Q4 2024 General Mills Inc Earnings Call

Participants

Jeff Siemon; Vice President - Investor Relations; General Mills Inc

Kofi Bruce; Chief Financial Officer; General Mills Inc

Jeffrey Harmening; Chairman of the Board, Chief Executive Officer; General Mills Inc

Kenneth Goldman; Analyst; J. P. Morgan

Andrew Lazar; Analyst; Barclays Bank PLC

Bryan Spillane; Analyst; Bank of America Securities

Steve Powers; Analyst; Deutsche Bank

Connor Cerniglia; Analyst; AllianceBernstein

Tom Palmer; Analyst; Citi

Matthew Smith; Analyst; Stifel Nicolaus and Company

David Palmer; Analyst; Evercore ISI

Robert Moskow; Analyst; TD Cowen

Chris Carey; Analyst; Wells Fargo Securities, LLC

Presentation

Operator

Good morning and welcome to General Mills fourth-quarter fiscal 2024 earnings conference call. (Operator Instructions)
As a reminder, this conference call is being recorded. I would now like to turn the call over to Jeff Siemon, Vice President of Investor Relations and Treasurer. Go ahead.

Jeff Siemon

Thank you, Julian, and good morning, everyone. Thank you for joining us today for a Q&A session on our fourth quarter and full year fiscal '24 results. I hope everyone had time to review our press release, listen to our prepared remarks and view our presentation materials, which we made available this morning on our Investor Relations website.
It's important to note that in our Q&A session, we may make forward-looking statements that are based on management's 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 we may be discussing on today's call.
I'm here this morning with Jeff Harmening our Chairman and CEO, and Kofi Bruce our CFO. So I think we can go ahead and get to the first question, Julian, and can you please get us started?

Question and Answer Session

Operator

(Operator Instructions)
Ken Goldman, J. P. Morgan. Your line is open.

Kenneth Goldman

Hi, thank you very much. I appreciate it. I wanted to make sure, rather than I understood the dynamics in international, it's a bit of a specific question to start with the commentary in the prepared remarks about consumer challenges might indicate that volume would have been more pressure than price mix, but it was the latter that down by a greater degree so. I'm just curious we can walk us through the dynamic there, are there any unusual puts and take this past quarter and then I have a broad follow up?

Kofi Bruce

Thanks for the question, this is Kofi. As you know, organic sales were down 10% in international and in Q4, I'm a bit more than half of that came from reclassification from net sales to a cost of goods sold in Q4, an adjustment to the company's full year results, but obviously important in the quarter for the segment. And the rest of the decline in international was really a function of the difficult market conditions in both Brazil and China.
Our Brazil performance, some specifically both the consumer environment and value challenges at the shelf as well as the customer environment where customers reducing inventory levels pretty significantly versus last year.
And then on China, after a strong start to the year, we saw a real souring or downturn in consumer sentiment in the quarter, and that had a negative impact on our shop-in-shop traffic for Haagen-Dazs and our premium dumpling business. So that's sort of answer.

Kenneth Goldman

I'm stepping on your words. I apologize, but I appreciate that. The [VPM], the follow-up is, and thank you for all the detailed guidance you always provide from top to bottom in the P&L every year. I'm curious if you could break out for us a little bit of the cadence of the top line and EPS growth this year? And in particular, if there's any considerations as we think about modeling the first quarter?

Kofi Bruce

Yeah, I think that they all the way we won't get to detail other than to just to note that our Q1 results we would expect that result to try below the balance of the rest of the year, primary driven by the higher levels of investment that we step into the year with a focus on improved volume. And then obviously the comparison against our strongest quarter performance in fiscal '24.

Operator

Andrew Lazar, Barclays. Please go ahead. Your line is open.

Andrew Lazar

Great. Thanks. Good morning, everybody.

Jeffrey Harmening

Good morning, Andrew.

Andrew Lazar

Maybe you have to start off. I know in the prepared remarks you discuss sort of a clear mission to drive better volume results the reinvestment, which I know is contemplated in your outlook for '25 and you mentioned commonly the need to improve sort of the value equation for consumers.
You've been mentioning optimizing price points in certain areas, a 20% increase in [coupon] spending sort of as examples. And I know the consumer measures value in lots of different ways, not just price. So I was hoping to get maybe a better sense of how the mix of incremental spending for '25 is sort of broken out across what would you consider higher power quality through brand equity building versus, let's say, more trade or price oriented spend time, particularly as this is such a sort of a hot-button topic among investors right now?

