General Mills Inc

NYSE:GIS

Earnings Call Analysis

General Mills Faces Headwinds, Plans Strategic Investments

General Mills reported a 6% decline in Q4 net sales, mainly due to trade expense timing and lower volume. Adjusted operating profit was down 10%. Despite the challenges, the company saw success in cost-saving measures, offsetting inflation. For fiscal 2025, General Mills aims for flat to 1% organic net sales growth, supported by significant brand investments and cost-saving initiatives. The company projects a 3% to 4% input cost inflation. It plans to enhance its competitiveness and expects over $3 billion return to shareholders through dividends and share repurchases.

Overview of Q4 Financial Performance

General Mills reported Q4 net sales of $4.7 billion, marking a 6% decline compared to the previous year. This decline was mainly due to a 3-point headwind from unfavorable trade expense timing and lower pound volume. Adjusted operating profit was $800 million, down 10% in constant currency, which also felt the impact of the trade expense timing. Adjusted diluted earnings per share decreased to $1.01.

Key Factors Influencing Q4 Results

Three major elements caused the organic net sales growth in Q4 to be 5 points lower than Q3: trade expense timing (3 points), lower retailer inventory (1 point), and slower net sales trends internationally (1 point). Despite these headwinds, the company successfully achieved strong Holistic Margin Management (HMM) cost savings that counterbalanced input cost inflation and lower volume losses.

Segment Performance

The North America Retail segment saw a 7% decline in organic net sales and a 14% drop in constant currency segment operating profit due to trade expense timing. The Pet segment experienced an 8% decrease in organic net sales but an 8% increase in constant currency operating profit due to HMM cost savings. Overall, the Pet segment showed resilience with a full-year operating profit up 9%. Meanwhile, the International segment faced a challenging market, leading to a significant decline in net sales and operating profit.

Fiscal 2024 Year-End Summary

For fiscal 2024, General Mills saw net sales of $19.9 billion, a slight 1% drop. However, adjusted operating profit rose by 4% to $3.6 billion, driven by HMM cost savings and positive price/mix dynamics. Adjusted diluted EPS increased by 6% to $4.52. The company expanded its adjusted gross margin by 60 basis points to 34.8%, achieving a healthy position nearly aligned with pre-pandemic levels. Operating cash flow increased by 19% to $3.3 billion, showing strong cash generation capabilities.

Key Priorities and Targets for Fiscal 2025

General Mills plans to accelerate organic sales growth by improving in-market competitiveness and leveraging modern marketing campaigns. Strong HMM cost savings are expected to continue, with savings projected at 4-5% of cost of goods sold. Input cost inflation is forecasted at 3-4%. Revenue is expected to see balanced contributions from volume and price/mix. Key financial targets for the next fiscal year include flat to 1% organic net sales growth, and adjusted diluted EPS ranging from -1% to 1%.

Reinvestment and Brand Strengthening

The company plans significant reinvestments in brand building, emphasizing compelling brand communication and innovative product launches. Notable collaborations, such as one involving NFL players and a partnership with Olympians, aim to enhance brand appeal. Blue Buffalo media investment will increase, focusing on ingredients' superiority. Innovations will pivot around consumer demands for taste and health, with new offerings in breakfast, snacks, and pet food categories.

Commitments to Sustainability and Efficiency

General Mills continues its commitment to sustainability with 500,000 acres enrolled in regenerative agriculture and a 7% reduction in greenhouse gas emissions. The company's disciplined approach to capital allocation remained strong, with $3.3 billion returned to shareholders through dividends and share repurchases. Advanced digital capabilities are expected to drive further operational efficiencies, reducing waste and optimizing logistics.

Outlook and Market Challenges

The company anticipates gradual improvements in category volume trends in fiscal 2025, though overall market growth is expected to fall below long-term projections of 2-3%. The primary challenges include ongoing macroeconomic uncertainty, persistent inflation, especially in labor costs, and increased competition as global supply chains stabilize. Strategic focus will remain on accelerating organic sales growth, creating investment fuel, and maintaining cash generation discipline.

Earnings Call Transcript 2024-Q4

[Jeff Siemon, executive]

Good morning. This is Jeff Siemon, Vice President of Investor Relations and Treasurer. Thank you for listening to General Mills' prepared remarks for our fiscal 2024 4th quarter and full year 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.

