GIS
#Thanks, Don
Good morning, everyone
I appreciate the opportunity to give you a deeper dive into our North American Retail segment
I’m proud to lead this team
We have great people
We’re moving with urgency
We’re operating differently than a year ago and I think you can begin to see that translate into our performance
The key messages for North America Retail this quarter are similar to headlines for a total company
We’re driving broad-based top line improvement with organic sales slightly positive amounting to flat in the quarter
Our profit was down this quarter, but improved sequentially over the first quarter and we have clear initiatives that will deliver profit growth in the second-half
We’re executing well against our fiscal 2018 priorities and we have strong back-half plans in place to maintain our trajectory
Looking at the financial results in the second quarter, organic net sales for this segment were up just under 0.5%
Cereal posted 7% net sales growth, which was ahead of Nielsen-measured retail sales, due to non-measured channel growth, strong sell-in for new Chocolate Peanut Butter Cheerios and other quarterly timing shifts
Fiscal year-to-date, U.S
Cereal net sales and retail sales are each roughly flat to last year
Snacks net sales increased 5% in the quarter, with growth on Lärabar, Nature Valley and fruit snacks, partially offset by declines in Fiber One
Canada net sales are up 1% in constant currency and net sales for the U.S
Meals & Baking operating units were down 2%
yogurt net sales declined 11% and a 11 point improvement over the first quarter, driven by continued declines in Light and Greek varieties, partially offset by excellent innovation in news and core established brands
Segment operating profit declined 5% in constant currency in the quarter, driven by higher input costs, unfavorable trade phasing and increased advertising and media expense, partially offset by favorable product mix and benefits from cost savings
We’ve driven sequential improvement in U.S
retail sales since the beginning of the year
In fact, our second quarter retail sales trends are almost 700 basis points better than fourth quarter of last year and our improvement is driving better results for our categories
We saw retail sales trend positive in measured channels in the second quarter
And it’s not just a couple of businesses driving this trend, our retail sales trends are better in eight of our nine largest U.S
We’ve had absolute retail sales and dollar shared growth in this quarter on six of these nine businesses
Not only those – not only are these trends broad-based or high-quality, we’ve increased our brand-building investment this year and we’re leveraging new campaigns on some of our biggest brands, generated by new creative agencies and we’re taking a fresh approach towards consumer messaging
For example, new campaigns on Cereals, Nature Valley and Pillsbury are helping drive baseline sales improvements by as much as double digits for these branches at the end of last year
We’re also seeing benefits from an increased focus on innovation with retail sales from new products of more than 50% of the share, driven by successes like Oui by Yoplait and Chocolate Peanut Butter Cheerios
In total, our second quarter baseline sales trends in the U.S
improved by over 600 basis points relative to the fourth quarter of 2017. That represents more than 75% of our overall improvement in the Nielsen-measured channels
We’re also driving better merchandising performance this year
Our display support, which is the most effective merchandise vehicle was up double digits in the quarter
And when you have good brand-building support and strong innovation, your merchandising works even harder for you
It’s important to note that we’re maintaining discipline in our pricing in the market
Average unit prices for our overall U.S
portfolio were up 5% in the first-half
However, three quarters of that increase was due to significant mix impacts from our year-over-year business
Excluding year-over-year, average unit prices for the rest of our portfolio were up 2% in the first quarter and about a 0.5% in the second quarter
The quarterly change was driven in part by moving end of the zone or [ph] dough businesses, where our seasonal pricing is lower than last year, but still higher than two years ago, as we had planned
As we look ahead to the second-half of fiscal 2018, remember that our Nielsen pricing metrics will compare against periods last year, when our aggregate U.S
pricing was up 5% or more
We’re also driving strong results in growing channels, including exceptional performance in e-commerce
e-commerce business grew 82% in the first-half of the year and we still enjoy higher market shares in online full basket purchases compared to shares in bricks and mortar channels
We’re excited about the opportunity that e-commerce provides and we will continue to develop our insights and capabilities to keep our business in advantage position and it’s important in emerging channel
With that as a backdrop, I thought I’d briefly check in on the segment priorities I shared at our Investor Day in July and give you a preview of the product news innovation that will drive results in the back-half of 2018. Our top priority, North America retailers are driving improved performance in U.S
I’m happy to report that we’re achieving that goal through six months
We’ve seen a strong turnaround performance in measured channels this year, with retail sales growth in the second quarter, and we’ve gained 70 basis points in market share through the first-half
Four of our largest taste-oriented cereals, which make up over third of our portfolio driving a performance this year
