General Mills (GIS) Q1 2027 Earnings Call Transcript

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DATE

Sept. 23, 2026

CALL PARTICIPANTS

• Vice President, Investor Relations and Corporate Finance - Jeff Siemon
• Chairman and Chief Executive Officer - Jeffrey Harmening
• Chief Operating Officer - Dana McNabb
• Chief Financial Officer - Kofi Bruce

TAKEAWAYS

• Adjusted Diluted EPS -- $0.75, representing a 13% decline in constant currency compared to the prior year.
• Net Sales -- $4.4 billion, a 3% decrease driven by the divestiture of the U.S. yogurt business.
• Organic Net Sales -- Flat, as price and mix improvements were offset by a 1% decline in organic volume.
• North America Retail Operating Profit -- $479 million, down 15% in constant currency due to lower volume and higher input costs.
• North America Pet Net Sales -- $613 million, remaining flat as double-digit growth in cat food was offset by a high-single-digit decline in dog food.
• International Organic Net Sales -- 4% growth, driven by performance in distributor markets, China, and India.
• North America Foodservice Organic Net Sales -- 4% growth, led by gains in frozen meals and cereal.
• Adjusted Operating Profit -- $634 million, an 11% decline in constant currency reflecting higher input costs and lower volume.
• Full-Year Organic Net Sales Guidance -- -1.5% to 0.5%, reflecting a challenging consumer environment.
• Full-Year Adjusted Operating Profit Guidance -- -13% to -8% in constant currency, impacted by lapping a 53rd week and higher incentive compensation.
• Full-Year Adjusted Diluted EPS Guidance -- $3.00 to $3.20, including an 11-point headwind from divestitures and the prior year's extra week.
• Input Cost Inflation -- 4% in the first quarter, with management expecting an acceleration to 6% by the fourth quarter.
• Holistic Margin Management Savings -- $750 million target for the fiscal year to offset inflation and brand investment.
• Transformation Initiative -- $3 billion in total cost savings targeted by fiscal 2030, including $1 billion from structural transformation.
• Net Interest Expense -- $142 million, an increase from $133 million due to higher interest rates.
• E-commerce Sales -- 20% of human food sales and 30% of pet food sales, with e-commerce positions improving faster than physical retail.
• New Product Contribution -- 5% of net sales, an increase from 3% two years ago following a 50% increase in new product volume.
• Pet Segment Retail Inventory -- Low single-digit headwind expected for the full year as customer mix shifts toward lower-inventory retailers.
• Dog Food Category Trends -- Mid-single-digit decline, with management identifying specific challenges in the Wilderness brand.
• Leverage Ratio -- Approximately 4.1x net debt to EBITDA, with a target to return to 3x by fiscal 2030.
• Capital Investments -- $90 million, down from $110 million in the previous year's first quarter.
• Dividend Payments -- $330 million, matching the prior year's payout.
• Whitebridge Pet Brands Impact -- 1 percentage point contribution to North America Pet growth due to a calendar alignment catch-up.

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RISKS

• CFO Bruce stated, "I would expect Q1, Q2, Q3 to be roughly similar and Q4 to be just a touch outside the range at around 6% based on everything in front of us right now," regarding the anticipated acceleration of input cost inflation.
• McNabb noted that for the Wilderness dog food business, "we see that we really have to relook at the entire proposition of the product, the packaging, the marketing, the communication," acknowledging significant underperformance in the premium dry dog category.
• Bruce warned that the company expects "a low single-digit headwind from inventory over the course of the year" in the pet segment due to shifting customer mix.

SUMMARY

Management at General Mills, Inc. (NYSE:GIS) reported flat organic net sales for the first quarter of fiscal 2027, as the company works to offset a 3% decline in reported net sales resulting from the divestiture of its U.S. yogurt business. The company maintained its full-year guidance despite rising input costs, particularly in the wheat and agricultural complex, which are expected to reach the high end of previous estimates. Strategy remains focused on the Remarkable Experience Framework, prioritizing innovation in high-protein and fiber categories while implementing a $3 billion global transformation initiative to improve supply chain flexibility. Management indicated that while e-commerce and international markets are providing growth tailwinds, the domestic retail environment remains constrained by a stressed consumer base and persistent shifts in pet ownership dynamics.