Joining me for this morning's presentation are Jeff Harmening, our Chairman and CEO; and Kofi Bruce, our CFO. Before I hand things over to them, let me first touch on a few items.

On our website, you'll find our press release that posted this morning, along with a copy of the presentation and a transcript of these remarks. Please note that today's remarks include forward-looking statements that are based on management's current views and assumptions.

The second slide in today's presentation lists several factors that could cause our future results to be different than our current estimates.

And with that, I'll turn it over to Jeff.

[Jeffrey Harmening, executive]

Thank you, Jeff, and good morning, everyone. Let me start with today's key messages. We delivered on our updated guidance in fiscal 2024 by pivoting our plans and enhancing our efficiency in response to a more challenging operating environment. We drove improved volume performance in the second half of the year and generated industry-leading holistic margin management cost savings, allowing us to continue to invest in our brands and deliver on our profit and cash targets.

As we look to the year ahead, our top priority is to accelerate our organic net sales growth and specifically our volume growth by delivering remarkable experiences across our portfolio of leading brands. We plan to drive another year of strong HMM cost savings in fiscal '25, allowing us to reinvest in exciting growth ideas that meet consumer needs, which we expect to result in improved market share performance. And we plan to continue our track record of strong free cash flow generation and disciplined capital allocation consistent with our accelerated strategy.

Slide 5 summarizes our full year fiscal 2024 results. Following a year of double-digit growth in organic net sales and adjusted diluted earnings per share in fiscal '23, our results moderated in fiscal '24, though still met or exceeded our most recent guidance.

Organic net sales were down 1%. Adjusted operating profit increased 4%, and adjusted diluted earnings per share were up 6%, each in constant currency. When looking at our performance on a 2-year compound growth basis, our results were in line or ahead of our long-term targets with organic net sales and constant currency adjusted operating profit up mid-single digits and constant currency adjusted diluted EPS up high single digits.

We began fiscal '24 focused on 3 priorities: continuing to compete effectively, improving our supply chain efficiency and maintaining our capital allocation discipline. Our progress against these 3 priorities was mixed, with challenging results on competitiveness, offset by excellent performance on efficiency and capital discipline.

Let me briefly share a few details on each of these focus areas. Our overall competitiveness fell short of our expectations in fiscal '24, driven in part by more challenging consumer sentiment across our core markets that impacted our categories, both human and pet food.

With that said, our efforts to strengthen our brand building, innovation and in-store execution helped by improved volume and market share trends in the second half. We increased our media investment at a low single-digit rate in fiscal '24 with a focus on strong campaigns that resonate with today's consumers.

We rolled out new ingredients superiority advertising on Life Protection Formula, helping return the largest Blue Buffalo product line to growth. And we invested in relevant messaging on Nature Valley, which helped return that brand to market share growth in the U.S. and contributed to Nature Valley becoming the #1 brand in the bars category in France for the first time in its history.

We increased our innovation pressure in fiscal 2024, introducing roughly 40% more big bet launches in the market versus the prior year. This included a strong innovation year for Cereal, with General Mills launching each of the 5 largest new products in the U.S. Cereal category. And we continued our strong in-store execution, including driving a 3% increase in our U.S. retail distribution, which outpaced our competition.

We have more work to do to further improve our competitiveness. And I'll share in a moment how we plan to deliver remarkable experiences to consumers in fiscal '25 to help drive improved household penetration and stronger market share performance.

On our second fiscal '24 priority, I'm pleased to say that we were highly successful in improving the efficiency of our supply chain. We accelerated our HMM cost savings to nearly 6% of cost of goods sold, which was higher than our initial estimate and higher than historical levels. We achieved this outstanding result by aggressively removing disruption-related cost in our supply chain, internalizing manufacturing, readjusting formulas and optimizing logistics.

We also drove returns from our investments to create a digitally enabled supply chain, and we expect those investments will create even more efficiency opportunities moving forward.

We also successfully delivered on our third priority for fiscal '24, maintaining our capital allocation discipline. We continued our long-standing track record of industry-leading cash conversion, generating more than $2.5 billion of free cash flow at a 96% conversion rate. This allowed us to invest behind critical growth enablers for the company, including greater manufacturing capacity for our fruit snacks business as well as cost savings initiatives such as internalizing more of our Blue Buffalo dry pet food production.

We continue to reshape our portfolio in fiscal '24, including acquiring the premium European pet food brand Edgard & Cooper earlier this year. And we were able to return more than $3 billion to shareholders through dividends and share repurchases.