Year-to-date retail sales are Lucky Charms and Cocoa Puffs reached up 14%, while Cinnamon Toast Crunch and Reese’s Puffs are up 8%, the corn puff and kid cereals, because roughly half of the consumption on these brands is by adults
Compelling consumer news has been a theme across these brands, whether that’s new marshmallow news each quarter on Lucky Charms or cinnamon news on Cinnamon Toast Crunch, which has driven 43 consecutive months of market share gains for the brands
We’re planning to extend our cereal momentum in the second-half behind some exciting innovation and platform marketing executions
Chocolate Peanut Butter Cheerios, which launched in October is off to a great start and is turning at the top of the category
We’ll continue to fuel this new product in the second-half with strong in third quarter
In January, we launched two new blasted shred cereals in Peanut Butter Chocolate and Cinnamon Toast Crunch flavors and an opportunity to invigorate $400 million shredded wheat segment by delivering on to tidy and taste
What happened in the fast-growing nut butter channel with new almond butter and peanut butter varieties of our Nature Valley Granola Cereals
We’re supporting these launches, as well as the rest of the portfolio with remarkable marketing and merchandising
I’m probably most excited about our cheerios and merchandising initiatives at the Ellen DeGeneres show that begins in January
We’re running an on packed sweepstakes, where consumers share an active good that demonstrated for a chance to win two prizes
One for themselves and one to share with another person as an active good
The sweepstakes will be announced on the show next month
Now let’s shift gears to our second priority, which is reshaping our U.S
yogurt portfolio by innovating in faster-growing emerging segments of the category
In 2018, the yogurt innovation has been tremendously successful thus far, led by Oui by Yoplait, which already makes up almost 10% of our U.S
yogurt portfolio
Oui’s glass jar and unique positioning really standout on shelf, which has helped drive strong consumer trial and we’re seeing an acceleration in repeat purchases
Retailers love wheat, because it is driving more sales with current consumers and attracting new yogurt buyers
Through the first four months in shelf, we used the largest launch in the category over the past five years
And Yoplait Mix-Ins targets towards traditional yogurt levers looking for great tasting snack options is the second largest launch in the category this year
While innovation is critical to our U.S
yogurt strategy, it’s also critical that we stabilize our two large core platforms in kid yogurts and Original Style Yoplait
This year, we adjusted our biggest consumer paying atGoGurt franchise by making the tubes easier to open
Consumer investment communicating this change is driving improvement on the GoGurt business, with retail sales nearly flat in the second quarter
We’re also investing in advertising for Original Style Yoplait, featuring our Mom On Campaign, where we celebrate hard working moms and show how Yoplait fits into our busy life, and we’ve seen sales trends improved here as well over the last few quarters
We have plenty of news to drive further improvement on GoGurt in second-half, and we were launching four additional flavors in January; Raspberry, Key Lime, Mango and Black Berry
We’re also launching a new line of Annie’s powder sugars
We make this product using organic home milk and four flavors that combine fruits and vegetables with no added sugar
Fruit is the hero on the traditional yogurt segment, nearly 50% of shoppers like more
So we’re giving them what they want, adding more fruits to our Original Style Yoplait
We’re updating the package to communicate the change, and thus using the change on TV and digital advertising
We’ve also seen indulgence opportunity in the traditional yogurt segment and then we can bring more consumers to shelf for the decadent home milk and real food offering
Our new fruit sideline shows off its indulging ingredients with clear packaging and it’s price for the dollar to maintain broad appeal
We know there’s still a long way to go on the U.S
sugar, but we like the direction we’re heading
We think the combinations were first-half improvements and our back-half news will help us cut our declines to single digits by the end of the year
Our third priority in North America Retail this year is driving differential growth on Totino’s hot snacks, Old El Paso and snack bars
I would say, we’re generating good growth so far this year with low single-digit retail sales increases across each of these large platforms
On Totino’s hot snacks, we were forced to led consumer support plan for the back-half, target towards a millennial male consumer
We’re bringing to life for live free couch hard campaigns in time for football championship season by inviting consumers to show us how they couch hard
We’re supporting the campaign with football theme in store merchandising and we will continue to run advertising and digital in TV throughout the year
For Old El Paso in the second-half, we’re accelerating our in-store activations
We’re again partnering with Avocados from Mexico, which is one of our largest merchandising events of the year, and we’re bringing taco truck merchandising displays to key retailers
And we will continue to support the business with our Anything Goes in Old El Paso campaign
Growth on our snack bars business has really been a tale of two stories, with strong growth from Nature Valley and Lärabar, offsetting declines in Fiber One
Retail sales for Nature Valley are up up double-digit so far this year, helped by new advertising on our core and excellent performance in our new nut better biscuits and granola cup platforms
