General Mills, Inc. (GIS) Q3 2022 Earnings Call Transcript

General Mills, Inc.  (NYSE: GIS) Q3 2022 earnings call dated Mar. 23, 2022

Corporate Participants:

Jeff Siemon — Vice President – Investor Relations

Jeffrey Harmening — Chairman and Chief Executive Officer

Kofi Bruce — Chief Financial Officer

Jonathon Nudi — Group President – North America Retail

Analysts:

Andrew Lazar — Barclays — Analyst

Ken Goldman — JPMorgan — Analyst

Michael Lavery — Piper Sandler — Analyst

Robert Moskow — Credit Suisse — Analyst

Steve Powers — Deutsche Bank — Analyst

Bryan Spillane — Bank of America — Analyst

Alexia Howard — Bernstein — Analyst

Laurent Grandet — Guggenheim — Analyst

Chris Growe — Stifel — Analyst

Ken Zaslow — Bank of Montreal — Analyst

Nik Modi — RBC Capital Markets — Analyst

Presentation:

Operator

Greetings, and welcome to the General Mills Third Quarter Fiscal 2022 Earnings Q&A Webcast. [Operator Instructions] As a reminder, this conference is being recorded on Wednesday, March 23rd, 2022.

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

Jeff Siemon — Vice President – Investor Relations

Thank you, Frank, and good morning, everyone. Thanks for joining us today for our Q&A session on third quarter results. I hope everyone had time to review our press release, listen to our prepared remarks, and view our presentation materials, which were made available this morning on our Investor Relations website. As a reminder, beginning this quarter, we are reporting results under a new segment structure. You can find supplementary information on our website that shows our historical net sales and segment operating profit results recast for this new segment structure.

I’ll also remind you 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 may be discussed on today’s call.

Joining me this morning are Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Jon Nudi, Group President of our North America Retail segment. Let’s go ahead and get to the first question. Frank, could you get us started, please.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Andrew Lazar with Barclays. Please proceed.

Andrew Lazar — Barclays — Analyst

Good morning, everybody.

Jeff Siemon — Vice President – Investor Relations

Good morning.

Jeffrey Harmening — Chairman and Chief Executive Officer

Good morning, Andrew.

Andrew Lazar — Barclays — Analyst

Great. Thank you. So Jeff, maybe if we put aside General Mills’ comments from CAGNY around sort of 3Q expectations and such, I guess the bottom line is the Company still raised its full year outlook above where that initial sort of set of Company forecasts were prior to the start of 3Q despite a very tough environment. So I guess a two-fold question on that. First, what do you think enabled that because I think there has been still ample industry skepticism around the industry’s ability to sort of deal with the current environment as it is.

And then more importantly, I know you’re not going to give sort of detailed guidance for next year until next quarter, but do you think this dynamic of managing through this can hold as you move through fiscal ’23 because the concern I hear from many investors really is that the industry is just sort of kicking the can down the road, so to speak, about when the impact of certain things like costs, particularly in light of recent global events, will ultimately catch up to the Group. That would be my question. Thank you.

Jeffrey Harmening — Chairman and Chief Executive Officer

So Andrew, as I think about this year, I mean, importantly, we ended the Q3 with momentum. And the reason we ended with momentum is because our service levels improved, and as a result, our volume improved more than we had thought even before we were — going into CAGNY. And as we look at the fourth quarter this year, I think it’s important to realize we’re still going to have inflation.

In fact, inflation in the fourth quarter will be higher. Our pricing will also be higher in the fourth quarter. And in line, Q3, our inflation and pricing was in line with what we expected, and so we feel as if we have a good handle on both those items. And then — so then what’s really driving the improvement in the fourth quarter is just a little bit better volume than what we had anticipated given service levels a little bit higher.

We’re also seeing a lot has been made of elasticities. I mean it’s a pretty benign elasticity environment right now, which is not to say there is no elasticity. Certainly as prices go up, there’ll be some level of elasticity, but it’s also important to note that it’s not in line with historical elasticities given this current environment. And so our raise [Phonetic] on the fourth quarter really is confidence in our underlying assumptions around inflation and pricing.

