General Mills, Inc. (NYSE:GIS) Barclays Global Consumer Staples Conference September 5, 2024 12:45 PM ET
Company Participants
Jeff Harmening – CEO
Dana McNabb – Group President, North America Retail
Conference Call Participants
Andrew Lazar – Barclays
Andrew Lazar
Welcome back, everybody, and good afternoon. So, we’re here with our fireside conversation with General Mills. With us today are CEO, Jeff Harmening, and Dana McNabb, Group President, North America Retail. Also with the team is CFO, Kofi Bruce; and Head of IR and Treasurer, Jeff Siemon. So, welcome to everybody. Thanks for being here.
Question-and-Answer Session
Q – Andrew Lazar
Maybe a good place to start, Jeff. I know many in the audience are heavily focused, obviously, on the current environment. We’ll have plenty of time to address that as well. But maybe if we take a step back a bit, talk about your long-term goals. You’ve `mentioned in the past, you believe holding share across your current mix of categories and geographies will generate organic net sales growth that’s sort of squarely in the middle of that 2% to 3% long-term target. What gives you the confidence in the ability to grow in line with that top-line algorithm moving forward into what is hopefully a more stable operating environment? How is that confidence maybe different today than where it was a few years ago based on sort of what you’ve added in terms of capabilities, portfolio changes, and sort of brand support?
Jeff Harmening
Yeah. Thanks, Andrew. Good to be here, and looking forward to that more stable operating environment. I guess I would start to say that for us to hit the 2% to 3% algorithm, which we believe we can hit, I mean, one that need to believe a couple of things. The first would be that our categories are going to grow between 2% and 3% and the second is that we can hold the share with those categories. So, I mean, I think the question comes back to, are the categories going to grow that fast and can we actually hold share? And if you look at the — what gives me my confidence we can do that and unsurprisingly, I am confident that we can do that, is that if you look before the pandemic, our categories were kind of growing in the 2% to 3% range. And we have regained momentum in most of our categories. So, they’re actually back to growth. In fact, the North America Retail categories that Dana manages are at about that 1% growth range. So, they’re back about where they were before the pandemic. And so we certainly believe that we are approaching a space where the category growth is what it was before the pandemic. And then the question is, can we gain share and what’s our confidence that we can do that? And we’re confident we can at least hold our share in our current categories because we’ve done it like five out of the last six years. So, we actually have done it. And even if growth rates were elevated during the pandemic, by the way, we exceeded the 2% to 3% over the last three and five-year periods. But importantly, during that period and even before the pandemic, we were actually holding or gaining share in at least 50% of our categories. And so the — and then the question is why we’re able to do that, and what gives me confidence we can do that going forward? And that is, look, first, we have leading brands in our categories. We have nine $1 billion brands. The second is that we’ve invested quite a bit in marketing through this latest period of time. I mean, our marketing spend is up about 43% over the last five years. We’ve invested in capabilities to drive growth, not only in strategic revenue management but also in media and evaluating media and online media. And so we’ve invested heavily in capabilities. And we’re really good marketers when the time is to market. We spent a lot of time over the last four or five years working through product supply chain disruptions and inflation and pricing and all the rest. And now we’re back to a period where how you market really counts and it’s one of the things that we’ve done well for many, many decades. And so, I’m confident that we can do it because we have done it. Our categories are back to growth and we have the brands, the people, and the capabilities in order to achieve that. And if you look at the recent period, you’ll see that our market shares are improving, not all the way back to bright yet, but I’m encouraged by the progression we’ve seen not only in the category but also in our market share performance.
Andrew Lazar
Great. Thank you for that. Maybe sticking with the industry environment for a moment. We’ve all witnessed a more elongated volume recovery than was initially expected, and your fiscal ’25 outlook is consistent with that theme of sort of gradual progress. What have you seen in maybe more recent data that perhaps gives you some confidence that the industry recovery is in fact sort of moving in the right direction?
