General Mills Q2 2024 Earnings Call Transcript

Participants

Corporate Executives

• Jeff Siemon, Vice President, Investor Relations
• Kofi Bruce, Chief Financial Officer
• Jeffrey Harmening, Chairman and Chief Executive Officer

Analysts

• David Palmer, Evercore ISI
• Andrew Lazar, Barclays PLC
• Kenneth Goldman, J.P. Morgan
• Nik Modi, RBC Capital Markets
• Pamela Kaufman, Morgan Stanley
• Matthew Smith, Stifel Nicolaus
• Michael Lavery, Piper Sandler Companies
• Christopher Carey, Wells Fargo Securities

Presentation

[Operator]

Greetings, and welcome to the General Mills Second Quarter F '24 Earnings Call. [Operator Instructions] Afterwards, we will conduct a question-and-answer session. [Operator Instructions]

I would now like to turn the conference over to Jeff Siemon, Vice President for Investor Relations and Treasurer. Please go ahead.

[Jeff Siemon, Vice President, Investor Relations at General Mills]

Thank you, Dina, and good morning to everyone. Thank you for joining us this morning for our Q&A session on our second quarter of fiscal 2024 results. I hope everyone had time to review our press release, listen to the prepared remarks, and view our presentation materials, which were made available this morning on our Investor Relations website.

Please note that in our Q&A session this morning, we may make forward-looking statements that are based on our current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call.

I'm here with Jeff Harmening, our Chairman and CEO, and Kofi Bruce, our CFO. So let's go ahead and get to the first question. Dina, can you please get us started?

Questions and Answers

[Operator]

Of course. [Operator Instructions] Our first question is coming from the line of David Palmer with Evercore ISI. Please go ahead.

[David Palmer, Analyst at Evercore ISI]

Thank you. A question on North America Retail margins. They've been impressive in spite of the volume declines we've been seeing. Do you think that the segment margin can hold near these levels, given what's going on with volume trends? And I guess, what are -- a couple of factors I'm thinking about is some of your high-margin categories like dough might be a negative mix effect, but then again, you're talking about accelerating productivity gains. And so curious about the margins for that segment.

[Kofi Bruce, Chief Financial Officer at General Mills]

Yeah, David, thanks for the question. Just to rewind a bit. We've seen the margin improvement, to your point, largely on the backs of a really strong HMM delivery. So one of the features of this environment has been sort of the stabilization of the supply chain environment, which has allowed us to step-up HMM more acutely on this business than our other segments. And also, to get at some of those disruption-related costs. We've made really strong margin progression gains on this business on the backs of those two things. I expect that to abate a bit here as we move forward, just as a result of having already gotten a good chunk of those disruption-related cost. So on balance, I see this business poised for more stability in aggregate.

[David Palmer, Analyst at Evercore ISI]

And then with regard to the Pet business, maybe is there a comment you want to make there about what the biggest fix will be from here? Wilderness, for example, has been relatively weak. But what do you think the best earliest fixes will be for that business and what are some of the long-term things you're looking to do to improve the trajectory? Thanks.

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

Yeah, thanks, David. This is Jeff. I would say that, in the presentation, we shared four things we're working on. And a couple of the things we know that we can improve upon to improve the profile of the business, and two of them where we feel good about, and that's important because it shows the BLUE brand is still strong. And so as we look at Life Protection Formula, we've changed our advertising on that and the business has responded nicely and we've seen steady improvements there.

We have changed the merchandising on our treats business. And while it's not all the way to bright, we've seen significant improvement throughout the second quarter on that business. And yet the results are still not what we want to be. And so that leads to what needed to come next. And I think there are really a couple of businesses that we need to improve. One is our wet business and our wet pet food. And so you'll see us introduce some value and variety packs in the back half of the year starting in January. And that we'd like to see improvements in that.