Standing for Good remains a key pillar of our Accelerate strategy. We recently released our 54th Annual Global Responsibility Report where we provided an update on the progress we've made toward achieving our ESG goals and shared how doing good and good business go hand-in-hand at General Mills.

Our global responsibility report highlighted our 10 key global impact commitments with our top 3 priority commitments being expanding regenerative agriculture, reducing greenhouse gas emissions and advancing recyclable or reusable packaging. I am pleased to say that we continue to make progress in each of these areas.

To date, we've enrolled more than 500,000 acres in regenerative agriculture programs, which is more than halfway to our 2030 commitment. We reduced greenhouse gases by 7% across our full value chain, including a 51% decrease with our own operations. And approximately 93% of our packaging is now recyclable or reusable by design.

To support these priorities, we've created a Climate Transition Action Plan to achieve our 2030 and 2050 greenhouse gas reduction goals, and we've committed to no deforestation and supply chains of our palm, cocoa and fiber resources by 2025.

While we still have more work to do to achieve our commitments, I'm proud of the work we've already accomplished. We're building on our 150-year corporate history of doing good and taking actions with a strong sense of urgency, all while better integrating Standing for Good across our business.

As we turn our attention to fiscal '25, we believe the operating environment will continue to evolve. Amid ongoing uncertainty in the macroeconomic backdrop for consumers, we expect volume trends in our categories will improve, but gradually, building up the improvement we saw over the course of fiscal '24.

At the same time, we expect aggregate dollar growth in our categories in fiscal '25 will be below our long-term projection of 2% to 3%. As we look ahead, we're focused on a few key factors that will have the greatest impact on the operating environment and our ability to win in fiscal '25.

First, we expect ongoing macroeconomic uncertainty to result in a continued value-seeking behavior by consumers, affecting both the products they buy and the channels they shop. We know that consumers define value much more broadly than just the price at the shelf. So our focus will be on ensuring our brands to deliver the right combination of great taste, health, convenience and trust, all at the right price to make them the preferred choice of consumers.

Second, the rate of inflation in goods and services in the U.S. and many countries around the world remained higher than historical levels, even if it has moderated from recent highs. We continue to see inflation impacting our input cost basket in fiscal '25 with labor being the primary underlying driver of inflation in our sourcing, manufacturing and logistics costs.

And third, after a period of intense disruption during the pandemic, the relative stability of global supply chains is creating both challenge and opportunity for our business. On the one hand, service levels for our smaller competitors, including private label, have improved, which means greater competition at the physical and digital shelf.

On the other hand, a more stable supply chain allows us to ramp up our innovation efforts and provide a backdrop for continued strong HMM productivity to offset inflationary headwinds. To win in this evolving environment, we have set 3 priorities for fiscal '25.

Our #1 priority is to accelerate our organic sales growth by delivering remarkable consumer experiences across our leading food brands. Second, we will create fuel for investment by generating strong levels of HMM cost savings to offset inflation and reinvest back into our brands.

And third, we will continue to drive strong cash generation while maintaining our disciplined approach to capital allocation.

Let me share more about our plans supporting each of these priorities. To accelerate organic sales growth, we're focused on creating remarkable experiences for our consumers. Whether they're making decisions at the physical or digital shelf, our job is to make sure that decision is an easy one. Through our remarkable experiences framework, we're investing across 5 areas: brand communication, product, value, omnichannel availability and packaging to ensure that we're the consumer's brand of choice.

Let me share a few examples of how we're going to provide remarkable experiences across our leading brands in fiscal '25. We've stepped up the remarkability of our brand communication over the past 4 years as we adopted more modern marketing to engage with today's consumers. In fiscal '25, we plan to significantly increase our brand investment to keep brands front-and-center for consumers featuring relevant campaigns and partnerships.

For example, Big G Cereals are collaborating with NFL players, Travis and Jason Kelce, to highlight their love for our iconic brands. Totino's is partnering with Pete Davidson on a campaign that increased brand awareness for Totino's pizza rolls by 4x the CPG benchmark in early testing.

General Mills is also sponsoring Olympians and Olympic Committees across Canada, Great Britain and Australia to unite consumers as they cheer on their sporting heroes. We're doubling down on our most iconic brand assets like the Pillsbury Doughboy to inspire families to make memories together. And we're highlighting ingredient superiority and campaigns that support the premium positioning of our Blue Buffalo Pet Food and Haagen-Dazs ice cream brands.

