General Mills - Earnings Call - Q2 2026 [Q&A]

Transcript

Operator (participant)

Hello, and welcome to the General Mills Inc. Second Quarter Fiscal Year 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session, and to ask a question, please press star one on your telephone keypad. I would now like to turn the conference over to Jeff Siemon, Vice President, Investor Relations and Corporate Finance. You may begin.

Jeff Siemon (VP of Investor Relations and Corporate Finance)

Thank you, Sarah, and hello to everyone. Thanks for joining us today for our Q&A session on our Second Quarter Fiscal 2026 results. I hope everyone had time to review our press release, listen to our prepared remarks, and view our presentation materials, which we made available this morning on our Investor Relations website. Please note that in our Q&A session, we may make forward-looking statements that are based on management's current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here today with Jeff Harmening, our Chairman and CEO, Kofi Bruce, our CFO, and Dana McNabb, Group President of North America Retail and North America Pet. Now I'm going to turn it over to Jeff for some opening remarks.

Jeff Harmening (Chairman and CEO)

Thanks, Jeff, and good morning, everybody. When we started this year, our primary goal was to increase organic sales, and to do that in conjunction with continuing to outperform on Holistic Margin Management and our transformation initiatives. And those are all reflected in our three priorities for the year. And as you look at our Q2 results, I'm pleased to say that we're really executing well against all of those. And we continue to see improvement in organic sales and continue to do that very efficiently through our HMM efforts and our transformation efforts. And in particular, I look at North America Retail, and we said we would improve our North America Retail volumes through the Remarkability Framework. And that's exactly what we've done. And part of that is pricing. We set strategic-based price adjustments on base pricing and to get under price cliffs.

90%+ of what we've done in pricing that we started talking to you about a year ago has worked as well or better than what we had thought. We're pleased with that. Importantly, the Remarkability Framework doesn't just stop with pricing actions. Our new product innovation is better. We expect it to be up about 25% this year, and we've got a good lineup in the second half. Our product news is really good. Our events have worked harder for us, and our media ROIs are up. As I think about our North America Retail business, it's not really an accident that we're growing pound share in eight of our top 10 categories so far this year.

I'm really pleased with the way North America has improved its momentum this year, in particular how we've seen improved momentum in the second quarter. Then on North America Pet, we said we had to do a couple of things. We need to improve our core business, at the same time incorporate Love Made Fresh. I know there's a lot of emphasis on Love Made Fresh, and rightly so, but I'm pleased with our base business performance. As I look at our Life Protection Formula, we've gained share growth on that. Our Cat business is growing mid-single digits. We're up in pound share on our treats business. We have some more work to do on Wilderness, but otherwise, our pet core business has gained a little momentum too, and we're pleased with that.

As we look at Love Made Fresh, I'm just exceptionally pleased with the way we've started on Love Made Fresh. We're executing very well. We said we'd be in about 5,000 coolers by year-end. I heard yesterday morning that we're in 4,658. We're well on our way to that 5,000, and we'll get there by the end of January. Our Love Made Fresh launch has reached about 5% market share in our earliest first wave customers. We're pleased with that. We prioritize having plenty of inventory across our business on Love Made Fresh because we know that trial is so important for our business. Even if that trial costs a little bit more because we've got too much inventory in one place or another, it's well worth it to make sure that consumers can try our product.

When they try it, they like it. 4.8 out of Five-Star ratings on our products. We know that is the case. We're really pleased with the way we've started. We'll put on additional customers and distribution in the third quarter, as well as launch a new format of the stand-up resealable pouch. Pleased with Blue Buffalo. Then, as we talk about, we're tracking another 5% this year. Pleased with that, as well as our transformation efforts. As we look to the second half, the job to do really is to keep some momentum on the top line. We plan to do that, as well as then turn the corner on profitability.

And as we look ahead, we expect top-line improvement in the second half, and then profit growth in the fourth quarter, thanks in part to favorable trade timing and the 53rd week. So with that, open it up to questions that you all have.