And then the biggest fixes, which will take a little bit longer and they're kind of interlinked, but they're not the same. One is Wilderness. And we really need to reposition the wilderness brand and do some work on that. And that'll take a little while to get back to full health. The other is that, we haven't -- the pet specialty channel in itself has not done particularly well. We over-indexed in that channel. And there are some things we can probably do to perform better in that channel, even while we keep investing to grow our food, drug and mass channel, which we're quite pleased with the results and online with the results.

The other thing, I guess, I would add is, we did have, as we look at the back half of the year, the reason we're not saying recovery or stabilization is that, in the back half, we had shipments ahead of sales last year. And so we're lapping that, and that's particularly true in the third quarter. And so even to the extent we see some stabilization in the sales trends in Pet, the reported net sales are going to lag that because of some inventory build in the back half of the year. So those are the things that we need to do. Some of them are underway and we like what we see so far. And there are a couple more that we really need to work on. It'll take a little bit longer.

[David Palmer, Analyst at Evercore ISI]

Thank you.

[Operator]

Our next question is coming from the line of Andrew Lazar with Barclays. Please go ahead.

[Andrew Lazar, Analyst at Barclays]

Great. Thanks so much. Good morning, everybody.

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

Good morning.

[Kofi Bruce, Chief Financial Officer at General Mills]

Good morning.

[Andrew Lazar, Analyst at Barclays]

Jeff, I wanted to maybe chat a bit about, I realize as you've talked about in the prepared marks, the Company has some EPS flexibility despite the weaker sales in the form of lower sort of compensation expense versus last year, the HMM that's been stepped-up, some more share purchase versus your sort of initial expectations. So I guess my question is, is '24 a year where maybe the Company perhaps should lean in even more and maybe be a little less concerned about sort of a specific EPS range, if you will, in order to set it up, set the Company up for more sustainable sort of growth in '25 and beyond? That's a question I'm sort of getting a lot this morning. So I just wanted to get your thoughts on that if I could.

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

Yeah, Andrew, I'm glad you asked and I appreciate the fact you're getting a lot, I think it's a really important question, because our job is to maximize long-term shareholder return, not any particular quarter, frankly, even any particular year. And so one of the things that we -- as we look back over time, when the consumer is stressed and the results are harder to come by, one of the things we've seen successful companies, like ours, do is reinvest for the future. And that comes in the form of consumer investment, but also investment in capabilities, things like strategic revenue management and performance marketing and automating supply chains and things like that.

And so incumbent and included in our results is an increase in consumer spending, even though we've guided down on our sales for the year, we'll still invest in consumer spending. And we're still investing all the capabilities that we know will drive our growth, not only for this year, but in years to come. And then that's with regard to growing revenues, but also maintaining our discipline on HMM and automation and using AI in our supply chains are going to be important parts of that as well. So one of the things that I want to make sure you can tell your investors is that, while our profit guidance is still 4% to 5% growth on EPS, that's inclusive of making sure we maintain our reinvestment in the business. And we're able to do that because our HMM levels are very high right now, we're taking out -- so cut the cost from our supply chain. And as you mentioned, our admin costs are declining.

[Andrew Lazar, Analyst at Barclays]

Great. Thanks for that. And then just on a bit more on the faster competitor normalization of shelf availability comments that you made in the prepared remarks. Is it an issue in a specific category, or is it more broad-based? And is it General Mills actually losing shelf space, or really just others now having better availability in the slots that they have? And what have you seen that mean for promotional intensity or not? Thanks so much.

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

All right, Andrew, I'm going to try to address all those questions. And if I miss one, come back because I didn't mean to skip.

[Andrew Lazar, Analyst at Barclays]

We'll do.

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

Yeah.

[Andrew Lazar, Analyst at Barclays]

We'll do.

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

Yeah, on the on-shelf availability, when we put our guidance together for this year, I mean, we grew at 10% last year and original guidance was 3% to 4% this year. And so we knew that on-shelf availability would be a headwind for us because, frankly, our supply chain held up a lot better than our competition did a year ago. And so we calculate, we factored that into our guidance for this year. But the fact of the matter is on-shelf availability for our competition increased a lot faster, particularly private label on small players, faster than we had anticipated. Importantly, they're now catching up to our on-shelf availability. And so we've actually improved our on-shelf availability this year. So it's not as if we have gone backward. Our on-shelf availability is higher now. And you can see that out because we've reduced our disruption costs. It's just that our competitors have increased quite a bit now have kind of drawn even with us after trailing for like four years. So that's the first part of the question. We anticipated it, but not the rate of change.

