Jeff Siemon - Director of IR Ken Powell - CEO Don Mulligan - CFO Chris O'Leary - EVP; COO, International Jeff Harmening - EVP; COO, U.S. Retail

Andrew Lazar - Barclays Bryan Spillane - Bank of America Chris Growe - Stifel Ken Goldman - JP Morgan Alexia Howard - Bernstein Robert Moskow - Credit Suisse Kenneth Zaslow - BMO Capital Markets John Baumgartner - Wells Fargo David Driscoll - Citigroup

Ladies and gentlemen, thank you for standing by. Welcome to the Fourth Quarter Year-end F16 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 June 29, 2016. I would now like to turn the conference over to Jeff Siemon, Director of Investor Relations. Please go ahead.

Thanks Tina and good morning, everyone. I’m here with Ken Powell, our CEO; Don Mulligan, our CFO and I’ll turn the call over to them in just a minute. We also have here Chris O'Leary who runs our international business, and Jeff Harmening who today leads the US retail. They will be available during Q&A at the end of the call. A press release on fourth quarter and year-end results was issued over the wire services earlier this morning, though admittedly not as early as we wanted, we had some issues with our press release service IT and so thanks for bearing with us, this morning we apologies, obviously I will be available if we don't get to everyone's questions at the end of the call. The release was also posted on our website and you could find slides on the website that supplements this morning's presentation. 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 one additional housekeeping item, beginning in fiscal 2017 we will report net sales growth on an organic basis which we define as net sales adjusted for the impact of foreign currency translation as well as acquisitions, divestitures and the 53rd week when applicable. We will do this at the segment and total company level in order to provide you with better visibility to the underlying performance of our businesses. The fiscal ‘17 net sales growth guidance Don will provide today will be stated on an organic basis and for reference we posted three years of organic net sales growth history on our website. And with that let me briefly turn you over to Ken for a few words before Don reviews our 2016 financial performance.

Thanks, Jeff. I just wanted to make a brief acknowledgement before we begin. Many of you saw the announcement last week that we have promoted Jeff Harmening to the role of President and Chief Operating Officer of General Mills with responsibility for global operations. Many of you know Jeff as a seasoned trusted leader with a wide range of General Mills experience in the US and internationally. He has been central to our efforts to embed consumer first across organization and have successfully led our US retail organization through important changes that we've made in recent years. I have confidence that Jeff is the right person to lead global operations and look forward to continuing to partner with him to drive growth and returns for our shareholder. So with that, I’ll let Don get back to the business at hand.