We are, as we said, mostly hedged on commodities through the calendar year, which obviously includes the fourth quarter. And inflation and pricing, we saw that — in pricing, we thought we would get through, and so really has increased confidence in our ability to service the business in the fourth quarter. Now our service levels won’t be as they have historically been. So we’re not anticipating to get all the way back — getting all the way back to that.

As you look at ’23, I mean it’s a pretty volatile environment. And so usually, as you well know, Andrew, we don’t comment even on hedging. We don’t comment on past and current fiscal year, but these are unusual times. And so we thought we’d give a little bit of color into what we have hedged to the calendar year. And what our hedging really does is it mostly buys us time and we will have inflation in fiscal — our fiscal ’23. We will have a significant inflation in fiscal ’23. It just won’t be at the level of the spot prices, at least through the calendar year, you see now in the market.

Operator

Our next question comes from Ken Goldman with JPMorgan. Please proceed.

Ken Goldman — JPMorgan — Analyst

Hi, thanks so much. I wanted to just ask specifically on Pet. For the margin, you know, I think dropped to its lowest level since you bought Blue Buffalo. You talked a little bit about what caused the pressure in terms of input costs, and I assume that those are here to stay for a while, I think you also mentioned higher SG&A. So I’m just curious how do you think about the potential for pricing to start offsetting some of these headwinds. When do you expect sort of the bottom in that margin to be reached, just trying to get a little bit of a better sense for how to view that progression.

Kofi Bruce — Chief Financial Officer

Sure. Ken, I’ll take that. This is Kofi. Thanks for the question. So one of the important things to also think about here is the impact of Pet brands on Pet margins. So that, that is dilutive to the margins this year. There are some specific one-time charges related to purchase accounting flowing through and the — and it’s weighing on the margins as well. So we expect, as we both bringing that more fully into our production system and get it online for HMM that we’ll see those margins improve on the Pet brands business and other acquired brands, excuse me. And then as we step forward, we expect the gap between inflation and pricing to close. So Pet will be a meaningful contributor to the pricing step-up we expect in Q4.

Ken Goldman — JPMorgan — Analyst

Great. Thanks. I like that. Appreciate it.

Jeff Siemon — Vice President – Investor Relations

You bet.

Operator

Our next question comes from Michael Lavery with Piper Sandler. Please proceed.

Michael Lavery — Piper Sandler — Analyst

Thank you. Good morning.

Jeffrey Harmening — Chairman and Chief Executive Officer

Good morning.

Michael Lavery — Piper Sandler — Analyst

I appreciate just even a little peek under the tent for fiscal ’23. I guess maybe I’m pushing our luck here, but would love just to know when you say you’ve got some coverage through calendar ’22, still noted that there’s significant inflation, would that — if things are where they sit now if that holds, would that be an acceleration in inflation or does the coverage give any moderation, maybe just order of magnitude what you’re seeing as far as a little bit of further look ahead.

Kofi Bruce — Chief Financial Officer

Yeah. Michael, thanks for the question, and yes, you might be pushing your luck a little bit. I think it’s fair to say. We expect the inflation to be significant. I wouldn’t want to go much further than that. And I think our expectation at this point in the year would be — a normal policy would be to be about 50% hedged, which is the perspective idea on why we guided you to calendar 2022. So and the goal here is to buy ourselves the time to get actions aligned up and in the market, and frankly, to give ourselves time to read whether or not we see the inflation as being structural.

Michael Lavery — Piper Sandler — Analyst

Okay. Thanks. That’s still helpful. Maybe just a follow-up. On the service levels for pizza and dough and snack, you said you kind of really pushed to get more out the door in the last couple of weeks of the quarter in a short period of time, but your margin performance was still quite good in North America Retail relatively speaking with fairly modest sequential and year-over-year declines compared to what we’ve been seeing. Was it just the pricing that really drove that and obviously it was significant, or is there some other things going on that are just good to keep in mind for how we think about your momentum and margin outlook in that segment?

Kofi Bruce — Chief Financial Officer

Yeah. I’ll start and then I’ll ask Jon to provide any color if I miss anything. So I think you’ve got it mostly right. So we saw pricing actions come in, in the quarter probably towards the middle to tail end of the quarter. So as we go forward, we’d expect that to be a meaningful step-up in this segment, as well as a meaningful contributor, therefore, to step-up for the total company.