And Lärabar continues to deliver 30% retail sales growth behind strong distribution growth and investment behind its food made from food campaign, which will continue in the back-half of the year
The story on Fiber One is more challenging
We’re working hard to improve performance by refocusing our messaging on our core consumer and renovating our products and packaging which are the Fiber One’s core role permissible indulgence
And the retail sales were still down sharply in the first-half, driven by reduced distribution base sales per point of distribution of turn positive, which is a good indicator of future trends
We’re working to rebuild the innovation pipeline of Fiber One, including the launch of eight new items in January, featuring four flavors of Fiber One Bites and we’re supporting these launches with our all mine TV and digital advertising
We have some great new indulgent offerings on Nature Valley as well
Consumers are looking for indulgent treats made from real food
So we’re introducing layer bars to have a triple layer of nut butter, granola with nuts and chocolate, and we’re launching soft-baked filled squares that combine whole grain Oatmeal bars with creamy peanut butter filling
We’ll support these lunches with TV, social media, digital coupons and merchandising
With the winter in full swing here in Minneapolis, I thought I’d share a quick update on our performance so far in the key soup and baking seasons
We’re back in our game on – in soup this year
Retail sales growth were up 2%
We gained a half point to share in the category two months in the soup season, with strength across a core registered business, including new progress organic
Retail sales for Betty Crocker Dessert Mixes were up a 0.5% since October, and we gained over a plenty of share behind strong and season support and good performance from our core segments
And I’ll closer by refrigerated dough, our results have improved over last year’s key season, but we’re still not where we want to be
Our new media campaign Made at Home is driving better baseline sales and we have stronger merchandising plan this year
Retail sales declined 1% in the first two months of key season, but we’re seeing month-by-month improvement and we posted growth in November
Our final priority for this year is to expand our national organic portfolio and we’re seeing good results here too, particularly on three of our largest businesses Mac And Cheese, Cereal and fruit snacks
We generate year-to-date market share gains across each of these categories due to strong consumer engagement, distribution expansion and instruct support, and we’ll continue those efforts throughout the second-half to continue to drive growth in our national organic portfolio
I’ll close by summarizing my key messages for North America Retail today
We’re seeing broad-based high-quality improvement in our top line trends, including organic sales growth in the second quarter
Our profit performance is improving and we have clear initiatives that will deliver profit growth in the second-half
We’re making progress on our fiscal 2018 key priorities, and we have strong back-half plans in place to maintain our trajectory
For the full-year, we now expect organic sales to be down 1% to 2%, which is a 100 basis points better than our original guidance
We expect segment operating profit growth on a constant currency basis
With that, I want to thank you for your time this morning, and I hand it back over to <UNK>
Good morning, Chris
Yes, sure
Thanks, <UNK>
I’ll give you – try to answer as many of those questions I can as a lot rolled up there
Clearly, it’s a competitive environment right now as new players entered the U.S
as emerging channels like e-commerce come on to the scene
So definitely, it’s competitive both on the retailer side, as well as the manufacturer side
What I can tell you is, I feel really good about our ability to compete in this environment
Where we’re big in the U.S
, we’re one of the top food companies
We have scale across center store, refrigerated and frozen
And as we grow the categories of our retailers growth, so again, it’s important that we have good plans locked in with our retailers
In addition to that, we’ve got one of the best sales forces as ranked by Cantor in the industry
They’re doing a great job of really sitting down with the retailers and putting together joint business plans
And what we find with those joint business plans is trade-offs
And again, even across a retailer, we might give a bit one category to get something in return in another
But by applying our scale, and again, if we’re growing broadly, that’s really good for our retailers category
We’re finding a way to get to win-win solution
So, again, there’s a lot going on
And certainly, space optimization, that’s something that we’re seeing as well
What I’d tell you there is, we have some businesses that are going to win in that
So we have a broad snacking portfolio, which will likely win in that environment in addition to that natural organic’s core strength of ours as well with the third largest national organic player in the country, so that’s good
And in the categories that might contract
What we tend to see is that, the smaller manufacturers the third or fourth or fifth players tend to be the ones that lose
And when you look at our business in the U.S
, 80% of our brands are the number one or number two in their category
So it’s tough out there for sure
But at the same time, I actually feel like, we’re in a place now that we can be advantaged and really win in this marketplace
Thank you
Yes
Sure, <UNK>, this is Jon