Jeff Siemon (VP of Investor Relations and Corporate Finance)

Great, Sarah. So let's go ahead, and you can start the Q&A. Thank you.

Operator (participant)

Thank you. Again, it is star one to ask a question. If you'd like to withdraw your question, simply press star one again. Your first question comes from Peter Galbo with Bank of America. Your line is open.

Peter Galbo (Director, Head of US Consumer Staples Equity Research)

Hey, guys. Good morning. Thank you for taking the questions. Jeff, I just wanted to pick up on maybe some of your commentary just now in terms of the sustainability of the volume growth in North America Retail. I think there was mention of a bit of maybe some shipment timing benefit in the quarter. But just want to get a sense as we start to look at the comps and looking at the back half of the year, how you're thinking about maybe the sustainability of that positive volume trajectory in North America Retail?

Jeff Harmening (Chairman and CEO)

I've got Dana McNabb here next to me, so I'll have her talk about North America Retail specifically.

Dana McNabb (Group President of North America Retail and North America Pet)

All right. Good morning, Pete. We're really encouraged by the progress that we've made in North America. As Jeff said, eight of our 10 categories are growing pound share. Our pounds grew. But as you mentioned, we did have a little bit of shipment timing benefit. Our Nielsen pounds are about flat. And so we do expect that to unwind a little bit in the back half. So as we look to the second half of this year, we expect to continue to drive category improvement and competitiveness, which is really, I think, all we'll mention about back half to avoid giving any forward statements.

Peter Galbo (Director, Head of US Consumer Staples Equity Research)

Okay. No, helpful. Thanks for that. And Jeff, I think the discussion around price cliff management and solving some of the price gaps has grown even louder in the past week with one of your largest peers also announcing some pretty dramatic price reductions. Just curious kind of how you're viewing the competitive environment, what you're expecting from some of your other peers. Just are we in a phase of the cycle where others are going to have to follow? Kind of what's been a first mover advantage for General Mills? Thanks very much.

Jeff Harmening (Chairman and CEO)

Yeah, I think it's a good question. What I would say is that we haven't really seen an increase thus far in the competitive levels within our category, which is to say that levels of discounting are about the same as they were a year ago, broadly speaking, across our categories. We haven't really seen that. I think when you think about what we have done, there are a couple of things I would say. Going first is fine, but doing it well is even better. And our team has executed the pricing really well. If you think about being in 26 different categories across lots of different customers, it takes a lot to get the pricing reflected in a manner that is consistent with what you're looking for. And so we've done that really well.

But also, I mentioned the innovation and the marketing improvements and the product news because those are really important too. The reason for the pricing is to make sure that the other elements of your marketing mix work as well as you want. And so as we look ahead, we feel great about the other elements of our marketing mix. And so we've got great product news coming in the second half. We shared some of those in the slides. And marketing keeps getting better and better. So as we think about it, we're not too concerned about the competitive environment based on what we've seen thus far. And importantly, on our pricing, we're not getting down to the levels of private label or something like that. We're just kind of getting under price cliffs and kind of getting within a certain range.

And if you look at our price mix in North America Retail, it's down maybe about 3% or so far this year. That's after 30%+ increases over prior years where we had a lot of inflation. So anyway, we feel good about where we're competitively positioned and feel really good about the way that we are executing.

Peter Galbo (Director, Head of US Consumer Staples Equity Research)

Thanks very much.

Operator (participant)

The next question comes from Andrew Lazar with Barclays. Your line is open.

Andrew Lazar (Managing Director)

Good morning, everybody.

Jeff Harmening (Chairman and CEO)

Morning.

Kofi Bruce (CFO)

Good morning.