On top of that, as Jeff referenced in his comments on the first question, we expect service levels to perform closer to — in line with what they had been trending prior to the quarter. So I think the combination of those two things is what gives us a good portion of the confidence that drove our guidance raise.

Jonathon Nudi — Group President – North America Retail

I think that’s exactly right. So again, pricing and service are the two big things that we’re focused on across our end. Maybe I will spend just a minute to go a little bit deeper on service. Obviously, that’s been a big challenge for us this year, and it’s really evolved as well. At the beginning of the year, it’s really about our distribution centers and logistics of the bottleneck. We’ve done a nice job of staffing distribution centers up and feel good about our ability to move product now.

The biggest issue we’re seeing is really raw material disruptions, ingredients coming into our plants, to run our products. In Q3, it was particularly challenging, particularly in RBG, pizza and hot snacks, so things like fats and oils and starch and packaging. So we spent a lot of time really working as a team to improve on those platforms. We’ve seen an improvement in our case fill and on-shelf availability, but our service levels are still quite a bit below historical levels. We target 98% to 99%. We are in the 70s [Phonetic] overall for Q3. We expect to get better, but not near historical levels. We expect to be in the 80s [Phonetic] as we go into Q4.

So we’ve taken lots of actions, really proud of the team. Supply chain team is doing the yeoman’s work and it’s really one business team working together and we’ve pulled many levers. We started up control towers daily at the working team level. At the senior level, we’re meeting once a week on things like [Phonetic] RBG and hot snacks or other constrained platforms to make sure that we’re removing hurdles or at the senior level getting on the phone with suppliers at senior levels to make sure that we prioritize for ingredients. We’ve adjusted formulations. In some our products, we’ve reformulated over 20 times year-to-date. Every time you make an ingredient change, you have to change the formulation, which is obviously a lot of work by our ITT [Phonetic] teams.

We adjusted freight lanes as well pretty significantly to make sure that we can get to our customers on time. We’ve added capacity on things like OEP, fruit, cereal, potatoes, and we’re adding ESC [Phonetic]. So we’re spending a good chunk of our time making sure that we service our business. We did better. I think as we entered this quarter, we’ve got a lot more work to do, and we’ll stay very focused on that.

Michael Lavery — Piper Sandler — Analyst

Okay. Really helpful. Thanks so much.

Operator

Our next question comes from Robert Moskow with Credit Suisse. Please proceed.

Robert Moskow — Credit Suisse — Analyst

Hi, thank you. Just a couple of quick ones. Jeff, can you talk a little bit about your plans for capacity expansion in this calendar year. I believe you are adding more in refrigerated dough, I wanted some more specifics there and see if there’s any other categories that you’ve been expanded.

And then secondly, I want to know in the flour milling grain merchandising business, do you expect any kind of benefits from dislocation in the grain market? Thanks.

Jeffrey Harmening — Chairman and Chief Executive Officer

So Rob, on the two questions in terms of capacity expansion, I probably won’t go product line by product line. However, I do appreciate the question. And what I will say is that we are certainly willing and will be spending capital to expand capacity on the few of our lines in the coming year. And really the businesses are that we will spend money on are the ones that perform well pre-pandemic and continue to have momentum during the pandemic, and there are actually a number of those.

And so what you’ll see from the — in the coming year is that we will expand capacity on several of our major businesses. I will probably give an update at the end of the year on where we intend to do that, but your question is a fair one and just know that we do. We — our first call on capital is investing in our current business. We have momentum on a number of businesses that we had pre-pandemic and we have during the pandemic.

In terms of the question about flour milling and dislocations, I mean, I don’t know that we’re going to see any benefits. And having said that, I think we’ll have full supply on our grain milling businesses. We’re world-class in that. We’ve been milling flour since 1866. So we have a pretty long history of being able to do that effectively.

Operator

Our next question comes from Steve Powers from Deutsche Bank. Please proceed.

Steve Powers — Deutsche Bank — Analyst

Hey, thanks and good morning, everybody. You — I guess you performed well on HMM cost savings despite the supply constraints that you’ve been talking about. And I guess I’m curious just to what degree you think that HMM cost savings momentum continue, but may actually be able to accelerate to some degree, as those supply constraints abate, and you’re able to focus more on so-called business as usual conditions hopefully into the New Year, just some commentary around HMM would be great?

