General Mills Inc. (NYSE: GIS) Q4 2020 Earnings Call Transcript

General Mills Inc. (GIS) Q4 2020 earnings call dated July 01, 2020

Corporate Participants:

Jeff Siemon — Vice President Investor Relations

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

Kofi Bruce — Chief Financial Officer

Jonathon J. Nudi — Group President, North America Retail

Analysts:

Andrew Lazar — Barclays — Analyst

Ken Goldman — JP Morgan — Analyst

Christopher Growe — Stifel — Analyst

Alexia Howard — Bernstein — Analyst

Dara Mohsenian — Morgan Stanley — Analyst

John Baumgartner — Wells Fargo — Analyst

Jason M. English — Goldman Sachs — Analyst

David Palmer — Evercore ISI — Analyst

Robert Moskow — Credit Suisse — Analyst

Presentation:

Jeff Siemon — Vice President Investor Relations

Good morning. Thank you for joining us to hear our prepared remarks on General Mills’ Fourth Quarter Fiscal 2020 Earnings.

Later this morning, we will hold a separate live question-and-answer session on today’s results, which you can hear via webcast on our Investor Relations website. In a moment, I’ll turn the call over to Jeff Harmening, our Chairman and CEO, and Kofi Bruce, our CFO, but before I do let me first touch on a few items up front.

On our website you will find our press release on fourth quarter results that went out earlier this morning, along with a copy of the presentation. It’s important to note that our remarks will include forward-looking statements that are based on management’s current views and assumptions, including facts and assumptions Jeff and Kofi will share related to the potential impact of the COVID-19 pandemic on our results in fiscal ’21. The second slide in today’s presentation lists several factors, among them the impact of the pandemic, that could cause our future results to be different than our current estimates.

And with that, I’ll turn you over to my colleagues, beginning with Jeff.

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

Thanks, Jeff, and good morning everyone.

Before we get into our results, I’d like to take a moment to touch on two topics that are top of mind for many of us right now. First, I want to voice General Mills’ strong support for the inspiring movement for social and racial justice that was tragically elevated by the horrible killing of George Floyd here in our hometown of Minneapolis a month ago.

While Minnesota is a focal point, we know this is not just one community’s problem. It’s clear from George Floyd’s death, and the many that preceded it, that systemic injustice and racism still exist in our country and in societies around the world. We have a lot of work to do to start the healing, to help our communities rebuild, to emphasize that Black Lives Matter, and to help drive lasting change for social and racial justice.

The events of the last month reinforce the importance of our ongoing work to build a culture of belonging at General Mills. Our people are the true heart of the company, and we are focused on creating an environment where all employees feel they can share their unique perspectives and ideas and know they will be treated with respect. That begins with a commitment to foster courageous conversations and to take courageous actions. We stand united against acts of racism and are committed to humbly learning and finding authentic ways to be a part of the solution.

The second topic I want to address is the impact the COVID-19 pandemic has had on our employees and our communities. In this time of uncertainty regarding personal health, the economic outlook, and access to food, General Mills, more than ever, is dedicated to making food the world loves and needs. I offer my sincerest thank you to each team member, customer, front line worker and peer company who has worked tirelessly to support our communities, our families, our friends, and our neighbors during this difficult time. You have stepped up in an incredible and safe way to ensure a reliable food supply, and we thank all of you.

As we turn to the business of our fiscal ’20 results and 2021 objectives, I’d like to start with a few key messages on Slide 5. Throughout fiscal 2020, before and during the pandemic, our most important objectives have not changed. They are the continued health and safety of our employees and our ongoing ability to serve our consumers around the world. Fiscal ’20 was a year of significant challenge and change in the world around us, and I’m extremely proud of the way General Mills adapted and executed to meet the significant changes in demand in the fourth quarter and deliver outstanding performance. Importantly, we closed the year having achieved each of our fiscal 2020 priorities and we exceeded all the key financial targets we laid out a year ago.

Looking forward to fiscal ’21, we are not providing guidance for our headline financial measures due to the significant uncertainty in the balance of at-home versus away-from-home food demand. Even so, we’ve set three key priorities that will keep us focused on what we can control and allow us to deliver competitive performance in the short term while continuing to advance our long-term strategic goals. First, we will compete effectively everywhere we play, we’ll drive efficiency to fuel investment in our brands and in our capabilities, and third, we will reduce our leverage to increase our financial flexibility.

There is no doubt that the COVID-19 pandemic has profoundly impacted our business over the last few months. We’ve seen an unprecedented increase in demand for food at home and a corresponding decrease in away-from-home food demand. Prior to COVID-19, at-home food represented approximately 85% of our net sales and away-from-home food represented the remaining 15%. In the fourth quarter of fiscal ’20, elevated home food demand accelerated net sales growth, most notably in our North America Retail segment where a significant share of net sales comes from categories that were most impacted by at-home eating, including meals, baking and cereal. The impact of elevated at-home demand was less pronounced in our Europe & Australia segment, reflecting its lower proportion of net sales in those categories. The Pet segment experienced increased demand early in the fourth quarter from stock-up purchasing, which partially unwound by the end of the quarter. Lower away-from-home food demand reduced growth for our Convenience Stores & Foodservice and Asia & Latin America segments.

We have implemented employee safety measures, based on guidance from the CDC and WHO, across our supply chain facilities, including proper hygiene, social distancing, mask use, and temperature screenings. As of today, all of our manufacturing facilities are open and continue to operate without significant disruption. The significant surge in demand has reinforced the importance of supply chain excellence, something that has been a hallmark of General Mills for decades. We’ve increased the agility of our supply chain, including partnering with customers to prioritize production of key products to reduce downtime and increase capacity.

With the uptick in consumers eating at home, we’ve seen broad-based improvements in household penetration for our brands, and we’re encouraged by early indicators on repeat. And we’ve seen many more consumers buying their food online in recent months. We modified our fourth quarter plans to increase engagement with consumers online, resulting in a significant acceleration in our E-commerce sales growth.

Our ability to adapt to these changes allowed us to deliver outstanding performance in the fourth quarter as you can see on Slide 7. This included 16% growth in organic net sales, 24% growth in constant currency adjusted operating profit, and 33% growth in constant currency adjusted diluted earnings per share. We strengthened our business in many ways in the fourth quarter, including increasing our agility, deepening our relationships with our customers, getting our brands in front of many new consumers, enhancing our competitive position in our categories, and investing meaningfully in our people, our brands, and our capabilities. These changes set us up to deliver continued strong results in the months and years to come.

A year ago, we outlined three key priorities that were critical to delivering a successful year in fiscal ’20, accelerating our organic sales, maintaining our strong margins, and reducing our leverage. I’m pleased to say that through nine months, before the full impact of the pandemic hit our business, we were on track to deliver on each of these priorities, and with the acceleration in Q4, we ultimately exceeded our expectations for all three.

Let me take you through a few examples of how we delivered against our fiscal ’20 priorities, beginning on Slide 9. We started the year knowing that improving growth in North America Retail segment and delivering another strong year in Pet were going to be critical to accelerating our overall organic sales growth, and both our teams came through with great results.

Our North America Retail team delivered a truly exceptional year in fiscal ’20. Prior to COVID-19, we were already on track to improve organic sales growth for the year. At-home food demand accelerated dramatically in Q4, with retail sales for our US categories up 32%, driven most prominently by the meals, baking and cereal categories. And our supply chain stepped up admirably to service this demand, keeping our trusted, leading brands in front of consumers and enabling US Retail to deliver its best full-year market share performance in a decade. This performance was led by our US Meals & Baking operating unit, which generated 68% retail sales growth in the fourth quarter, including strong results for Pillsbury refrigerated baked goods, Progresso soup, Totino’s hot snacks, Betty Crocker desserts, and Gold Medal Flour.