Andrew Lazar (Managing Director)

Morning. Jeff, in your current quarter, so fiscal 3Q, General Mills starts to lap some of the pricing moves from last year. And I think you've talked about how you anticipate the sort of the gap between volume share, which has been improving, and value share, right, to begin to narrow, which is ultimately necessary to get to overall organic sales growth. So I guess my question is, what specifically should our expectations be in sort of fiscal 3Q and 4Q as to sort of how quickly this gap can narrow as we all kind of assess the scanner data moving forward? And where would you hope to be on this score as General Mills enters fiscal 2027? It sounds like you expect sustained year-over-year volume growth in the back half.

How do we think about sort of price mix and particularly in light of your comments regarding the cost and volume rising a bit? Just trying to get a sense of how to set expectations for how quickly that gap can narrow and when the expectation is to get to sort of absolute organic sales growth, if you will. Thanks so much.

Jeff Harmening (Chairman and CEO)

Yeah, Andrew, I appreciate the question. I would start by saying, I mean, it's a pretty volatile environment. So I'm going to refrain from getting too specific only because there are a lot of things that can come our way. I didn't really see the government shutdown coming in the second quarter or SNAP being reduced. So I mean, there are a lot of things that can come our way. Having said that, we do expect improvement in the second half, and it will be based on price mix as we start to lap some of our initial pricing from last year, although it won't fully be reflected until fiscal 2027. So I think it's important to keep that in mind as well. The other thing is just based on timing.

I talked a little bit in my opening remarks about positive mix in the fourth quarter due to some trade phasing timing, and that'll be positive in the fourth quarter. That'll be a little bit negative in the third quarter, so there's a trade-off between those two quarters, and so what you see in Nielsen may or may not be exactly reflected as what we see in the P&L by quarter, but it'll all work itself out by the end of fiscal 2026. As you look at entering the next fiscal year, I think we're going to see momentum on our core sales business. How high that momentum will be, we will see.

But we feel good about where our pricing is and where the remarkability is kind of across our business, not only North America Retail, which is getting a lot of attention, rightfully so, but we grew in Pet this quarter in Foodservice. But for index pricing, we would have grown in 3% in our North America Foodservice business. We grew in International. And so the gains we are seeing across the board, and I don't think it's coincidental that we're using the Remarkability Frameworks across all of our businesses.

Andrew Lazar (Managing Director)

Thank you for that. I know you're seeing some momentum, obviously, in progress in core pet. I'm just curious what you're seeing in just the overall, let's call it, dog feeding category. I know you've been probably hoping for that broader category to be a little bit stronger than it has been. But what are you seeing there in terms of consumer behavior? Thanks so much.

Dana McNabb (Group President of North America Retail and North America Pet)

Hi, Andrew. This is Dana. I'll jump in and answer that question. If we look at the pet category, what we'd say is the category was up about 1% in Q2. Pounds were down modestly. That was relatively in line with Q1 and with fiscal 2025. It continues to be cat feeding that is growing the fastest, and the treat segment has also gotten back to growth. What we're seeing in dog feeding is that it continues to lag a little bit on both pounds and dollars. And there's really three reasons for that. The first is that we do estimate that there's still a shift to unmeasured channels. That's about 50 basis points. We're seeing a shift towards smaller dogs, and that's weighing down pounds a bit as dogs that are smaller consume fewer pounds.

And then also, we're seeing a little bit of pullback from consumers in discretionary segments such as wet dog food, which happens when the consumer is stretched. When we look to the long term, though, we still think that this is a segment that is going to continue to grow. The humanization trend will continue to accelerate that growth. And we think Blue is well positioned to win in the category. And as Jeff said, we are really pleased with our Q2 performance.

Andrew Lazar (Managing Director)

Thanks so much.

Operator (participant)

The next question comes from Max Gumport with BNP. Your line is open.

Max Gumport (Director, Equity Research)

Hey, thanks for the question. It's nice to see volumes turning positive in the quarter on the back of your investment in retail and also to hear the continued confidence you have in this continuing in the back half. I guess what I'm trying to get a sense for is, one, an update on your thinking on the ability for volumes to stay positive after you lap these price cuts. And then two, as you look at the investments you've got in the business through the first half, whether you think it's been enough or you might go back to the well next year as well, given that they are working. So getting a sense for whether having these investments in the base is enough or if you might need to do more again next year. Thanks very much.