Jeffrey Harmening

Thank you, Andrew. That's right. I mean improving value for one mission. We have to get the competitiveness. If I take a step back and look at this past year, our categories in terms of volume performance at our performance improved to the first half of last year, which was they were down 2.4% in the fourth talked to previously either a few events in the back half of our fiscal year, which we thought would improve category performance and they did gradually they did.
And that really is the lapping of pricing from a year ago that they have SNAP benefits to the on-shelf availability of private label and some of the other smaller brands. And so that indeed to place the so the nice job for us to do now is to increase our level of competitiveness. And the fact is that inflation has been higher than longer higher for longer than many people assumed.
It would be non-food necessarily. Actually food inflation is actually coming down. But if you look at the broader macroeconomic environment, we're still seeing inflation of in oh 3% to 4% and the broader environmental, the job to do is create more value for our consumers.
As you rightly point out, that value can take place in a variety broader ways and I guess I would start to the point of brand communication and the fact of the matters, we will have a meaningful increase in the amount of spending. We have a consumer spending next year; you've probably done the math and see that our productivity levels are higher than what we see for inflations.
Our gross margin should be okay. And so the job to do then is to spend the money there wisely and we start with brand communication. And so we'll have a meaningful increase, but also against some really good news.
You know, I start with pet food and wilderness. We have some new advertising coming up next week. I just saw yesterday. It's fantastic advertising. We've already gotten Life Protection Formula back to growth and taste post the now wilderness as a job doing that.
If you look at what we're doing a serial, another big global business for us. We've got great taste news coming in our and our cereal category that Kelce Brothers highlight that in the first quarter, but we've got more coming in the second third quarter of bringing the doubling back after a few years and private label, they don't have a double what we do.
And not only coming back, you've got all kinds of news to share about flaky aircraft and things like that. So we feel great about that.
We've got we're sponsoring the Olympics in many countries and then Totino's as good marketing. So we feel good about our brand investment, but also comes down to the product themselves, get we are really good product news. You'd probably twice the taste news that we did a year ago. And when you know in our categories, taste is really King, so whether that's whether that's like Pillsbury biscuits or Annie’s mac and cheese or Betty Crocker fudge brownies or reducing sugar in our kids, cereals and K through 12, those are all kinds of great taste news in our new products should be up somewhere around the neighbourhood of 40% where we're investing in new product activity and really good ones on our big brands.
So Fruity Cheerios and the cereal category months, breakfast bars, which are off to a great start so far this year as well as Nature Valley lunch box, which is allergy free that we know the module like Totino's, you know, breakfast also we've got really good innovation and then there is there. So that. So those are a lot of ways that we can that we can add value, variety packs, things like that.
But also we're increasing our couponing by about 20% or so in the beginning of the year. And we are I found because we have a lot of first-party data which differentiates us from many other manufacturers. We can target effectively with good ROIs that not every manufacturer and do that, but we have the ability to do that.
So we're increasing our coupon spending and we've we have the research that tells us that it's highly effective when we do that. So we'll do that and other some price once we have to sharpen there are. But there always are we talking about in pet food is wet pet food. We had to get under a price clip.
But we didn't have pricing washes and other places. So we feel good about the amount of value that we will create for consumers. And that really is job number one. As we look at next year.

Andrew Lazar

Thank you for that. And then just a quick one Kofi. The commentary around HMM for fiscal '25 versus cost of goods inflation suggests, as Jeff highlighted, some gross margin flexibility to reinvest given the amount of reinvestment you're planning, not just in SG&A, but that reinvestment that goes against gross margin.
Do your plan, I guess, anticipate that you can at least protect if not expand gross margins a little bit for the full year? Or could there still be some gross margin pressure for the full year, given kind of what you need to do across both sort of trade and consumer? Thank you.