Kofi Bruce — Chief Financial Officer

I appreciate the question and I’d love for business as usual conditions tomorrow if you’ve got that in your powers. Okay. I think our expectation is HMM is a core capability for us, and we’ve been at it as a discipline really since the start of — close to the start of this century. And we’ve been pretty consistent in delivering mid single digit COGS productivity off of it. I don’t have any concerns about our ability to keep doing that.

What I would expect is that if we — if and when or when I should say we get to and it’s hard to say when that is, when we get to more stable conditions that we will be in a position that HMM will be the lever that allows us to shed a lot of the operating costs that we put on in this environment due to disruption. And so what that will do is allow us to bring our margins, our gross margin back up, as a result of the SRM actions that we’ve taken in this environment to deal with the extraordinary inflation.

Steve Powers — Deutsche Bank — Analyst

Yes. Great. Okay. Thanks. If I could just on fully different tact, just on Pet. I love your perspective on how you expect the category broadly, I mean, your brands specifically, but the category broadly high-end premium pet care, pet food to hold up if we enter a more adverse consumer environment. Just how you think that category has evolved and solidified itself to be able to persevere through a cycle.

Jeffrey Harmening — Chairman and Chief Executive Officer

Yeah. Steve, this is — it’s, we anticipate the category will continue to perform well, and we think that our segment will continue to perform quite well. And even through the last recession, which was a long time ago, one of the things before we even bought Blue Buffalo, we look at how the category performed during a recession and it turns out it performs very well. The last thing you want to do in tough times is, is suboptimize what you’re going to give your pet.

And I would tell you that on top of that, the predominant trend in pet food now, and I think will be going forward is the humanization of pet food. And we’re clearly very well positioned in that area given that we’re the number one natural pet food in the Pet category by a long, long way. And so we believe we have the best brand and the best part of a really good segment and really good category that holds up well during recessions. And by the way as — and as a result, all those things has very low exposure to private label.

Steve Powers — Deutsche Bank — Analyst

Great. Very good. Thank you so much. Take care.

Jeffrey Harmening — Chairman and Chief Executive Officer

Thanks.

Operator

Our next question comes from Bryan Spillane with Bank of America. Please proceed.

Bryan Spillane — Bank of America — Analyst

Thanks, operator. Good morning, everybody. So my question is around elasticity, and I guess, wanted to just get two perspectives on it. Jeff, I think in the prepared remarks, you mentioned — there is a mention about the sort of expectation that this elevated level of demand is — you expect it to stick. And so is part of that just a function that now given, where inflation is just an expectation that consumers just be eating more at home, so we’ve kind of shifted from being at home because of COVID to now eating more at home because it’s so expensive to go out.

And then maybe just a second point, maybe for Jon Nudi, is anything that you’re seeing now in terms of like cross elasticity between channels, so consumers making different choices in terms of maybe avoiding food stores and or convenience stores or just anything that’s going on between channels, as we’re just watching this — the pricing set in. I know there’s a lot there, but would appreciate it.

Jonathon Nudi — Group President – North America Retail

Thanks, Bryan. This is Jon. Maybe I’ll tackle pricing ours [Phonetic] here, and I’ll get to elasticities in just a second. So obviously I talked about supply chain, pricing, the other subject, we’re spending a lot of time on. We do believe that we’re pricing effectively within the market and for each brand it looks different. And one of the things I’m really proud of is the SRM capability, our strategic revenue management capability we’ve built over the last five years or six years under Jeff’s leadership. And our SRM plans will look different for every brand and really go down to the SKU level. It’s an always on capability. We’re looking at what’s coming at us from an inflation standpoint. We’re looking at what’s happening in market. And then we’re leveraging the full SRM toolkit, so that’s [indecipherable] advances, it’s trade optimization, tag [Phonetic] price architecture and mix.

And in the U.S., our measured data or our average unit prices are up a bit more than our categories, and that’s really where we want to be. In many cases, we’re the leaders in the category. We feel like it’s on us to make sure that we have clear pricing strategies. At the end of the day, our goal is to pass those little as needed, but certainly if inflation, we need to take pricing at this point to preserve margins.