In terms of the -- and we'll lap, we'll start lapping that really in kind of late April and May of this year. So that's when we started to see this impact. In terms of distribution, one of the things -- our teams across the board, certainly in North America Retail are really executing well. Our share of distribution is actually up. And so there's not a problem with our distribution. In fact, the opposite, our distribution looks good. And I will say that I'm really excited about our innovation in the back of this year, which I'm hoping we'll bolster that further.

We've got good innovation in cereal, we've got good innovation in yogurt, and soup, and Old El Paso and Haagen-Dazs. And so as I look across our big billion dollar businesses, our innovation lineup is really good and frankly better than it was last year. And so as we look to the next half of the year, I think we can see our distribution continuing to build. As to what it means to promotional -- the promotional environment, it's been a very rational promotional environment against some thoughts to the contrary. We have seen the number of promotions pick up this year, as we expected, because of on-shelf availability. Importantly, we've also seen the quality of the merchandising, specifically the quality of merchandising that we get, has also accelerated. And because the quality of merchandising has improved for us, we've seen the list we received, but also the ROIs we received have been better than they were a year ago.

But importantly, and this is a really important point, even though the level of merchandising has increased in frequency, it has not increased in depth. And even the frequency is still below where it was before the pandemic and the depth of the promotion is well below. So yes, we're seeing increased levels of promotion. We expected that. And frankly, the returns are better because of the quality of merchandising that we're seeing.

[Andrew Lazar, Analyst at Barclays]

Great. Thank you so much, and have a great holiday.

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

Thank you, too.

[Operator]

Our next question is coming from the line of Ken Goldman with J.P. Morgan. Please go ahead.

[Kenneth Goldman, Analyst at J.P. Morgan]

Hi, thank you. Good morning. When you visited New York a couple of months ago, you mentioned that you're -- you may lean in a little bit harder to share repo. So I don't think today's announcement on that line item was a huge surprise. But I guess, I'm curious, you've also spoken about your ongoing desire to be flexible for potential strategic acquisitions. And I'm just wondering, is there any read-through from your willingness to purchase more shares than you initially expected into how you kind of see the ripeness of M&A opportunities, I guess, in today's market?

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

Yeah, Ken, this is Jeff. Let me start with that question, and Kofi, if you want to add any color commentary, that would probably be helpful, too. But know the fact that we repurchase more shares in the quarter than originally anticipated at the beginning of the year is not a reflection of a change and how we view capital allocation. We're investing quite a bit in the business, and then increasing our dividend. And then if we see M&A, we'll certainly do more M&A, and if not, we said we repurchase shares, which is what we're doing.

And importantly, our net debt to EBITDA levels are in a good place. And so to the extent that we see something that we think can create shareholder value in terms of portfolio reshaping, we're more than capable of doing that. So what you've seen is really a reflection of our executing against the capital allocation priorities we already stated.

[Kofi Bruce, Chief Financial Officer at General Mills]

And I think, Ken, the only other thing I'd add is, just to state one of the obvious sort of underlying points, we're getting additional leverage out of our repurchase activity. So dollars are going further because of the pressure, obviously, on the stock and as much as the stock has come down since the beginning of our fiscal year. So that's also amplifying the impact in terms of the diluted share count and the acceleration into the front half of the year. But I think I'd reiterate Jeff's point. We expect to have more than ample flexibility for M&A should we see the right project or set of projects. None of the things we're doing on share purchase, we would expect to take our leverage above three times net debt to EBITDA.