Kofi Bruce

Great question. Appreciate the question, Andrew. So I would say we've got enough flexibility that we would see a modest amount of gross margin expansion even with the levels of investment. And the key here is, as we look at the business, we're going to play flexibly with an eye towards investing in growth, driving activity from some of which Jeff did an eloquent Java listing off.

Andrew Lazar

Thank you.

Operator

Bryan Spillane, Bank of America. Please go ahead. Your line is open.

Bryan Spillane

Thanks, operator. Good morning Kofi and Jeff. I had just had one question, and it's come in a couple of different angles to us this morning. And it really the starting point on had has have you guided low enough for fiscal '25. And I say that in the context of there are some reinvestment rate that for increased investment, I should say that that's implied in your plan for this year.
If we look back over the last four quarters, you know, we've been kind of waiting for the time to come around the corner, and that's just General Mills. I think that's true across the whole Group. And so it seems like, you know, there's just more uncertainty.
We're planning the business this year versus most. And I'm just, you know, given the opportunity right to give yourself the I guess, more cushion or actually more than that gets you more potential money to spend back. Why not take that opportunity now?

Jeffrey Harmening

Yeah. So Brian, thanks for the question. You talk about more volatility and uncertainty, as I said, that for each of the last five years so that we are waiting for that wait for the year.
We don't have volatility and the market does continue to evolve. So there's no question about that. Obviously, we think we've given ourselves enough cushion here without being too unduly conservative and the market, you're right, the market is does continue to evolve. But as I said, we are we've got really good marketing support new products are up. We've got really good news on our core brands.
And so my expectation is that we would improve our volume performance this coming year, which was down 3% this current year. We would improve our volume performance across our different segments this year. So I know that each of our operating segments, whether it's North America retail or foodservice or international or [PAT], are committed to improving our volume performance, our competitiveness and I'm confident with the level of activity that we have in the news that we have that we can that we can actually do that supported by gross margins that are already good that are back to pre-pandemic levels already. And as you say, are our productivity out outstrip several PCL inflation.
So reinvesting some of that to make sure that we have that we had the fuel we need to drive the growth, and we're not counting on a change in the environment necessarily to drive our growth and that's within our control. And so we feel good about our ability to do that.

Bryan Spillane

Thank you Jeff. Maybe just a quick follow on that is, as you've planned this year, what's your expectation on competitiveness? Meaning, you know, do you expect competitors to make similar moves? And just how you are anticipating that how the competitive environment with set up this year again, given just how dynamic things are the one.

Jeffrey Harmening

I certainly can't speak for my competitors, but we're all looking for more growth. And we know what's been interesting is that the environment has been exceptionally irrational and it's not it's hard for me to see that changing.
And the reason I say that because I mean, we still have some level of inflation. I mean that we have 3% to 4% inflation and so in that kind of environment, absent a lead in a leading level of productivity like we have, it really begs for an environment that continues to be rational. If you look at the last 12 months, promotional spending is up, frequency up a little bit.
Depth of discount was up a little bit relative to the year before. But if you look before pandemic as kind of back to that back to that level, promotional intensity and they start out, I think it was Andrew asked a question about value.
There are a lot of ways to create value for consumers. And we see that I'm sure our competitors do. And so we'll be pulling all the levers we can to make sure that consumers know the value of our big brands. A lot of that gets back to the marketing and the product news, that anything else.

Bryan Spillane

Okay. Thank you.

Operator

Steve Powers, Deutsche Bank. Please go ahead. Your line is open.

Steve Powers

Yes, hi, good morning. Apologies if you hear construction there, someone who start drilling has we've had in the call started to behind me on one. I guess what I have started, you talk about a roughly equal contribution from price and volume through the year, at the company level so it take to mean sort of flat to slightly positive in each case.
I guess is there any deviation from that as you think about the sequence through the year or across the different business segments? Or do you expect that sort of who we are roughly equal contribution to be a representative of kind of expect across the totality of the enterprise?