So we work closely with the retailers because [Phonetic] pricing is never an easy discussion. Everyone here is facing inflation, though. So again, we can walk in and provide good rationale for why we’re taking the pricing and more importantly, a coherent plan for what pricing will look like in market, we’ve been able to find good acceptance, and more importantly, good reflection in the market. So it’s been a big focus area for us. I feel great about what we’ve done to-date. We have got a road map for each of our brands and down to the SKU level for the future, as well if more pricing is needed.

In terms of elasticity, I mean, Jeff touched on this earlier. I mean, we are seeing elasticity, so again, it’s not like we’re not. This is not at historical levels. We’ve seen elasticities remain pretty consistent quarter-to-quarter. So what we saw in Q3 was consistent to Q2. We expect that to be the case in Q4 number. And we’re going to have more price mix in Q4. So we expect to see a bit more elasticity, as a result, but again, not back to historical levels.

In terms of what’s happening across segments and categories and channels, there’s obviously a lot of noise in the data, everything from product availability to consumer mobility to government support levels and significant inflation away from home channels. It’s really hard to try to parse them out [Phonetic], but we’ll continue to try to do that. But again, the elasticities remain constant, that’s the important thing to remember and not at historical levels as well.

Bryan Spillane — Bank of America — Analyst

Okay. Thank you.

Operator

Our next question comes from Alexia Howard with Bernstein. Please proceed.

Alexia Howard — Bernstein — Analyst

Good morning, everyone.

Jeff Siemon — Vice President – Investor Relations

Good morning.

Jeffrey Harmening — Chairman and Chief Executive Officer

Good morning, Alexia.

Alexia Howard — Bernstein — Analyst

Good morning. Could I — can I ask about marketing and innovation, obviously there is so much disruption going on in the industry, you’ve talked about supply chain issues starting to be resolved, I can imagine there’s a lot of fires to put out right now. But on the underlying marketing, it sounded, as though SG&A was down this quarter. Does that mean that the marketing spending was down, is that likely to remain that way until things get easier on the supply chain. And then also on the innovation side, has that also had to be ratcheted back just because of the current state of play out there in the world. Thank you. And I’ll pass it on.

Jeffrey Harmening — Chairman and Chief Executive Officer

Alexia, I really do appreciate that question. This is Jeff. The — I think the key to remember is that we’ve gained market share in more than 60% of our categories for four years in a row. And there is a reason why we’ve done that, and that’s because we really haven’t cut back on marketing spending or our levels of innovation. In fact, our levels of new product innovation have led most of our categories all over the world, and we’ve actually increased our marketing spending over time. And you can’t just turn on and off marketing spending on brands and have those brands be effective and the same will be true of innovation.

So through this whole pandemic, we — one of the great things we see is that companies that come out of rough periods like we have been through the ones who invest in their brands, whether that’s new product innovation or whether that’s marketing are the ones that are successful. With regard to the latest quarter, the reason our SG&A is down, the number one reason is that our admin costs are down. Our marketing spending is down just a touch, but that really is a reflection of a very short period in time. But broader picture, we’ve continued to innovate, and we continued our marketing, and that’s the reason why we’re growing share pretty much everywhere in the world.

Operator

Our next question comes from Laurent Grandet with Guggenheim. Please proceed.

Laurent Grandet — Guggenheim — Analyst

Hey, good morning, everyone. I’d like to come back a bit on pets and pricing because that’s a question I’ve got from many investors. So first on, what is the price, what is the mix in pet food in the third quarter what — if you can really unbundle those two. And are you seeing pet parents shutting down to smaller pack size, as we are seeing from — for some of the brands. And anything you could share on price elasticity, again, as it’s one of the major concern specifically [Phonetic] for that business from investors. And finally, could you please update us on the split between mass retail and e-commerce and pet specialty impact and what are [indecipherable] here. Thank you.

Jeffrey Harmening — Chairman and Chief Executive Officer

Sure.

Kofi Bruce — Chief Financial Officer

Well, this is Kofi. So I’ll start with the front part of the question on price mix. Just to give you a sense here, we saw about seven points of price mix on Pet in the quarter. And then our expectation is that we’ll see that step-up, as we go forward into Q4. I think the rest of your question was about the channel split, which we may have to get back to you just to verify. I don’t have that at fingertips. Do you have it, Jeff?