[Kenneth Goldman, Analyst at J.P. Morgan]

And then changing subjects, one of the more appealing elements of pet food as a category has been the high level of switching costs, especially in premium where there's less price sensitivity to. Just curious, though, given some of the challenges facing BLUE, is it fair to wonder if maybe the cost to switch isn't quite as high as we all thought and that premium isn't quite as protected? Or do you think maybe, hey, we're just in a unique time when the specialty channel is kind of lagging at the same exact time that the consumer is suddenly worse off?

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

Yeah, Ken, that's a fair question. I think there are two things at play here, and one of you pointed out, but I'll start in another area. As we look at the pet food business, the feeding business, and certainly that was a majority of the business we bought when we bought Blue Buffalo as feeding, is relatively inelastic. And when we see that with our dry pet food, both cat and dog food performance, but treating, and we bought into that when we bought the pet food business from Tyson a couple of years later, that is actually more elastic and is more of an impulse purchase. And that's why when you see the economy as it is, people trading down to less expensive treats if they're still treating and treating a little bit out of treats because they're trying to economize on that, but they stick with the feeding. And so the first part of the question -- the first part is that the feeding part is actually not more inelastic than we had thought. The -- but treating is more elastic.

The second piece is, it's a combination you say, I mean, I don't remember the last time we've seen 30% increase in costs over three years. And while it's relatively inelastic, it's not completely inelastic. And so the combination of the tremendous increase in input costs combined with the pet specialty channel where we over-index, that has had -- there's no question that those two things have had an impact on our business in the short-term. But importantly, as we look over the five years, we've owned the business, we've doubled the business, the BLUE brand is really strong. When we execute well against it, whether it's on Life Protection Formula advertising or holiday treats or things like that, we see that business really respond well. And it's very clear to us this humanization trend is going to continue and that BLUE is well-paced to capture that over the course of time.

[Operator]

Our next question is coming from the line of Nik Modi with RBC Capital Markets. Please go ahead.

[Nik Modi, Analyst at RBC Capital Markets]

Yeah, thanks. Good morning, everyone. On the promotional -- I wanted to follow-up on the promotional comment. One thing we're hearing from retailers is the lift doesn't seem to be as good as we've seen historically, Jeff. So I just -- I was hoping you can just comment on that. And is that something you're seeing in the marketplace? And does that kind of maybe send a signal that perhaps absolute price points have become too high? I'd just love your comments on that.

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

So when we talk about historical, it kind of depends, Nick, on what we mean by historical. I don't mean to be cute with this. But if we look relative to where we were a year ago, what we see is our lifts have actually improved vis-a-vis where they were a year ago. If we look to see where the lifts are versus where they were four years ago, they're not quite at the levels where they were four years ago. And I don't have a fact that I can point to as why exactly that is the case, but I would tell you that neither we nor consumers have seen inflation the way we've seen it over the last few years, and consumers are still getting used to new prices in the marketplace. And I suspect whether that's food or gas or rent or any number of things that that is absolutely the case. And it'll take a little while for consumers to settle into what new price points are, to the extent we continue to see inflation, which we do even if at more modest level. So Nick, I would say that relative to a year ago, we're pleased with the progress of our lifts, but relative to historic pre-pandemic, they're a little bit lower and I wouldn't surmise that it's the consumer catching up to a new reality.

[Nik Modi, Analyst at RBC Capital Markets]

Great. Thanks. I'll pass it on.

[Operator]

Our next question is coming from the line of Pamela Kaufman with Morgan Stanley. Please go ahead.

[Pamela Kaufman, Analyst at Morgan Stanley]

Hi, good morning.

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

Good morning.

[Kofi Bruce, Chief Financial Officer at General Mills]

Good morning.

[Pamela Kaufman, Analyst at Morgan Stanley]

I had a follow-up question on the guidance for this year. Just wanted to see if you could walk through the puts and takes of the updated outlook. So your org sales outlook implies about $800 million less in sales this year at the midpoint versus before. But you narrowed your EBIT growth guidance slightly compared to your prior expectations. So can you just walk through -- I know you have the higher HMM savings, but where else are you finding offsets in the P&L because HMM wouldn't seem to explain the full impact on -- the lower impact on EBIT changing.