Jeffrey Harmening

Yeah, the we look it by the way, but I can't hear the drilling in the background, Steve. But as we as we look at it, first of all, you were talking about, you know, price and volume rate relatively same is price and mix. I think that mix pieces is really important.
As we as we look at it, I wouldn't expect an undue differential performance, many one of our segments. So it's not as I say, we're looking for or, you know, lots of one thing in one segment, lots of something in another segment, really the job to do is really a volume growth across the across the different segments.
And I think we have opportunities to improve even in foodservice, which did really well. We have opportunities to improve, but across the board. In terms of the sequencing, I guess my only comment would be as you as you look at the first quarter of last fiscal year, which was the which went in terms of sales growth, was there was our highest sales growth quarter.
You see a lot of pricing in that quarter were going up against that as we go into the year ahead. And so that probably has an impact on what we see. But on price mix in the first quarter, which has copious that along with some reinvestment makes the comp and our first quarter of the toughest of the four quarters in the year, I would expect gradual improvement as we look at our sales and profitability over the course of the year.
And gradual doesn't mean it happens even every quarter, but gradually over the course of the year with Q1 being the toughest, I would say that's especially true in North America retail, where the comp from a year ago was quite good. We had a really nice Q1 and North America retail last year.

Steve Powers

Yes. Okay, great. Thanks for the clarification as well, You know on the Kofi, may be going back to where you started or Jeff started the call on international, you've talked about some of the challenges in Brazil and China at the moment.
I guess, any perspective on how you expect those regions, countries markets to develop as the year progresses? Just kind of what you've embedded in terms of contribution in '25?

Kofi Bruce

We'll just pick up on kind of just last point. We are expecting volume improvement in all of our segments. But as we look at international, I think the critical thing for us in Brazil, we certainly see improvement off of this year's performance and are expecting that similarly.
So with China and continued strength of performance and EU, AU in our [gems] markets, which performed really well this past year.

Steve Powers

Thank you very much.

Operator

Alexia Howard, AllianceBernstein. Please go ahead. Your line is open.

Connor Cerniglia

Hi, good morning, this is Connor Cerniglia stepping in for Alexia Howard. Jeff, I'd like to ask about your ready to eat cereal. Measured channel data suggests you've experienced a bit more challenged market share dynamics at a time when promotional spend has increased at what our competitors.
Can you talk about how you think about this segment in 2025 and you can see irrational pricing behavior? Or is there a concern on this front? Thanks and I'll pass it on.

Jeffrey Harmening

Yes. Connor, you know we've seen rational behavior in cereal. I would expect that to continue with the you know; our focus is primarily on our game and other competitors games.
We obviously we feel like we have the best brands in the category and a key job for us to do in cereal is get back to playing our game. And we had we had good new product innovation last year. We have the top five new products.
Actually, I think some of our product innovation this year is better than we had a year ago. I referenced Fruity Cheerios and the first half. We have some good new product innovation coming in the second half. But even more important, that is a lot of news we have coming on our core brands and our messaging, as I talked about with the calcium relative.
I also think some of our merchandise, like in the back-to-school period, making sure we have a big program with box tops, you know what I'm excited about rolling out and some today's news we have coming in the second half of the year as a big brands, which I promise the brand teams I wouldn't talk about on this call, but I'm excited about coming.
And so our job really is to get back to the core growth are our big hero brands was really good news and content. The innovation as good as or innovation was this past year, not that it was quite good. I think our innovation this coming year as it has the opportunity to be even better at an early returns, which suggests that that will be pretty good.

Operator

Tom Palmer, Citi. Please go ahead. Your line is open.

Tom Palmer

Good morning and thanks for the question. I appreciate your earlier comments, I want to be overly specific here, but I guess I'll give it a dry look, if we exclude the inventory reductions in trade accrual, I think organic sales growth was down around 3%.
Should we look at this is kind of a slow starting point as we entered the year? Or are there other considerations we should be thinking about as we move into the first quarter?