In US Cereal, we delivered a third consecutive year of retail sales growth and extended our leadership position in the category, gaining 70 basis points of share for the full year. This performance was due to strong brand building, especially across the Cheerios franchise, which grew retail sales and market share in Q4 behind the success of its Heart Health messaging, and once again we launched the top two new products in the category for the quarter, with an Oats ‘N Honey version of Cheerios Oat Crunch and Trix Trolls.

On US Snacks, we said we’d improve in fiscal ’20 with a focus on bars and fruit snacks, and I’m pleased to say we achieved that goal. We drove 11% retail sales growth on fruit snacks behind increased capacity and exciting equities such as Disney’s Frozen II, and we made important improvement in our Snack Bars market share throughout the year, including share growth in the fourth quarter, led by improved innovation, merchandising, and distribution for Nature Valley.

In US Yogurt, fiscal ’20 retail sales declined 1%, largely in line with last year’s performance. Our core business performed very well, including retail sales growth of 5% on original-style Yoplait and 8% on GoGurt. Our second-half innovation was particularly strong with Original Style Starburst and dairy-free Oui by Yoplait finishing as the two largest new items in the category in the second half. We continued to experience declines on the tail of our yogurt portfolio, including light and Greek varieties, but with a strong core and relative innovation making up a greater portion of our portfolio, we expect to see further improvements in our US Yogurt sales as we go forward. Finally, we returned our Canada operating unit to growth behind improved in-market execution, resulting in 60 basis points of share gains.

As you will see on Slide 11, North America Retail’s relentless focus on execution, coupled with our strong portfolio of leading brands, resulted in market share growth in nine of our top 10 US categories in the fourth quarter, and seven out of 10 for the year.

As I mentioned, our Pet segment continued to drive strong growth in fiscal ’20, with all-channel BLUE retail sales up double digits, resulting in another year of market share gains. Our consistent, strong investment behind brand awareness and pet parent education, combined with our successful expansion into additional food, drug and mass, or FDM, retail outlets, contributed to a nearly 2-point increase in household penetration. We remain delighted to have BLUE in the General Mills portfolio and we’re excited about the growth opportunities that lie ahead for the brand.

Beyond accelerating organic growth, our two additional fiscal ’20 priorities were to maintain our strong margins and reduce our leverage. As you can see on Slide 13, we beat those goals. We expanded our adjusted operating profit margin by 40 basis points to 17.3% of net sales. We delivered another strong year of holistic margin management savings at 5% of COGS, realized favorable price/mix, managed our administrative costs efficiently, and capitalized on volume leverage. These efforts overcame 4% input cost inflation, a mid-teens increase in annual media investment, accelerated investments in our global capabilities, and incremental safety and operating costs due to COVID-19.

We made tremendous progress on reducing our leverage, driven by earnings growth and excellent management of working capital. We closed the year at a 3.2 times net debt-to-adjusted EBITDA, significantly ahead of our fiscal ’20 target.

With that, I’ll transition it to Kofi to take you through our fiscal ’20 results and our 2021 financial assumptions. I’ll then come back at the end to highlight our fiscal ’21 priorities and how we intend to win. Kofi, it’s over to you.

Kofi Bruce — Chief Financial Officer

Thanks, Jeff, and hello everyone.

Let’s start with our fourth quarter financial results on Slide 15. Net sales of $5 billion were up 21%, including a roughly 10-point benefit to reported net sales from calendar differences in Q4, including the 53rd week and the extra month of results in our Pet segment. Organic net sales grew 16% in the quarter, including the impact of elevated consumer demand driven by the COVID-19 pandemic as well as the extra month for Pet. Adjusted operating profit increased 24% in constant currency, primarily driven by higher net sales, partly offset by higher SG&A expenses, including a 39% increase in media investment. Adjusted diluted earnings per share totaled $1.10 in the quarter and grew 33% in constant currency, driven by higher adjusted operating profit, higher after-tax earnings from joint ventures, and a lower adjusted effective tax rate, partly offset by higher diluted shares outstanding.

Slide 16 summarizes the components of our net sales growth in the quarter. Organic net sales were up 16%, with 12% growth in organic pound volume and 3 points of favorable organic price mix. Foreign exchange was a 2-point drag in the quarter, and the 53rd week contributed 7 points to net sales growth.

Now let’s turn to segment results, beginning with North America Retail on Slide 17. Fourth quarter organic net sales were up 28%, with growth in all five operating units led by US Meals & Baking and US Cereal. For the full year, organic net sales were up 6%. As Jeff mentioned, we competed effectively in-market in Q4, with share gains in nine of our top 10 US categories. Fourth quarter US retail sales increased 37%, which was ahead of organic sales growth driven by a reduction in customer inventory as our retail partners worked to fulfill elevated demand. Fourth quarter constant currency segment operating profit increased 69%, primarily driven by higher volume, partly offset by higher SG&A expenses, including a significant increase in media investment. And full-year segment operating profit grew 15% in constant currency.

Organic net sales for our Pet segment increased 37% in the quarter, including the impact of an extra month of results in this year’s quarter as we shifted the segment’s calendar from an April to a May fiscal year-end to align with our corporate calendar and other segments. Pet’s fourth quarter net sales performance compared against a 38% pro forma growth in last year’s Q4, driven by significant distribution expansion in food, drug and mass. Fiscal ’20 all-channel retail sales were up double digits, led by significant growth in FDM. For the full year, Pet segment organic net sales increased 18%.

On the bottom line, fourth quarter segment operating profit grew 23%, driven by net sales growth, partly offset by higher SG&A expenses. Full-year segment operating profit grew 46%, including strong underlying growth as well as the comparison against a $53 million purchase accounting inventory adjustment a year ago.

Turning to Convenience Stores & Foodservice on Slide 19, organic net sales declined 29% in the quarter, driven by significantly reduced demand in away-from-home channels. We saw reduced foot traffic across key channels with significant double-digit traffic declines in schools, lodging, and restaurants. Convenience stores also saw a double-digit decline in foot traffic. We continued to compete effectively even as channel demand slowed. In fact, we grew market share in our key measured channels in the fourth quarter, and for the full year, organic net sales were down 9%. Segment operating profit was down 67% in the quarter and down 20% for the full year, driven by lower net sales.

In Europe & Australia, fourth quarter organic sales increased 4%, primarily driven by increased at-home food demand for our Mexican food and baking products categories, partially offset by declines in away-from-home channels. As Jeff alluded to earlier, because our portfolio mix in this segment includes roughly 40% of net sales in Yogurt, sizeable businesses in ice cream and snack bars, and nearly 10% of net sales to foodservice channels, the impact of elevated at-home food demand was considerably less than in our North America Retail segment, which has a much larger portion of net sales in the meals, baking, and cereal categories. In terms of fourth quarter in-market performance, retail sales were up double digits for Mexican food, ice cream, and baking products and were up mid-single digits for Yogurt. For the full year, Europe & Australia organic net sales were down 1%.

Fourth quarter segment operating profit declined 14% in constant currency, driven by higher SG&A expenses, partially offset by higher net sales. Full-year constant currency segment operating profit declined 3%, driven by higher input costs and lower volume, partially offset by positive price mix.