Thanks, Ken and good morning to all. Fiscal 2016 was an important step forward for General Mills. We are encouraged by the traction we saw at our consumer first initiatives on many important businesses, our operating performance strengthened as we returned to growth in organic sales and segment operating profit, made good progress on margin expansion and exceeded our adjusted diluted EPS guidance. We took important strategic actions during the year to reshape our portfolio for growth including the divestiture of the Green Giant business in North America, significant category expansion to the Annie’s brand, the launch of Yoplait in China, and the acquisitions of EPIC Provisions meat snacks in the US and the Carolina yogurt business in Brazil. But we didn't hit the mark everywhere, we were disappointed in our performance in US Yogurt and our China results excluding the Yoplait launch finished below our expectations as the external environment in that market remains challenging. We also experienced merchandising headwinds in a large US customer which we should laugh after the first quarter of fiscal 2017. As noted in this morning's press release, we are building on successes in fiscal 2016 to increase our fiscal 2018 cost savings target and accelerate and increase our adjusted operating profit margin goal. Our cost savings initiatives which include projects Century, Catalyst, and Compass and further administrative cost savings from zero-based budgeting generated $350 million in total annual savings in fiscal 2016, ahead of our original target. We have good visibility to continue strong in cost savings over the next two years and as a result we are increasing our total annual savings target to $600 million by fiscal 2018, up from the previous target of $500 million. We are also implementing further efforts to optimize our spending, reduce complexity and streamline our operations to drive profitable growth, which will result in accelerated margin expansion. We now expect to achieve an adjusted operating profit margin of 20% by fiscal 2018, up from the previous target of 18% by fiscal ‘20. This new target represents an increase of 400 basis points over fiscal 2015 levels. Now let's review fiscal 2016 results beginning on slide 6. Remember this quarter's results were negatively impacted by foreign exchange, the Green Giant divestiture and the comparison to the 53rd week a year ago. We also align the Yoplait Europe business with our fiscal calendar which causes to report an extra month for that business in the quarter. Net sales totaled $3.9 billion, down 9% as reported and down 8% in constant currency, driven by the impact of divestitures in the 53rd week comparison. Segment operating profit totaled $654 million, down 18% on a constant currency basis reflecting our highest quarter of input cost inflation as well as the items I mentioned earlier. Net earnings more than doubled to $380 million and diluted earnings per share were $0.62 as reported. Adjusted diluted EPS which excludes certain items affecting comparability were $0.66, down 12% from last year's fourth quarter and down 11% in constant currency. Slide 7 shows the components of total company net sales growth. Organic net sales grew 1% in the quarter, driven by pound volume growth. Foreign currency translation reduced net sales growth by 1 point, the 53rd week reduced net sales growth by 6 points and the net impact of acquisitions and divestitures reduced net sales growth by 3 points in the fourth quarter. Slide 8 summarizes our results for the full year. Net sales totaled $16.6 billion, down 6% as reported and down 2% in constant currency. Full year net sales increased modestly on an organic basis. Total segment operating profits totaled $3 billion, up 1% in constant currency. Net earnings increased 39% to $1.7 billion and diluted EPS was to $2.77 as reported. Adjusted diluted EPS was $2.92, up 2% from fiscal 2015. Constant currency adjusted diluted EPS increased 5% compared to a year ago. Turning to our segment results, slide 9 summarizes US retail performance. Full year net sales were down 5% including a 2 point decline from the net impact of the Green Giant sale and Annie’s and EPIC acquisitions. The 53rd week comparison reduced annual net sales growth by an additional 1 point. Excluding the extra week last year, our cereal operating unit posted net sales growth in 2016. Segment operating profit increased 1% for the full year and operating profit margin increased 120 basis points to nearly 22%. In the convenience and foodservices segment, our as six focus platforms posted 5% net sales growth in fiscal ‘16 with the strongest performance coming from frozen meals. This is the third consecutive year our six focus platforms have grown at a mid-single digit rate or better. Full year segment net sales declined 4%, driven by market index pricing on bakery flour and the exit of low margin businesses in late fiscal ‘15. Full year segment operating profit was up 7%, driven by favorable product mix and our cost saving efforts. Slide 11 summarizes our international segment net sales results stated in constant currency. For the full year international net sales grew 3% including increases of 12% in Latin America, 3% in Europe and 1% in Asia Pacific. Canada net sales declined 4% but were up low-single digits excluding the divestiture of Green Giant. In total, the net impact of acquisitions and divestitures, and the impact of one less week reduced full-year net sales growth as reported by 2 points. Constant currency international segment operating profit declined 3% in fiscal 2016, primarily due to currency driven inflation on important products in certain markets, the impact of Green Giant divestiture and the difference in weeks. As I said earlier we made good progress on expanding margins in fiscal 2016. Full year adjusted gross margin increased 90 basis points driven by cost savings initiatives more than offsetting modest input cost inflation which totaled 2% for the full year. After-tax earnings from joint ventures totaled $88 million in fiscal 2016, up 12% in constant currency, primarily due to favorable input cost and volume growth for Häagen-Dazs Japan. Both JVs contributed to this strong profit growth. On a constant currency basis, net sales for Cereal Partners Worldwide were flat to last year with first half declines offset by growth in the second half. Häagen-Dazs Japan constant currency net sales increased 5% for the full year driven by excellent results on new products. Slide 14 shows that our core working capital declined 41% versus last year's fourth quarter, primarily due to continued operational improvement across our businesses, plus the one-time benefit of the Green Giant divestiture. This is the 13th consecutive quarter we reduced our core working capital versus the prior year. Full-year operating cash flow was $2.6 billion, up 3% versus last year. Capital expenditures totaled $729 million. Full-year free cash flow was $1.9 billion, up 4% versus last year as we converted 104% of our adjusted after-tax earnings to free cash, ahead of our long-term goal of 95%. We paid $1.1 billion in dividends in 2016 and dividends per share were $1.78, up 7% from last year. Net share repurchases totaled $435 million and we reduced average net shares outstanding by 1% in line with our guidance. Slide 16 highlights our key assumptions for fiscal 2017. We expect to drive organic net sales growth of low-single digits for our growth businesses which represent three-four of our portfolio. Net growth will be offset by mid-single digit organic declines on the remainder of portfolio where we are prioritizing profitable volume. The Green Giant divestiture will reduce net sales by about 1 point and EPS by approximately $0.03. We expect to deliver $380 million of cost of goods HMM which will more than offset cost inflation of 2%. And we will deliver an incremental $150 million of cost savings in fiscal 2017 from previously announced projects which will bring the total annual savings figure to $500 million. Finally, on slide 17 we see a summary of our fiscal 2017 guidance. We expect organic net sales growth to be in the range between down 2% and flat reflecting the actions we’re taking to reduce unprofitable volume on certain businesses. Adjusted gross margin is targeted to be up 150 basis points driven by our margin expansion initiatives. Media investment is expected to down high-single digits. We project total segment operating profit will increase 6% to 8% on a constant currency basis and we expect our adjusted operating margin - operating profit margin will be 150 basis points above the 16.8% we delivered in fiscal ‘16. Interest expense is expected to be flat to last year reflecting relatively stable rate environment, higher debt levels and changes in mix of debt. We expect our adjusted tax rate to be up 100 basis points due to the phasing of foreign tax credits and favorable F16 settlements. We plan to continue returning cash to shareholders through share repurchases. For fiscal 2017 we are targeting a net reduction of 1% to 2% in average diluted shares outstanding. And we expect adjusted diluted EPS to be up between 6% and 8% in constant currency. We estimate foreign currency will be a $0.01 to $0.02 headwind to full-year adjusted diluted EPS growth in 2017. But I will note that this figure does not include the recent fluctuations in the British pound. Finally, we expect 2017 first quarter adjusted diluted EPS will be below last year's first quarter that grew 36% in constant currency. We expect to post adjusted diluted EPS growth in each of the remaining three quarters of 2017. And with that I’ll turn the call over to Ken.

