked, maybe even a little bit more. Just for context, we launched the Life Protection Formula 18 months ago and now we’re launching Wilderness in the FDM. And in the Pet Specialty channel, Wilderness is roughly 40% of our sales. It’s almost as big as the Life Protection Formula brand itself. So, this launching of Wilderness into food, drug and mass is not a small endeavor; it’s a big endeavor, and it’s a big endeavor from a logistical standpoint, but also what it can do for our sales, which is one of the reasons we’re confident we can grow at 30% plus in the fourth quarter. I mentioned in my comments, which might seem like a throwaway. But, the fact we’re performing well on FDM is really important, and because as we bring in Wilderness, we’re seeing the Wilderness launch being highly incremental to our assortment and our current customer base to Life Protection Formula, because they see the growth that Blue Buffalo has driven for them in a category so far and they know what the importance of the Wilderness brand. In terms of -- we’ll certainly be thoughtful about how we expand Wilderness. But, one of the benefits I think of the General Mills brings to Blue Buffalo businesses is being able to get into more customers faster. And so, while we’d be thoughtful about where we bring in Wilderness, you’ll see the ACV on Wilderness expand a lot more quickly than we did on -- than we do on Life Protection Formula, and that’s because we’re less thoughtful. It’s just because we have greater capability with the combined Blue Buffalo and General Mills than we did before. And I will also add for a bonus that we said we’d get up to ACV of 65% by the end of April. I can tell you at the end of February we’re already 58%. So, we are a long way to our goal already, gaining about 22 points of distribution in month of February alone on Blue Buffalo. And I think this just shows what the combination of Blue Buffalo and General Mills can achieve.

Okay. And then, I just have about two more related questions on this. The first one is just that when you do the Wilderness move, is there anything kind of extra special that you’re doing for these Pet Specialty retailers to ease the pain of taking this from exclusive to Pet Specialty and moving it into FDM? And then, to Don, on this stuff, like in the fourth quarter, I think our math is working out -- and I really just want to check the math here, that we’ve got to get double-digit profit growth in Blue ex inventory change, we have to have like fourth quarter Blue Buffalo profitability at like $120 million and that’s like double last year’s numbers, such you expect a big jump. I just want to make sure that we’re not making a mistake this morning on the mathematics? Thank you, guys.

Well, on -- look, David, the important -- the Pet Specialty channel is really important to us. And just like the natural and organic channel was, we rolled out Annie’s and Lärabar and things like that. And we’ve already had lots of discussions with our pet retail -- our Pet Specialty customers about what we can do for them. There are a lot of things we can do for them that are differentiated we do with other customers. And, pet grooming would be one example and tying that to pet food sales. And so, whether it’s through promotions or whether it’s through unique innovation or whether it’s through pet detectives and having people on the floor, there are a lot of things we can do to drive sales in Pet Specialty. And we’re actively working with our big customers to make sure that we can do that because we want to make sure that Blue Buffalo is successful and available to pet parents, no matter where they shop.

And David, on the profit growth, we do have significant profit growth and we expect to see significant profit growth in the fourth quarter. It’s going to be leveraging the 30 plus percent sales growth that Jeff alluded to. One thing I wanted to make sure you capture is the impact of the purchase accounting in the quarter as well because we don’t have to quite double our sales growth to -- or our profit growth, excuse me, to get to our number for the full year.

David, this is Jeff Siemon. I think, remember, our double digit profit growth for the full year is excluding purchase accounting charges. So, I would -- that is -- that will be roughly 65 to 70 million of total purchase accounting charges for the year. So, we said, we’d grow double digit excluding those impacts.

Very strong double digit growth.

That’s right.

The next question comes from the line of Steve Strycula with UBS. Please proceed.

Hi. Good morning. Question for Jeff. So, we’ve heard some noise that a large U.S. e-commerce etailer is pushing CPG manufacturers more to a third-party marketplace system versus first-party. For investors on the line, how do we think about the context of what this might mean for General Mills in terms of impacting business dynamics? And ultimately, how do we think about what the margin economics might be directionally for a third-party system relative to first-party system? Thank you.