• CEO Harmening noted that recent marketing initiatives have returned core brands to growth: "Lucky Charms is back to growth and Reese's Puffs is back to growth and Cinnamon Toast Crunch is back to growth."
• The company is utilizing a new external partner to accelerate packaging innovation, aiming to improve efficiency and speed to market for e-commerce specific formats.
• Agentic commerce is projected to represent 20% of food sales by 2030, and management is prioritizing product discoverability and data accuracy to adapt to AI-driven shopping tools.
• Strategic Revenue Management tools, including price pack architecture and premium innovation, are being leveraged as the primary defense against inflation that is expected to peak in the fourth quarter.
• Fertilizer costs are expected to impact the agricultural supply chain in late 2027, potentially leading farmers to swap grain acreage for lower-fertilizer crops like soybeans.

INDUSTRY GLOSSARY

• Agentic commerce: Shopping or transactions conducted through autonomous AI agents or digital assistants.
• HMM (Holistic Margin Management): An internal productivity program focused on finding and eliminating non-value-added costs across the supply chain.
• NAR (North America Retail): The company's largest reporting segment, encompassing retail sales in the United States and Canada.
• Nielsen: A global data and analytics company that provides market share and retail sales tracking for consumer goods.
• SRM (Strategic Revenue Management): A set of tools used to optimize pricing, trade spend, and product mix to drive profitable growth.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to General Mills Fiscal 2027 Q1 Earnings Call. [Operator Instructions] I will now hand the conference over to Jeff Siemon, Vice President, Investor Relations and Corporate Finance. Jeff, please go ahead.

Jeff Siemon: Thank you, Warren, and good morning to everyone. Thanks for joining us today for this live Q&A session on our first quarter fiscal '27 results. I hope you all had time to review our press release, listen to the prepared remarks and view our presentation materials, which we made available this morning on our Investor Relations website. Please note that in our Q&A session, we may make forward-looking statements that are based on management's current views and assumptions. So please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which we may discuss on today's call.

I'm here this morning with Jeffrey Harmening, our Chairman and CEO; Dana McNabb, our COO; and Kofi Bruce, our CFO. With that, we'll go ahead and open it up for Q&A. So Warren, could you please get us started?

Operator: [Operator Instructions] Your first question comes from the line of Andrew Lazar with Barclays.

Andrew Lazar: Nice to see some sequential improvement starting to show through. I guess I'd like to get a sense of the sort of pace of improvement in NAR specifically going forward. I know this quarter, you saw retail trends improve sequentially. In 2Q, I guess, would you expect further sequential improvement from the minus 2% retail consumption that we saw this quarter? Or should we expect more of a stabilization at this point? And again, I'm talking about retail takeaway, which excludes all the timing issue and whatnot.

Dana McNabb: Andrew, thanks for the question. Our focus is really on continuing to improve dollar share trends. I'm not going to get into quarterly Nielsen estimates, but we are pleased with the improvement. We saw a 2-point improvement in dollar sales. We did improve our share performance in the majority of our categories. But as you probably noticed, we're not all the way to growth yet. So we still have work to do. Where we're focused is really the first thing you'll see is we expect an improvement in price mix. If you recall, in Q1, we hadn't lapped our base price investments yet.

We will start to do that in Q2, and we like the plans we have against product mix, premium innovation and price pack architecture. We also will see accelerated innovation and renovation, and we really like how our marketing is performing right now. We'll continue to focus on that. So again, we still have work to do. We have the Totino's business that was a problem for us all last year. We've cut those declines in half. That's an area we'll continue to focus on, and we expect to see improved dollar performance throughout the year.

Andrew Lazar: Great. And then I guess, focusing in on the share piece. In NAR a year ago, it seemed like General Mills was showing sort of negative volume and share really across a pretty wide swath of categories. What does that look like today versus a year ago? And if it's a far smaller number of categories today where the issues are, what's the sort of the planned fix for those?