Okay, well thanks Don and once again good morning to all of you. Fiscal 2016 was an important step forward for our business. Our consumer first renovation and innovation news gained traction on a number of businesses that we have work to do in certain areas to improve our trends. We reshaped our portfolio with strategic acquisitions and divestitures and we strengthened our business model and drove a significant increase in our profit margin. Let me share some 2016 highlights across our businesses starting with US cereal. The US cereal category has improved considerably since last year, returning to growth in the fourth quarter of fiscal 2016. Importantly this improvement is being driven by stronger renovation and innovation aligned with current consumer interests supported by effective marketing investment. And General Mills has been a key contributor to the category turnaround. Our cereal business has consistently strengthened throughout the year with retail sales up 3% in the fourth quarter and as Don mentioned, full-year net sales for our cereal business grew in fiscal 2016 on an organic basis. Consumer first renovation has been critical to our renewed growth. We launched gluten-free Cheerios last summer to address the needs of the many consumers who are reducing or eliminating their gluten intake. After declining 8% in fiscal 2015, retail sales on our renovated Cheerios variety, which make up roughly 90% of the Cheerios franchise, increased 5% in the second half of 2016. We also announce that we’re removing artificial colors and flavors from our cereal line, 75% of our cereals met this claim by January and at that time we began advertising behind seven newly renovated cereals including Trix, Golden Grams and Reese's Puffs. And I'm very happy to say consumers are responding, these seven varieties posted 8% retail sales growth in the back half of the year compared to 6% decline in 2015. And much of that growth has come from full priced baseline sales. Sales of our Nature Valley bars strengthened throughout the year as our product renovation news gained traction. We made our crunchy bars easier to bite addressing our top consumer complaint. We also told consumers about our gluten-free options and reminded them that Nature Valley bars are free from artificial colors and flavors. Retail sales grew 4% in the second half of fiscal 2016, including 5% growth in the fourth quarter. Lärabar has posted consistent double-digit growth since we acquired the business eight years ago. We continue to look for ways to expand penetration beyond its current consumer base and accelerate the brand's growth. And to that end Lärabar launched its first-ever TV campaign in January and together with strong in-store merchandising and distribution support the business has grown 40% in Nielsen measured channels. We will continue this support in fiscal 2017. Net sales for our natural and organic portfolio which includes Lärabar were up double-digit in 2016. In January, we expanded our portfolio with the addition of EPIC Provisions meat snacks. We now have a portfolio of nine brands that generates $750 million in pro forma net sales in 2016 and we are well on our way to achieving our goal of $1 billion in net sales by 2019. Now fiscal 2016 was a disappointing year for our US Yogurt topline and share. Dairy deflation sparked increased competition and we were not as aggressive in reinvesting this favorability. In addition, our marketing and innovation efforts underperformed our expectations. However, we were able to improve our profitability through record level HMM and spending discipline. We remain very committed to winning in the US Yogurt category and we recognize that we have work to do to improve our performance and I’ll share more detail on these plans in just a moment. We posted good performance in 2016 during the soup and baking seasons. We grew ready to serve soup market share by 2 points during the soup season thanks to successful merchandising, product renovation news and good advertising. Our Pillsbury refrigerated dough business had a good baking season with growth in retail sales and market share up 1.8 points. These results were driven by distribution gains on our top selling products. And we grew market share for our dessert mixes during the key baking season by aligning our prices more closely with our competition. Turning to convenience stores and foodservice segment we saw another year of good growth in 2016 for our focused six platforms with net sales up 5%. Frozen meals lead our performance posting strong double-digit net sales growth behind our K-12 meals lead by Mini Bagels one of our biggest product launches in recent history. We continue to see strong performance on our cereal bowl packs and these help drive mid-single digit net sales growth for our cereal business in 2016. And net sales for our yogurt business were up on the strength of Yoplait, ParfaitPro, and our kid yogurts. Now let's turn to our international segment and our developed market businesses. We posted low-single digit retail sales growth in Canada in fiscal 2016. Growth on our snacks and Old El Paso businesses there was fuelled by consumer first innovation including Nature Valley Nut & Seed Crisps and Old El Paso Stand 'N Stuff Tacos. Retail sales in our Europe region were also up low-single digits, behind the success of our Häagen-Dazs Stick Bars launched in France and innovation driven growth on Old El Paso. In emerging markets, constant currency Latin American net sales were up 12% in 2016, driven by good performance on seasonings, inflation driven pricing and our acquisition of Carolina yogurt. Yoplait in Shanghai achieved 10% share in the latest quarter and has helped offset a slowdown Häagen-Dazs shop performance in China, driven by challenging economic conditions. Finally, net sales in India were up double-digit behind innovation and geographic expansion. CPW, our 50-50 joint venture with Nestlé exited fiscal 2016 with momentum posting 3% net sales growth in the fourth quarter. This performance was driven by product innovation and renovation including good growth on its line of gluten-free cereal. For the year, CPW constant currency net sales matched year ago results while profits grew double-digit. So, overall in fiscal 2016 we made important progress to strengthen our business model and improve momentum on a number of business lines. In fiscal 2017, our plan is to build on last year's successes while maintaining our strategic focus on consumer first. We're sharpening the way we think about our portfolio by being more choice full about our level of investments and expectations for growth across our businesses resulting in focused growth and strong margin expansion in 2017. We're taking a strategic approach to define growth and foundation portfolio roles for our business in 2017 taking into consideration category and brand strength, competitive dynamics and relative return on investment. Our growth businesses include cereal, snack bars, our national and organic brands, yogurt, [indiscernible] and Old El Paso in all of these within US retail. Then the focus six platforms in our convenience stores and foodservice segment, and finally all of our international markets are included in the growth classification. Now for most of these growth businesses we are building of positive net sales momentum in 2016, in some cases for example US Yogurt in China, we see strong long-term growth potential but we need to improve our current trajectory. In total these growth businesses make up approximately 75% of our net sales in a similar proportion of operating profit and we expect them to grow at a low-single digit rate in fiscal 2017. Our second group of businesses is no less critical to the success of our company but play a different role, they’re part of the foundation of our business and deliver strong consistent profit that helps fund topline growth initiatives and return