Yes, the -- first, I will let specific retailers talk about their business specifically. I think, it’s better that they talk about than we do. I’m not sure I see the same trend that you talk about. But, I think importantly for e-commerce in food, I think there are couple of important things to remember. In food, maybe unlike some other categories, I think there got to be a lot of winners in e-commerce with regard to food, it’s not going to just be one pure play who’s going win in food. I see the strengthening of quite a number of our traditional retail customers, and whether that is through delivery or click and collect. I think, the playing field on for e-commerce is going to be kind of wide open. I think, there’re going to be multiple winners, not just one. The second, I would say that we’re well-positioned in e-commerce and our sales are up more than 50% this year. And I mean, everybody can quote big numbers in e-commerce because it’s growing rapidly. But, I think as important as the fact we’re up 30% is that we over-index in the customers where we are in e-commerce, there are bricks and mortar. And that’s because of the strength of our brands. And whether that is Cheerios or Nature Valley or Yoplait or Blue Buffalo, the reason that we over index, for me is because we’ve got great brands and great brands travel across channels. And so, we think the economics for us and e-commerce are going to be good. And where -- our goal is to win across our customers, because there are certainly going to be more than one winner in e-commerce and food.

Okay. That’s helpful. And then, a quick follow-up to that. If I heard you correctly on your prepared remarks, you said that for blue Buffalo’s e-commerce business, it is still growing solid double digits, but it may be slowed a bit sequentially. Was that more of a transitory issue, something that’s happening in the supply chain, or should we just think that we’re growing on top of very large numbers already, and that’s the natural cadence of the business?

Yes. That’s a good question. I think, the key for -- we talk about e-commerce and Blue Buffalo is that the category for e-commerce and pet food slowed in the third quarter. Blue Buffalo is still gaining share, we’re still growing double-digits. But, our growth slowed primarily because the category slowed, but within that context we’re doing well. And the question is, do I think that e-commerce is going to be transitory? And I don’t -- I think e-commerce may pick-up again in Pet, especially as we roll out across food, drug and mass. Because if you think about the places where we are and the place of where Blue Buffalo is going, there is certainly a strong e-commerce business and developing e-commerce business and food, drug and mass. And I wouldn’t be surprised if that in the coming quarters e-commerce growth picked up again in Pet due to the rollout of e-commerce capabilities across our FDM customers.

The next question comes from the line of Rob Dickerson with Deutsche Bank. Please proceed.

So, two questions, one on Pet and then just one on kind of margin expectation progression as we think into next year, and given a little nuances in Q3 and Q4 this year. So, I guess, one on Pet is just -- I think we heard at CAGNY from you, expectation was the mass distribution gains shouldn’t be margin dilutive; entering mass, obviously, was Wilderness now. So, as we think through getting to Q4, right, where they sell in, but then really into 2020 where we need to have the velocities obviously turn, so you can sustain the product on the shelf. I’m just curious, can give just kind of brief overview as to what the strategy really is at, let’s say, one large mass customer to increase the buyer base above, incrementally, not just share shift between channels but kind of wide more people should be buying Blue Buffalo, because it’s offered in more locations versus just shifting their purchase destination? That’s first. Thanks.

Well, no, I think it’s a fair question. I think, I talked a little bit about this at CAGNY. So, if I’m repeating myself, I apologize. But, the most important thing as you look at is household penetration and what’s going on in the household penetration. And as we’ve expanded, Blue Buffalo across channels, our household penetration continues to rise. And so, now, it’s north of 35%, I think household penetration, which is about maybe threefold from where it was a year ago. Jeff can check me on that math and get back to you. But, it’s up quite significantly. I think that is actually the key because as we’ve expanded distribution we brought in more household, more pet parents, where they sell it. And so, I think the evidence is actually already there that as we’ve expanded across channels we’ve grown household penetration and not just cannibalized our own sales. The second thing, and this is consistent with what we’ve seen before on things like Annie and Lärabar and EPIC. And so, I know that this maybe a surprise to some, it’s actually not surprising to us and following a very familiar pattern what we’ve seen on other natural and organic businesses. The second point you raised is important, and that’s about how are we turning where we currently are. And that’s why I mentioned the first four customers we’ve been at year, how are we doing. I mean, our turns are really good. And as evidenced by the fact that our Q3 business is up double-digits where it was in Q2 and because when we bring in the Wilderness, it’s going to be incremental. And the only reason it’s going to be incremental is because what we have there right now is turning well. And so, that’s really…