Dana McNabb: Well, as you mentioned, we were in a tough spot last year. And this year, we have seen pretty good improvement, and we're encouraged by the momentum. We saw improvement in the majority of our categories. And I'll give you a couple of examples. If I look at cereal, where last year in Q1, our share was down 0.9. This year in Q1, we're only down 0.1. Soup, another big business, we were down 0.4 in share. This year, we're only down 0.1. So we really do like what we're seeing, and we're not to growth yet. We know we still have more work to do, and that's going to be an emphasis on price mix and innovation and renovation.

The 2 spots that we're keeping our eye on where we need to see more improvement is Totino's, which I've already talked to. Pleased again that we cut those declines in half, but we have more work to do. And we have really good product innovation, blasted rolls. We have some better merchandising. We have strong innovation -- sorry, strong renovation coming. So we feel good about that. And then we have some challenges on fruit snacks. Now the category is growing remarkably fast. It's up about 13% in Q1. But we're really seeing some small insurgent brands enter and drive that with increased distribution. And so we need to up our game there.

We're going to really leverage our Annie's brand to bring some very strong new products to market. We've just launched Nature Pals, which is a high-fiber fruit snack, great taste with some great renovation coming on our core business. So Totino's and fruit is where we'll focus on, and then we expect to see continued improvement in the rest of our brands.

Operator: Your next question comes from the line of Peter Galbo with Bank of America.

Peter Galbo: Kofi, I was hoping you could shed a little bit more light on the inflation guidance, obviously, having moved kind of up towards the higher end of the 4% to 5% range. I think it might be helpful just to outline maybe where inflation came in, in Q1 and then just how you kind of see it pacing over the balance of the year and where that kind of exit rate on inflation might be as things currently stand today?

Kofi Bruce: Sure. Pete, thanks for the question. Just to give you some texture, we did see inflation roughly within the range, maybe a touch lower than we expected in Q1, but at the low end of our range, around 4%, which if I look forward and take into account sort of our hedge positions, I would expect Q1, Q2, Q3 to be roughly similar and Q4 to be just a touch outside the range at around 6% based on everything in front of us right now.

Peter Galbo: Got it. Okay. That's very helpful. And I wanted to dig in a little bit on pet. I know there were a couple of maybe timing elements that happened in the quarter, the extra month of Whitebridge. But maybe the other thing that stood out was just the inventory -- the retailer inventory headwind wasn't maybe as dramatic as you all would have anticipated in Q1. And I just wanted to pressure test a little bit on the go forward. How much of that low single-digit headwind is maybe conservatism in pet versus Q1 being a bit of an anomaly from a retailer headwind standpoint?

Kofi Bruce: Sure. Let me start with Whitebridge first. I think as is consistent with most of our past acquisitions of any size, we generally are on a 1-month lag until we hit systems integration, and then we do a catch-up that almost always -- that has always flown through organic sales. So that was expected at some point, 1 month. So -- and then the other point, I would tell you that it was worth about 1 point of growth on pet, maybe 15 basis points for the company. So not frankly, all of that -- all that large.

On inventory, what I would tell you is, this is -- we've been doing this long enough, and the challenge is just on pet, there is a lot of volatility quarter-to-quarter. I do think based on the customer mix progression that we still expect a low single-digit headwind from inventory over the course of the year, mainly as our mix skews more and more towards customers who carry lower inventory levels. I can't probably get too precise on a quarterly basis about how that's going to flow. So we would still stand by that forecast for the full year, however.

Operator: Your next question comes from the line of Robert Moskow with TD Cowen.

Robert Moskow: I was hoping to drill down on the high single-digit decline in dog food. Love Made Fresh, I believe, was entirely incremental in the quarter. So can you tell us how incremental it was because it wasn't in there a year ago? And what's driving the decline? Is it just Wilderness? Or is there other factors?

Dana McNabb: Rob, thanks for the question. You're right. When you look at our pet business right now, we're really pleased with the growth that we're seeing on our cat business. Our treats business has inflected to growth, and we've seen significant improvement in Love Made Fresh. But the area that we're having challenges in our dry dog business. From a dry dog perspective, the category was down about mid-single digits, as you said. Life Protection Formula pretty much hung in there with the category, and it was Wilderness where we saw declines accelerate.