These modern and relevant brand messages supported with increased brand-building investment will enable us to continue building distinct enduring brands that deliver superior experiences relative to the competition.

In addition to remarkable brand messaging, we're also focused on delivering a superior product to our consumers. We know without a doubt that consumers want food that tastes great. In fact, more than half of the top 20 fastest-growing brands in U.S. grocery stores over the past year are Taste First brands. In fiscal '25, 30% of our North America retail business will have taste news, which is double the level from last year.

We're making taste improvements on some of our biggest brands and product lines. Pillsbury biscuits will be flakier, Annie's mac & cheese will be cheesier and Betty Crocker fudge brownies will be fudgier. And our new Fruity Cheerios and limited edition Haagen-Dazs stick bar offerings deliver on consumers' desire for their beloved favorites in new great-tasting flavors and formats.

We also know consumers continue to seek healthy, better-for-you offerings, and our brands are well positioned to meet those needs across our portfolio. This includes Old El Paso's new Carb Advantage Taco Shells, with just 6 grams of net carbs and 100 calories per serving, as well as new Mott's Apple Streusel Soft-Baked Bars, a better-for-you on-the-go snack for all ages. And in our K-through-12 school business within North America Foodservice were broadening distribution on reduced sugar varieties of Parfait-Pro yogurt and a number of leading Big G cereal brands.

We are also bringing greater convenience to consumers across an increasing number of occasions, including breakfast. Totino's is meeting that need through a new breakfast Snack Bites line and Nature Valley has launched a new Soft-baked breakfast bar made with grains, fruits and seeds for a wholesome start to the day.

Another way, we will deliver remarkable experiences to our consumers is through compelling value. We know this is critical to competing effectively today. As I mentioned earlier, consumers see value as more than just price. In tough economic times, consumers can't afford to waste. So they're looking for great-tasting products they know their family will eat.

When household favors like Nature Valley Crunchy bars and Yoplait Original Strawberry yogurt deliver on both affordability and taste, that's a compelling value. And we're reinforcing that message in fiscal '25 through more value-oriented brand communication across our portfolio.

We're also leveraging our strategic revenue management toolkit to ensure we have the right path at the right price in the right place. For consumers looking for value, we have larger packs of our Betty Crocker fruit snacks as well as variety packs of our Pillsbury cookies and Mini Cereal treat bars.

We're expanding distribution on smaller sizes of our Wilderness dry dog food in select retail channels. We're also delivering compelling value through coupons. In fact, we plan to increase our coupon spend by more than 20% in the first half of fiscal '25. Through the use of our first-party data, we can target specific consumers with digital coupon offerings, allowing us to deliver a highly efficient targeted value.

Blue Buffalo has driven tremendous growth for General Mills since 2018 though the business experienced headwinds over the past 12 months. Returning our pet segment to growth is a key priority in fiscal '25. Remarkable brand communication drives consumer response in pet food just as it does in our human food categories.

Blue Buffalo's ingredient superiority message has resonated with pet parents, helping drive strong growth for Life Protection Formula dry dog food over the past 6 months. We're increasing investment behind this campaign in fiscal '25 and we're extending the ingredient superiority message to our Wilderness product line, highlighting its higher protein content in a compelling head-to-head comparison campaign that begins in July.

Overall, we plan to increase our Blue Buffalo media investment by double digits in fiscal '25, and we're partnering with select retailers to amplify this message to pet parents. We continue to expect humanization to drive category growth over the long term. We are accelerating our product innovation behind this trend with remarkable new product and package offerings, including new varieties of Tastefuls Purees as well as seasonal gifting packs, so pets can join in on the family's seasonal celebrations.

We're also focused on delivering compelling value and providing a variety of solutions for pet parents. In fiscal '25, we're optimizing the price point of our core canned wet food line. We're launching smaller-sized treat packs to deliver on key in-store price points, and we're expanding our Wilderness range to include both grain and grain-free varieties that deliver greater choice to pet parents.

We're encouraged by the progress we made in fiscal '24 on our Life Protection Formula and Tastefuls product lines. Our plan is to build on that success by bringing more remarkable experiences to our wet foods, treats and Wilderness offerings leading to top line growth for our Pet segment in fiscal '25.