In Asia & Latin America, fourth quarter organic net sales declined 7%. In Asia, net sales were down double digits, driven by reduced traffic in foodservice outlets and Haagen-Dazs shops. This headwind was partially offset by double-digit net sales growth on Wanchai Ferry dumplings in China. Importantly, we saw traffic in our China shops improve over the course of Q4, from down 90% year-over-year in February to down roughly 15% in May. Net sales in Latin America were up mid-single digits in the quarter, driven by double-digit growth on Yoki meals and snacks in Brazil. For the full year, Asia & Latin America organic net sales were down 2%. Fourth quarter segment operating profit declined $47 million to a loss of $24 million, driven by net sales declines on the segment’s higher-margin businesses, as well as higher SG&A expenses. Of note, Haagen-Dazs shops have a significant fixed cost structure and we expect the segment’s profit margins will improve as economies further reopen and shop traffic is restored. For the full year, segment operating profit decreased 73% in constant currency.

Slide 22 summarizes our joint venture results in the fourth quarter. Cereal Partners Worldwide posted top line growth for the seventh consecutive quarter, with constant currency net sales up 13%, including the impact of increased at-home food demand due to the pandemic. CPW’s growth was broad-based, led by Brazil, UK, Australia and the continental Europe region. CPW continued to compete effectively, including gaining market share leadership in its continental Europe region and in Brazil. Haagen-Dazs Japan net sales declined 13% in constant currency, driven by lower volume. Fourth quarter combined after-tax earnings from joint ventures totaled $34 million, up 68% from a year ago, driven primarily by CPW’s volume growth, positive price mix, and phasing of brand investment.

Turning to total company margin results, fourth quarter adjusted gross margin increased 80 basis points, driven by favorable price mix, including growth from higher margin North America Retail and Pet segments, and strong HMM savings more than offsetting COGS inflation, partially offset by increased supply chain costs related to COVID-19. Full-year adjusted gross margin was also up 80 basis points. Adjusted operating profit margin in the quarter increased 40 basis points, driven by the increase in adjusted gross margin, partially offset by higher SG&A expenses, including media investment. As Jeff mentioned, full-year adjusted operating profit margin increased 40 basis points to 17.3% of net sales.

Slide 24 summarizes other noteworthy Q4 income statement items. Unallocated corporate expenses including certain items affecting comparability increased by $91 million in the quarter, driven by higher compensation and benefits expenses. Net interest expense decreased $6 million, driven by lower average debt balances. The adjusted effective tax rate for the quarter was 19.1% compared to 20.6% a year ago, driven by certain discrete tax benefits in fiscal ’20 and a more favorable mix of earnings by market. And average diluted shares outstanding were up 1% in the quarter.

Our full-year financial results are outlined on Slide 25. Net sales of $17.6 billion increased 5%, including approximately 2.5 points of growth from the combination of the 53rd week and the extra month for the Pet segment. Organic net sales increased 4%, including an estimated 3 points of growth from the impact of COVID-19. Adjusted operating profit for the year totaled slightly more than $3 billion, up 7% in constant currency driven by higher net sales, partially offset by higher SG&A expenses, including a 15% increase in media investment. Fiscal ’20 adjusted diluted EPS of $3.61 were up 12% in constant currency, primarily driven by higher adjusted operating profit, lower net interest expense, a lower adjusted effective tax rate, higher non-service benefit plan income, and higher adjusted after-tax JV earnings, partially offset by higher average diluted shares outstanding.

Turning to the balance sheet and cash flow, full-year operating cash flow totaled $3.7 billion, up 31% from the prior year, primarily driven by changes in current assets and liabilities tied to core working capital, as well as higher net earnings. The increase in operating cash flow included both structural improvements as well as timing benefits related to COVID-19-driven volume increases in Q4. We expect these timing benefits will largely unwind in fiscal ’21. Our core working capital balance totaled negative $206 million, down $591 million from a year ago, driven by increases in accounts payable from continued terms extension and increased spend to service demand, as well as lower inventory balances stemming from ongoing reduction efforts and from servicing higher demand in Q4. We expect the portion of core working capital improvements tied to elevated fourth quarter demand to largely unwind in fiscal ’21.

Capital investments for fiscal ’20 totaled $461 million. Full-year free cash flow totaled $3.2 billion, up 42% from a year ago, and free cash flow conversion was 143% for the year. This strong free cash flow performance enabled us to pay $1.2 billion in dividends, reduce debt by nearly $1 billion, and end the year with a leverage ratio of 3.2 times net debt to adjusted EBITDA, which was well ahead of our original goal of 3.5 times. Turning to fiscal ’21, we’ve outlined some key topline assumptions on Slide 27. The largest factor impacting our performance this year will be relative balance of at-home versus away-from-home consumer food demand. This balance will be determined by factors such as consumers’ ability and willingness to eat in restaurants, the proportion of people working from home, the reopening of schools, and changes in consumers’ income levels. While the pandemic has significantly influenced each of these factors in recent months, the magnitude and duration of its future impact remains highly uncertain.

We expect consumer concerns about COVID-19 virus transmission and the potential for a protracted recession will drive some level of elevated food demand at-home this year, relative to pre-pandemic levels. We are tracking factors such as the level of virus control and potential for a resurgence, the availability of a vaccine, GDP growth, unemployment rates, consumer confidence, and wage growth to assess the level and length of this elevated at-home food demand. One consideration we know with certainty is that calendar differences, namely the comparison against the 53rd week and the extra month of Pet results in Q4 of fiscal ’20 will reduce full-year fiscal ’21 net sales growth by approximately 2.5 points. Between the calendar differences and the significant surge in demand we saw last quarter, we expect F ’21 fourth quarter net sales to be down materially year over year.

We’ve outlined some important fiscal ’21 financial assumptions on Slide 28. We expect this to be a dynamic year, and we will need to maintain our agility to service demand and manage our expenses. Our objective is to maintain margins roughly in line with fiscal ’20 levels. We expect to deliver HMM savings of approximately 4% cost of goods, while input cost inflation is expected to total approximately 3% of COGS. We also expect to incur meaningful incremental costs to service elevated demand, and we plan to further step up investments in brand-building and growth-driving capabilities.

Below the line, we expect net interest expense of approximately $430 million, an adjusted effective tax rate roughly in line with the fiscal ’20 rate, and full-year average diluted shares outstanding to increase by about 1%. And as Jeff mentioned, we expect to make further progress on lowering our net debt to adjusted EBITDA ratio.

With that, I’ll hand it back to Jeff to close our prepared remarks with our fiscal ’21 priorities.

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

Thanks, Kofi.

Let me reiterate our key priorities for fiscal ’21 outlined on Slide 29. First, while consumer demand will depend largely on external factors, we will focus on what we can control, namely, to compete effectively everywhere we play. We expect that continuing to demonstrate superior execution will lead to increased brand penetration, competitive service levels, strengthened customer partnerships, and market share gains in our key categories. Second, we will drive efficiency to fuel investment, leveraging our HMM initiatives and volume leverage to fund increased spending on our brands and capabilities, higher costs to service demand, and higher ongoing health and safety expenses. Finally, we will reduce our leverage to increase our financial flexibility.

To achieve our fiscal ’21 priorities, we will need to focus across the enterprise in several key areas including brand building, innovation, and strategic capabilities. Bold brand-building is the lifeblood of a consumer products company, and we have plans in fiscal ’21 to advance our efforts to meet consumers where they are with purpose-driven brands. For example, we will build on our successful Cheerios Hearts campaign, which features the Heart Healthy benefits of Cheerios through compelling marketing and instore merchandising. On Pillsbury refrigerated cookie dough, we’re renovating the entire line to be safe to eat raw. We’ll drive consumer awareness of this exciting news through media and in-store support, starting this summer. In Pet, we will continue to invest behind our BLUE brand to drive increased household penetration through compare and decide advertising, and we’re launching new advertising to strengthen awareness for our treat portfolio.

In our Haagen-Dazs, our newest global Don’t Hold Back campaign is designed to encourage consumers to create a new kind of extraordinary moment by letting go and being truly present while enjoying the premium quality of Haagen-Dazs ice cream.