And Wilderness is a place you will have heard on the prepared remarks where we've actually applied our Remarkable Experience Framework testing to that business to try and diagnose the challenges. And we see that we really have to relook at the entire proposition of the product, the packaging, the marketing, the communication. We have work to do. And we have the same challenge on our cat Tastefuls business a few years ago, and it took us about 18 to 24 months to improve it, and that business is back to growth now. So the main challenge we see is on Wilderness.

And on Life Protection Formula, we have some really good product news and renovation and new products coming in the back half that will really emphasize our ingredient superiority with benefits we know pet parents are looking for. And I really like the plans that are coming in the back half.

Robert Moskow: Okay. Just a quick follow-up. Wet dog food, a small part of your business, but how is that doing? I heard that there might be some shelf changes at specialty retailers in wet.

Dana McNabb: Wet dog food is doing as we expected. It is down about 4%, but that is not worse than we had planned. And I'm actually not familiar with the challenges that you're talking to. As far as I know, our plans are on track.

Operator: Your next question comes from the line of Leah Jordan with Goldman Sachs.

Leah Jordan: It sounds like the step-up in innovation and renovation you've done this year has been working. Just seeing if you could provide more detail on what's tracking better than expected? And what is that telling you about the consumer? And then on the acceleration, Dana, that you noted that's still to come, what should we be looking for? I think you called out cereal specifically for later this year, but any detail there as well?

Dana McNabb: So thanks for the question. From a new products perspective, we're really encouraged with what we're seeing. We've stepped up the amount of new products. We've increased by about 50% over the last 2 years. We've gone from 3% of net sales to 5% of net sales. And we really are focused on bringing new products with benefits. We know the consumer values and will pay for. So when you look at the new products that have launched in Q1, we've seen really strong performance behind our protein cereals, particularly Honey Nut Cheerios, our Blasted Totino's Rolls that are bringing new bold flavors are doing really well. Our La Tiara launch is also working really well in the Mexican category.

And of course, we've seen Love Made Fresh improve pretty significantly. So again, we're still 1 quarter in, but we're encouraged by the trial and repeat that we're seeing on those new products. And as we look more to the back half of the year, I already mentioned that Life Protection Formula has some great innovation coming with benefits. We know the consumer values. We are leaning into significant new products in our snacks categories. So our bars categories, we're going to lean into more protein innovation there on Nature Valley, on Larabar.

We're scaling up our GHOST bars business, and we're even launching a meat snack in our EPIC business, and we'll continue to bring really strong marketing behind all of that. So I really think we understand what the consumer values, and we are bringing them appropriately to the categories that we play in, and we'll continue to see improved momentum going forward.

Leah Jordan: And then for a follow-up to Kofi. Just seeing if you could talk about gross margin and maybe puts and takes as we go through the year, just putting the input cost inflation commentary you highlighted, which accelerated in the fourth quarter, as you think about that balancing versus the productivity efforts you have on the come and any flow that we should keep in mind as that mix piece ramps?

Kofi Bruce: Yes. So in aggregate, at sort of at the macro level, if you take our inflation guide and our guidance on HMM cost savings, those still roughly we expect to offset over the full year, set aside any of the phasing commentary I gave you. I think the other important thing to call out are the mechanical factors around 53rd week, which will obviously have an impact on gross margins as we move through the back half of the year, just solely on that comparison. If you strip that out, actually, we would expect our gross margins net to be roughly flat ex that mechanical factor.

And then at operating margin, we would just add the incentive comp reset as an additional mechanical factor on top of that. But all things equal, those are kind of the big puts and takes I'd be watching.

Operator: Your next question comes from the line of Chris Carey with Wells Fargo Securities.

Christopher Carey: Dana, you mentioned that pricing was -- you were constructive about pricing. I can't remember exactly how you framed it over the course of the year. Do you have a different expectation for pricing relative to where you started the year? I'm just conscious that foodservice pricing came in better, pet pricing came in better, although I assume mix was partly a factor there. So I'm just wondering if your pricing plans are similar, namely in the context of the current inflation backdrop? And then I have a follow-up.