And then, just quickly, as we think about fiscal 2020, I know you’re not giving guidance, but I’m just curious, obviously, Q3 margin did a lot better than people expected I think on average. Q4 there is a little give back, just given the timing of shipments relative to takeaway and incentive comp, et cetera. But it seems like the core drivers of just better margin or stabilized margin at least into next year, which should be pricing, saving synergies, and then, mix, partially on North America business in Cereal and also partially just given the Buff. Seems like those were still sustainable, right? I mean, if we are thinking into next year, is there anything in each of those three buckets that really would change or do they just stay as the drivers of stabilized or improving margin? Thanks.

I think, firstly kind of Ground on this year, as you alluded to, we came in where we know was well ahead of where the consensus was, but frankly versus our own internal expectations, Q3 was a bit stronger on the margins, but not materially stronger. We had a bit better gross margins because our plant performance was stronger. We had a bit better operating margins because of that and because of good cost controls. And EPS came in a little bit better on top of that because of tax rate was a little bit better. So we had some improvement in the middle of the P&L, and down through tax rate, and that’s would flowed through to our new guidance for this year, but it was little bit better than we expected, but not as outsized, as certainly maybe what’s compared to the Street. As you mentioned, in the fourth quarter, we see tougher comps. Our gross margin was at a high point last year, it grew in the quarter last year, so we’re lapping that. And as you mentioned incentive, and as I said in the call, we have higher brand investments in the quarter. So for the full year, we expect our margins to be a bit better, our operating margins to be a bit better than where we started the year. And in our most recent guidance, we think they will be flat to slightly down, which is a bit stronger than what we thought a quarter ago. As we look to next year, our focus is going to be on staying very balanced. We want to make sure we have a mix of top line growth and margin expansion. We are not going to lean strongly in one way to the other. We know we have to deliver a balanced year to have sustainable model and that’s where we’re going to be focused on as we build the year. The factors you mentioned in terms of pricing, strong HMM, the added benefit of Blue Buffalo stronger margins should all carry through.

I would build on Don’s point. I’d say, the quarter was better than what was expected externally. That’s fair, and our profit are little bit better. I would broaden the lens, and look at the last year for us. And we had a tough Q3 last year, that’s no surprise or secret, but I really like the way the General Mills team has bounced back from that. And I think you see the strength in execution and it’s not an accident We are really focused on how well we are going to execute, and whether that’s SRM or e-commerce or brand building, how we forecast the business and there is no reason to think our ability to execute well is going to diminish next year. And that’s I think what allowed us to deliver on our commitments this year, is that, we have, we’ve delivered on the core what we said and we’ve delivered on Blue Buffalo what we’ve committed and that end is what we looking for as a Company and so there’s no reason to think that that won’t diminish. At the same time, I mean, while we feel good that we’ve executed well and our performance has improved and we feel good about that, there is still more work to be done and we’re not yet to a sustainable top line and bottom line model, where our shareholder return has a flywheel that we expect of ourselves over the long term and that hopefully you expect out of us. And so we’re not going to give specific guidance for F 2020, but I can tell you our goal is going to continue to work toward getting closer to that sustainable model, that’s going to continue to build value for shareholders and we’ve taken one step this year. And we are, I would say, pleased, but not yet satisfied and we’re pleased with what we’ve done, but we’ve got more work to do, and we’re going about the business of doing that.