Turning to innovation, I have seen us move and innovate faster in recent months than ever before. In fiscal ’21 we will continue to innovate across all aspects of our business, our existing businesses, creating new business, how we work, and how we go to market. Even in a time of uncertainty, we know consumer news and innovation remains critical to our business, so we are planning to bring high-quality new products to market this year, even if quantity may be lower than in years past. For example, in US Snacks we are launching a new Nature Valley Packed Sustained Energy Bar, made from nuts, seeds and fruit, and available in Almond Butter & Blueberry and Peanut Butter & Cranberry varieties.

In US Yogurt, we have a number of new items coming to market in the first half, including Ratio Keto Yogurt, a keto-friendly yogurt with 1 gram of sugar, 2 grams of carbs, 15 grams of protein and 15 grams of fat available in five different flavors including Strawberry, Black Cherry, and Coconut.

In Europe and Australia, we’re launching Old El Paso tortilla pockets, supported by It’s Not Rocket Science, It’s Pocket Science campaign, bringing more convenience and fun to the category and encouraging consumers to add one more taco night to their routine. In Pet, we’ll continue to benefit from new products like Cat Bursts that launched in the past three months, and we look forward to an exciting second-half innovation line-up focused on expanding our portfolio of wet food and treats. We have innovation across many other categories, including new varieties of Cheerios and Lucky Charms, premium versions of Wanchai Ferry dumplings, a new line of Progresso Toppers soups, Pillsbury heat-and-eat cinnamon rolls, decadent Haagen-Dazs fruit varieties, a new Takis line of Totino’s Hot Snacks and many more.

In addition to brand building and innovation, we plan to leverage our scale in fiscal ’21 through enterprise capabilities like E-commerce, Data and Analytics, HMM, Strategic Revenue Management, and food safety and quality that create competitive advantages for General Mills. For example, we drove nearly 50% growth in E-commerce net sales in fiscal ’20, including accelerated growth in the fourth quarter as consumers increasingly turned to this channel for their shopping needs. We pivoted to meet consumers where they were shopping by adapting content on our food websites, such as Bettycrocker.com, to encourage cooking education and drive stronger E-commerce sales. We’ll build on this in fiscal ’21 by further investing in E-commerce and adapting our plans for growth.

As we shared at CAGNY in February, we are also investing behind data and analytics, building a dedicated team with unique skills to unlock significant data-driven opportunities for our business. In fiscal ’21, we’ll leverage tools to enhance our global sourcing capabilities and drive efficiencies in procurement. We’ll use analytics to amplify our strategic revenue management efforts to unlock price/mix opportunities. And we’ll leverage data to personalize our communication and offers to consumers, including utilizing our recently digitized Box Tops for Education campaign.

I’ll close our remarks today with a few thoughts. I am proud of the way we kept our focus on our people and our consumers and delivered superior execution, leading to an outstanding year in fiscal ’20, and we’ve established priorities for fiscal ’21 that will ensure we deliver competitive performance in the short term, while continuing to advance our long-term goals.

In summary, I’m confident General Mills will emerge from the pandemic a stronger company in a position to generate consistent, profitable growth and top-tier returns for our shareholders.

Thank you for your time this morning. This concludes our prepared remarks. I invite you to listen to our live question-and-answer webcast, which will begin at 8:00 AM Central Time this morning and will be available for replay at generalmills.com.

Questions and Answers:

 

Operator

Greetings, and welcome to the fourth quarter fiscal 2020 earnings call.

[Operator Instructions]

As a reminder, this conference is being recorded on Wednesday, July 1, 2020.

Now I would like to turn the conference over to Mr. Jeff Siemon. Please go right ahead.

Jeff Siemon — Vice President Investor Relations

Thank you, Tommy, and good morning, everyone. Thanks for joining us for our Q&A session on our fourth quarter results and full-year results this morning.

I hope everyone had time to review our press release, listen to our prepared remarks and view our presentation materials, which are available on our Investor Relations section.

It’s also important to note that our — in our Q&A session this morning, we may make forward-looking statements that are based on management’s current views and assumptions, including facts and assumptions related to the impact of the COVID-19 pandemic on our fiscal ’21 outlook. 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 virtually with Jeff Harmening, our Chairman and CEO, Kofi Bruce, our CFO, and Jon Nudi, Group President of North America Retail. We’re holding this call from different locations, so hopefully, our technology cooperates and everything goes smoothly.

With that, let’s go ahead and get to the first question. Tommy, can you please get us started?

Operator

[Operator Instructions]

And we’ll proceed with our first question on the line. It’s from the line of Andrew Lazar with Barclays. Go right ahead.

Andrew Lazar — Barclays — Analyst

Good morning, everybody and thanks very much for all the change in the earnings release format this morning, very helpful.

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

Good morning, Andrew.

Kofi Bruce — Chief Financial Officer

Good morning, Andrew.

Andrew Lazar — Barclays — Analyst

Maybe to start, I was hoping to focus on sort of the underlying business momentum, if I could, and I know it’s a little harder to get at now, obviously, given everything that’s going on. But I think on the third quarter call, General Mills had said that excluding the pandemic impact, it would be at the low end of its full-year organic sales growth range of 1% to 2%, and I think that Blue Buffalo coming into the base adds about 1 point. So I guess, underlying business trends, at least as of 3Q, roughly, call it, flattish, your expectation for the year. So I think my question was, again, excluding the pandemic, I guess, would General Mills have been considering fiscal ’21 to kind of still be somewhat of an incremental reinvestment year to really shore up sort of organic growth and build on the recent improvements you’ve seen in categories like snack bars and yogurt and things like that?

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

Yes, Andrew, your math is right on that. And as I’ve said before, we try to stay in the middle of the boat, and one of the ways we do that is by continuing to reinvest in our business. And you see the results in the fourth quarter included a pretty significant step-up in our marketing spending. And actually, we think our strength at the beginning of June, especially in North America Retail, is due to the fact that we are spending money on marketing because our promotion levels are actually down in June and our growth is still double digits.

And so we believe in investment and marketing, and you saw that in the fourth quarter, and you’ll see that again in fiscal ’21. You’ll also see investments for us in capabilities, particularly on the data and analytics side, to drive both our sales growth through things like E-commerce and strategic revenue management as well as cost savings projects, like procurement. And so whether COVID or not, we had planned to reinvest some of the earnings growth back into sustained top line sales growth, and that is our plan going into next year currently.

Andrew Lazar — Barclays — Analyst

And then I guess, lastly, it’s really on inventory, specifically at the consumer pantry level. I think in today’s release, you mentioned that there’s the potential for sort of pantry inventory drawdowns moving forward, and I’m curious if this is simply a pet food comment, which I think would make sense, or a broader portfolio comment. Because to me, I guess, it seems that consumers have been both consuming and replenishing a lot of your center store products rather than stocking up, so I’m just curious if that’s something that you’re already starting to see or anticipate in fiscal ’21, or more of a broader just, hey, at some point, just given how strong shipments have been, we should just keep an eye on for this. If you get my — what I’m asking.

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

Yes. So Andrew, let me answer broadly and then — specifically on Pet, and then I’ll have Jon Nudi answer more specifically on North America Retail. Broadly, as you can see in the strength of the Nielsen data on the human food side, month to month to month, while there certainly was a stock up in March, and you can see that in the data, consumers are clearly still buying and eating through the stock that they have on hand. And so that is consistent with what we thought would happen at the beginning of the quarter when we saw the stock up, and in fact, it happened throughout the quarter. And again, it continues into June with some double-digit growth on the human food side of the business.