Dana McNabb
Well, I think as you said, we are seeing progress. We are really encouraged by the gradual improvement that we’re seeing in pounds. And as Jeff just said, if you look at our categories over the last three months, what we’re seeing period ending August is that pounds are up in our categories, 1%. That is an improvement of over 3.5 points versus this time last year. It’s an improvement versus last quarter and it’s pretty much back to historical levels. And there’s a lot of reasons for that. We’re through some of those big comps now, the pricing, the pantry destocking, the SNAP benefits. We’re also seeing a bit of an uptick in in-home food consumption. So, from about 86% to 87%. And that makes sense as well when you think about the fact that eating away from home is four times more expensive, has a little bit more inflation. So, I think when we look at the macro benefits, we believe that we will continue to see a gradual improvement in pounds.
Andrew Lazar
And Dana, you’re relatively new to the — at least to leading the North America segment. You come from Chief Strategy and Growth Officer role as well as positions in international and running US Cereal before that. I’m curious how your experience can shape what your approach will be in North America Retail going forward and how you might be — and how that might be different or similar to how it’s been run previously.
Dana McNabb
Yeah. Maybe the place to start is to give you all a little bit of my background. And so, I’ve spent the majority of my career in operating roles. I’ve worked on pretty much all of our brands in all of our geographies, including a stint at Cereal Partners Worldwide, which is our joint venture with Nestle. I ran our Big G Cereal business here in the United States. We returned that business to top and bottom-line growth through really good demand generation, strategic revenue management. Then I moved over to Europe to take over our Europe and Australia business, returned that segment to top and bottom-line growth, but did a little bit differently, did some portfolio shaping where I led the Yoplait divestiture, and then also some good demand generation. And then it was probably about three years ago, Jeff, that he called and asked me to stand up our Strategy and Growth Group. This would be strategy, it would be mergers and acquisitions, some of our capabilities like marketing, strategic revenue management. And that was just an unbelievable opportunity to partner with Jeff to advance the strategy, but also to learn how to operationalize that and the capabilities, think data-driven marketing, and strategic revenue management through people, process, and tech. So, I think the combination of really deep operating experience with this understanding of emerging capabilities will allow me to understand where the NAR business is at and what plans we need to put in place moving forward. Now to get to your question, as I think about our NAR business, there is no question the NAR business is bigger and more profitable than it was pre-pandemic. And what we did through over the last several years in terms of service and pricing and how we out-executed our competitors was exceptional. But as I always say to the team, two things can be true at the same time. We can be extremely proud of what we did and also recognize that we are in a different business cycle now. And that is going to require us to up our game on demand generation. So, what I’ve been doing is, meeting and listening to consumers and to our retailers, diagnosing the business, and really working with the team to get laser-focused on what will get us back to sustainable growth. And I believe that is a focus on regaining household penetration and in our case, particularly household penetration with kids. And the way that we’re going to do that is making sure we have the most remarkable total product offering across our mix, it’s better than our competitors. And that will mean product news and new products, advertising and communications, in-store execution, better than the rest. And we’ll fund that, because you’re going to say, well, Dana, that costs money. We will fund that with really good focus on capabilities, strategic revenue management, holistic margin management, and our data-driven marketing. And so, it is a privilege to run this NAR segment. We have a great team. We are really focused on reigniting the culture of demand generation. And I think as Jeff says, what we want is to be the best in marketing while continuing to do what we’re great at, which is execution.
Andrew Lazar
Thanks, Dana. Regarding fiscal ’25, you provided initial guidance earlier this summer that looks for organic sales growth of flat-to-up 1%, and expect EPS to be sort of between down 1% year-over-year and up 1%, both below the — obviously, the long-term algorithm. What assumptions are embedded in this guidance? And I guess, how should investors view this year in the context of sort of the longer-term health and vision of the company?