Jeffrey Harmening

I appreciate the question. So let me see if I can step back. And just if you'll give me a point of privileged cereal tried and tried to give you a little bit broader perspective starting at the enterprise and then drilling down to pet in North America retail.
So while we saw the slowdown in organic net sales, I think the critical thing here as we look at our measured retail sales, they're pretty consistent as we move from Q3 to Q4. So as you rightly noted, there was a headwind from the comparison on the trading expense phasing from Q3 or Q4 of fiscal '23.
At the enterprise level, we also saw a modest decline in retailer inventory in our and pet in Q4 versus Q3, where we had a net tailwind. And then it, I think third important I reference again the point I made on international that are in Brazil.
We had an adjustment to net sales of the move to COGS, which was worth about a point of drag on us. And so in aggregate, about five points of drag from those three factors as you peel it back. And then as you look at it on a segment basis that it not that trade expense comparison is about four points of drag.
We also had we saw the retailer inventory adjustment impact are about a point a tailwind flipping to appoint a tailwind in the Q4 versus a point of headwind in Q4. Then we also benefited in Q3 from some weather patterns in North. Then as we look at pet, we had about two points of headwind from the trade expense comparison.
We also saw retailer inventory reductions for Q4 versus Q3, and then we did have a modest amount of headwind of losses in the key prices. So in aggregate that kind of you get you the picture, I think the critical thing here is the read through for you US is thinking about how you look at the quarter milestones Q3 to Q4, roughly in line.

Tom Palmer

Got it. Okay, thank you. And then in the presentation, you listed M&A above share repo in terms of capital allocation priorities. I had kind of two pieces here. Of course, to what extent this is a 3% share count declining guidance assume that free cash flow in excess of the dividend is deployed for share repo versus other uses.
And then look, I know you've been at quality of assets over the past year, but could you give us an update on your M&A criteria and appetite from a size standpoint? Thank you.

Kofi Bruce

Sure, right. So I think I'd first start by acknowledging that our capital allocation priorities have been pretty evergreen. So I think the first is currently we want to make sure we have and allocate investment for capital spending internally for growth.
That's roughly 4% is kind of the top number. We've averaged around 3.5%. If you look at the last handful of years, second, that we're allocating our capital for increasing our dividend, roughly in line with our after-tax earnings. And again, we've paid a dividend uninterrupted for 125 plus years.
And then third, as you rightly pointed out, M&A and again, M&A is both episodic and it's not something we build into the plan. But generally, as you look at our M&A patterns, unless we have done something being, which is pretty rare, last big acquisition was Blue Buffalo. Most of the acquisitions we do are coming in $1.5 billion price range which we can easily accommodate with the modest adjustment in our share purchase patterns.
So share repurchase remains the most discretionary element. And obviously, we will make changes to our share repurchase expectations as we identify and act on M&A opportunities. Onto your to your second point around criteria for M&A, as you know, obviously, the critical filter for us that we start first with our strategic priorities, which leads us to have to look at critical occasions, which would get us to priorities around breakfast and convenient to meet convenient meals and snacking, as well as, obviously our pet food.
And I think the criteria for us anchor around places where we can add value leverage points around our capabilities that will allow us to unlock cash for growth, but also on improved margins as we as we execute transactions.
So we've candidly, working with are always on M&A capability throughout the cycle. We continue to look aggressively at opportunities. At the same time, we remain very disciplined and have very strong filters in terms of both returns and value creation.

Tom Palmer

Great. Thank you.

Operator

Matt Smith, Stifel. Please go ahead. Your line is open.

Matthew Smith

Hi, good morning. And one of the dive in a little bit on the profitability or the profit performance in the pet segment, you are solidly in the mid-20s, even with the volume decline in the quarter. You talked about some increased investment behind wilderness as you tried to stabilize that business and get it back to growth. But is this a sustainable margin performance in the fourth quarter that we should look to as we look at fiscal 2025?

Kofi Bruce

Sure. Let me yes, let me start. I think we benefited from both a more stable supply chain environment and our ability to drive higher than expected levels of each of them. Even in the face of the volume declines we saw we continue to have capitalized on opportunities, both to internalize production that was previously external, but also to drive HMM.
That was some was frankly, less available when we were struggling to supply in the supply chain disruption period. So we feel good about sort of the exit point. What I would -- what I think is critical as we look at business right now is we're very focused on driving improved volume trends.
So I think the probability very competitive and Okay, the 20% plus level, I wouldn't expect that 24% is the level we would necessarily target. We continue to expect to be able to drive strong HMM and much like we're doing at the enterprise.
I would say our focus is going to be on reinvesting gross margin improvement back into the bill business to drive growth.