Dana McNabb (Group President of North America Retail and North America Pet)

As I think about the North America price investments, again, we are really pleased with the progress. We are seeing pounds improve. What we had said is that we were going to adjust prices on two-thirds of our portfolio, and that would be done by the end of Q2. As we look at performance, almost 90% of where we've added that price investment is at or ahead of what we modeled. We're really encouraged by how it's performed. Of course, we'll continue to monitor the environment. If we think we need to add more, we'll consider it. At this point, we believe that our price is at the right place where it needs to be. Again, it was about getting those prices on shelf to be at the right spot under key price cliffs and manageable gaps to the competition.

And now, as we turn to the back half, it's about once your prices are in the right place, is the rest of your remarkability framework strong? And we really like our plans and how they're working when these prices are right. So as Jeff said, our new products are performing very well. We're on track to be up 25% versus last year. We have strong news. Our advertising content and ROIs are significantly improved, and they're up. And we have strong events planned to get good in-store and online support. So again, winning in the back half is not just about price. It is about remarkability. And I think we're well positioned to continue to improve.

Max Gumport (Director, Equity Research)

Great. Thank you. And then just one follow-up with regard to the overdelivery on profit in 2Q. So it sounds like you would say it's essentially going to unwind in 3Q, given the timing benefits you laid out in the prepared remarks. Versus consensus, you had about $0.08 of performance in the quarter. So would it be fair to say there could be $0.08 coming out of 3Q and EPS might be down, roughly speaking, 20% or so year-over-year? And any way to better frame how we should be thinking about 3Q EPS? Thanks very much.

Jeff Harmening (Chairman and CEO)

Yeah, I appreciate the question, and I will try to give you clarity. I think the underlying for us is that against our own internal expectations, we saw favorability due to the three factors I mentioned in my prepared remarks. North America saw supply chain favorability, primarily driven by inventory absorption in the quarter, stronger International performance on both top and the bottom line, a portion of which was timing related, and a modest, about half a point of shipment timing benefit in NAR, which Dana covered earlier. We do expect all of those to reverse, so that favorability that we saw in the quarter against our expectations, we do expect to reverse in Q3.

Max Gumport (Director, Equity Research)

Okay. Thanks very much.

Operator (participant)

The next question comes from John Baumgartner with Mizuho. Your line is open.

John Baumgartner (Managing Director, Equity Research of Food and Healthy Living)

Good morning. Thanks for the question. Maybe Jeff or Dana, in the prepared comments, you noted the inclination of consumers to buy more on promo. And I'm curious if you can elaborate on that. Just given the mention of the higher cost of volume, are you finding that you need to embed some wiggle room for larger promo to cater to that shopping dynamic? And I'm also curious, I guess, bigger picture, how you're seeing the balance between EDLP versus maybe a high-low strategy, this kind of an environment relative to past periods of economic weakness? Thank you.

Jeff Harmening (Chairman and CEO)

I mean, let me start with that and then maybe turn it over to Dana for some commentary. But what I would say is that in general, we're seeing, I mean, this is no surprise, I don't think, but continue to see consumer weakness, particularly for those making under $100,000 a year. So those in the kind of middle and lower income range, we continue to see that consumer being stressed, even as consumers in the higher end of the range are faring a lot better with the current stock market. And so that plays itself out in a few different ways. One is that people continue to eat at home quite a bit. So 86% or so of eating occasions are still at home and 14% away from home.

We haven't really seen a change in that for a couple of quarters, but it's still at a very high level of eating at home. We see people switching some categories. We see consumers switching where they purchase and switching channels and that kind of thing. But we also see it reflected in how much gets purchased on discount when we have it on display or what have you. And so we haven't really been displaying more. It's just that when what we see is that consumers, when there is a discount, we see them buying more because they're financially strained. So Dana, anything you want to add to that?