Jeff Harmening
Yeah. So, I’ll take it into three parts. I mean, first, as we — as you think about, in the algorithm, I mean, it starts with top-line growth and what are the assumptions about that. Because if you get that about right, then everything else tends to work the way you want it. And I would say for our top line growth, our assumption is that our categories are returning to growth, which they have. And so, we’re not counting on a rebound in our categories from where they are right now. If that happens, that would be great, but we’re counting on our categories to grow in the same range that they are right now. We’re also assuming that our level of competitiveness, which is, our market shares will improve over the course of the year. And you started out by noting that earlier. We’ve gained market share for many years in a row. Last year was an exception to that. And our job is to get back to market share growth through really good marketing ideas, which Dana has — had talked about and probably can talk about some more. And so, we’ve seen a trend that improved in the first quarter this year, very consistent with our expectations, both on the category growth and our market share improvement, but we’re not all the way to bright. There’s still improvement that needs to come yet. And so that’s what the top-line assumption is. As we look at the rest of the P&L, our assumption about inflation is 3% to 4%. We’re over 50% covered at this time of the year in our commodities. So, when we say it’s about 3% to 4%, we know it’s about 3% to 4% inflation. Our HMM or productivity is 4% to 5% and we’ve got a great line-of-sight. We’ve delivered 4% on average a year for 15 years. So, we have a good line-of-sight on what HMM is. And then the other part of the guidance is more tactical in nature, but important, is that we’re resetting the incentive. And so, generally, we would expect EPS and earnings to outpace our sales growth. But in this particular case, we are — we’ve got about a 2-point headwind because of incentive re-comp because we didn’t hit our goals last year and we intend to hit our goals this year. And so, we have that drag. And it’s important for all of you to know that, I mean, we could have cut down on our investment in capabilities and marketing spending to try to boost EPS. But this year felt like a year where demand generation, as Dana said, is the number-one goal. And so, our job is to improve our competitiveness, and to do that, we didn’t want to cut back on our marketing investment. And we have some great ideas, so, feel good about that.
Andrew Lazar
And I guess, what do you view as some of the more significant sort of risks or opportunities, right, that could cause you to either sort of outperform or on the other end, underperform sort of that full year outlook at this point in the year?
Jeff Harmening
Yeah, the risk and opportunities, I think about it is kind of opposite sides of the same coin. The risk and the opportunity are kind of the same, which is all about growth. And the first, I would say is, what is the — what are our categories going to grow? And a lot of that has to do with away-from-home consumption versus at-home consumption. And as Dana mentioned, we’ve also — we’ve already seen at-home consumption accelerate, which was our expectation. And so we feel good about our assumptions about category growth. And then we have to be more competitive within those categories. And to the extent that we do that, it will be an opportunity for us if we can over deliver on that. If we under deliver, obviously, it’s a risk, but the risk is all around that. And I say that because as I talked about earlier, our cost structure is pretty well defined in terms of what we see inflation coming in at as where we see HMM. We’ve got a long track record of being able to predict both of those well. So really, the risk and opportunity comes in top line growth.
Andrew Lazar
Got it. In your June earnings call, you mentioned that you’ve seen categories within North America retail is having essentially stabilized volumes over the past couple of months, and now we’re seeing some positive traction there. But your own level of competitiveness, as you mentioned, has not been up to par. I guess what’s been the reason for that more challenging sort of competitive aspect? And have you seen any improvement in the first few months, let’s say, fiscal ’25 around — again, around the general competitiveness that you bring to the market.
Dana McNabb
Yeah. Well, Jeff already mentioned it, but we did not distinguish shots on share performance last year period. And there are a lot of reasons for that. We priced first and ahead of our competition. We had to comp through that. We had some of the smaller brands and private label get back to shelf earlier than we expected. We had to comp through some of the SNAP benefits. So there were some important reasons why we struggled with share last year. But as we’ve doubled down on demand generation, making sure that we have this remarkable offerings across the total product mix started to get some of these things in the marketplace. We are starting to see some improvement. So if you look at our last three months of share performance, we are improving in pound share in seven out of our 10 biggest categories. We’re improving in dollar share in six out of our 10 categories. And I want to be crystal clear that we are not, not declaring victory yet because we are improving. We still aren’t to grow. There’s work to get done to get to flat and then to get growth. But I really like what we are working on. I believe we’re putting the right things in the marketplace, and we’re focused on progress and getting better quarter after quarter.