On pet food, we saw something different, and again, consistent with what we expected, which is, given that pets don’t eat a tremendous amount at restaurants, we thought that there would be — when we saw the stock-up in March, people were asking us is this because there is a lot of dogs coming out of shelters. And the answer is no, people are just stocking up, and we expect that to reverse in April and May. And largely, it has reversed in April and May. There may be a little bit more to unwind as we begin our new fiscal year in the pet food category, but a lot of that has unwound already. And so what we see in Pet is different than what we see in the human food side, which — both of which we expected.

And Jon Nudi, anything specific you’d like to add on that?

Jonathon J. Nudi — Group President, North America Retail

Yes. Thanks, Jeff. And good morning, Andrew. So maybe I’ll touch on consumer inventory levels or pantry levels, and I’m sure a question on many people’s minds too are just customer inventory levels, so maybe I’ll go there as well. So from a consumer standpoint, at least in North America, we believe that the majority of the product that we’ve moved to consumers has been consumed. We do believe that consumers are keeping slightly higher levels of inventory in their pantries, but we do expect that to continue, obviously, as it’s a really dynamic environment with the pandemic still raging across the country.

From a customer standpoint, we did see a drawdown in customer inventories over Q4. I guess, just to quantify, so for Q4, our organic growth was 28%. Our movement was higher, though, in the US, so it was up 37%, in Canada, it was up 20%. And really, that difference was all driven by retailers pulling down inventories, obviously, trying to keep products on the shelf. We would expect that to come back at some point in fiscal ’21. At this point, we don’t have a great idea of when or to what extent it will come back. But definitely, we saw retailers pull down inventories during Q4.

Andrew Lazar — Barclays — Analyst

Great. Thanks so much for that everybody.

Operator

Thank you. We’ll get to our next question on the line. It’s from the line of Ken Goldman with JP Morgan. Go right ahead with your question.

Ken Goldman — JP Morgan — Analyst

Hi, good morning. Thank you. And I second Andrew’s comments. I do like this format, so hopefully, we’ll keep it going ahead. I did want to ask two questions, if I can. First, you mentioned some headwinds to your operating margin in fiscal ’21. You talked about some higher input costs, supply chain costs, spending on brands and capabilities and COVID-related costs. Is it possible to sort of bucket or rank order these, just so we kind of get a sense of which are going to be the bigger headwinds and which are going to be maybe some of the smaller ones?

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

Kofi, you want to field that one?

Kofi Bruce — Chief Financial Officer

Absolutely. So I think great question, and good morning. As you look at these, we would reference, first, is we’re coming out of our Q4. We did see higher operating costs as well as COVID-related costs. The split between those two is roughly — we had about $100 million in higher sort of COVID-related costs, I would say. The split between those two is two-thirds and one-third, with two-thirds being comprised of the operating costs, things such as crewing, external supply chain, trucking premiums, and then on the other side, the wellness costs, everything from personal protective equipment, wellness policies. So we would expect that to be a continued headwind as we step into F ’21 as a portion of those costs will continue.Obviously, we can’t quantify that because a lot of that will be tied to the pandemic, the pace of the virus spread and, obviously, the pace of demand to the extent that the operating costs are directly tied to our ability to source product. So that get at your question?

Ken Goldman — JP Morgan — Analyst

Yes. That’s perfect. I’ll follow up with more details later, but that’s helpful. For a quick follow-up, we’ve heard some rumblings in the industry that maybe some retailers will get a little bit more aggressive on pricing in the back half of the calendar year, just to help out some of the consumers that may start to struggle more as unemployment lasts longer and perhaps some of the stimulus checks fade, and I’m just curious if you’re hearing anything similar. It doesn’t necessarily make sense for me for retailers to be pulling down prices right now. I’m not sure in an environment where they’re out of stock that’s the most logical maneuver. But I’m just curious if you’re hearing anything along those lines that you can share with us, or whether that’s misguided.

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

So Jon Nudi, you want to field that?

Jonathon J. Nudi — Group President, North America Retail

Sure. So good morning, Ken. In terms of promotional support, obviously, in Q4, we saw retailers pull back in promotion as the focus was on keeping products in stock. As we moved into May and early June, we saw our promotional levels get back to more normal levels in most of our categories. And as we look to plan through the rest of the year, we’re planning on normal levels. So we have not really been faced with any asks for deep discounts or deep promotional pricing. The one thing I would add is, there are certain categories that we are constrained from a supply chain standpoint and capacity standpoint.

So even if there was a desire to go harder from a promotional standpoint, we just don’t have the capacity to do that. So I think that’s going to be a limiting factor across many of our categories. So I guess, to answer your question specifically, we have not had those discussions, and even if they come, again, I think we’re going to be limited with what we can do.

Ken Goldman — JP Morgan — Analyst

Great. Thanks, everyone.

Operator

Thank you very much. We will get to our next question on the line. It’s from Chris Growe with Stifel. Go right ahead with your question.

Christopher Growe — Stifel — Analyst

Hi, good morning.

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

Good morning, Chris.

Christopher Growe — Stifel — Analyst

And I will third that, if that’s the right word, for appreciating the new format. So thank you for that as well. I do want to ask in terms of the decision not to provide guidance for the year. You have given a lot of components and things that help us get there, if you will, but — and I’ll note that there’s a lot of volatility in the business, no doubt. As I think about giving an indication of roughly a flat operating margin for the year, I’m just curious, as you look at the volatility in the business, sort of where you get that confidence? Is it that — it’s the way you’re going to manage the business this year? Is it that you have a good sense of kind of where sales will shake out, and therefore, you’ve been able to give the confidence in that operating margin outlook for the year? Just curious how you think about that.

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

Yes. Thanks, Chris. This is Jeff Harmening. I’m glad you asked that. First, I guess, I’d like to start by saying the fact that we didn’t issue formal financial guidance is not a reflection of conservatism and it’s not a reflection of lack of confidence, it’s actually an understanding that a big determinant of how much we grow this coming year will be how the pandemic plays out, and that is highly uncertain as it relates to the duration and depth of the pandemic. So I don’t want anyone on the call to read into it that it’s a lack of confidence or actually conservatism.

In fact, we think our business will grow over the first three quarters relative to what it was pre pandemic levels. And that’s because now we’re in a period where people are still staying at home, they’re working from home, many restaurants are either closed or people don’t want to visit. And to a question that Ken Goldman asked earlier, we think that will be followed by a recession. And if you look back to the last recession, General Mills performed quite well. And so we think there will be an environment where we’ll be able to grow for the first three quarters, followed by a fourth quarter comparison, obviously, that’ll be very, very difficult.

The other thing, I guess, to highlight is that our confidence stems from the fact that we’ve executed really well. We’re confident that we will emerge from the pandemic in the last few months as a stronger company. And as witnessed by our share growth in nine of our top 10 categories in the US, by being the third fastest grower in Europe and leading share growth in our categories in Europe and growing in our categories in Brazil and growing Wanchai Ferry double digits in China. So I think — hopefully, what you hear is a company that is confident that the things that we can control, we have a good visibility to.

And I would say on top of that, our marketing is particularly good right now, whether it’s North America Retail and things like Honey Nut Cheerios, or we’re very bullish on Pet and continue to be bullish on Pet after posting another year of double-digit retail sales growth and 18% reported net sales growth in the year. So that’s kind of where we — that’s where we stand. And the reason we didn’t provide guidance was because the environment is so unpredictable with the pandemic, that’s why.

Christopher Growe — Stifel — Analyst

That’s a good answer. Thank you for that. Just a quick follow-on to that. So the — you’ve talked about generating efficiencies to incrementally invest in the business in fiscal ’21. You have HMM savings coming through of around 4% of the cost to goods sold. You got inflation around 3%. Is that the gap that you hope — or part of which you hope to reinvest? And is it — if we think about generating efficiencies, is that incremental to what you expect for HMM right now? You hope to have even more savings to invest? Just want to see if you can kind of frame that opportunity.