cash to shareholders. In aggregate, their topline growth prospects are not as robust as the first group so we will be very selective in our growth investments focusing where we have strong ROI. These foundation businesses make up the remaining 25% of our net sales and consist primarily of refrigerated dough, desserts and soup in US retail as well as bakery flour and frozen dough products in our convenience stores and foodservice segments. We expect 2017 net sales on these businesses to decline mid-single digits as we reduce unprofitable volume and drive improved margin. Now let me share an overview of our fiscal 2017 plans across our portfolio beginning with our US business. We exited 2016 with good momentum on both US cereal and snack bars. And we plan to drive growth on these businesses again in 2017. We will continue our renovation efforts by converting two more Cheerios varieties to gluten-free and by removing artificial colors and flavors from five additional cereals. We’re also launching a number of exciting new cereals including three varieties of Annie’s cereals and two varieties of Tiny Toast which are hitting shelves now. To support these efforts we have a strong media plan in place with cereal investment up mid-single digits. And we are focused on optimizing merchandising and driving positive net price realization for our cereal business. We have a good line-up of news on our snack bars businesses as well. We are renovating the packaging on Nature Valley bars, launching new flavors of our popular Nature Valley Nut Butter biscuits and introducing Nature Valley backpacker oatmeal snacks geared towards school-aged kids. On Lärabar, we plan to extend our strong performance into fiscal 2017 with continued media and in-store support. We also have a full slate of plan for Annie’s, our largest natural and organic business. We posted double-digit growth on distribution of our core products last year and we plan to continue to leverage the strength of our US retail sales force to drive double-digit distribution growth in 2017. We will also benefit from a full-year of category expansion in soup, yogurt, and cereal. And we have even more Annie’s news that Jeff Harmening will tell you about at our Investor Day event in two weeks. We believe in the long-term growth opportunity in US Yogurt. However it will take us some time to restore topline growth as we shift our portfolio towards faster growing segments like [indiscernible] organic and kids. This month we're rolling out new Greek Whips, a full calorie version of our successful Greek 100 Whips product, we’ll expand our presence in the fast-growing organic segment by launching Annie’s Tubes and large sized yogurts, and by converting Liberté to premium organic line and we have a strong line-up of kid yogurt news which we will share at Investor Day. We will also improve the effectiveness of our consumer messaging by refocusing on all-family snacking and we’ll increase our merchandising competitiveness in 2017 securing more display at competitive price points. Some of this will be funded by shifting dollars out of consumer investment where we have by far the highest share of voice in the category. Given our current rate of decline, we expect full-year fiscal 2017 net sales to be down but we expect our losses to moderate as we move through the year. Let me also touch on a few of our foundation businesses in US retail including soup, refrigerated dough and dessert mix. Here we are reducing low ROI trade and consumer investment and reducing complexity by optimizing our SKU assortment. Even so, we will continue to bring important news to consumers in 2017 for example, on progressive soup we’re moving our entire line to antibiotic free chicken, a first for a mainstream soup brand. On Pillsbury refrigerated dough we are launching new shelf-ready packaging that will increase the productivity of the aisle for our retail customers and the shopability of the aisle for our consumers. And on Betty Crocker, we're re-launching our Brownies to give consumers more premium ingredients and flavor variety. Turning to convenience stores and foodservice, we’ll continue growth for our focus six platform in 2017 with frozen meals and snacks leading the way. We are expanding distribution of Pillsbury pancakes and bagels in schools leveraging our no artificial colors and flavors renovation. And we’ll continue to grow distribution for our snacks in convenience stores leveraging the Nature Valley news from US retail but also bringing channel specific news like Chex Mix hot and spicy renovation. In Canada, we’re changing our Yoplait source messaging, repositioning it from a diet product to great tasting yogurt made with real fruit and no added sugar. We will also bring gluten-free Cheerios news to Canada in 2017 and scaling up the rollout of Annie’s to capitalize on the sizeable natural and organic segment in this market. In Europe, we introduced new flavors of Häagen-Dazs Stick Bars and extend the line to markets beyond France. We are also introducing Old El Paso Stand 'N Stuff minis targeting younger consumers as well as the appetizer [indiscernible] fruit in the bottom Greek style yogurt. We have exciting news planned for emerging markets in 2017 as well. In Brazil, we are launching new Yoki popcorn products supporting our new Carolina yogurt business and executing pricing and managing mix to maintain our margins. In China, we plan to build on our successful Yoplait launch in Shanghai and just this month we introduced Yoplait in Beijing. We also plan to innovate on our Häagen-Dazs mooncake line launching rose shaped varieties. In India, we’ll drive strong growth for our Pillsbury business to increase distribution and new product launches in sweet snacks and meals, including new cakes and pizza mixes. And finally in Mexico, we’ll leverage digital support in-store, marketing and event sampling to expand our successful Nature Valley franchise. Now as Don mentioned earlier we see a number of opportunities to accelerate our margin expansion efforts over the next two years. We’ll continue to benefit from HMM and our previously announced cost saving projects. And we’re taking additional actions to further expand our margins. These include sharpening the focus of our trade and consumer investments between our growth and foundation businesses, reducing complexity by streamlining our SKUs in generating more profitable mix, and delivering additional savings from our supply chain and our zero-based budgeting practices. And in total, these efforts will help us drive our adjusted operating profit margin to 20% by fiscal 2018. We expect our efforts to drive focused growth in margin expansion will result in fiscal 2017 organic net sales growth to range between flat and down 2% with 150 basis points improvement in adjusted operating profit margin and 6% to 8% growth in constant currency adjusted diluted EPS. Now looking ahead to fiscal 2018, we expect modest growth in organic net sales as we maintain positive momentum on many growth businesses and see improvements in others such as US Yogurt in China. The full benefit of our margin expansion efforts will help drive adjusted operating profit margin to 20% and will generate a low double digit increase in constant currency adjusted diluted EPS in 2018. So, let me close today by summarizing our key messages. We made important progress to return our business to growth in organic sales and operating profit in 2016. We strengthened our portfolio through acquisitions and divestitures as well as category and market expansions. We’re taking clear action across the portfolio to drive focused growth, margin expansion and strong returns in fiscal 2017 and 2018. And these efforts will set the stage for sustainable long-term growth and value creation for General Mills’ shareholders. So that concludes our prepared remarks this morning. So operator, you can open the call up for questions.