Andrew Lazar
And you spoke a lot about on the last call, the concept of value, and you need to sort of up your level of competitiveness on that fourth quarter call. Obviously, the first thing investors tend to sort of think of when we hear value is simply just related to price, as you know, but there are a lot of other ways. Obviously, General Mills is and will aim to improve its competitiveness outside of just sort of promotional activity and price points on the shelf. Maybe you can talk a bit about that.
Dana McNabb
It gets back to what I was talking about, making sure that we have the most remarkable total product offering across our mix, better than the competition. For us, that’s going to start first with our product and our news on the core. So if you think about parents today, they simply can’t afford to bring something into the house that the whole family isn’t going to like. They are looking for really good taste. They’re looking for macro health benefits like high protein, low carb, and so what we’ve been focused on in our biggest and most profitable brands is making sure that we have news that they value. So 30% of our portfolio has got news. That’s double what we had last year. We’re looking at new products. Last year, we did about 3.5% of our net sales on new products. We’re bringing that up to 5%. And these are ideas like double chocolate cookies. We’ve got fruity cheerios. We’ve got flakier biscuits. We’ve got a Fiber One brownie, and it may sound simple, but it tastes great, and it’s going to work. And then from a macro health standpoint, we have things like low-carb Old El Paso taco shells that are more than half the carbs of the regular. We have high-protein, low-sugar yogurt, we are bringing the first mainstream granola brand that will have allergen free. And so the combination of these great ideas on our most profitable brands, I really think is important. And then it gives you something to talk about in our communications. So making sure we’re remarkable in our communications, great ideas. We’re going to increase our advertising spend, a little bit ahead of our net sales growth. We’re going to make sure our marketing is more efficient and effective with our data-driven marketing tools, so we’ll have something really meaningful to say. And the ideas are great. I look at our Pillsbury business. We’re going to bring back the Doughboy, Americans love the Doughboy, that’s going to work. For cereal, we have the Kelce Brothers, who are talking about how much they love our core brands. They were just talking about cereal on their podcast, did a ranking of their favorite brands and they happened to be ours. And so we’re going to do a promotion in Q2, and we’re going to introduce a new mix, and that will bring excitement to one of our biggest categories. Then you do have to make sure that you have the right price value, but that’s not just the absolute price. It is about the right product in the right place, in the right size. And so when you think about it, we run 25 categories in North America retail. It is logical to assume that we didn’t get the pricing on everything right. And so there are three or four places where we’re adjusting the pricing. But where I’m more excited is we’re focusing on using our strategic revenue management toolkit and particularly price pack architecture. And I look at our snacks business, we’re going to have double the price pack architecture coming into the marketplace than we did last year. And that small opening price point, smaller pack sizes and then the larger ones that bring more value. And so that’s what we’re looking at for price. And then of course, it’s all got to come together in-store and online. And we are deeply committed to partnering with retailers to grow the categories. And so it starts first with your in-store execution. I look at our distribution. In this first quarter of the year, we’re gaining distribution share in eight of our top 10 categories. And that tends to be an indicator of share growth to come. We are getting really good display. We’re seeing our lift on our merchandising ahead of our categories. We’re going to bring back in-store events that we haven’t been able to do through the pandemic across our snacks and cereals. That will be effective for us. And then continuing to partner with the retailers on online and retail media. And so what I’m hope you’re hearing about is if we’re laser-focused on making sure that our total product offering is better across that mix. I think that we’ll start to see our performance get much stronger. And it’s not coming at all the same time. It’s not all going to work, but again, it’s about progress.