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

So Pam, Kofi and I are going to tag team this. Let me talk about that -- let me talk about the revenue and then Kofi is going to take the rest of the P&L side. On the revenue side, the way I think about our guidance is that in order to hit the low-end of our guidance, let's call it minus 1%, that would indicate that we'd see a continuation of the top line performance we saw in Q2, and which would indicate a little bit better volume and a little bit less price/mix than we saw in the second quarter, but in absolute terms, about the same as we saw in the second quarter.

The higher-end of our guidance, which suggested the categories get a little bit better, which we think they certainly could due to lapping the SNAP or emergency reductions from a year ago, January through March, and from our lapping pricing activity from March and April of last year. So those two things combined with a little bit better share performance based on the out-of-stock situation changing near the end of the year, we could hit the top-end of the guidance we suggested. So that kind of brackets the top line.

And I'll let Kofi talk a little bit more about the profitability.

[Kofi Bruce, Chief Financial Officer at General Mills]

Sure, Pam, and thanks for the question. I would just note that the HMM adjustment is pretty significant. As a reminder, the past two years we've delivered below our historic levels of kind of 4%, at 3% for each of the prior two years due to the supply chain disrupted environment. We're now on pace to deliver 5% against an early expectation of 4%. That is the biggest single contributor, but we are seeing improvement in our inflation, but not significant enough to change the rounding. So that's a modest contributor as well.

But the other component in gross margin is the supply chain-related disruption costs. So as I mentioned earlier, one of the features of this environment is supply chain stability has allowed us to get at some of those embedded costs we took on to operate in this environment. And we've made sequential improvement over the last four quarters on this, and most acutely within our North America Retail business.

And then lastly, the adjustment of our incentive, well, for last year's peak level. So as you know, last year, a really strong year of performance, historically high levels of incentive-based comp, which is variable and based on the top and bottom line projections, as that's both normalized at the start of the year to a base expectation of plan targets, and now as we take the top line down, that's almost $100 million in reduction in admin expense. So as you take all of those, that gives us the confidence to keep within the range, albeit a little tighter as volume expectations come in from the top of the year.

[Pamela Kaufman, Analyst at Morgan Stanley]

Thanks. That's very helpful. And just a follow-up question on gross margins. They're now back to pre-pandemic levels. So how are you thinking about the potential for a gross margin expansion from here? On one hand, you have the benefit from HMM, but I'm assuming there'll be some volume deleverage. So how should we expect gross margins to progress? And do you kind of see them at the right levels here?

[Kofi Bruce, Chief Financial Officer at General Mills]

Yeah, well, okay, I think implied within our guidance would be a little bit less gross -- operating margin expansion bolstered, obviously, by gross margins in the back half as we see a step-down -- a sequential step-down in the contributions from price/mix as we lap last year's SRM actions fully by Q4 of this year. I'd just note, we've made significant progress at the gross margin level, bolstered in part, not just by HMM these past two quarters, but in part by the disruption costs that I mentioned earlier, 170 basis points to 120 basis points in the back half of last year and the first half of this year, respectively.

So I would expect we'd see more normalized levels of gross margin expansion going forward kind of off of this base. There's still a little bit more disruption-related costs to get out primarily in some of our other businesses outside of NAR. So that'll give us a little bit of tailwind. But to your point, given the volume environment, that's largely going to go to offset the impacts of deleverage.

[Pamela Kaufman, Analyst at Morgan Stanley]

Thank you.

[Operator]

And our next question is coming from the line of Matthew Smith with Stifel. Please go ahead.

[Matthew Smith, Analyst at Stifel Nicolaus]

Hi, good morning. Wanted to follow-up on the elevated level of HMM savings here in the year. You mentioned it's a step-up relative to the prior two years where it was a bit lower because of inflation and supply chain issues. But how much of the elevated rate here this year is a pull forward from savings that you would expect next year? Or I guess, that's another way of saying, just how sustainable is this elevated rate of HMM savings as you exit fiscal '24?