[Operator Instructions] Our first question comes from Andrew Lazar, Barclays. Please go ahead.

Good morning, everybody. If we think about the, I think in fiscal ‘16, you talked about 350 million in savings, and I think it led to a little less than 100 basis points of operating margin expansion. I think over the next two years, you've got incremental savings of about 250 million, but obviously you’re looking for a very significant step up, 300 basis points or so in operating margin expansion. And so, I guess, and that's despite obviously some organic sales decline perhaps in aggregate over the next two years. So I guess the question is really where does that incremental margin expansion come from that you’re projecting. I'm assuming it's the work that's being done around this portfolio segmentation, but I'm trying to get -- you get the sense of what I'm looking for?

Yes. Andrew, this is Don. You’re right. As we look forward, we’ll get additional benefit from the projects we have in place and obviously underlying HMM will continue as we go ahead both ‘17 and ‘18. What you’ll see in ‘18 is, it's really going to be the full-year benefit of the initiatives that we’re going to get started in place, we started at ’16, we’re going to get partial benefit in ‘17 and even greater benefit in ’18. And so whether that is sharpening our practices on trade efficiencies, but more importantly as we look at SKU rationalization, as we look at the portfolio as you mentioned, more rigorously, there is a mix benefit to us as well. And so you’ll see that come through in ‘17 and even more so as we go into ‘18.

Got it. And then just, I know this past year, you shifted the strategy a little bit on some of the brands that were going to take on a little bit more of a value orientation and I guess, did you learn some things from that effort that presumably made you a lot more comfortable with going kind of much more all-in on this sort of portfolio segmentation strategy?

Andrew, this is Jeff Harmening. And the answer is, yes, we did and we turned around our baking business and we stabilized our share in Betty Crocker. We also grew share in our Pillsbury refrigerated business despite the fact that our merchandising was down mid-single digits. So we get the value right on desserts, and we found that by optimizing some trade in Pillsbury, we could actually still grow share and the profitability of that business. And at the same time, we also found that when we focused our consumer spending on the areas that had the highest returns, things like cereal and snacking, we also found that we like the returns we got there. So we learned a lot in F16 that has informed how we look at F17 and beyond.

Great. Thank you, everybody.

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

Hey, good morning, everyone. I guess one of the questions that we've kind of seen this morning I think is just around the plans for consumer spend and trade spend going forward, and it seems like -- it sounds like your ad spend or consumer spend will be down in ‘17, not sure where it will be for ‘18, but just I guess how we should think about kind of getting to sustainable sales growth, while it sounds like maybe some of the consumer spend may be coming down even from where it was in ‘16?

Well, as we look at our US portfolio, what I would tell you is that, our advertising spend in aggregate will be down a little bit, but I will also say that we’ve focused our advertising spending and it will obviously grow on the areas that we think have the highest returns and the highest possibilities for growth. So if you think about cereal for example or bars or natural and organic and so we really replaced our best on the area where we think we have the best opportunities for growth. So even if advertising is down a little bit, we believe that we've refocused the spending that we do have in areas that are going to work harder for us. The other thing that I will tell you is that we feel great about our renovation efforts and we saw the benefits of those starting in the back half of this year. So whatever is gluten free on Cheerios or the taste improvement on Nature Valley or No, No, No in cereal, those things really only started in the back half of this year, and so those will carry forward to next year, as well as some more renovation, which I’ll talk in more detail about in a couple of weeks. So our renovation efforts will carry over and we feel very positive about those. We also think we have a better new product line-up next year. So despite the fact that our consumer spending is going to be down a little bit as well as our trade, we feel like we’re putting the spending in the right places. Our renovation is working and we have increased levels of new product innovation.

And Bryan, this is Don. Just to add some other context to that, to quantify to Jeff's point, when we look at where we’re investing this year, cereal, bars, our media spending behind those businesses will be up mid-single digits. Natural and Organic will be up strong double digits. Our international business will be up low-single digits in its media spend. So, where we're talking about our growth opportunities, we are seeing increased investments. The other thing not to lose sight of is that we also have investments going back into the products, so it's not always just in the media line, Ken mentioned about our renovation in soup for example, obviously the full-year benefit of gluten and No, No, No on cereal have a topline benefit, but as we talked about in F16, there were some product costs related to that as well. So we invest back, it’s sharpening where we’re investing back on the media and it’s also continuing to invest back in our products.