Andrew Lazar
Thanks very much. Looking specifically at your core and profitable cereal business, a business you know well from running — both of you have run it historically, I believe. Companies gained share, right, in North America cereal just for many years in a row, very, very consistently. How do you foresee the category playing out going forward, particularly with a structural shift in sort of the competitive landscape a bit?
Dana McNabb
So I think, first, as we talk about cereal, I have to mention how proud we are of the results we’ve had the last several years on cereal. Double digit topline growth. We extended our share gains. We have led on new products. We have five of the top five new products in the category. And we’ve done that through really good brand building and what I think are some of the best brands in the category. So this is a really big category, $9 billion in sales. As I think about your question about the competition in the category, we believe that more competition is better. I mean, cereal is 90% household penetration. It is a variety-seeking category. Most consumers have three or four cereals in their pantry. And we want our competitors to be spending and growing and driving category driving traffic down this aisle. We think that will be good for the category. If I look at who’s gained share in this past year, it’s been small brands and private label, that’s mostly because they’ve been getting back on shelf, getting their shelf, on-shelf availability back to pre-pandemic levels. From a private label standpoint, it’s 7% of total sales. That is far below what we see in total food, which is about 20%. And then you have the branded manufacturers who we are seeing coming back, starting to spend a little bit more — a little more news and innovation and getting a little bit back to pre-pandemic levels. And as I said, we believe all that is good for the category. So then it comes back to us, what we’re going to focus on is we just have to stay focused on our game what we’re good at, which is continuing to have really strong brand building and innovation. I really like the marketing that is coming. Our new products that are excellent. They’re bigger and better than before, particularly what we have coming in the back half. We are the category leader. So we have a responsibility to bring excitement to the category. I think this Kelce Brothers promotion is indicative of how we’re doing that. And as Jeff always says, look, this is not going to be our category that grows the fastest in North America, but we just need a little bit of growth and we’ll get that flywheel going for investment in both the cereal business and our North America business overall.
Andrew Lazar
Great. I mean, one of the key priorities also in this fiscal year is to return the pet segment to growth, right, after it was a bit of a reset year in fiscal ’24. What is the path to getting there look like? You’ve seen far better performance of late in Life Protection Formula. And obviously, Wilderness is now the sub-brand that needs some of the attention that you’re going after. So what’s the plan there? And how is it going so far?
Jeff Harmening
Yeah, so, yes, getting Blue Buffalo back to growth is certainly a top priority for us. And I’m encouraged by what I’m seeing in Blue Buffalo, similar what I’m encouraged by seeing in North America Retail and know that we have a lot more work to do. That would kind of be the heading. As we were sitting here a year ago, our top-line was struggling and our margins had kind of eroded. And what I’m proud of over the last year, although our top-line was not as successful as we want it to be, we’re actually able to restore margins to the business. And that gives us confidence to reinvest back into the growth of Blue Buffalo. And so what we’re seeing now is a business that is more profitable than it was a year ago. And actually, we’re starting to bend the trends on top-line growth. And you mentioned Life Protection Formula. We started advertising that with a new campaign maybe eight or nine months ago. We saw it start to get traction. That traction is actually increased to the point where we’re actually gaining market share in dry dog food. And so those gains have really helped. But so is the fact that Wilderness, which has been our biggest challenge, we’ve seen the losses of that cut in half. Now, it’s declining at 6% in the first quarter versus 11% the quarter before that. But we’ve cut the losses there and largely behind some good advertising. As Dana mentioned, in North America Retail, it really is about remarkable experience, the same is true in Pet Food. And Jon Nudi and Liz Mascolo and the team there are doing a great job. And so we really like our new advertising, which is 30% more protein than its largest competitor on Wilderness. We’ve seen the gains start. I think we’ll see more traction in September and October as we work some more levers. But that’s not the only thing. I mean, we’re actually gaining share in dry cat food now behind good advertising on our Tastefuls line. And we’ve seen the momentum build on that. The same is true of wet dog food. We’re actually seeing market share gains now for the first time in many quarters because we had to adjust the pricing there to get under some price cliffs. And the work we really have to do now is to get treats back growing again. It’s actually flat for the quarter. So, it’s gaining share within treats, but we have to get that back to growth, get Wilderness back to growth. And I feel like we’re on a good path for the things that we have put in place. We have diagnosed the problems well, I think. We’re putting in solutions. Those solutions, by and large, are working. Always want them to work faster. But they are working. We’ve seen gradual improvement in the top-line in our Pet business. And we’re looking to capitalize on the momentum of that business so that at the end of the year we can say, yes, look, we have bent the curve on growth. We’re actually now growing our Pet Food business, which is Blue Buffalo is our second largest brand at General Mills. So, it’s important that we do that.