Jeffrey Harmening

As Kofi said, I mean, if you know, a year ago, we were challenged both on our gross margin and you know, and with our sales growth and I'm really pleased with the Blue Buffalo came on job. They have done to restore the margin profile.
And we've done a lot of work over the past over the past year to do that to get us back into a place for the margins year over the last year or roughly 20% or so. So, you know, now the job to do is to and that's without volume leverage. And so now that job to do is to really improve our top line performance and we feel good about what we've done on Life Protection Formula.
We're going to double down on that. We feel good about our tasteful cap business. And then the last quarter, we've been more advertising on that. We've seen that business get back to growth. And so we're going to we're going to put more fuel on that. And now the job to do the next job to do is on wilderness.
And we've been talking about it for a little while, but we're putting on advertising on air and in July and good levels of advertising behind really good messaging. And so that really is the job to do. And you know, to the extent that we can get Blue Buffalo back to growth, I mean, I think the rest of the flow quite nicely.
We do have good productivity, but the real job to maintain really good margins while accelerating our top line performance.

Matthew Smith

Thank you. And just a quick follow-up. You talked about distribution losses in the pet division. Any more detail to add to that. Is that something that remains a drag as we look at fiscal '25, that perhaps keeps volume growth, a little profit to achieve as we look into next year?

Jeffrey Harmening

We have we have some distribution losses on a little bit on trees and a little bit on wet food and those because during kind of the pandemic, there were some other competitors who couldn't supply as well that we could as we have some extra shelf placement that's rolling off.
But it is really not our big flavors that are big customers. And so even if and with that, we have seen improved performance on an increasingly group performance on Blue Buffalo business (Inaudible) even with that, our expectation is for improved volume performance in the coming year for Blue.

Matthew Smith

Thank you. I'll pass it on.

Operator

David Palmer, Evercore ISI. Please go ahead. Your line is open.

David Palmer

Thanks. I'll just follow up on pets for a second. I know one of the big areas of focus was the specialty pet segment clearly was a drag into the fourth quarter. Do you talked about in the prepared remarks about revenue growth for pet in fiscal '25?
Do you also see the that that pet specialty segment also slicing and growing in fiscal '25?

Jeffrey Harmening

Yes. So I know I'm not going to get into specific channel by channel, but and business as you ask, I won't avoid a completely, Dave. At the end of the. What I would say is that what I would see as an improvement in that channel, we've actually seen an improvement in the channel. Now the job for us to do is improvement in our own performance.
It really is about wellness and about getting our sizing right and about working with the retailers there to improve the performance of wilderness by the way there in on until we all want to improve the performance of wilderness. And so we're all rowing in the same direction.
And so my expectation would be improved performance for us and the pet specialty channel, we'll see what that yields over time. But it feels that we have the right actions in place, nice to improve our performance in that channel, particularly with wellness, which is the most important thing to approve.

David Palmer

And just a question on the banking segment, that seem to be an area that we did very well during COVID. You said that one of the areas that was most declining in this quarter. Are you seeing I just wanted to get your pulse on that segment and be consumer behaviors around that, right and make sure that's not going to be an ongoing drag for you in fiscal '25.
Kofi, how are you feeling about that segment in the consumer behaviors around baking and the at-home occasions that would drive that? I know it's a high margin segment for you, and I'll pass it on. Thanks.

Kofi Bruce

Yeah. So let me start with at-home occasions. You know, at-home occasions are actually quite high. I mean, about 86% to 87% of food is now eaten at home. And given the challenges consumers are facing with inflation, we would expect that to continue so, I don't see a drag on category performance for at-home eating occasions. So that would be the first point.
The second is, you know, the category itself in terms of volume has hung in there, you know, pretty well, our share position, particularly as we look at Pillsbury, that has been the challenge.
And after many years of the year, we saw a return of private label to shelf some small competitor, but mainly private label. And so this this past year, I think, is going to be an anomaly annual. I think the key for the key for us really not a change in the environment.
The key for us is our change in level of activity. And I tell you our plans and there are quite good as I talked about, we're bringing the [Dope] way back, but also but also we've got product improvements, taste improvements on things like biscuits was, I think will serve us very well.
We have seen a variety packs coming in and cookie, though with a brand like Reese's and Oreo and Master cookies. And so we have a really good plan and really good news to share on our Pillsbury business this year. And so that is really within our hands to get us back to growth on Pillsbury, and I feel good about our plans there.