[Kofi Bruce, Chief Financial Officer at General Mills]

Well, I would expect that if the supply chain environment remains stable and continues to stabilize even a little further, we will have the ability to deliver at least in line with our historic levels of about 4% HMM, 4% of COGS. I would expect that the contributions from getting out some of those other disruption-related costs that sit in COGS to decrease a bit here as we've gathered a good chunk of them on the back of our NAR business, and as we see maybe a smaller base of costs in the other three segments. So all things equal, I think 4% would be a good long-term estimate for us to migrate back to, provided the supply chain environment continues to cooperate.

[Matthew Smith, Analyst at Stifel Nicolaus]

Thank you, Kofi. And Jeff, maybe a follow-up about your share performance as you begin to lap the rebuild of competitive distribution, which I believe you said that begins to move into the base as you exit fiscal '24. You're holding and gaining share in the majority of the distribution of your categories. So would you expect your dollar market share performance to improve as you lap that competitive rebuild or are there other concerns like consumer value-seeking behavior or list price gaps that may need to be addressed as the share of shelf normalizes?

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

Yeah, one of the things that I'm most pleased with is that, over the last five years, particularly in North America Retail, we've gained share in 60% of our categories, and we continue to execute well. And the key to our success, once we start to lap the on-shelf availability and once we lap the pricing activities from March and April, will be to the question that Andrew posed, which is making sure we maintain our brand-building support and really good brand-building, make sure we execute against what I think is really good innovation and continue to execute in store. And if we do those things, and I would expect us to do those things, then our share performance will certainly improve over time, and hopefully, as we're exiting this fiscal year beginning next fiscal year, we'll see that happen.

Interestingly, our dollar share performance has not been what we needed to be. In terms of pound share, we are growing pound share at about 40% of our categories. And then that's because even though our pricing trailed inflation, so we responded to inflationary pressures, we're actually more agile than our competitors. And so that provided us a dollar share benefit last year. And this year, it's a headwind, but we are growing pound share in roughly 40% of our categories.

[Matthew Smith, Analyst at Stifel Nicolaus]

Thanks, Jeff. I'll leave it there and pass it on.

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

Thanks.

[Operator]

Our next question is coming from the line of Michael Lavery with Piper Sandler. Please go ahead.

[Michael Lavery, Analyst at Piper Sandler Companies]

Thank you. Good morning.

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

Good morning.

[Michael Lavery, Analyst at Piper Sandler Companies]

I wanted to have a couple of follow-ups on the shelf availability. You said it's improving for competitors. Would you say that it's -- that there's still headwinds to come there or is that sort of all caught up to a normal level? And then on the promotional sort of dynamic related to that, you gave some color on how that environment looks. But just given your guidance update, it would seem like, strategically, you'd rather take a little bit of the volume hit and push promo much harder. I suppose, first, is that a fair characterization? And what would make you lean in more on the pricing side?

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

On the on-shelf availability, I mean, the competitors have kind of caught up to our levels, and that's been pretty stable for the past few months. And I wouldn't accept -- I wouldn't expect that to accelerate. So I think we've seen a stabilization in that. Now, we'll see that they're on-shelf availability kind of -- which is equal to ours, I'll remind you. So we're actually we're doing quite well. So it's equal to ours. We'll see -- they will see that benefit for the next three or four months until they start to lap it a year from now. And so while it has stabilized, we'll see some of our competitors see a benefit for that for the next few months and then they won't.

In terms of the pricing environment itself, I'm not really going to get into specifics of future pricing. What we do see is that I think, importantly, we see an inflationary environment ahead of us. I know there's been talk of deflation in some cases, and that may be true for things like commodities, like milk and eggs. But it's certainly not true for restaurants. Their inflation is actually outpacing ours, and we see inflation in the low-single-digits. So you look at the category pricing, and it's somewhere in the 2% to 3% range. So we see continued inflation, even at a lower level. And usually, pricing tends to follow inflation because that's the basis on which we increase prices if we see an inflationary environment. And so the -- as we look at trade-offs, I mean, our job is to create long-term value for shareholders and we do that by serving consumers. And we'll do that by making sure that our brands are strong and by innovating and making sure the products are available when and where people want them.