Andrew Lazar
What are your expectations for overall pet category growth in the new fiscal year?
Jeff Harmening
Yeah. I think the most important place to start is what we’re seeing now. And that is that category pounds are stable. And that’s important because a year ago, even though the dollars in the category were growing, actually pounds in the category were declining. And so we’ve seen the pounds stabilize. The number of pets in the US is pretty stable. It may be growing 1%, but it’s relatively stable. The dollars in the pet category have declined slightly, but that’s only because the treats portion of the category has declined because it’s more price sensitive and it’s more discretionary, as are many indulgent Snacks, by the way. So, it’s not that different than human food. And so the pounds in the category are down, the dollars are down slightly, but that’s a matter of mix. And so we see a pretty stable environment in our — the Pet category. What we see based on the reaction we’ve seen to Life Protection Formula marketing, to what we see in the fresh part of the business, what we see the reaction to Wilderness is that the humanization trend, which we felt like has been a trend for a long time, will keep the category growing. We think that’ll be a trend that lasts into the future.
Andrew Lazar
Got it. You also recently acquired Edgard & Cooper in the European premium Pet Food business. How are we thinking about that brand and how that fit into the Pet portfolio and kind of what’s the vision for that brand longer term? Because it’s the one that you’ve now brought in, not under the sort of Blue Buffalo umbrella.
Jeff Harmening
Yeah, the pet category, the more you get into the more interesting it is and the more you kind of like it, what we see is the pet food category globally is more than $100 billion in sales, 50 of which are in the US. And so and the humanization trend is not only here in the US, but it’s actually global. And so then as we look at — yes, we have a job to do in the US with Blue Buffalo, but we also see a pet food opportunity beyond the borders of the US. And then the question is how do you go about it. In China, we went about it by introducing Blue Buffalo into China, which is a big market, second largest pet food market in the world, but also still is growing quickly and relatively immature as a market. And so we launched Blue Buffalo there as well as some other international markets. But in Europe, we took a different tack. We bought Edgard & Cooper, as you mentioned. And that’s because their proposition is actually quite similar to Blue Buffalo, but they’ve got many years head start. And the European market is a $30 billion market as well. And so our — do we think — do I think Blue Buffalo would have been successful in Europe? Yes. But I think it would have taken us many years to get that and many years of investment where we saw a brand that although it’s behind where Blue Buffalo and we acquired it originally is ahead of where we would be starting, which is kind of ground zero. So, it’s a great brand. The team there is a phenomenal team, really great capabilities and kind of reminded us of Blue Buffalo in the early days. And so we decided to buy into that market through on the basis of the same humanization trend.
Andrew Lazar
Okay. You get asked this all the time, but in the context of this continued shift towards humanization within pet, how do you see the fresh arena playing out and sort of General Mills’ role within it? You’ve tested, you’ve learned, you’ve prioritized your resources to areas where General Mills has the greatest profit dollar opportunity. But to the extent that fresh continues to be a growth factor, how do you approach this space?