Dana McNabb: Chris, thanks for the question. Well, as you know, we did a lot of work last year to adjust our everyday prices, and that was really important to stabilize our base volume and to help us get back to household penetration growth. And so with that investment behind us as we move to fiscal '27, we're really focused on driving positive price mix. And that's with particularly strong contributions from product mix, from premium innovation, from price pack architecture, and we're seeing that work on things like Cheerios Protein, Love Made Fresh, Chex Mix tubs, et cetera. So that is where we're focused.

As Kofi did mention in his prepared remarks, though, we expect input cost inflation in the higher end of what we previously communicated in the 4% to 5%. And as we always do, we're going to work on all levers to address higher costs, whether that's through cost savings or through price mix. So HMM is always our first defense against inflation, and then we have some transformation, but we have a very strong strategic revenue management toolkit as well. And given this level of inflation, I would assume all levers in that toolkit are on the table, trade, mix, list pricing, et cetera.

Christopher Carey: Okay. Okay. The follow-up is the inflation outlook, Kofi, I think you had mentioned inflation would be somewhat similar in fiscal Q1, 2 and 3 and then step up in fiscal Q4. Clearly, you have just nice hedging and good visibility over the course of the first few quarters of the year and then that step up. I mean this is way too early, but it's going to be such a strong year for HMM this year. Can you get ahead of delivering this level of performance as we think more medium term if this inflation is sticky going into out years?

And just now that you've reset some price points and value in your portfolio, how do you view -- it's a little bit of a carrying through what Dana just said, but how would you view pricing as a lever if you need that over the next few years as you think about medium-term objectives after the work that you've done over the past 18 months?

Kofi Bruce: Yes. So look, obviously, I'm not going to get into guidance for next fiscal year, given we're still in the first quarter of this one. I would tell you, our construct over the long term is still built around HMM being the primary goal work against inflationary pressures. If I just take the last 3 to 4 years, we have running HMM at the high end of the 4% to 5% range. I have every confidence that, that is the range that we would expect to carry with us as we go forward from here.

Obviously, anything related to SRM and the combination of price and mix, we would expect to be in the mix of how we manage through the year and, frankly, how we drive growth at the top line. What I can't do is give you a sense of what '28 is going to look like from an SRM perspective other than to just acknowledge what Dana said, which is, we will use all of the tools in our toolkit. And the environment remains, frankly, a little volatile with respect to costs. So it's probably a little early for us to get too deep into the discussion.

Operator: Your next question comes from the line of Alexia Howard with Bernstein.

Alexia Howard: Can I just start with the marketing spend question? You said that the marketing spend was up significantly this quarter. How much is it up year-on-year? How do you expect that to play out over the course of the year? Is it going to stay similarly up for the remaining quarters?

Dana McNabb: Alexia, thanks for the question. From a media standpoint, in Q1, we were up modestly in Q1, not significantly. And we are expecting our media spend to be up low single digits throughout the year. But what I'm most excited about when it comes to media is just how we're modernizing our approach to marketing and communications. We have stood up a content studio that's allowing us to make more content faster and at higher quality. We have stepped up our use of influencers to maximize reach and engagement, almost double that, and that will get even more used over the course of the year.

We've brought on new creative agencies, and then we're also stepping up our readiness for Agentic and really accelerating in e-commerce. So while media spend is up modestly, I think what is -- what I'm more encouraged by is just the work that we've done in order to show up to consumers in a more relevant way in culture.

Alexia Howard: Perfect. Very helpful. And then as a follow-up, this is probably for Kofi. Where are we at with leverage at the moment? I know that your goal is to bring it down to 3x net debt to EBITDA. But will it tick up just because the EBITDA is obviously down year-on-year? And how quickly do we expect that to come down towards that goal level?

Kofi Bruce: Yes. I appreciate the question, Alexia. I would expect it will take us on pace with the combination of all the work we're doing on HMM and transformation savings, at least a couple of years to work ourselves back to our target of 3x net debt to EBITDA, setting aside any impact from extraordinary items like, for example, divestitures, which we have in the course of the past couple of years, used to help reduce leverage. So all things equal, we expect to make sequential progress over the next couple of years. I can't give you an exact end date, but just know that in the back of our transformation goals through 2030 is our planned reduction back to target.