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

So Kofi, why don’t I leave that one to you?

Kofi Bruce — Chief Financial Officer

Sure. Absolutely. Hey Chris, how are you? Yes, we are expecting to reinvest a portion of that gap in capabilities. But as you can imagine, and to my earlier question to Ken, I think the challenge in operating in this environment is that demand and demand for at-home food is probably the single hardest thing to predict. And so we will be focused on managing the middle of our P&L so that we can deal with the potentially higher operating costs. And so as we think right now, we have that balanced. And we think the capabilities investments will help us advance our long-term goals. I don’t want to quantify those for competitive reasons, but they’re meaningful enough for us to continue to make progress on our capabilities. So I hope that gets at your question.

Christopher Growe — Stifel — Analyst

It does. Thanks so much for that color.

Kofi Bruce — Chief Financial Officer

You bet.

Operator

Thank you very much. We’ll get to our next question on the line from Alexia Howard with Bernstein. Go right ahead.

Alexia Howard — Bernstein — Analyst

Good morning, everyone.

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

Good morning.

Kofi Bruce — Chief Financial Officer

Good morning, Alexia.

Alexia Howard — Bernstein — Analyst

Hi. So two from — firstly, on the incentive compensation, I assume that was a fairly big step-up this quarter, given the strength. I was wondering if you were able to roughly quantify how much that inflated the SG&A line this time around. And then thinking out through fiscal ’21, how does incentive compensation work for next fiscal year if there’s no guidance and no formal sort of goals at this point? And then my follow-up question is that you mentioned as one of your goals the desire to reduce leverage further to increase financial flexibility. Does that mean that your M&A pipeline is that — or that you are actively out there looking for potential deals? And if so, in which areas are you perhaps looking most closely to do that? Thank you.

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

So Kofi, let me — I’ll have you field those series of questions from Alexia.

Kofi Bruce — Chief Financial Officer

Okay. Thanks. Hi Alexia, how are you doing? So I would say — let me start first with incentive, and I would say, it is a big driver, obviously, in the quarter in our SG&A line. So it is obviously a tailwind this year — or excuse me, a headwind this year, and we would expect it to be a tailwind next year. Obviously, I can’t go into a tremendous amount of detail, but just know that we will be effectively setting our targets based upon a dynamic environment. And all companies are dealing with this, but we would expect, based on everything we know right now, for this to be a tailwind.

All things being equal, on leverage, we’re pleased with the progress we’ve made on debt leverage. I think at the start of the Blue Buffalo acquisition about two years ago, we had a target to get down to 3.5 times by the end of this fiscal year. We are at 3.2 times. So we are pleased to be slightly ahead of schedule and on pace to get to our long-term goal of 3.0 times. I think at that point then, we will start to look at resuming our normal capital allocation policies with the first priority being focused on increasing the dividend rate.

Jeff Siemon — Vice President Investor Relations

Alexia, this is Jeff Siemon. I would just add a quick color on the incentive piece. We always plan versus our internal plan, and incentive at the beginning of the year would be 100 [Phonetic] payout. If we beat our plan, that’s a headwind in the year, but obviously, good news for our shareholders as we would have exceeded our goals. That’s what played out in ’20. We have an internal plan for fiscal ’21. And so assuming we deliver that plan, we’d be paying out less than we did in ’20. But obviously, if we beat our plan, that could change.

Alexia Howard — Bernstein — Analyst

Great. Thank you very much. I’ll pass it on.

Operator

Thank you. We will get to our next question on the line from Dara Mohsenian with Morgan Stanley. Go right ahead.

Dara Mohsenian — Morgan Stanley — Analyst

Hey, good morning, guys. Hope all is well. So Jeff or maybe Jon, obviously, a large step-up in consumer demand in NA Retail post-COVID. There’s obviously some increased trial there. Can you spend some time discussing how much of the higher demand was due to new trial of your products based on your consumer survey work and bringing new customers in? And as you look going forward, longer term, your ability to potentially hold on to those customers and what the strategies would be to do so? Thanks.

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

So let me start with this question, and then I’m going to pass it over to Jon Nudi to provide some added detail.

One of the things I’m proud of our company over the last three months, especially in North America Retail, is that we have gained penetration across all of our categories. And if you look at 52 weeks, which is even a better way to look at it, all but maybe one category, we’ve increased household penetration, which is the highest correlation of growth. And so I’m really pleased with what our team has been able to do. Obviously, it varies by category.

So Jon Nudi, do you want to provide any color or any insights?

Jonathon J. Nudi — Group President, North America Retail

Yes, absolutely. So I guess, when you look at penetration, we do believe it’s important to take a longer view. So as Jeff mentioned, when you look over 52 weeks versus pre-pandemic levels, we grew penetration at the majority of our categories. Importantly, too, we outpaced our categories in terms of our performance and the penetration we are growing. The highest growth in penetration were in areas — in our meals and baking areas, so things like soup, Pillsbury refrigerated baked goods, desserts and flour, and we saw some significant gains. And for us, 2 points of penetration equals about 2.5 million US households. So again, it’s significant.

And importantly, too, it’s — when you look at it a year ago, we grew penetration in seven of our top 10 categories. So again, it’s not just prior to the pandemic. Versus a year ago, we’re growing overall in the majority of our categories. And we’re starting to look at repeat. I would say it’s still early days, and again, we need a bit more time to really understand that. But repeat amongst our new households is strongest and really outpacing our categories as well. And what’s exciting to us, again, our highest repeat rates are in things like Cheerios, the franchise, Cheerios franchise, Pillsbury RBG, desserts, Annie’s Mac and Cheese, and Old El Paso. So we worked hard over the last decade, frankly, to really improve our products, whether that’s improving the ingredient deck, making sure that they tasted the best they possibly could. And we think that many consumers are trying our products for the first time or coming back after many years and finding a better experience. And we think that’ll bode well for us as we move into fiscal ’21 and beyond.

Dara Mohsenian — Morgan Stanley — Analyst

Okay. That’s very helpful.

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

And I would like to add on to Jon’s comments that everything that Jon said about North America Retail is also true for all of our categories in Europe as well as our Wanchai Ferry business in China, which saw significant penetration gains, as well as our at-home business in Brazil, which is the vast majority of our Brazilian business. And so whether you look at North America Retail or Europe or China or Brazil, our major markets, we’ve experienced strong penetration gains in all of our at-home businesses.

Dara Mohsenian — Morgan Stanley — Analyst

Okay. Great. And then can you also touch on E-commerce performance in the quarter and the changes you’ve made in that business to take advantage of higher channel growth online from a category perspective going forward?

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

Well, if we — yes, sure. If we look at E-commerce broadly across the company, it’s roughly 9% of our sales as we enter — as we exit the fourth quarter with a significant increase. And in all of our geographies and the vast majority of our categories, we over-index online versus bricks-and-mortar, and there are two reasons for that. One is that we’ve been investing in E-commerce for a number of years, and the second is that we have really good brands, and we have a lot of the biggest brands. And when you’re shopping online, those are the brands that tend to do well. And so for both of those reasons, we have seen an outsized growth in E-commerce over this period as we look globally.

It’s been particularly acute in the US. And Jon Nudi, do you want to comment a little bit on what we’ve seen in terms of US growth in E-commerce?