Our second priority, creating fuel for investment, we plan to deliver another year of industry-leading HMM cost savings. We're targeting approximately 4% to 5% HMM savings and our cost of goods sold in fiscal '25 as we unwind remaining disruption-related costs and further leverage our advantaged digital infrastructure.

As global supply chains continue to stabilize, we are advancing our core HMM efforts through actions such as reducing the number of ingredients in our network and simplifying our sourcing. We are continuing to expand the use of artificial intelligence to reduce waste in our manufacturing and logistics networks.

In fiscal '24, we leveraged new digital capabilities to reduce waste by 20% on manufacturing lines in some of our largest manufacturing sites and we will continue to roll out these tools to more sites and segments in fiscal '25. We'll also leverage digital capabilities to optimize our logistics network, enabling better service, resiliency and efficiency. We expect these actions to result in 1 million fewer miles on the road each year.

Our third priority for fiscal '25 is to continue our track record of strong cash generation. General Mills continues to deliver free cash flow conversion at a rate well ahead of our food peer median. We converted 96% of adjusted after-tax earnings into free cash flow in fiscal '24, and we expect to drive free cash flow conversion of at least 95% in fiscal '25.

We'll deploy that strong gas generation in a disciplined manner by reinvesting into our business for growth and cost savings with capital expenditures expected to total approximately 3.5% of net sales in fiscal '25. We'll continue to grow our dividend, including a 2% increase to the quarterly rate that we announced this morning, effective with the August 2024 payment.

We'll retain flexibility to advance our portfolio reshaping goals through M&A. And if we don't find attractive acquisition candidates, we'll return excess cash to shareholders in the form of share repurchases.

While the operating environment continues to evolve and growth in our categories is expected to be somewhat below our long-term projections, I am confident that we have the right plans in place to accelerate our organic sales growth, create fuel to invest in our brands and continue to drive strong cash generation in fiscal '25.

Our specific targets are outlined on Slide 20. We expect organic net sales to range between flat and up 1%. Adjusted operating profit is expected to range between down 2% and flat in constant currency, including a 2-point headwind from resetting incentive compensation to target levels.

Adjusted diluted EPS is expected to range between down 1% and up 1% in constant currency, and we expect free cash flow conversion to be at least 95% of adjusted after-tax earnings.

With that, let me turn it over to Kofi to go into more details on our fourth quarter and full year results as well as provide key assumptions supporting our fiscal '25 guidance.

[Kofi Bruce, executive]

Thanks, Jeff, and hello, everyone. Our fourth quarter financial results are summarized on Slide 22. As we previewed on our last earnings call, our results this quarter included a meaningful headwind from the comparison against favorable trade expense timing in last year's fourth quarter. This dynamic represented a 3-point headwind to price/mix and net sales growth and a 17-point headwind to adjusted operating profit in this year's fourth quarter.

With that in mind, our reported net sales of $4.7 billion were down 6% and organic net sales were also down 6% in the quarter, largely reflecting that comparison-driven price/mix headwind as well as lower pound volume.

Relative to our third quarter trend, our organic net sales growth was about 5 points lower in Q4, driven by 3 main elements: 3 points from trade expense timing comparison, 1 point from lower retailer inventory and 1 point from slower net sales trends in international.

As we move into fiscal '25, nearly all of those headwinds will be behind us, leaving us with better underlying momentum as we look to drive improved net sales performance in the new year.

Fourth quarter adjusted operating profit of $800 million was down 10% in constant currency, reflecting the headwind from the trade expense timing comparison. Beyond that, we delivered another quarter of strong HMM cost savings, which was enough to offset input cost inflation and the impact of lower volume. Adjusted diluted earnings per share totaled $1.01 in the quarter and were down at the same rate as adjusted operating profit with our share repurchase activity offsetting higher net interest expense and a higher adjusted effective tax rate.

Turning to the components of our net sales growth in the quarter, organic pound volume was a 2-point headwind to net sales. Organic price/mix was a 4-point headwind, including a 3-point unfavorable impact from the trade expense timing comparison. Foreign exchange and the net impact of acquisitions and divestitures were not material to net sales in Q4.

Shifting to segment results. Fourth quarter organic net sales for North America Retail were down 7%, while U.S. Nielsen-measured retail sales were down 3%. The difference between Nielsen-measured retail sales and our net sales results was driven by the trade expense timing comparison and a modest decline in retailer inventory.

Constant currency segment operating profit was down 14% in the quarter, also reflecting the headwind from the trade expense timing in comparison.