Alexia Howard: And where are you at the moment? Is it a little over 4?

Kofi Bruce: Yes. Yes, just to touch.

Operator: Your next question comes from the line of Scott Marks with Jefferies.

Scott Marks: I wanted to ask first a little bit about the transformation initiatives. I think in the prepared remarks, you called out working with a partner to stand up a new packaging facility to help with some flexibility there. Wondering if you can just give us a little more detail around that as well as share any other plans that you're currently working through and how we should be thinking about the benefits flowing through over the next few years?

Dana McNabb: Thanks for the question. I think first, just stepping back, you'll remember in the prepared remarks that we committed to delivering $750 million of cost savings in this fiscal year and $3 billion in total by fiscal '30. And how that breaks out is $2 billion of HMM and $1 billion of transformation. And the way we're thinking about transformation is not just about cutting costs. It's about how do we get our organization to a place that's fit for future growth. Part of that will be reimagining our supply chain, and that's looking at capacity utilization, our manufacturing network, logistics.

And part of it is the example that you just called out in terms of what do we need to stand up in order to get at growth faster. And so our way of doing packaging innovation today is quite inefficient. We have just recently signed on a partner, an external partner in order to help us get more packaging innovation more efficiently and effectively and at better pace, and that will allow us to accelerate our growth in e-commerce, where we know the majority of the food growth is going. So we're still very early days. I don't have a lot more detail to share with that, but I really like the approach the team is taking.

Scott Marks: Appreciate the thoughts there. Next, I just wanted to ask a little bit about some of the price pack architecture initiatives, specifically in the prepared remarks, you called out innovating cereal around lower entry price points as well as larger tubs and larger formats. Are there any other areas of the business where you've been that active with making those changes? And have you seen similar results as you have with the cereal portfolio in NAR?

Dana McNabb: Well, first, thanks for calling out the progress that you've seen in cereal. We're encouraged by the 2-point improvement we saw in Q1. And the team has done a very good job with packaging innovation. We have the cups that allow us to have an opening price point for consumers. We have large sizes. We have bags. We are launching granola in tubs and all of this innovation just allows us to deliver unique benefits that the consumer is willing to pay for. And I would say we've taken that approach across every business. As part of our strategic revenue management plans, what we do is we have to have a minimum 3-year pipeline of ideas with price pack architecture.

And so you will see that come in our salty snacks business where we put our snacks in tubs, and that was highly incremental. You will see it come in our Pillsbury business where we know single-family households that don't have a lot of kids are looking for portion sizes to be better, and we've launched unique innovation there. Old El Paso dinner for 2, great innovation there. And so really, I would say the team has applied this strategic principle across every category. It starts first with understanding what the consumer will value and then figuring out how to launch it in a way that maximizes total consumer benefit.

Operator: Your next question comes from the line of Michael Lavery with Piper Sandler.

Michael Lavery: Just wanted to come back to some of the cost side and drill into wheat specifically, obviously, we get your color on how it all rolls up into all the commodities. But how much are higher wheat costs impacting you? How covered are you in terms of maybe how to think about if costs keep going up, when that might become a pain point? And how conservative in your assumptions maybe? And I know in foodservice, there's pass-through pricing for the flour, so maybe how much of a lift from wheat index pricing is there as well?

Kofi Bruce: Yes. I appreciate the question. Wheat is a touch higher than our inflation expectations for the year, obviously, as part of the basket of things along with freight and fuel and fats and oils and maybe packaging, where we're seeing that incremental pressure that puts us to the higher end of the range. I would say broadly on our foodservice business, this is a dollar margin neutral exercise where the wheat or the flour that we sell in the market effectively is index priced and changes on a pretty regular basis, roughly weekly to market and was passed through straight just based on the commodity price. So that does have an inflationary impact.

It's been about low single-digit headwind in the past year. We'd expect that to be flipped to a tailwind this year in a roughly similar range of low single digits. So that is probably still roughly unchanged, a touch higher, but we were expecting that coming into the year. I would expect, obviously, as we work our way through the year, we are mostly hedged on wheat, just similar to the rest of the commodity complex. We're about 3/4 hedged through the year and have visibility that far out. And obviously, beyond that, then the spot and future prices become a little bit more inflationary in the back end of our year.