Jeff Harmening
Yeah. There are a few things I know and a few things still left to learn. What you know is that consumers like the idea of fresh Pet Food. I mean, you see that growing in the category. So, I think it’d be tough to deny that the consumers really like the idea of fresh Pet Food. The other thing I know without a shadow of a doubt is that Blue Buffalo, the brand plays really well in fresh. And we tested the proposition. It didn’t work as well as we wanted to. But one of the things we learned is it’s not because of the Blue equity. Consumers love the idea of Blue going into fresh Pet Food. But we also found out during the last test we did was that we can make really good product. The pets really liked it. Many were standing in front of refrigerators asking for it and in the way the dogs do. And so we know that we can make really good product. What we probably under-anticipated was what it would take to generate trial. And so as we look to learn from that experience, like good entrepreneurs that was the first salvo. How do you learn from that? And are we done learning? I’m not sure that we are. I think that there’ll be another opportunity for us in fresh Pet Food. And we learned enough to know that some things work really well. We learned what didn’t work well. And don’t be shocked if we take another run at trying something in the fresh Pet Food space.
Andrew Lazar
International and Foodservice are segments that sometimes can get overlooked by investors, whether lack of visibility or otherwise. But what are the key messages you’d want to share with investors around those two segments, how they’re performing, and why they shouldn’t be overlooked?
Jeff Harmening
Yeah. I would say it is true. People overlook it. It’s not as easy to see Foodservice because you don’t get Nielsen data on it. So, I understand kind of how it gets overlooked. But you’re kind of at your own peril, I would say. We’ve got a great Foodservice business. It’s a good-margin business. It’s a good growth business for us. We’ve got distinct capabilities and sales and channel experience, like in K through 12 schools. We’ve got unique brands in Cereal and yogurt and Snacking, unique capabilities in dough. And so when you combine all of that, unlike the Foodservice channel in general, where quick service restaurants traffic has been declining, our Foodservice business has actually been growing. And it’s because the channels that we over-index are primarily in-store bakery and non-commercial and K through 12. And those places are growing. But even within there, because we have some advantage capabilities, we’re growing as well. And so you’ve seen that for the last few quarters. And sometimes that growth gets masked because we have to index pricing of bakery flour to the wheat costs. And so what you see on a reported basis is not the same as underlying growth. But that doesn’t take away from the profitability, it also doesn’t take away from the growth. And so we’re really pleased. We’re — during the pandemic, like a lot of other places, our Foodservice business margins suffered a little bit. We’re in the process of bringing those back. We like the progress we’ve made a little bit more on that. But I’m glad you asked because our Foodservice business is really a gem. And we’re particularly good at it. And we’d like to keep building on that and growing in that, as investors listening, you want us to as well, because it’s also a really good profitable business. International has been a little bit more mixed. We did not cover ourselves in glory last year in our International segment. And now that there were some bright spots, our European and Australian business grew quite nicely. Dana talked a little bit earlier about the divestiture of yogurt in Europe. And that certainly helped us focus back on our core global brands of Haagen-Dazs, and Bars, and Old El Paso. And those things have been working nicely in Europe. We have distributor markets all over the world. Those have been working. But the challenge was really in China and in Brazil. It’s kind of a tale of two different things. In Brazil, it was our own execution. Well, we got pricing wrong in Europe — sorry, in Brazil. We didn’t execute particularly well in this past year. I’m pleased to say, for those of you who get Brazil and Nielsen data, which is probably like two of you listening, but for those of you who get it, you’ll see that we’ve returned that business to growth in the first quarter of our year. So, we’ve kind of adjusted our pricing. Our execution has gotten better. We’re getting Brazil back to growth. That was kind of self-inflicted, but I feel good that we’re kind of turning the corner on that through a lot of hard work by our Brazilian team. And in China, I mean, this is going to be a familiar thing, but consumers are kind of struggling in China because of the state of the economy and the fact it’s not growing as fast. And so we happen to have a lot of Haagen-Dazs shops in China. And so the foot traffic in particular of our Haagen-Dazs shops is down. And shops themselves are not as popular as the rest of our retail offering, like Pints and Haagen-Dazs, but it’s a high-fixed-cost business. And so when you have an area like that in China that’s not growing, it really impacts the profitability of the whole International segment, even if it’s not as significant for the enterprise. If you look at International, it’s more significant. If you look at the growth of International, it’s more significant. And so that’s what we have seen. What I’m pleased with is that, for the most part, our global brands are really working well outside of the US. Our focus on that is the right focus. We’re in growing categories. We’re competitively advantaged. We’ve got good margins. So, that business will turn. But in the meantime, we’re going to have a little bit of a struggle in the nearer term, primarily behind our shops’ business in China, which is the challenge.