Jeffrey Harmening — Chairman and Chief Executive Officer

Yeah. I think Laurent, the — I mean, broadly the channel splits, we’re at about a third and third and third across food, drug and mass, probably a little bit higher on food, drug and mass down maybe closer to 40% and then, e-commerce and specialty maybe about 30% each. So in kind of broad terms, that’s roughly where we are from the channel.

I just wanted to — yeah, to correct [Phonetic] Kofi’s comment on who’s is [Phonetic] looking at maybe on the reported number on the — for Pet on organic basis price mix was plus 13 [Phonetic] in the quarter and that’s a — you’ve got a combination of pricing, which was, we did have some pricing going to the market in the quarter. So we only have a partial benefit of that in the quarter, and then some mix benefit, as you heard us talk about at CAGNY, our Tastefuls launch for instance, on wet cat food. On a price per pound basis, as you know, both treats [Phonetic] and wet food are advantaged relative to dry, and those are growing faster for us, both for Tastefuls as well as from the acquired brands that we’ve had here recently.

Jonathon Nudi — Group President – North America Retail

And you know, Laurent, you asked a couple of other questions, more detailed questions. In terms of elasticity, the Pet category is relatively inelastic even in recessionary periods, it’s relatively inelastic. And you asked about pack sizes, one of the things we’ve seen is that demand has been so strong in the Pet category and we anticipate it going forward. The consumers really are buying what they can find in the shelves, and whether that’s wet food or whether that’s dry food, the availability really is driving consumer acquisition at this point. There’s never really not a trade down in pack sizes. There’s been [Phonetic] trade off in pack sizes, really the availability is the key because the category is so strong, and we believe it’s going to remain strong. And as we said in our kind of opening remarks, as we look at the fourth quarter, our pricing will catch up to inflation, which will have a positive impact on our Pet margins in the fourth quarter.

Operator

Our next question comes from Chris Growe with Stifel. Please proceed.

Chris Growe — Stifel — Analyst

Thank you. Good morning.

Jeffrey Harmening — Chairman and Chief Executive Officer

Good morning, Chris.

Chris Growe — Stifel — Analyst

Just had — hi — just had two quick questions. The first would just be — maybe one for Kofi. As we think about this pricing cost dynamic and inflation picks up, where it’s going to be double digit, I should say, in the fourth quarter, the pricing is accelerating as well, obviously that’s reflected in the guidance. Should we expect the same kind of gross — rate of change in gross margin year-over-year and therefore, should it — should improve sequentially, but should be down still year-over-year, just trying to get some order of magnitude there.

And then, I had a second question maybe more for Jon is on the under shipment in North American Retail here that’s three point gap [Phonetic] you called out this. Does that quantify the sales shortfall in the quarter from the service issues you had. And I guess also, I’m curious about rebuilding inventory. Are you in that — are you still hoping to do that and should you be shipping ahead of consumption theoretically to keep up with demand there. Thank you.

Kofi Bruce — Chief Financial Officer

Yeah. So let me take the first part of your question. I expect the price mix step-up to be meaningful. And obviously, embedded in our range, if you do the squeeze on gross margin would be — is absolutely a sequential improvement and the possibility, obviously of a gross margin increase year-over-year.

Jonathon Nudi — Group President – North America Retail

On the shipments versus consumption question, Chris, U.S. net sales did lag Nielsen measured retail sales growth by three points in the quarter, as you mentioned, really driven by the service issues on RBG, pizza and hot snacks. We don’t expect the shipments to lag sales in Q4. We also don’t expect to rebuild inventories in Q4, and that’s really reflected in our guidance. If we can do a bit better and service levels improve, we might be able to rebuild a bit, but that likely will push into fiscal ’23, where hopefully we can get back to more historical inventory levels.

Operator

Our next question comes from Ken Zaslow with Bank of Montreal. Please proceed.

Ken Zaslow — Bank of Montreal — Analyst

Hey, good morning, guys.

Jeff Siemon — Vice President – Investor Relations

Good morning.

Jeffrey Harmening — Chairman and Chief Executive Officer

Good morning.

Ken Zaslow — Bank of Montreal — Analyst

I just [Phonetic] want to go dig a little deeper into the elasticity question. You said that there’s been a little bit of elasticity. Is it just similar level across all your categories? Or is there spectrum of elasticity, where certain categories are showing zero elasticity and some categories are showing a greater variability of elasticity? And can you talk about either the spectrum or is it flat?