Thank you. That's very helpful.

Thank you. Our next question comes from Chris Growe of Stifel. Please go ahead.

Hi, good morning. I just wanted to ask you had some very compelling margin targets now for fiscal ‘18, but certainly over that time, revenue growth is going to be relatively soft and I guess I want to understand as you come out of this and the growth brands grow at a faster rate and foundation grants go down, is the intention then to get back on, we’ll call it, algorithm for top line growth that there is some sort of one-time reset if you will cause for the top line that occur over the next couple of years, just a question for you if you could please.

Well, the answer to that question is yes, there is an element of kind of one-time adjustment in that promotion spending and that will happen over 12 to 18 months, but once we have removed that volume from the business, the intention is to very much looking for stability. As we said, we’re going to continue to invest in those businesses, continue to bring innovation, but there is this one-time adjustment as we go through a very thoughtful analysis of all of the promotional spending and remove the parts that really aren’t delivering a return. I don’t know Don, if you want to add anything.

Yeah. I think the way to think about it Chris is, Ken hit on the right themes, but our growth businesses that 75% of our portfolio that we expect to grow low single digits in ‘17, we expect that rate to accelerate slightly because we expect our US Yogurt business to be improving as we get out of ‘18 into ‘19. China and emerging markets, more broadly, China and Brazil, we expect to strengthen as well. So those businesses, we both have a strong base today, but we have very strong plans in place and reasons to believe that we’ll see some slight acceleration in growth and then to Ken’s point, the foundation business is really the stable corn. If you think about those brands, they’re large, high share scaled businesses, primarily here in the US or entirely here in the US, but they are also, they are receptive and reactive to targeted investments and as Ken said, we’ll continue to do that. And so while there may be a one-time step down over the next year to 18 months, we do expect those brands to stabilize our time and as a result, as we get through ‘18 into ‘19, we fully expect to be back on what I’d call a more normal operating model, which would be driven by low single digit sales growth as a start point.

Okay. And just as a quick follow-up to that Don, in terms of the foundation brands, they are important to your portfolio from a cash flow standpoint certainly and the margin profile, are they candidates for divestiture, is that the way we should think about those or is it more about better managing those brands, just trying to get a sense of kind of where you spend on that?

The fact that we've been more intentional about our portfolio doesn't change our position on potential divestitures. We needed to review our portfolio and assess whether if you do this, you drive more value to shareholders via divestiture, but it's a high bar. As we said today, those foundation brands are very profitable, cash generative and quite honestly, generally have low tax bases. So they are very much core. As Ken said, they are no less important to our future financial returns and shareholder returns in our growth brands. They just have a different role.

Okay. Thank you for the color there. Thank you.

Thank you. Our next question comes from Ken Goldman, JP Morgan. Please go ahead.

Hi, good morning, everyone. International volume is quite high this period. I think you benefited, if you’ve said this, forgive me, but from an accounting shift in Europe, just curious if you can size that benefit for the quarter for us. Is it reasonable for us to model an equal headwind this upcoming quarter, just wondering if we can get a little color on that?

Sure. Ken, Jeff Siemon noted [Technical Difficulty] businesses this past year and what you’ll see is in the quarter, Q4, International had 10%, organic sales growth. About six points of that was because of the shifts from yield play [ph] in Europe. So think about underlying at 4%, which is very much in line with what the full-year was for International. So think of that mid-single digit organic sales growth is where International performed both for the full year and in the quarter.

Okay. And then switching subjects on Yogurt, in the US, I get the challenges that a traditional yogurt might have sort of as a category versus Greek in a deflationary dairy environment, but I'm less sure what's been driving some of Mills’ yogurt share losses within traditional. At least that's what Nielsen data would suggest, and maybe mills traditionally is losing some share to known traditional, and I'm just curious what the, if you could talk a little bit about the plan to turn that around?

So this is Jeff Harmening. So what I would say is that in general, the yogurt category is growing and we think it's growing to grow and despite recent challenges, we think we can grow in it as well. Specifically, our plans in the upcoming year, I think the recipe for yogurt is very similar to what the recipe for -- as it’s been for cereal to get it back to growth, which has improved renovation and innovation, specifically on the brands that you talked about, our yield play and light [ph] business has really been challenged. Our original yogurt business hasn't been too bad, but our Yield Play and Light business has been challenged, as has been our merchandising. And importantly, as we look at this coming year, what we need to do is we need to get back to the right merchandising plan which we will do. We’ll shift some spending out of consumer spending and to merchandising to make sure we get the right merchandising plan on traditional and we also need to make sure that we're renovating our core traditional businesses just the same way as we have in Big G and you’ll see a lot more of that this coming year, as well as growing up the innovation on things like organic.

Great. Thanks so much. Thank you. Our next question comes from Alexia Howard of Bernstein. Please go ahead.

Good morning, everyone. One of the things that's coming through really strongly is the ever escalating pace of change here and the amount of disruptions that's going on in the industry. I'm thinking about the softer and participated cost-cutting, lots of renovation, lots of innovation, competitive dynamics changing in yogurt, retail is doing different things, how do you avoid or minimize execution risk here and how are you changing your incentive structure maybe to reflect some of that. Thank you and I have a follow-up.