Dana McNabb (Group President of North America Retail and North America Pet)

No, I would just reiterate that we continue to categorize the promo environment as being quite rational. As Jeff said, the frequency and the depth is similar to last quarter. It's similar to last year. We did see promo activity come up a little bit in November, but we think that's largely related to manufacturers reacting to some of the SNAP changes. But overall, we'd characterize the environment as rational.

John Baumgartner (Managing Director, Equity Research of Food and Healthy Living)

Great. Thank you.

Operator (participant)

The next question comes from Tom Palmer with JPMorgan. Your line is open.

Tom Palmer (Senior Equity Research Analyst)

Good morning. Thanks for the questions. First, just wanted to ask on inflation and tariff. Previously, 4%-5% of COGS was the outlook. The bakery index pricing would suggest the costs are favorable, and then maybe there was a small amount of tariff relief to consider. So just any update on that outlook and kind of maybe as we think about the back half of the year, if there's any sort of favorability. Thank you.

Kofi Bruce (CFO)

Sure. So as a reminder, our original guidance included an expectation of about 1-2 points of additional headwind to base inflation of about 3%. Our base inflation forecast, despite puts and takes, remains roughly around that 3% mark. Tariffs certainly comfortably within that range. And as we look at kind of the phasing impact, I would just remind that our expectation was that we'd be able to mitigate some, but not all of the tariffs with tariff headwind within the year. And the tariff phasing was pretty minimal in Q1, stepped up in Q2, and we'd expect in the second half for that to step up a little further. So in aggregate, 3% base, we're still comfortable with the 1%-2% guide on the tariff additional headwind.

Jeff Harmening (Chairman and CEO)

Maybe, Tom, I'd just add, this is Jeff, that you also have to consider our coverage. And so we tend to be covered at least six to nine months across some of our biggest inputs, and wheat would be one of those. So while you see it play through in the sales line on our P&L, the cost line would be delayed. And so what you see from wheat prices being down in the short term is probably more going to impact 27 than it is 26 on the cost side. Fair point.

Tom Palmer (Senior Equity Research Analyst)

Okay. Thanks for that. And just to follow up on international, I think in the first quarter, you called out a 3% timing benefit that you expected to unwind in the second quarter, and you kind of noted some timing headwinds in 2Q as well. I just wanted to confirm, were there incremental tailwinds, or was it more this 3% timing benefit did not unwind as we think about the second quarter and becomes more of a factor in the back half? Thank you.

Jeff Harmening (Chairman and CEO)

Yeah. Yeah, certainly. And it is mostly the latter to your question.

Tom Palmer (Senior Equity Research Analyst)

Okay. Thanks.

Operator (participant)

The next question comes from Steve Powers with Deutsche Bank. Your line is open.

Steve Powers (Equity Research Analyst, U.S. Household and Personal Care, Beverages, Food)

Great. Good morning, everybody. Jeff, pivoting back to Pet, you talked in the opening remarks about positive delivery against Love Made Fresh, but also progress on the base business. I guess I'm curious as to what degree you think Love Made Fresh has in some ways contributed to that base business progress, even though it's still early. I guess any evidence as to whether you're seeing favorable interplay between the Fresh initiative and/or Blue Buffalo?

Jeff Harmening (Chairman and CEO)

Yeah, it's a good question and an important one. I would say we're still a little bit early to really know that that's the case. I mean, we're only eight weeks into the launch and probably five weeks into advertising. So I think it's too early to see if the Love Made Fresh advertising, which, by the way, is really good, is going to rub off on the rest of the core. We may be able to tell you a little bit more after Q3 or Q4 once we get some more time in market. So it wasn't really that. It was really kind of sharpening up our kind of go-to-market on Life Protection Formula and doing a really good job on the advertising on that and continuing to grow our Tiki Cat business, which we acquired nine months ago. That's growing solidly.