Jonathon Nudi — Group President – North America Retail

Yeah. So this is Jon. It’s — for U.S. and for not a long [Phonetic], we competed in over 25 [Phonetic] categories. We have had obviously [Phonetic] in the U.S. and in our global businesses. And I can tell you, every category is reacting differently. So we are seeing elasticities that vary. There’s not a single category that has zero elasticity though. So when you take price and particularly the levels of pricing that we’re seeing due to the heightened inflation, there are elasticities for sure. Again, there are changes between categories, but at this point, we’re seeing elasticity in everything.

As I mentioned earlier, though, those elasticities are generally holding. So again, they’re not increasing. They’re not getting towards historical levels. They’re holding at lower levels than what we’ve seen in the past.

Ken Zaslow — Bank of Montreal — Analyst

Okay. And then my second question is on data analytics. Can you talk about the speed to which — or the real turn data analytics, the idea that the service levels came back quicker is obviously a positive. Was it — in your understanding, how quick it came back, were you able to understand that it came back in real time? Or was there a lag in the understanding of when it actually occurred? And just kind of figuring that out, has the real time data and your data analytics on real time data analytics improved, changed or stayed the same? And I’ll leave it there. I appreciate it.

Jonathon Nudi — Group President – North America Retail

Yeah. So related to data analytics and this one, I think was pretty simple. So at the end of the day, we had — particularly on RBG, pizza and hot snacks, more demand than supply and was really focused on getting as much as we could out of our plants. And the big issue, again, with not so much capacity on those platforms, those getting the ingredients to get our lines running literally 24 hours a day.

So as we get towards the end of the quarter, we had put a full court press. Our teams did a great job, and we were able to pump out significantly more volume than what we had originally thought, and we ship that directly to customers. So again, through our distribution centers in some cases, in some cases, directly to our retailers. And as a result of that, we were — and we’ll see some stronger sales to end the quarter and ours. So again, it really wasn’t a data analytics thing. It was more about just our ability to run product. And again, our supply team did a terrific job really significantly improving that situation.

Jeff Siemon — Vice President – Investor Relations

Maybe, we have time for one more, Frank.

Operator

Our next question comes from Nik Modi with RBC Capital Markets. Please proceed.

Nik Modi — RBC Capital Markets — Analyst

Yeah. Thank you. Good morning, everyone. Just two quick questions on the consumer. You guys talked about at CAGNY about [indecipherable]. So I just wanted to see if you have any more evolved thoughts on that and what you’ve been seeing.

And then, I guess, given what’s been happening with inflation and just thinking about the consumer, would you guys agree with the statement that perhaps the low income consumer is going to maybe go into a quasi-recession sooner rather than later just given what’s going on with all the external pressures? Or is that not the way you see it?

Jeffrey Harmening — Chairman and Chief Executive Officer

I guess, I would start by saying our — I think our success is going to be determined by how fast we can pivot, as witnessed by Jon Nudi’s latest comment about supply, rather than our ability to predict exactly what’s going to happen in the future. I mean — and I’m not trying to be opaque on purpose. It’s just that there are so many moving pieces. We have some people returning back to the office, yet demand will be greater than pre-pandemic levels for quite a while.

There is a possibility of a recession, but it’s certainly not here yet. There is going to be inflation, but how much that inflation is a couple of quarters from now is yet to be determined. And the state of the consumer and their financial well-being, they’re — consumers are in a good place now. How is that going to look for two quarters from now is difficult to say.

And so I think our ability to be successful over the last couple of years has really been predicated on another ability to determine what’s going to happen next, but our ability to react to what’s happened next. And that’s what I feel great about. And you’ll see that in Pet, you see that in North America Retail, you see it all over the world.

And so as we think about the future, there are a variety of outcomes that are possible. But I will tell you there’s been a variety of outcomes over the last few years, and we’ve been successful through all of them. And so we’re confident that whatever comes at us next, we’ll be able to deal with that, at least as well as our competitors, if not perfectly.

Jeff Siemon — Vice President – Investor Relations

Great. Frank, I think that’s all the time we have today. Appreciate everyone following along, and appreciate the good questions this morning. Please feel free to reach out to the IR team, if you have follow-ups today. Otherwise, wish you a good day, and we’ll talk next quarter.

Operator

[Operator Closing Remarks]