For the full year, organic net sales were down 1% below year ago results that grew double digits, driven by lower organic pound volume partially offset by positive organic price/mix. At the operating unit level, net sales for U.S. Meals & Baking Solutions, U.S. Snacks and U.S. Morning Foods were each down 2%. Net sales were up 5% in Canada.

On the bottom line, full year segment operating profit decreased 3% in constant currency, driven by higher input costs, lower volume and higher SG&A expenses, partially offset by positive price/mix.

Moving on to our Pet segment results on Slide 25. Fourth quarter organic net sales declined 8%, driven by lower organic pound volume and unfavorable price/mix. Net sales results in the quarter lagged all-channel retail sales by approximately 4 points, reflecting the headwind from the trade expense timing comparison and a decline in retailer inventory.

On the bottom line, fourth quarter Pet segment operating profit was up 8% in constant currency, driven by HMM cost savings, partially offset by higher other supply chain costs. For the full year, pet segment organic net sales were 4% below year-ago results that grew high single digits.

F '24 net sales were down low single digits on dry pet food, high single digits on wet food and mid-single digits on treats. Full year Pet segment operating profit was up 9% in fiscal 2024, primarily driven by HMM cost savings and positive price/mix, partially offset by lower volume, higher other supply chain costs and higher SG&A expenses.

North America Foodservice organic net sales were up 4% in the fourth quarter, driven by higher organic pound volume and positive price/mix. Market index pricing on bakery flour was a 3-point headwind to net sales in the quarter. Net sales results were led by strong growth on breads, cereal and frozen biscuits, partially offset by a decline on bakery flour.

On the bottom line, segment operating profit was up 9% in Q4 with positive price/mix and higher volume, partially offset by higher input costs. For the full year, organic net sales grew 2%, driven by higher pound volume and positive price/mix despite a 4-point headwind from index pricing on bakery flour. Segment operating profit was up 9% for the full year, driven by positive price/mix, partially offset by higher input costs.

Turning to our International segment on Slide 27. Fourth quarter results were pressured by continued difficult market conditions in Brazil and China. Q4 organic net sales were down 10%, driven primarily by unfavorable price/mix. Net sales in Brazil declined double digits and were well behind our retail sales performance, in part due to continued consumer and customer headwinds in response to significant multiyear inflation.

Net sales in China were also down double digits in the quarter, primarily driven by a more cautious consumer sentiment that negatively impacted our Haagen-Dazs shop traffic and our premium dumpling business. Net sales were up in our distributor markets and in Europe and Australia, led by growth on Mexican food and snack bars.

Fourth quarter segment operating profit totaled $22 million compared to $67 million a year ago, driven by unfavorable price/mix and input cost inflation, partially offset by HMM cost savings and lower other supply chain costs. Full year international organic net sales were down 2%.

Net sales were down in Brazil and China, partially offset by growth in India, Australia, France and the U.K. Full year segment operating profit was down 20% in constant currency, driven by higher input costs and lower volume, partially offset by positive price/mix.

Slide 28 summarizes our joint venture results. Cereal Partners Worldwide net sales were up 2% in Q4 and up 8% for the full year in constant currency, driven by positive price/mix, partially offset by lower pound volume. Haagen-Dazs Japan net sales were down 3% in the fourth quarter. For the full year, Haagen-Dazs Japan net sales were up 1% in constant currency, driven primarily by positive price/mix.

Full year combined after-tax earnings from joint ventures totaled $85 million and were up 14% in constant currency, driven primarily by positive price/mix at CPW partially offset by higher input costs at CPW and Haagen-Dazs Japan.

Moving to other noteworthy Q4 income statement items. Adjusted unallocated corporate expenses decreased $47 million in the quarter, primarily driven by lower compensation and benefits-related expenses. Fourth quarter net interest expense increased $18 million driven by higher rates and higher average long-term debt balances.

The adjusted effective tax rate in the quarter was 20% compared to 19.1% a year ago, driven primarily by favorable nonrecurring discrete tax benefits in fiscal 2023, partially offset by favorable earnings mix in fiscal 2024.

Finally, average diluted shares outstanding in the quarter were down 5% to 570 million, reflecting our net share repurchase activity.