Michael Lavery: Okay. That's helpful. Just one on the consumer and just how to think about maybe an AI piece of it. There's things like Instacart's AI sort of shopping list creator and Kroger is doing similar things now. It's all quite new. But in terms of just how consumers are making decisions and maybe not even getting to the physical shelf where point-of-sale activation is always important. How do you just think about making sure you don't miss opportunities there or you're kind of on the right side of getting picked by some of these AI-generated shopping lists, for example?

Dana McNabb: Well, thanks for the question. It is an important one. I think first, let's start with e-commerce and omnichannel. We know that whether it's human food or pet food, e-commerce is driving the majority of the growth. We see that over 20% of sales in human food and at 30% in pet food, and we expect that to accelerate. And we've really been focused on making sure that we have stood up the organization with the capabilities necessary to win there. And so far in Q1, we saw our e-commerce positions and our improve even faster than bricks-and-mortar. As it relates to Agentic, we are really working hard to stay ahead on that.

We know just in this last month alone that 40% of consumers use an AI tool to make a purchase in food. And right now, I mean, who knows, but our early estimates are that Agentic commerce will be about 20% of food sales by 2030. And so it's really about making sure that we are staying ahead on the basics. And that's about making sure that our products are discoverable. It's making sure that the information is accurate and that they're easy to buy. And if we focus on those 3 areas first, we will stay ahead. But again, it is still very early in the Agentic space, and we have lots to learn.

Operator: Your next question comes from the line of Nick Modi with RBC Capital Markets.

Nik Modi: Kofi, maybe I could just do a quick clarification on just the inflation basket. When you think about the ag complex, just given all that's going on with fertilizer costs and this Super El Nino, I just would love your thoughts on kind of how we should be thinking about that or how you're thinking about that over the next kind of 12 to 18 months. I know you're not going to get into full year guidance, but just wanted to get your thoughts on how you see the implications. And then I just have a bigger picture question on pet.

Kofi Bruce: Yes. it's a fair ask. Without getting too specific, what I would tell you is fertilizer costs, given where we are in the planting cycle, more likely to be a headwind and affect crop planting decisions as you go into late spring next year, next calendar year. So that would be the place where as farmers are making trade-off decisions about their input costs, they might switch to lower fertilizer-reliant crops such as soybeans and swap out of grains, which obviously, that affects the supply of some of the grain complex, which are more fertilizer reliant.

So I would expect that's how it plays out and that you'd start to see that pressure show up maybe with more clarity as we work our way through and into the calendar year next year.

Nik Modi: Great. Super helpful. And then, Jeff, Dana, maybe on just pet. There's obviously some macro dynamics going on, people feeling some pressure, vet appointments are down year-over-year. But there's also, I think, some structural dynamics that I'd love to get your thoughts on, which is you have where a lot of the margin is at big dogs, obviously, many of them are passing away, right? And the older consumers that own them are not replacing them and the younger consumer is taking on smaller pets like cats and smaller dogs.

So just curious on your thoughts about that just general viewpoint and how you can like manage the business over time to kind of protect margins and capitalize on growth in the smaller segment.

Jeffrey Harmening: Yes, Nik, this is Jeff. Let me take that one. I think let me start off by saying that the biggest trend in pet food is the same one that it has been for the last couple of decades, which is humanization, which is why we're really thrilled with the development of Love Made Fresh and how that's worked, why we bought Tiki Cat, and that's grown double digits since we bought it. And again, it's growing strongly this year. We just gained distribution on that one. So that's really taking off. And we even have our treat business back to growth, and we've got a good fall lineup of innovation on that.

And so I think the biggest trend as we think about what's going to drive our business forward is this humanization trend. And Dana mentioned briefly some innovation we have on coming on Life Protection Formula in the second half, and that will hit on that trend as well. So we feel great about that. As you say, in the short term, there's a shift in dynamics in that there are fewer dogs being purchased than there were before. And there are smaller dogs rather than larger dogs. And we actually -- Blue Buffalo actually over-indexes to smaller dogs. And so -- we'll see how that plays out, but there are more cats.