The next question comes from line of Robert Moskow with Credit Suisse. Please proceed.

So, the inventory has shifted around a lot this year and you’re not alone. There are several other packaged food companies that had inventory builds in January. And so I’m asking Jon Nudi, have you had any conversations with big retailers as to whether their inventory strategy has changed at all? It seems like every year they are working hard to try to reduce those levels, but as you plan the business going forward, do you think we’re at a sustainably higher level that’s appropriate for the business or do you think that it makes sense to continue to expect over the year? [Ph] Thanks.

If you think about our retail partners, just like us, continue to stay focused on working capital, and I think leveraging technology and processes and systems to improve working capital. So, we would expect them to continue to get better in terms of being able to operating with less inventory. So, that’s our going assumption as we move forward. And I think for the year again you see that. So, our takeaway is about a point better than our reported sales, and I think that’s what we’d expect for Q4 and into 2020.

So again, so, you think you lag retail consumption by about a point in fourth quarter, is that right?

We do, we do. Yes.

The next question comes from line of Jason English with Goldman Sachs. Please proceed.

Good morning, folks. Congratulations on a strong quarter, and thanks for the question. I’ve got two quick questions, first on the all-in inflation outlook. I know you’re beginning to cycle what was an uptick last year. As you cycle over that, are you seeing your all-in rate of inflation subside? And if so, kind of to what levels are we settling in that?

Jason, we still see inflation coming at around 5%. It may be a couple of basis points lower than when we started the year, but we’re still seeing inflation in grains, packaging, other commodities. Logistics from a percentage standpoint is the biggest change. And then we’re seeing higher inflation in our European business, which is trending higher than that 5% full year guidance and we really seeing it in dairy and vanilla. So there hasn’t been a material change to our outlook in inflation. It might be just a touch lower, but still rounding to 5%.

And I wanted to touch on your divestment plans. It’s something you’ve announced and intend to pursue over a year, about a year ago now I guess. Why is it taking so long? And while we’re waiting, clearly some M&A multiples have begun to contract in the space, there’s a lot of company shopping assets and your cash flow conversion is rock solid as you point out. Are those dynamics giving you pause and causing you to reconsider whether or not you want to go down that path?

Thanks for the question. I appreciate that, Jason. No, it hasn’t forced us to reconsider whether we want to go down that path. But I think the point you mentioned, we’ll only go down that path if it makes -- to the extent it makes sense for General Mills’ shareholders, as it did when we exited Argentina this last quarter. And so, I would reiterate, we are not doing divestitures, which is roughly about -- we think roughly about 5% of our portfolio. We are not doing it, because we need to generate the cash. We are clearly already doing that. We’re doing it because we believe that by divesting some businesses that are slower growing, will not only help improve our organic growth rate, but also help our improved focus on some of the businesses that are going to be really important for us to invest in. So it hasn’t really changed. What’s changed on the timing and I know it can seem slow and -- but for me, I would call it thoughtful and that is that coming into this year, especially after our Q3 last year, we said, we better execute well on our core business and transition Blue Buffalo effectively. And if we do that, we think that shareholders will reward us and that feels to be like is the case. And that whether we do divestitures or not, people are going to look back on our core and look on to whether we’re transitioning Blue Buffalo successfully. And we feel like we’re on the path to doing both of those. And so our attention certainly is still on divestitures and looking at what we would do from that standpoint. And so, it hasn’t been anything other than that. We felt like we had a job to do, and we feel like we’re well on our way to doing that. And so we’ll continue to evaluate divestitures and we’ll do it if we think it makes long-term sense for General Mills shareholders. And if it doesn’t, then we’ll come back and tell you that it doesn’t. But for now, that’s still our plan.

All right. It looks like we’ve hit the bottom of the hour here. So, I think we’ll go ahead and cut it off. I know there is a number of people we haven’t gotten to, and my apologies for that. But, I’ll be available all day for additional questions. Thanks everyone for your time and attention this morning and have a wonderful day.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.