What I can tell you is that, we really like the way that we’re competing in the cereal category right now
When you look at our performance through the first-half, our change in trend is pretty significant and nearly 70% of that change is from baseline sales
So, again, it’s really better innovation and better marketing that’s driving our results in the category, and that’s really been the recipe for success in the category over the long-term
So we’re very committed to, again, continue to build strong brands and then innovate more aggressively and we feel really good about the pipeline as we look forward
As you think about the category, it’s still a big category, important category is the fourth largest class across grocery
And we believe and it’s highly penetrated 90% of households consume cereal
So we really believe in the category
We think there’s growth ahead
There are some interesting timing of things
So again, if you think about the category grew nicely during the financial downturn
So between 2007 and 2012, the category grew
As the economy gradually got better and out of home eating increased, we saw the category tip the negative
So we’re starting to see that moderate in terms of the in-home versus out-of-home
We also know that, 30% of consumption of the category comes from boomers and older adults and that group of consumers are going to grow
So we absolutely believe in the category
We believe that strong marketing and good innovation can drive it
We’re committed to doing our part and we look forward to again driving our growth as we move to the back-half and into the future
You too
Sure, sure
So a couple of things
One, we really like the way we’re competing across categories
And again, as I mentioned in my prepared remarks, we’re seeing broad-based improvement across the majority of our categories and we like the way we’re competing across channels
It’s really is broad-based better as well
We feel like we’re winning in the majority of our channels, so that feels really good
As we think about share, again, the thing that gives us good confidence that we’re heading in the right direction here is the majority of our change and improvement in trend is really coming from baseline sales
So, again, across total U.S
retail, 75% of our improvement is via baseline sales
So it’s really not a case of merchandising driving the bulk of our improvement, so it’s better marketing
And as I mentioned in my remarks, we made a pretty major change last year shifting long relationships with advertising agencies moving to some new ones and we really like that trend that we see in market and we know that is driving our business and our baselines and our innovations are better, it’s up 50% year-over-year
And I can tell you that’s actually off the same number of items
So, again, it’s not turning much stuff out there, it’s actually better quality
So we’re really focused on competing
We’re focused on the fundamentals
And we believe that if we continue to do that, we can continue to see broad-based wins across our business
Again, we feel good generally across the majority of the channels
And again, without calling off specific customers, there’s this puts and takes
But the reality is, we’re growing share across all channels
And I think for us right now, that’s the focus to compete wherever we are
So I’m not going to – there’s not one that jumps out of me
Again, we feel really good about how we’re trending in all of them
I’ll give you a few thoughts on Wii
So, again, we’re really pleased with the results there
It’s about 1.5 share of the category already
We expect that to continue to increase
And for year one, again, we expect this to be in north of $100 million in sales
So, again, it’s off to a terrific start
We’re seeing really good repeat rates and consumers are telling us that they view us very, very unique
In terms of how we got there, I’m really proud of we
And again, let me just start by saying, we know there’s a lot more work to be done in yogurt
So we’re not taking any victory laps in that category, to be clear
But I like the way that, that seems really operating
They’re focused on playing our game and then looking for opportunities and segments that are going to be growing in the future and bringing fundamental innovation
And we did it in a really scrappy way, innovating quickly and closely with consumers is truly is consumer-first innovation
And by being in market and iterating over time, we’ve got to a product that we know really resonates with consumers really works hard
So the actual process that we used to create, we were actually moving across overall use in the U.S
, really around the world to make sure that we move more quickly and make sure that we’re connected as closely to the consumer as we can
And we believe that’s going to help our pipeline as we move forward and make our innovation even more impactful
Sure, Steve
The categories through key season is growing, so that’s good overall
And, again, for the rest of the strong share, which we like
Similar to some of the other businesses what we really like that 80% of our improvement in trend in soup is actually coming from baseline sales
So, again, it’s fundamentals, it’s good marketing
Now we’ve got a little bit of innovation with the progress of organics, it’s working for us as well
So, again, like many of the other categories, it’s about fundamentals and competing well
And if we do that, we think that we can be successful and drive the category
And again, through key season, we’re seeing the category grow and it appears to be healthy and we’re having good constructive conversations with the retailers around it
So we’d expect continued growth through the back-half of the year