Jonathon J. Nudi — Group President, North America Retail

Yes. Sure, Jeff. So specifically for the US, we saw a 250% increase in our E-commerce business in Q4. Importantly, now almost 50% of all US households have purchased food and beverage products over the last year. So again, that’s a significant step-up of about 7 points versus the prior year from a penetration standpoint. And probably the biggest limiter in terms of why the growth couldn’t have been even higher is just our retailers and their capacity to really deliver to consumers’ homes and even click and collect the number of slots that they had. So we’re working with our retail partners to make sure that we optimize our E-commerce business with them, increasingly really connecting into their data and making sure that we take an omnichannel approach to making sure whether the consumer wants to shop in the store or shop online, they’re seeing consistent campaigns, and then really working from a supply chain standpoint as well to make sure that we can deliver products to our consumers — to our customers who will ultimately get it to our consumers.

So we’re excited about E-commerce, and as Jeff mentioned, we’ve been working on this for multiple years, and it’s really paying off. In the US alone, we have a 1-ton index to bricks-and-mortar. So again, to the extent we sell more online, that’s good for us.

Dara Mohsenian — Morgan Stanley — Analyst

Great. Thanks, guys. Appreciate it.

Operator

Thank you very much. And we’ll get to our next question on the line from John Baumgartner with Wells Fargo. Go right ahead.

John Baumgartner — Wells Fargo — Analyst

Good morning. Thanks for the question.

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

Good morning, John.

John Baumgartner — Wells Fargo — Analyst

Jeff or maybe Jon, I wanted to ask about product mix. You had the drag in Q4 from the comp at Buff and the composition of the tonnage at NAR. But if you step back and think more structurally, one of the things we hear from investor is that there isn’t any pricing power in food. But to the extent that the innovation is on trend, you’re margining up already with new products at Buff and in snacks and yogurt, how do we think about your capacity to capture stronger mix on a consistent basis across your portfolio in a COVID world, even if the flexibility to move list prices may not be ideal?

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

So as we think about it as a company, what you saw is positive price/mix in the fourth quarter because we sold a lot more through North America Retail and we sold a lot more through pet food. And so to the extent that we keep growing Pet, and we certainly plan to do that, and we see elevated demand in North America Retail, that actually bodes pretty well for price/mix as we think about it on a company level. It gets more complicated when you look within a geography. But let me have Jon Nudi answer how it has played out in North America Retail over the last quarter because it’s important, but it’s complicated when you look at it.

Jonathon J. Nudi — Group President, North America Retail

Yes. Thanks, Jeff, and good morning, John. When you look at price/mix, we look at it in two ways. One in the P&L, which is done on a per-pound basis, and then also in Nielsen, which is on a per-unit basis. And you saw some very different things in Q4 if you look at those different ways. So from a P&L standpoint, through the first three quarters, our price/mix was actually flat, and again, that’s on a per-pound basis. And Q4, to your point, it was down 7 points, so it was a significant drag, but it was 100% driven by mix as we sold heavier products, so things like soup, desserts and flour, as well as larger-sized packs as consumers really moved that way.

When you look at Nielsen though, on a per-unit basis, we actually saw an increase in price/mix in Q4, really driven by less promotion and favorable customer mix. So we feel like there is some pricing power out there. And one of the things, again, we’ve worked hard at over the last few years is strategic revenue management, really building a toolbox that allows us some different levers to pull given the environment. So I think as we look towards fiscal ’21, you’ll likely see less list pricing, just as inflation won’t warrant it, it will be obviously a competitive environment and value will matter, but things like price pack architecture and mix will be things that we focus on. And the good news, again, having been at this a while, we’ve got a pipeline of ideas in our toolbox that we’ll be able to execute against. So we continue to expect to drive price/mix in fiscal ’21, it’ll probably just look a little different than how we drove it in fiscal ’20.

John Baumgartner — Wells Fargo — Analyst

And I guess just to build on that and maybe coming back to Jeff, thinking about Buffalo, some of the price-per-pound premiums on the new products in wet and treats have been pretty sizable versus the base portfolio. Is there anything you’re seeing out there where there’s an elasticity for consumers or kind of a pull back on pricing? Or do you feel as though there’s still a runway to go with the mix premiumization as long as the innovation is on trend?

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

Yes, with regard to Pet, we think there’s a ways to go. And if you look at the growth of the Pet category, first of all, the Pet category is growing mid-single digits, and it’s primarily on pricing. And the part of the category that’s growing the fastest is the premium part of the category. So we certainly think there is a place to play there. And Blue Buffalo, we believe, is the best equity in that premium space, and I think our growth over the last couple of years would add some credence to that. We also know that people care deeply about their pets, and especially in a time of high anxiety, which I think, under any circumstance, you could qualify this as a time of high anxiety, people rely on their pets, and the last thing they want to do is cheat their pets and the source of comfort.

So what we see in the marketplace, whether it’s through recession or whether it’s through a time like this, is that one of the last things that people are interested in skimping on are their pets. And so they don’t do that, and we see that being played out in the market right now.

John Baumgartner — Wells Fargo — Analyst

Great. Thank you.

Operator

Thank you very much. We’ll get our next question on the line from Jason English with Goldman Sachs. Go right ahead.

Jason M. English — Goldman Sachs — Analyst

Hey, good morning, folks. Thank you for sliding me in and congrats to you and your teams for navigating this very turbulent situation, especially kudos to your supply chain. I got to believe this is very challenging for them. My questions, I guess, we just closed on Pet, so maybe we could pick it back up there. There’s obviously a lot of noise in reported results this quarter because of what you’re comping and the extra days. Can you give us a beat on how retail sales are tracking across all channels in the quarter and what you’re seeing so far as we roll into the new fiscal year?

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

Yes. So thanks, Jason, and appreciate the support for how we’ve executed in the last quarter. We feel really good about it. As you said, our supply chain has held up remarkably well, and we’ve driven that — those supply chain gains all the way through our sales organization to our customers and feel very good about how we’ve serviced the business and serviced demand in a time when people really need it.

When we look at Blue Buffalo, let me take a step back, for the year, we grew reported net sales 18%. Through three quarters, we were up 11%, and in the last quarter of the year, we believe that our retail sales were up somewhere in the high single-digit range. And so for the year, we had guided to 8% to 10% like-for-like growth, and we’re confident we exceeded that somewhere about the 12% range. So for the year, we over-delivered on what we said we would. We feel great about that. In the fourth quarter, you’re right, there is a ton of noise. The retail sales look like they’re up high single digits. And again, that’s still share-leading growth for the category, a category that’s up mid-single digits. So we’re really pleased, even amongst the noise, with our performance on Blue Buffalo in the fourth quarter.

Jason M. English — Goldman Sachs — Analyst

That’s super helpful information. Thank you for that. And turning back to your North America Retail portfolio, as we look at the Nielsen data, your TDPs are down a lot. Your average items per store are down a lot, as they are across the industry. And we’ve heard from a lot of different companies about SKU rationalization, streamlining portfolios to really maximize capacity. Can you touch on how much streamlining you’ve accomplished? And how much of that streamlining you think you’ll be able to sustain? Or when, if at all, do you think you’re going to start to layer back on those products?

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

So Jon Nudi, why don’t you take that, and maybe touch on not only the streamlining of distribution but maybe a couple of other actions we’ve taken to help make our supply chain more efficient?

Jonathon J. Nudi — Group President, North America Retail

Yes, absolutely. So good morning, Jason. Yes, obviously, if you look at distribution in Nielsen, it’s a bit of a wild picture right now as there’s out of stocks and other things happening as well. I guess, if you think about our business, and we compete across 25 different categories, in the majority of our categories, from a capacity standpoint and a service standpoint, we’re in pretty good shape at this point. Our supply chain has done a terrific job keeping our plants running and keeping them safe, importantly, for our employees and, obviously, for our consumers with the food.