Okay. Well, thanks, Alexia for the question and the observation, which I think is spot-on as we would say, and we've said many times that the pace of change in our industry now is as fast as we've seen in many, many years and that's really the reason why we really have changed so many things about our approach within our businesses around the world, our super high focus on consumer-first just to acknowledge how rapidly consumers are changing their values around food. We have to make sure that we stay even with that, and we appreciate your observation that our pace of bringing innovation and renovation to the market is accelerating because that's been our goal. We really feel that that's the right thing to do in this environment. So I agree with your observation, we’re very focused on keeping our organization here, we’re on our toes, we are very focused on the consumer, we want to bring the right kind of innovation at a higher pace because that's appropriate, and we are very, very focused as you said on execution in that environment, and we feel good about the way, particularly the way we executed our renovation last year. Our incentive, let me just make this comment on incentive for our operating units who are kind of the tip of the speed for all this innovation. Their incentive reflects very much sort of the dual mandate that we’ve talked about at CAGNY and we’ve talked about here today. We are focused on both growth and return and our operating units are incented on growth and return and both the growth businesses and the foundation businesses are incented that way. So while our growth targets may be more modest on the foundation businesses, it's just as important to the company that they get their targets as the growth guys do. So everyone is aligned with this dual approach that we’ve talked about and we think that we’re going to benefit from that. I don't know if anyone else would want to jump in on that. Okay. Everyone is happy with my answer, Alexia. I guess we’ll go and take the follow-up.

A quick follow-up on the GMO labeling, I know we've now got the new federal proposals that came in last week, I think Campbell’s has said that they are planning to do on back labeling, because there is obviously the option to do everything via QR codes, just wondering what your plans are for that. Or maybe it's too early to tell? Thank you.

Well, I think it's probably a bit early to tell, but as you’ve noted, I mean, it's really out of our hands and it’s in Congress right now and it’s in the hands of the Senate, and I think as you may have heard us say in the past Alexia, there has been a lot of debate and at this point, General Mills is for whatever bill can get 60 votes in the Senate, and we think that that bill will certainly have the pre-emption that we need so that we get out of this state-by-state thing and it's going to allow a variety of options for how to label as you noted, but we just have to see how that's going to play out over the next period of time. Yes. Obviously if it happens, I mean we’ll be very relieved because the prospect of multi-state regulation is going to be very costly for the industry and very confusing for consumers.

Thank you very much. I'll pass it on.

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

Hi, there. Thank you. I guess two quicker questions. Can you help us quantify the mix benefit of this growth in foundation strategy like or the growth brands, maybe 100, 200 basis points higher in terms of gross margin or price mix or something like that? And then Jeff Harmening, a question about Annie’s, you mentioned that you’re leveraging the US retail sales force more aggressively. I think there were some execution issues last year or last fall as you try to leverage that more aggressively. What have you learned since then and are you happy with how the US retail sales force is pushing Annie’s and how is it working differently? Thanks.

I’ll take the mix question. As soon as you said, can you quantify, everyone looked at me. So I'll take the mix question and then I will pass it to Jeff. So Rob, the way to think about it is, there is not necessarily so much between the growth and the foundation, because actually they are about the same margins as you're seeing here today and yes, that just speaks to the underlying strength of the foundation businesses as well. So, there’s not so much of mix between the two groups of brands. It's really within businesses, our SKU rationalization is driving variable mix. The trade strategy as we see more baseline sales versus promoted sales and Ken alluded to how that is one of the key sources of turning around our cereal business this year. That's just really providing the mix benefit for us both in ‘16 and as we go into ‘17.

And on Annie’s, we’re thrilled with the performance of that business and we’re going to accelerate that growth in F17 and we see accelerated growth from Annie’s in this fiscal year and on the backs of distribution, which has been consistent throughout the year, distribution growth as well as improved merchandising and as the year has gone on and we will keep doing those things with the Annie’s business. There is lots of distribution we can get. We can keep doing better merchandising, and we will add on top of that, this expansion into categories that we think are really viable for Annie’s, namely yoghurt and cereal. In terms of what we learned earlier in the year, what I would tell you is that with any integration, there are things that don't go perfectly, but there is nothing that hasn't been rectified, and at the beginning of our year, really, it was our merchandising plans that didn't come together the way we wanted them to. We were gaining good distribution, but we have seen that change in the back half of the year and our sales force is executing really well, both in the natural and organic channel and in traditional retail against our organic brands right now.

Okay. So is it Don, just to make sure I understand, so there is no real difference between the mix profile or gross margin profile of the two parts of the business?

No, the operating margin on both our growth and foundation businesses are very similar.

Okay, thank you.

Thank you. Our next question comes from Kenneth Zaslow of BMO Capital Markets. Please go ahead.

Hey, good morning, everyone. Can you just talk about the growth that you’ve had in the reformulation, the success that you’ve had is, my understanding is, is it because of the first mover advantage, because you’re kind of ahead of your other peers and is there a potential that if other competitors actually couple along with the reformulation, will that go away or will that actually be better as the consumer becomes more aware of it and how do you think of that sustainability of the opportunity from the reformulation of your products?

Well, I think two separate questions. I think they have been successful because we follow what the consumers wanted, and whether that was, whether that is more taste on Cinnamon Toast Crunch or gluten-free on Cheerios or more icing on Toaster Strudel, I think the success we’ve had is from [Technical Difficulty] whether it’s execution on the product front we feel good about or improved marketing we feel good about and doing that with brands that people trust and you can generate important news that consumers care about on brands they trust and the results have been pretty good. In terms of how long this can last, I guess I will go back to the best example we have is Chex and cereal where we grew that business on the back of gluten-free for double digits for like five years in a row, and so we believe that the long-lasting impacts of getting the products right for renovation, we believe they’re long lasting and it’s tied back to the combination of what consumers want, really good marketing and brands that people really care about.

