General Mills Earnings Call Insights: Price Mix Outlook and Pension Accounting
General Mills, Inc. (NYSE:GIS) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.
Price Mix Outlook
Andrew Lazar – Barclays Capital: Just wanted to touch briefly on the price mix outlook for U.S. retailers as we go into to the second half.
Ian R. Friendly – EVP and COO, U.S. Retail: Could you repeat that Andrew?
Andrew Lazar – Barclays Capital: Sure. I wanted to touch on the price mix for U.S. Retail in the second half. Pricing was flat in the second quarter, down sequentially from up one in the first quarter I believe and obviously you’re lapping some pricing and you’ve got your increased focus on some key price points in certain categories that you’ve discussed. Would you anticipate price remaining flattish in this segment in the fiscal second half as you still have inflation to deal with or is there a early concern or plan that price mix could turn even modestly deflationary given the positive volume response we’re seeing in response to your strategy?
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Ian R. Friendly – EVP and COO, U.S. Retail: Andrew it’s, Ian. I think over the entire portfolio, we’d expect it more to be relatively stable over the second half. There may be some select categories, where it will be modestly down primarily in categories where our merchandizing efforts are more back-half-loaded, but I think the general trend for us would be relatively flat.
Andrew Lazar – Barclays Capital: It’s hard to say, but your anticipation of kind of what you’re seeing more broadly in this space around – as the industry starts to lap some of the pricing, we’re seeing volumes come back a bit which is probably nice to see on a bunch of different fronts. But so far would your anticipation be that the industry is still likely going to have some inflation like there is a general sort of rational behavior as best you can tell. I know it changes a lot by category.
Ian R. Friendly – EVP and COO, U.S. Retail: Yeah, what we’re seeing still is a I think over the entire category through December and what I expect in the second half as well is very modest, but inflationary trends, both on the consumer prices as we see it so far and also, as you look at input prices, I think some of the impact of the drought will obviously weigh on all competitors’ minds as we look at what can be done in the market. So, I think stability to very, very modest inflation is probably a decent outlook.
Eric Katzman – Deutsche Bank: A couple of questions. I guess first one, I’ll lob this one into Don. A number of your competitors have changed their pension accounting to mark-to-market and that’s been pretty materially beneficial to their reported earnings. I recognize it’s not necessarily a cash item near-term. But do you have any estimate on what if General Mills were to go to a mark-to-market approach what that would do to your – roughly what that would do to your reported EPS?
Donal L. Mulligan – EVP and CFO: I don’t have any figure for you in that regard. We are very satisfied with our pension accounting. We try to be very clear externally in terms of what is moving that expense number and obviously, make clear, as you alluded to, that it’s a non-cash number. So, we will continue to provide that clarity. But we have no plans at this time to change our reporting practices.
Eric Katzman – Deutsche Bank: Then with the – I guess then to switch over to just Yoki for a second, with the Brazilian real depreciation and I guess maybe the expectation of Venezuela now devaluing that you’ve put in, are you – I guess how much of a drag between the Yoki dilution and then the deval, how much of a drag is that on earnings this fiscal year?
Donal L. Mulligan – EVP and CFO: Let’s separate the two, because with Yoki, it would strictly be translation and our total expectations for foreign exchange is, year-to-date, it’s been relatively neutral on EPS and we don’t see that necessarily changing as the year unfolds for our total portfolio. Venezuela is a different issues. Because of the accounting treatment for hyperinflationary country Venezuela, there balance sheet implication is well and so as we’ve seen consensus analyst estimates of what that devaluation will be it’s estimated in the range of 45% to 50% from the studies we have seen and that it’s again expected to happen sometime in early calendar 2013. We’ve estimated the impact to us factored into our outlook. It will be a couple of cents drag on our EPS this fiscal year.
Eric Katzman – Deutsche Bank: I don’t know maybe I missed this, but no change to what Yoki’s dilution was initially expected?
Kendall J. Powell – Chairman and CEO: No.
Eric Katzman – Deutsche Bank: Then last question, I will pass it on. I guess to Ian, you noted that the yogurt, I guess, retail sales were down 5 and yet you had a fair amount of positive commentary and slides that showed improvement. Is the difference between what I assume is better volume? You took a price cut on core Yoplait. Is that why the dollar sales are down?
Ian R. Friendly – EVP and COO, U.S. Retail: Indirectly, Eric, the thing that we restored was merchandising at our traditional price points on Yoplait. So it wasn’t a priceless reduction, but effectively on our core cup business it is getting our prices back in line with the competitive set. So as you noted, that has an impact on the dollar side and a very positive impact on the unit side.
Eric Katzman – Deutsche Bank: So, a couple of points basically subtracting from promotion from the sales but volume, was volume flat or up in yogurt could you say?
Ian R. Friendly – EVP and COO, U.S. Retail: I could tell you, it got progressively better in yogurt. As I showed on the chart, our turns which is net of distribution, our turns became nicely positive on our core cup business.
A Closer Look: General Mills Earnings Cheat Sheet>>