[Michael Lavery, Analyst at Piper Sandler Companies]

Okay, that's really helpful. And just one quick follow-up on Pet. You had mentioned that retailer inventory destocking and characterized it as a temporary headwind. Is that just because there's only so low they can go or do you expect it to reverse?

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

I do not expect it to reverse. I think it is only so low that it can go. And we may see a reduction again in the third quarter because I suspect that our sales -- our reported net sales are going to lack our sales out to consumers. And so we may have not have seen the bottom of that as we look at our third quarter. But really is a more of a -- I don't see a rebound in inventory levels, especially as some of our retailers specifically look to manage their working capital.

[Michael Lavery, Analyst at Piper Sandler Companies]

Okay, great. Thanks so much.

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

Thanks.

[Operator]

Our next question is coming from the line of Chris Carey with Wells Fargo Securities. Please go ahead.

[Christopher Carey, Analyst at Wells Fargo Securities]

Hi, good morning, everyone.

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

Good morning.

[Kofi Bruce, Chief Financial Officer at General Mills]

Good morning.

[Christopher Carey, Analyst at Wells Fargo Securities]

So just a couple quick follow-ups for me. I guess, number one, and I think you've been clear about this, but maybe just to put a bow on this. I mean, in your prepared remarks, you mentioned that price/mix will remain positive in fiscal '24. I'm not sure if I'm reading too much into this, but is there an expectation that price/mix could turn negative in any given quarter ahead, near- or medium-term because of mix dynamics or potentially some step-up in promotional activity? And just secondly, Jeff, you mentioned an expectation for some improvement in category growth. Is any of that just associated with lapping SNAP benefits as you get kind of deeper into your fiscal '24?

[Kofi Bruce, Chief Financial Officer at General Mills]

I'll take the first part of that question, and then I'll let Jeff get you on the second. So look, our expectations on price/mix are really built around the fact that we'll be sequentially stepping down as we lap pricing actions that we took throughout last year. We should fully lap those by the time we get to the end of the fiscal year. We're not expecting any of the quarters to deliver a negative price/mix, but merely just a step down in the contribution from price/mix to total RNS.

[Jeff Siemon, Vice President, Investor Relations at General Mills]

And Chris, this is Jeff Siemon. One point I'd add there is what you're seeing over the last couple of quarters is mix, even at the segment level, is more of a headwind. As, for example, our Pet business is growing slower than the other parts of the business, that's a high price per pound business, as our Foodservice business, which is low price per pound, is outperforming. And so there are mix elements within the segments that do depress the overall enterprise price/mix.

[Jeffrey Harmening, Chairman and Chief Executive Officer at General Mills]

And when you asked a question about growth at the category level, I mean, there are a couple of headwinds. One is just a little bit of consumer behavior and feeling the economic pressure and a little bit less discretionary spending. And I don't frankly know when that will turn around. Consumers are certainly still stressed right now. They feel the impact of inflation over the past few years. And we certainly understand that. The thing that we -- that's more discrete really is the lapping of the SNAP emergency allotments benefits from last year. And those kind of go state by state, but they took place last year between January and March. And that may be a one-point benefit to the categories that we're in. And so it's not a heroic increase, but certainly a stabilization of the categories. And we'll start to -- as I said, we'll start to lap that here in the next month or so throughout our fiscal third quarter.

[Christopher Carey, Analyst at Wells Fargo Securities]

Okay, helpful. I'll pass it on. Thank you.

[Jeff Siemon, Vice President, Investor Relations at General Mills]

Okay, unfortunately, I think that's all the time we're going to have this morning. Thank you for all the good questions and discussion. Appreciate your time and attention. And we will look forward to catching up in the new year. In the meantime, happy holidays to everyone. And please reach out if you have any follow-ups to the IR team. Thanks.

[Operator]

[Operator Closing Remarks]