And I would just may be add a detail or two. First of all, Ken, oats are kind of a core ingredient for many of our products, not only cereal, but also bars and oats are naturally gluten-free as an example, and so now that we've figured out the technology for how to purify our oats stream, there is quite a bit of intellectual property in that process, and so we think we probably do have some insulation there, and that's good. And then to your point on first mover advantage, I think that's probably true as well, but we’re pleased that the organization now is both, as Jeff said, understanding these consumer wants and then responding at an ever faster pace, so that we’re out there quickly and we can get to very healthy sign for our organization.

And just a quick follow-up is, what is the key market or the key driver behind the creation of Tiny Toast, it’s like I'm trying to figure out how that fits within the portfolio and why there is a need for a new brand, what is it suiting and then I’ll leave it at that?

Well, Tiny Toast fits the consumer need of having cereals that people love. It tastes great and it’s a very whimsical product, very whimsical name, whimsical marketing and it fits the niche for teens and we think it's a good cereal for teens and it just tastes really, really good. And we've seen success with cinnamon toast crunch and sometimes people want gluten-free and no artificial colors and flavors and sometimes they just want stuff that tastes good and that's where Tiny Toast fits in.

Great, thank you.

Thank you. And our next question comes from John Baumgartner of Wells Fargo. Please go ahead.

Good morning. Thanks for the question. Don, I’d like to ask in terms of your updated margin targets for fiscal ‘18, if you can speak to how profitability has progressed for your international operations as you kind of build scale and how much of that factors into the guidance increase? Is there any explicit updated margin target for the international segment as well? Thanks.

Let me speak for international today, but what I would tell you is international will participate in the margin expansion as well. Much of what you see the change in the focus on the portfolio really relates more to our USRO business, which started the journey this year and it is doing it in a sharp profession as we go into ’17. So that's where you’ll see the most direct change I think versus prior expectations, but you don't actually look to see same margin expansion for the reasons we've talked about before, whether it’s productivity outstripping inflation, the mix management and the underlying growth of the businesses, particularly in emerging markets, strengthened return to their more historical growth rates.

Okay. Thanks, Don.

Thank you. Our next question comes from...

Sorry, Tina. I think we probably have time for one more. So maybe if we can get one additional in before we close down here.

Perfect. We have a question from David Driscoll of Citigroup. Please go ahead.

Great. Thank you and thanks for squeezing me in guys. So two questions. The first one is on the cost savings. Can you talk a little bit more about how you get to the $600 million and then what learning has allowed you to upgrade the savings target and then kind of the big one here is, is it substantially likely that we should expect you to be able to upgrade this target even further in light of trends within the sector?

Well, as far as our cost savings, from the 500, 600, this is not the first time we've increased those as we’ve seen further opportunity and what I would say is, as we work through Century and Compass and Catalyst and implementing ZBB across the business, we've seen slightly better savings in virtually every one of those initiatives, but I particularly point to Century and ZBB as we streamline our manufacturing footprint, our ability to find HMM and find savings has increased even beyond what we thought it would. And then, ZBB, we have been learning as we've gone and as we both expand it within the US and then as we go forward, expand it more formally through our international business, we see further upside there as well. So it's really been a matter of each project we've tackled has generated a bit more savings and given us clear visibility in terms of what the final price will be. And as far as future margin targets, we just have refreshed that today, so we’re focused on delivering those, we think they’re the right targets for us. We think they will set us apart from a competitive standpoint, and that's what we're focused on right now.

And again, I think it goes back to the earlier question, we have been very, very focused on execution of these projects and executing them well and we feel that we've done that and across the enterprise and these initiatives, I would say, we’re gaining increasing confidence in our ability to do them well.

One final question for me, Ken, on the portfolio segmentation, I've always viewed the company as one that was discerning between low growth and higher growth businesses and where you should put investments or not. So I think you responded, I mean, when you put out something like segmentation, I kind of think you always did this. I don't think this is brand-new inside at General Mills. I think it might be new in terms of how you’re presenting it to us today and maybe there is an intensity that’s higher, but I just want to get your response to that kind of a statement because it's not been my judgment over years that you just weren't segmenting your portfolio. So how would you grade the difference with this kind of discussion today and slides and the deck and comments in the press release about segmentation?

So I think it's a good observation. And I mean, this is not something that we've discovered a couple of weeks ago and I think as you've heard from some of the other comments, much of the work in how we’re approaching this is building on initiatives and things that we’ve been trying and developing over the last year or two and we just concluded after seeing the results and seeing the effectiveness of this work that it would be helpful. Frankly, it helps us a lot internally to be much more declarative and intentional about the role that we want our different businesses to play. So we just decided I can’t remember what your word, what your term was, but just to be more declarative and much more intentional about how we were going to pursue these initiatives and I think you used the word intensity, so even higher focus. We think that’s very good for us inside the business and it’s also very helpful I think for investors to understand how we’re looking at it. So it is, as you said, a build with more specifics. I don't know if anyone -- we’re good.

Okay. Thank you, guys.

Yeah. Great. I think that's all the time we have this morning. So, before we close everyone, I will just remind you, our investor Day event coming up two weeks from today and we welcome you to listen to the webcast starting at 10 AM Eastern or if you can join us in New York, please send us an RSVP so we can make sure to include you. Again, I'll be available all day if we didn't get your questions and please give me a call. And with that, I think we’ll wrap up. Thanks very much. 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.