And then adding some more marketing to our Tastefuls line in cat is doing really well and getting them price points right. We probably used all the elements of the Profitable Experience Framework in pet this quarter and saw a nice lift back to positive growth. But so far, I wouldn't say that the Love Made Fresh efforts have had a positive impact on the base, although I wouldn't be shocked to see that in later quarters as we continue to market it.

Steve Powers (Equity Research Analyst, U.S. Household and Personal Care, Beverages, Food)

Fair enough. Kofi, if I could, just a little bit more on the back half. Just anything to call out in terms of how much HMM impact is yet to come and any phasing considerations in terms of how that's likely to layer in 3Q versus 4Q?

Kofi Bruce (CFO)

Yeah. Let me frame the comments just and kind of root them in our profit expectations for the back half, Q3, Q4. We do expect, as we've referenced earlier, continued organic sales improvement in the second half. And we, as a reminder, always expected our Q3 to be down just because of the overhang from our divestiture, the level of investment that we baked into the year behind the Remarkability Framework, and in particular, getting value right in NAR. And then trade expense timing, which, as we've referenced before, is going to be a drag on the first three quarters of the year. As you step into Q4, you have two big factors to keep in focus.

We'll see about a $100 million favorable tailwind from that trade expense timing due to the phasing impact of last year's investment and the 53rd week, which will also be a pretty significant tailwind, so together, those two items alone are about 30% profit growth in Q4.

Okay. Thank you very much. Appreciate it.

You bet.

Operator (participant)

The next question comes from Megan Clapp with Morgan Stanley. Your line is open. Megan, perhaps your line is on mute.

Megan Clapp (Equity Research)

Oh, sorry about that. Here I am. Good morning. Thank you. Wanted to ask about the higher cost of volume that you called out in the prepared remarks, and Kofi, I think in your prepared remarks, you talked about how you expect that to pressure margins in the third quarter. You obviously still reaffirm the full year guidance, so can you just help us understand how that's embedded into the full year outlook, and is there incremental flexibility in other lines that's kind of offsetting that incremental margin pressure, and how should we think about whether there's further flexibility should that continue to evolve as you call out something you're watching? Thanks.

Jeff Harmening (Chairman and CEO)

Sure. Let me answer it maybe in the context of where we left guidance. So you will probably note we left our annual guidance unchanged with effectively half of the year to go. That was a big part of the reason, along with obviously the volatility that continues to hang about the sector, whether it's the tariffs, shutdowns, SNAP benefits, or challenges to the consumer environment and the consumer sentiment. So I think for us, as we look forward to the back half, the cost of volume and the pace of volume recovery are probably the two biggest determiners of where we land within that range. And that is broadly why we left the range unchanged.

Megan Clapp (Equity Research)

Okay. That makes sense. And maybe just as a follow-up, last quarter, you talked about how your category pounds were lagging your full year expectations a bit, driven by a few discrete categories. I was just curious if you could give us an update on how the category growth within the quarter trended, just particularly given there was a lot of noise around SNAP and the government shutdown. So understanding, again, that there might be noise kind of embedded within that. But just how you're thinking about the category growth and kind of your confidence in the full year, what's embedded in the full year outlook.

Kofi Bruce (CFO)

Maybe I'll start it just from a numbers standpoint. Our category volumes in fiscal 2025 for General Mills categories were flat. They were down about 1% in Q1. We talked about that last quarter. Cereal was one of those, which had seen a little bit more pressure. That improved to down about 0.5% in Q2. Still not quite back to where they were in 2025, but an improvement. Maybe, Dana, if you want to talk about just the overall category dynamic and consumer.

Dana McNabb (Group President of North America Retail and North America Pet)

Yeah. I mean, as Jeff said, we did see categories improve, and we outperformed the categories. The one category that still lagged a little bit of our expectations was cereal. Cereal pounds are down about 3%. Typical historical, they're down in the 1%-2% range. And the reason for the category being down is we're really seeing consumers move to more high-protein alternatives. So the good news for us is that as category leader, our plans are very focused on capturing those growth trends going into the back half. And as a leader, we have a job to improve the category's growth. The two areas that we're probably the most excited about for the back half, or if we look at our innovation, we are really leading there. Cheerios Protein is already a 0.9 share.

