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General Mills CFO on company growth: ‘demand will remain elevated’ in the next quarter

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Kofi Bruce — General Mills CFO joins Yahoo Finance Live to discuss break down how the consumer goods manufacturer continues to generate growth capitol amid pandemic.

Video Transcript

- CAGNY going on this week. That of course, the major food conference typically happening in person. New York in the name right there. This year of course, happening virtually. General Mills presenting a couple of days ago, and the company's CFO Kofi Bruce joins us now to discuss. Kofi, great to have you on the program this morning. Thanks so much for joining. I want to start with guidance. And I guess really the question, we've talked to a number of executives about this, the ability to even offer guidance in this kind of environment. How did you guys kind of get there, over time, through the last few months, to be able to say confidently enough to investors, hey, here's where we think we're headed over the next quarter? And you were able to affirm your second half outlook as well.

KOFI BRUCE: Yeah that's a great question. Thanks for having me on, Miles. Look, I will certainly be the first to concede we're in an environment of high uncertainty. So as we've thought about this year and frankly, just even the quarter ahead, we have been governed by a philosophy that the demand environment will be what it will be. Our job is to be competitive regardless of what that demand environment is. And our philosophy has has driven us also to focus on making sure that we maintain margins as we do that, right? So, there are a lot of puts and takes. Higher volume puts pressure on our supply chain. The need for external supply chain capacity to augment our internal capacity have put additional cost pressure on the business.

And we are continuing to make investments in capabilities that will help us when we come out on the other side of COVID. So higher operating costs, but offset by higher leverage as we're getting a lot more operating leverage out of our assets. We certainly feel confident that demand will remain elevated for at least the next quarter. So we were comfortable giving an affirmation of guidance here that has us expecting to deliver, you know, a flat margin profile on strong continued growth. And we did affirm, obviously that our quarter three would look like our quarter two top line on the basis of those expectations.

- So Kofi, at the conference you outlined that you're putting a lot of focus and investment right now in five platforms, things like cereal, pets, and ice cream, that collectively represent about 40% of your business. One brand that was left off that was Yoplait. and I know that's been a more challenging business for General Mills in recent years. The yogurt category is just very, very competitive. Are you open to divesting that asset? Because I think you and I both know that the M&A market in food right now is pretty hot.

KOFI BRUCE: Sure. Well I think it's important to just dial back to what we talked about. We talked about global platforms and local gems. And the global platform, as you rightly pointed out, about 45%. But another 35% sitting in what we would call local gems. And realistically, as we look at Yoplait globally, it is really actually more of a multi local category, meaning the dynamics of that category differ from market to market in ways that do not on some of those global platforms.

So our investment strategy behind that business reflects the fact that we need to tailor our investment needs to the growth prospects in each of those markets. I don't want to comment obviously on any specific parts of our portfolio with respect to divestiture. But I would just reaffirm that at CAGNY in 2018 we did indicate that we were going to review up to 5% of our sales for divestiture. That is still ongoing. And as a reminder, shortly after that CAGNY two years ago, we purchased Blue Buffalo for $8 billion in one of our first big portfolio shaping moves in a number of years.

So, we've been tremendously pleased with that. We're focused on continuing to make that successful. It's growing like gangbusters this year, up double digits through the first half of the year. So a really strong business for us, even in the pandemic. And we will continue to review our portfolio for opportunities in this environment.

- Kofi, we've been talking to a lot of food company executives as of late. And one of the main questions we've been asking them is about pricing power. And so I'll ask you the same question. What are you seeing on that front? What kind of input cost increases are you seeing as well, that then might lead you to start to raise prices?

KOFI BRUCE: Sure. No doubt, we get a number of questions about the spot markets in particular for some of the key commodity inputs that impact things like packaging and freight and certainly grains, which are a big user of. And I think it's important to note that if I look back over the past 10 years of our business, even just back to 2019, we had an inflationary environment that was just on the high end of mid single digits. We were able to offset a good amount of that headwind through just our productivity on cost of goods sold. So we run about 4% productivity on average annually, sometimes a little more. And that offsets most of it. And then we were looking only for 1 to two points of price realization in 2019 and we got about two. So we were able to more than offset that and deliver some modest margin expansion in an inflationary environment.

So I think it's important to note that we have multiple levers to deal with inflationary pressure. First on our productivity, second on pricing. But I think in addition to pricing, it it's important to note we think about mix and management of mix, of promotion spending and being very targeted and efficient with that. And, you know, the price pack. So if you think about the sizing and size versus price relationship in the category, those are all levers you can use to protect prices and offset inflation in an inflationary environment.

- All right certainly interesting times in the packaged food business right now. Kofi Bruce is the chief financial officer over at General Mills. Kofi, great to get your thoughts this morning. Thanks so much for joining the program. Hope we can talk soon.

KOFI BRUCE: Thank you, Myles.