Our fiscal 2024 results are summarized on Slide 30. Net sales of $19.9 billion were down 1% versus last year. Organic net sales also decreased 1% driven by lower organic pound volume partially offset by positive organic price/mix. Adjusted operating profit of $3.6 billion increased 4% in constant currency, driven by strong HMM cost savings, positive price/mix and lower compensation and benefits-related expenses partially offset by input cost inflation and higher other supply chain costs and lower volume.

Adjusted diluted earnings per share of $4.52 were up 6% in constant currency, driven primarily by higher adjusted operating profit and lower net shares outstanding, partially offset by higher net interest expense and lower benefit plan non-service income.

Turning to margin results. We expanded our adjusted gross margin by 60 basis points for the full year, driven by strong HMM cost savings and positive price/mix, partially offset by input cost inflation, higher other supply chain costs and supply chain deleverage. Our full year adjusted gross margin of 34.8% was broadly in line with our pre-pandemic margin, reflecting our strong HMM cost savings and strategic revenue management efforts offsetting the impact of significant cumulative inflation in recent years.

This healthy gross margin position provides us strategic flexibility as we focus on reinvesting back into our brands to drive improved volume performance in fiscal 2025.

Our fiscal '24 adjusted operating profit margin increased 90 basis points to 18.1%, driven by higher adjusted gross margin and lower SG&A expenses as a percent of net sales.

Turning to the balance sheet and cash flow on Slide 32. Fiscal '24 operating cash flow increased 19% to $3.3 billion driven by increased net earnings, excluding net gains on divestitures in fiscal 2023 and a change in restructuring impairment and other exit costs.

Capital investments totaled $774 million or 4% of net sales. We delivered free cash flow conversion at 96% of adjusted after-tax earnings in fiscal 2024, and our year-end leverage ratio stands at 3x net debt to adjusted EBITDA, which is in line with our long-term target.

Leveraging our strong cash generation, we increased our total cash return to shareholders from $2.5 billion in fiscal 2023 to $3.3 billion in fiscal 2024. Our 9% annual dividend rate increase was partially offset by a lower net share count, resulting in a 6% increase in total dividends paid to nearly $1.4 billion, and our full year net share repurchase activity totaled roughly $2 billion.

As we turn to the discussion of fiscal 2025, we provided some key assumptions on Slide 34. On the top line, we anticipate gradual improvement in category volume trends. Though we expect full year category dollar growth will be somewhat below our long-term 2% to 3% growth expectations as price/mix remains somewhat muted. With strong plans focused on delivering remarkable experiences, we expect to drive improved in-market competitiveness across our portfolio. We anticipate this translating into roughly balanced contributions from volume and price/mix in fiscal 2025.

Moving down the P&L. As Jeff mentioned, we expect to deliver another year of strong HMM cost savings in fiscal '25 at 4% to 5% of cost of goods sold. We're forecasting input cost inflation of 3% to 4% of cost of goods sold, primarily driven by the impact of labor inflation within our sourcing, manufacturing and logistics costs as well as the headwind from lapping favorable positions on several large multiyear contracts.

Given our focus on accelerating our volume performance in fiscal '25, we plan to reinvest margin upside back into the business, including a significant increase in brand building investment to support compelling growth ideas. In addition, we anticipate that resetting incentive compensation after a below average payout last year will be a 2-point headwind to operating profit growth in fiscal '25.

Moving below operating profit. We expect net interest expense to increase to approximately $525 million, driven primarily by higher rates on recently refinanced fixed rate debt as well as higher long-term debt balances. Our adjusted effective tax rate is expected to be roughly 21%, which is up about 1 point from the prior year.

We expect benefit plan non-service income to decrease to approximately $55 million. And we anticipate our share repurchase activity will reduce average diluted shares outstanding by roughly 3%.

Based on those assumptions, slide 35 reiterates the fiscal 2025 outlook that Jeff shared earlier. Note that we expect our results in Q1 will be below our full year growth expectations, reflecting a meaningful increase in brand building investment as well as the comparison against strong organic net sales growth and adjusted gross margin performance in Q1 of last year. With that, let me now turn it back to Jeff for some closing remarks.

[Jeffrey Harmening, executive]

Thanks, Kofi. Let me wrap up with a few thoughts. As we have throughout our company's long history, we'll remain agile to adapt to the environment and deliver on our consumers' changing needs while continuing to invest for growth with remarkable brands, industry-leading capabilities and a world-class team, we're in a strong position to deliver on our goals in fiscal '25 and drive sustainable, profitable growth and top-tier shareholder returns over the long term.