That business is on track to be $100 million by the end of our fiscal year. And when you take how that's performing in combination with some really good news and advertising on the core Cheerios franchise, in Q2, Cheerios grew dollars and pounds for the first time in three years. And then if you look at the granola segment, which is what's driving growth in cereal right now, we have the biggest brand. We're the category leader, and it's growing double digits. But granola is only about 6% of our business. It's 12% of the category. So we're coming in January with 10 new granola SKUs, really great tasting products, really good nutrition benefits. And so we think focusing on the areas that we're growing the faster and leaning into our leadership role, we'll see both the category and our performance improve in the back half.

Megan Clapp (Equity Research)

Great. Thank you so much.

Operator (participant)

The next question comes from Chris Carey with Wells Fargo Securities. Your line is open.

Christopher Carey (Senior Equity Analyst, Head of Consumer Staples Research)

Hi, everyone. Hope you're well. Can you just expand a bit on the percentage of your portfolio where you've taken or initiated pricing investments? Just get a sense of the percentage of portfolio where you haven't done it. And connected, say this cost-to-compete environment sustains or it gets worse. Can you just talk about visibility on savings initiatives that would give you the ability to respond to some of these changes in the backdrop, specifically once some of the anomalies in inflation like tariffs start to lap going into next year?

Dana McNabb (Group President of North America Retail and North America Pet)

That's a great question. Why don't I take the first part, and then Kofi pass it to you for the second part? If we think about our price investments, as we said, we were going to have two-thirds of our business have price investments, and it would be completed with that investment by the end of Q2, and we're encouraged that in almost every case where we've made the investments, we've seen the volume response that we are expecting, and those categories, to answer your question, were refrigerated dough, fruit snacks, salty snacks, and soup. I'd also call out our snack bars, which pounds are down a little bit due to a key competitor comping a period of lower distribution, but the elasticities that we've seen on our snack bars are at or ahead of model, so we're really encouraged by the performance we've seen.

There is one business where we're still working on it, and that's Totino's Hot Snacks, where you've seen our pound performance take a little bit of a step back. Now, we are managing through a price pack architecture conversion from a bag to a box to improve our shelf visibility, and we're still working through that and need a little bit more time to really understand if these price investments are working, but overall, on our biggest businesses, this base price investment is on or ahead of model.

Kofi Bruce (CFO)

And then to your point about leverage and flexibility in the middle of the P&L, I would reiterate we have really good visibility to delivery at the 5%+ mark this year. And we are delivering every cent of the transformation savings we outlined at the beginning of the year. As we play forward, while I won't give you a specific guide on for next year yet, we continue to remain confident in our ability to deliver at least above 4%. And the transformation initiative is continued and ongoing in multi-year as a reminder. So I would expect additional savings to come from that as well.

Christopher Carey (Senior Equity Analyst, Head of Consumer Staples Research)

Okay. Thank you both. Just the quick follow-up is on Wilderness. Can you just expand on where we're at with Wilderness, the current strategy with Wilderness, and how you could envision potential tweaks or just thought process on how to improve the performance of the business if current strategy isn't delivering the results that you'd like in the coming quarters? Thank you.

Dana McNabb (Group President of North America Retail and North America Pet)

Yeah. It's a really great question. If I look at our Q2 performance, it was similar to Q1. Business is down, and we don't find that performance acceptable. What we know about Wilderness is the total product offering across all the levers of Remarkability needs to be improved. So the team is really working on a new positioning. As we turn to the back half, we're going to be bringing protein news, some strong protein-first new products. We've got new comparative advertising that we'll be launching in the market, and we've got to improve our in-store execution. So we have a good plan in place. I'm confident that we're on the right things, but there's definitely more work to do.