David Palmer

Thanks for that.

Operator

Robert Moskow, TD Cowen. Please go ahead. Your line is open.

Robert Moskow

Hey, thanks, question. Good morning, Jeff. I wanted to know if you and a lot of your peers has shifted the emphasis more to volume, and I'm not denying the importance of it right now. But it is it just sounds different than the strategy that a lot of CPG companies have used over the years to create value through premiumization, convenience, that's been a win improves historically.
Can you do both of these things at the same time? It seems like there's a lot of discussion volume today. And I'm wondering if there's still a consumer can still absorb or except that's more premium offerings in this environment.

Jeffrey Harmening

Yeah, Rob, I don't see it as a trade-off between volume and premiumization. And I think, I'll take our Blue Buffalo, which is a premium offering. But Life Protection Formula has done particularly well behind really good marketing and so really that's why I talked about value or getting back to a really good marketing and really good messaging on our big brands is really crucial.
So I don't see a trade-off between getting back to volume and premiumization in the categories. I think it's an ad and Pillsbury is another example where it's at a premium offering in that category. And we've got really good market against it.
And I think there is you hear us talking about volume is obviously your volumes were down versus a year ago. And so that's really the job for us to do is to get back to that. But and then I think you're right to ask, but that doesn't mean that we can't preimmunize.
So those things are not are not mutually exclusive. And in fact, I think in many cases they go together. The key is to make sure that the value that we offer, as we think about it is commensurate with the with the brand itself. And so that's why you hear me talking a lot about the news we have on our big core billion-dollar brands because that really is going to be the key to our success.
And we talk about value, a lot of people immediately go to price, and that's certainly as a component, but not the component. I mean, if you think about it, when it comes to fuel past one of the most important things that they actually do is feed their families and what they can afford to waste and the family has to really want it. And so you're talking about patient news and things like that in this environment. And so I appreciate the question.
I think it's a really good when you hear us talking about volume because obviously that's the most important job to do, but it is not the opposite of increasing premiumization of the same time.

Robert Moskow

Great, thank you.

Operator

Chris Carey, Wells Fargo. Please go ahead. Your line is open.

Chris Carey

Hi, thank you all. Just wrap it up with a couple of follow-ups on. So number one, coffee on gross margins, you said expansion for the full year, in the prepared remarks you did highlight, however, that gross margin compares are harder in Q1. You'll be doing more couponing in Q1.
We expect gross margins be down year over year to start the fiscal year but improve as couponing becomes more balance in comps get easier. Apologies if I missed that, but that would be number one.
And then second, just you know, the recurring debate throughout the Q&A this morning has been the sales re-accelerate, our acceleration and slide in the outlook.
If you just think about SRM couponing and perhaps other items, how would you frame the relative contribution of these items to the acceleration that you're expecting in your outlook for the year? So thanks so much of those two.

Kofi Bruce

Okay. Well, I mean let me start. I would just say on Q1, I'm not going to get too much more detail than I already have in, which is effectively we'd expect the comparison on sales, Jeff mentioned the price mix comparison component of that obviously. And then profit comparable operating profit compared to the same quarter prior year will be a net headwind. So we do expect that the complexion of our Q1 to be lower than the subsequent quarters.
I am not going to get too much more detail below that. Obviously, I think implied in our guidance and our expectations is that we're going to use all the levers of our SRM toolkit. So, there's always a lot of focus on the price component of that.
And certainly that is important in this environment. But I think there, we are using everything from trade optimization to mix will be front and center and focuses. We're pulling the levers of SRM. Obviously, as we work through this year, it's been clear prices that price mix, it's been less of a driver of sales as we've as we've lapped all the pricing from the prior year, but we would expect to continue to use SRM toolkit and it's full totality next year. I can't get too much more specific about the components sort of the complexion at this point.

Chris Carey

Okay. Thank you.

Jeffrey Harmening

Okay. I think we'll go ahead and wrap it up there. I appreciate everyone's good questions and time and attention.
And as always, we're available for follow-ups throughout the day, if you have more questions that you need to get to us. So appreciate the time today and we look forward to catching up soon.

Operator

This conclude s today's conference call. Thank you for your participation. You may now disconnect.