So in the majority of our categories, we’re back up to pretty healthy service levels and haven’t seen a significant decrease from a distribution standpoint with our retailers. There was a trend prior to the pandemic with retailers really cutting back on the number of SKUs and categories, giving more facings to higher-churning SKUS, and that was really driven by E-commerce and click-and-collect and obviously having the shelf capacity to service that business. So we expect to see that continue.

Now we have a few categories that we have capacity constraints, soup being one of them, desserts being another one, and we’ve temporarily withdrawn a significant number of items. So in soup, progressive soup, we pre-pandemic had something like 80 items, and now we’re down to somewhere around 50. We expect to phase — start phasing some of those back in as we move through the first half of the year. And frankly, some of them probably won’t come back. So again, I think we will take the opportunity to make sure that we have an efficient portfolio and one that works for us and works for our consumers.

Variety is important, though. When you think about soup, everyone has got their favorite soup flavor. So again, we’re going to have to work through that as well. So we feel good about where we are from a distribution standpoint. One of the things that — the metric that we look at is share of distribution because, again, we do expect total distribution points to decrease as we move throughout the year. And we exited the year really improving from a total share of distribution standpoint, and that’s what we’ll continue to stay focused on as we move through fiscal ’21.

Jason M. English — Goldman Sachs — Analyst

Good stuff. Thank you, gentlemen. Be well.

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

Thank you.

Operator

Thank you very much. Our next question on the line is from the line of David Palmer with Evercore ISI. Go right ahead with your question.

David Palmer — Evercore ISI — Analyst

Thanks. Just want to follow up on what we’re maybe seeing in the scanner data lately. It looks like the part that is audited by some of these scanner data companies is showing reduction in display activity, but some of that might be the fact that they’re not auditing that as much. And then I’m wondering if we’re seeing some noise in that percent sold on discount because it looks like, within cereal specifically, that there’s been some increase in percent sold on price discounting, which would seem to run against the times that you wouldn’t need to be doing that. So are you seeing some price reductions going on out there? Is there more competitive activity in cereal? Or is there noise? And then I’ll have a quick follow-up.

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

So Jon Nudi, why don’t you field that one?

Jonathon J. Nudi — Group President, North America Retail

Good morning, David. I would say the short answer is it’s probably noise more than anything. Many of the auditing groups are not going into stores at this point, or if they are, it’s inconsistent in terms of what we’re seeing. So we’re not looking too closely at display facts. And some of the pricing gets really confusing as well. What I would tell you, though, in general, we’re not seeing anything out of the ordinary in terms of pricing on cereal. In fact, we pulled back some of our promotions in Q4, particularly on our Cheerios franchise where we were a bit tight from a capacity standpoint.

So again, we’re not seeing anything abnormal. And I think from a data standpoint, again, the total movement and — it’s something to look at and something that makes sense. I think when you start getting into some of the facts below that, I wouldn’t put a whole lot of stock in it at this point, at least we’re not.

David Palmer — Evercore ISI — Analyst

Got it. Thank you. And just to follow up on the incentives, you talked about how you did above plan this last fiscal year because of the fourth quarter and probably caused some truing up in what you were doing in terms of pay for performance. But I’m wondering, are you making adjustments to your annual targets and how you pay people? Is the Board doing that for you and you down at the division levels? And how are you making those adjustments? Because this has to be viewed as an extraordinary period not just because of Blue and those acquisitions and other counter effects but because of this virus and passing that through the python. Any help on that would be helpful.

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

So David, the Board sets our compensation targets as well as ranges for compensation, and I’m not going to go into the depths of that, only to say that it is based on our sales performance and our operating performance, our profitability performance and weighted equally among those measures, and we pass those kind of things down to our segments. And you’re right, it is a dynamic environment, which requires us to be dynamic in our assessment. And certainly, one of the things we look at as we assess the performance of our businesses is how competitive are they in the marketplace and how efficient were they in being competitive? And that’s why I say we’re really proud of our performance.

And even in areas like convenience and foodservice, which was down quite a bit in the fourth quarter, they actually grew share in the majority of their categories. And so they performed well in the fourth quarter even in an environment that was really, really difficult. And so that’s the way we’ll continue to incent people. Again, it helps us stay in the middle of the boat in driving sales growth, but not at all cost, and making sure we’re efficient while we do it.

David Palmer — Evercore ISI — Analyst

Okay. Thank you.

Operator

Thank you very much. We’ll get to our next question on the phone line from Robert Moskow from Credit Suisse. Go right ahead.

Robert Moskow — Credit Suisse — Analyst

Hi, thanks for the question. I guess, I have two. The one is on the breakfast cereal category. If I look at the data, I’d say it looks good but not great. Retail sales were up about 6% in the past four-week period. It had been up double digit. Jon and Jeff, are you surprised that the category is not growing faster in an environment like this where we’re all kind of stuck at home, we’re not eating breakfast on the go, we have the luxury of time in our homes to prepare longer breakfast for ourselves? Or is this pretty much what you would expect?

And the second question is on first quarter. I understand not giving guidance for the year, but can you give us a sense of the — maybe just North America Retail sales? It looks like, overall, your sales are still up double-digit and probably can stay that way for the next three months in the retail data. Is that a fair assessment for first quarter trends, Jon? Thanks.

Jeffrey L. Harmening — Chairman of the Board and Chief Executive Officer

So let me answer the question on the first quarter trends and to say that, look, the reason we don’t give quarterly guidance is because we’ve never given quarterly guidance, and we’re not going to start now. You’re right, Rob, and I’m glad you pointed it out, our retail sales, if you look at Nielsen, are off to a great start in North America Retail. So it gets back to a question I answered earlier, I think it was from Chris Growe, about the confidence we have. So it’s not a lack of confidence that we’re not providing guidance, it’s really a matter of, for the year, uncertainty, and for the quarter, the fact that we just don’t provide quarterly guidance.

On the question of cereal, I’ll let Jon answer that in detail. But I want you to know I am thrilled that you’re asking a question about the cereal category being good and not great when it’s growing at 6%. So with that, Jon Nudi, why don’t you elaborate on that a little bit?

Jonathon J. Nudi — Group President, North America Retail

Yes, sure. Good morning, Rob. So we feel good about the cereal category and, frankly, even better about our performance. So in Q4, the cereal category grew at 26%. We grew at a similar level. And for the full year, the category grew at 5%. When you go back to even the year prior, we think when you add in non-measured channels, it grew that year as well. So I think the category was heading in the right direction. We like our performance. We’ve grown share in 11 of the last 12 quarters. We’re the clear share leader in the category. We’re doing that by strong — having strong marketing campaigns. In fact, prior to the pandemic, we were having the best year from a share standpoint on cereals in over a decade as we’ve gotten back to the heart health messaging that works really well. We actually for the first time ever changed the shape of the product to a heart for a limited time. That worked incredibly well.

And then our innovation is working as well. We had three of the top five new products in the category last year. So we feel good about the category. We feel good about our performance, and we think we’ll continue to grow nicely in fiscal ’21.

Robert Moskow — Credit Suisse — Analyst

Okay. The market share gains, no doubt, stunning. So congrats on that. And we’ll see how the category does. Thank you.

Jeff Siemon — Vice President Investor Relations

Okay. Tommy, I think we’re going to wrap things here. I know we weren’t able to get to everyone, but we want to make sure that we respect everyone’s time and length on the call. So thank you, everybody, for your time and attention this morning. Appreciate the interest in General Mills, and we look forward to continuing to keep you updated on how we go from here.

If you have follow-up questions today, please feel free to reach out to me, and we’ll make sure we get to you. So thanks, again.

Operator

[Operator Closing Remarks]