Christopher Carey (Senior Equity Analyst, Head of Consumer Staples Research)

Okay. Thank you.

Operator (participant)

The next question comes from David Palmer with Evercore ISI. Your line is open.

David Palmer (Restaurant and Food Analyst)

Thanks. Down to one sort of big-picture question. Fiscal 2026, it's been about a return to volume growth, and understandable that would be step one. But I'm thinking about consensus expectations for some profit growth, particularly lapping the extra week as we look out in fiscal 2027. So I'm wondering, maybe you could help us or coach us how we should be reviewing your consumption data in North America retail and pet to really inform us about whether profit growth might be in the cards for fiscal 2027. What sort of specifics, maybe in terms of price mix and promotion effectiveness or the level of volume recovery, any sort of clues that you would provide to us would be helpful, and thank you.

Kofi Bruce (CFO)

Sure. Well, I will start by just affirming we are pleased with the progress we've made on improving our growth trajectory. That work is not yet done. So it'd be premature for me to get on record and start building too heavily for F 2027. I think you're right to call it the 53rd week as a comparison factor. That will definitely just be a built-in structural, mathematical, excuse me, headwind next year. But beyond that and underlying, our expectations are to continue to build on momentum that we've started this year. So we'll come back to that. Obviously, we've got a touchpoint at CAGNY, and that's probably a better place for us to start having discussions about the road ahead.

David Palmer (Restaurant and Food Analyst)

All right. I'll pass it on.

Operator (participant)

The next question comes from Matt Smith with Stifel. Your line is open.

Matthew Smith (Managing Director)

Hi. Thank you. Dana, you talked about a high hit rate where you have the price adjustments and Remarkability Framework in place, I think 90% or so. But there's obviously 10% that's still lagging your expectation. You talked about Totino's a bit, but is there a common thread that needs to be addressed around some of the areas where you've seen less effectiveness?

Dana McNabb (Group President of North America Retail and North America Pet)

I wouldn't say that there's a common thread. I mean, it really is Totino's. Maybe a few SKUs in Old El Paso on our Kits business, but for the most part, again, on the Totino's business, it's really about this conversion and price pack architecture, so the data isn't clean, and it's hard to see exactly how things are performing and diagnose it correctly, so I need a few more weeks to really be sure, and I would say on that business, once we feel like we're through the conversion and we've got a better sense of the price investment, I really like the advertising that we've got going. We are talking about 10 rolls for $1. That's resonating really well, and we just launched our Ultimate Pizza line, which is this really great tasting pizza, probably the best we've launched maybe ever.

And at an affordable price point that people expect, we know we've got that right. And so I think the combination of a more clean read and focusing on the other levers of remarkability will be able to talk with more precision on Totino’s next quarter.

Kofi Bruce (CFO)

Yeah. I would just build on Dana's comments by just reinforcing the fact that 90%+ as good or better than what we anticipated. I would take that kind of on any forecast, but particularly on something as important as these price adjustments that we have made. And so just from my seat, I am really pleased with the way the team has not only modeled out the pricing, but also executed against it. And so it's fair to ask and to get the question. I just want you all listening to know that that kind of accuracy on something this big and complicated and important over a period of time, I'm really thrilled with the work that the team has done.

Matthew Smith (Managing Director)

Thanks for that, and as a follow-up question, as it relates to the channel shift you mentioned in pet, it's been ongoing that consumers are moving towards unmeasured channels, but what channels are you currently seeing take share from traditional channels, and what do you think is driving the consumer behavior there? Thank you.

Dana McNabb (Group President of North America Retail and North America Pet)

It's a great question. The place that we're seeing the shift go to is definitely e-commerce. So pet purchases over-index in the e-commerce channel, and that's the place where we're seeing the dollars go to.

Operator (participant)

This concludes the question and answer session and will conclude today's conference call. We thank you for joining. You may now disconnect.