And certainly, people return back to the office and the economics of cat works out. And we have a strong cat business. As I mentioned Tiki Cat. Dana had referenced Tastefuls earlier that onetime was a headwind for us, but we've kind of redone all the pieces of the Remarkability Framework and got that going again. And so as we think about our pet business, we're encouraged by the start to the year. There is work to do, certainly on Wilderness, so we don't deny that.

But we feel as if we've got good offerings, and we see some momentum in places where pet humanization is taking place and where we like our innovation for the second half of the year.

Jeff Siemon: I think we have time for one more, Warren.

Operator: Your next question comes from the line of Matt (sic) [ Max ] Gumport with BNP Paribas.

Max Andrew Gumport: Last year, during the back half of the fiscal year, you observed consumers waiting to buy on promo, which brought along a higher cost to compete. I'm just curious for what the latest is on that front and to what degree that could present an easy comparison to the second half of this fiscal year if you've seen some relief there.

Dana McNabb: Yes. Thanks for the question. I think this all stems from the fact that we still see the consumer being very stressed, especially the middle and lower-income consumer. And how that translates into behaviors is, yes, they are still waiting to buy products on sale rather than waiting to buy them on everyday shelf price. We haven't seen that accelerate. We'd say it's pretty similar to what we saw in the back half of last fiscal. And so when we set our guidance for this year, we assumed that, that would continue throughout the fiscal year.

Max Andrew Gumport: Okay. Great. And then just a follow-up on pricing. So clearly, last year was all about reducing base prices to get them in a better place. You signaled this year that you'll leave your list prices largely untouched. Obviously, you will leverage to some degree innovation, renovation, price pack architecture and other strategic revenue initiatives to get some positive mix of the business. But plenty of your peers are discussing list price increases that we might see as soon as next month. To what degree are you factoring in potential market share gains that could come as the consumer shifts from businesses where there has been pricing taken to businesses like yours where there are stable list prices?

Dana McNabb: Well, as you mentioned, we really focused on improving our base prices last year to bring more value to consumers, and we saw it worked. Our base stabilized, our penetration grew. But as you rightly pointed out, the environment is more inflationary. And so we operate in 25 categories, and each one requires a specific set of actions. So what we do is we use the Remarkability Framework. We'll assess the price value relative to the competition, and we'll continue to adapt as the environment adapts. And that's where as I talked to our strategic revenue management toolkit is really important because we will lean in mix.

That's the primary lever we want to use, but also, we'll continue to evaluate both trade and list pricing going forward.

Jeffrey Harmening: And I would say just to add on to what Dana said, as we think about the momentum for the rest of the year, as she talked about our continuing momentum, the thing I'm most excited about really is that having got our prices in line is the rest of the elements of the Remarkability Framework, particularly our innovation, renovation on our core. I mean, our Pillsbury business, 70% of it being renovated. We've got really good innovation in the second quarter. We talked about Life Protection Formula and the good innovation we have coming on that as well as distribution increases on Tiki Cat. The marketing on Big G has been phenomenal.

I mean, Lucky Charms is back to growth and Reese's Puffs is back to growth and Cinnamon Toast Crunch is back to growth. And that has nothing to do with anything to do with pricing. It has to do with really good marketing and really good product news. And so as I look at the rest of the year, while I'm encouraged by the first quarter, I'm also encouraged by what we're doing on the rest of the elements of the remarkability framework that don't tie back to value. And whether it's more proteins, you talked about, whether there's bold flavors, where it's more fun on certain categories.

So that's what got me excited about our ability to compete increasingly effectively as the year goes on.

Jeff Siemon: All right. I think that's a good place to end it. Thanks, Max. And Warren, I think we can wrap it up here.

Operator: Thank you. We have reached the end of the question-and-answer session. I will now turn the call back to Jeff Siemon for closing remarks.

Jeff Siemon: All right. Warren, thank you. I appreciate everybody's good interest and discussion this morning. The IR team is available throughout the day for anyone that has follow-ups. We look forward to continuing to show good traction as we go through the rest of the year. Have a great day, everyone.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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