Andrew Lazar
We’ve got three minutes left, so I’ll try and just jam in two more questions if we can. One, just capital allocation. You finished fiscal ’24 right around 3 times leverage. We’ve seen increased M&A activity in the space of late. How are you thinking about prospective M&A moving forward? Are there certain categories or geographies that appeal to you more? Are they more likely to be bolt-ons versus transformative-type deals? And then I’ll get to the second one right after that.
Jeff Harmening
All right. So, I’ll take my cue that I should do this fast. But on M&A, I would say our stance hasn’t changed at all. And we’ve seen the world around us in that we know big deals have been announced. But our stance actually hasn’t changed at all on capital allocation or specifically on M&A. And for us, we’re more likely to do bolt-on acquisitions than we are something big. And think of things like we’ve done with Annie’s or Tyson pet treats business or Edgard & Cooper, $1 billion to $2 billion in sales. And we’ll look at divestitures as well. So, the combination of acquisitions and divestitures. And this is important because, as we look, we think our growth rate in a normal environment, which we hope we get to, is about 2.5%. We’d like to get to 3%, so 50 basis points. So, a few smaller bolt-on acquisitions in areas that we’re good at. Things like Pet or things like Snacking or Foodservice, which I talked about earlier. Those would probably be the most appealing to us. It’s not to say we wouldn’t look at something bigger. But I think in this current environment, what we’re looking at is probably something smaller that can add to the growth of the Company. But most importantly, we haven’t changed that. And honestly, our number one priority is growing organically. That’s the number one. That’s the number one priority.
Andrew Lazar
And maybe to close it out, I think a lot of people sitting here this time last year, not specific to General Mills, but heard a lot of similar messaging around volumes expecting to get better. Recovery has been more prolonged than I think all of us and many of the companies would have expected. Why do you think this year is different? And that, at least in your case, we’re primed to get sort of the volume inflection this time around? And we’ve got a minute to go.
Jeff Harmening
Yeah. The — I feel like I’ve been wrong the most I’ve been in my career the last four years. And I didn’t see a pandemic coming. Supply chain disruptions. And look, I’m an economist by training. You’d think I’d know better. Either give the answer or the timing, but not both. But having said that, this last period of time was, we probably miscalculated the length of time it would get back to volume growth because private label got on the shelf faster than we thought. The recovery of small brands getting on the shelf was faster than we thought. And a year ago, the angst that consumers were feeling or about to feel over the coming year was probably greater than we had anticipated. Well, we know all these things now. And so we’re lapping the effects of all of those activities and the way consumers feel. And so now we feel like we’ve got a much better handle on the fact that, yes, consumers are stressed. That’s why they’re eating at home more. That’s actually a benefit. They’re looking for value in a variety of ways, whether it’s price or the packaging sizes, or where they shopped, as Dana talked about. And the competition now is lapping all those gains. And so we feel like we’re more on an even playing field. The other thing I would say is that whether it’s in North America Retail or in Pet, I feel great about the marketing we’re doing. And we have nine $1 billion brands in our portfolio. And the fact is, if we get those nine brands right, we’re going to be pretty good. If we don’t, we’re not going to be pretty good. And we’ve got really good news in Cereals, as Dana talked about. We have good n
Andrew Lazar
Thank you very much, Dana and Jeff. Please join us over at the breakout.
Jeff Harmening
Thank you.
Dana McNabb
Thank you.
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