Ladies and gentlemen, thank you for standing by, and welcome to the 4th Quarter Fiscal 2018 Earnings Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. As a reminder, today's call is being recorded on Wednesday, June 27, 2018. Now, I'd like to turn the call over to Jeff Seaman, Vice President, Investor Relations.
Please go right ahead, sir.
Thanks, Tommy, and good morning, everybody. I'm here with Jeff Harmening, our Chairman and CEO and Don Mulligan, our CFO. I'll hand the call over to them in a moment. But before I do, I'll cover a few housekeeping items. Our press release on Q4 and full year earnings was issued over the wire services earlier this morning.
You can find the release and a copy of the slides that supplement this morning's remarks on our Investor Relations website. I'll remind you that our remarks this morning will include forward looking statements that are based on management's current views and assumptions. Second slide in today's presentation lists factors that could cause our future results to be different than our current estimates. Included in our press release this morning was a reminder that we'll be reporting results of our newly acquired Blue Buffalo business on a 1 month lag to our corporate calendar. We took a similar approach in previous acquisitions including Annie's, Yoki and Yoplait International.
As a result, our fiscal 2018 financials do not include net sales or operating profit from Blue Buffalo, though our 2018 earnings per share do include the impact of higher shares and interest due to acquisition financing. Don will provide details on the impact of Blue Buffalo on our 2019 financials later in the presentation. Finally, I'll note that starting with the Q1 of fiscal 2019, we'll be adopting a new presentation of pension, post retirement and post employment benefit expenses. This will separate the service costs from other benefit related expenses or income, which will move below operating profit. When we report our Q1 earnings in September, we'll provide you visibility to how the new income statement presentation will impact our 2019 adjusted operating profit growth rate and related guidance, though it will not impact earnings per share or EPS growth.
And with that, I'll turn you over to my colleagues, beginning with Jeff. Thanks, Jeff, and
good morning, everyone. Fiscal 2018 represented an important step in returning General Mills to sustainable top line growth. We finished the year on a positive note in the 4th quarter delivering top and bottom line results that met or exceeded our most recent guidance including a 3rd consecutive quarter of organic net sales growth as well as strong growth in profit, margins and earnings per share. We made significant progress against our global growth priorities in fiscal 2018. We competed more effectively improving our organic net sales trends by 400 basis points over the course of the year.
We enhanced our capabilities in e commerce and strategic revenue management and we moved to reshape our portfolio for future growth with the acquisition of Blue Buffalo, a fast growing highly profitable business that is leading the transformation of the U. S. Pet category. We're pleased with our broad based top line performance and we know there is more work to do to address rising costs and deliver better results on the bottom line. As we turn to fiscal 2019, we'll continue to follow our consumer first strategy and invest behind our global growth priorities to accelerate our top line growth again.
We're also keenly focused on maintaining our efficiency in this more inflationary cost environment and we have initiatives underway to help protect our profitability and continue to drive cash flow. On Slide 5, you can see the key financial performance metrics for our Q4. Net sales totaled $3,900,000,000 up 2% from last year. Organic net sales increased 1% driven by positive net price realization and mix across all four segments. We saw particularly good net sales performance on our Accelerate platforms including snack bars, Haagen Dazs and Old El Paso.
Importantly, we gained share again in U. S. Cereal in the quarter despite a double digit reduction in merchandising. And we grew our U. S.
Yogurt market share in the quarter for the first time in 3 years. Segment operating profit in the quarter totaled $727,000,000 up 7% in constant currency, reflecting favorable net price realization and mix, benefits from cost savings initiatives and lower SG and A expenses. Adjusted operating profit margin increased 170 basis points versus last year. In addition, adjusted diluted EPS totaled $0.79 an increase of 7% in constant currency. This result included a 7 point headwind from higher net interest and shares related to Blue Buffalo Financing.
Turning to the full year results, fiscal 2018 net sales of $15,700,000,000 were up 1% as reported and were flat to last year on organic basis. Organic sales growth in our Convenience Stores and Foodservice and European and Australian segments was offset by declines in North America Retail and Asia and Latin America. From a platform standpoint, net sales growth was led by our natural and organic, snack bars and hananda's businesses, while yogurt declines moderated significantly from year ago trends. Total segment operating profit of $2,800,000,000 declined 6% in constant currency. We delivered another strong year of savings and we reached our restructuring savings goal.
However, those results were not enough to offset unexpectedly high freight and raw material inflation, increases in other operating costs and higher merchandising. Full year adjusted operating profit was down 90 basis points. Adjusted diluted EPS were $3.11 essentially matching year ago levels in constant currency. This included a 2 point headwind from incremental interest and shares related to the Blue Buffalo financing. Finally and importantly, we delivered an excellent year of cash generation with free cash flow up 28% over year ago levels.
Earlier this year, we outlined 3 global priorities to return our business to consistent top line growth: compete effectively everywhere we play across all brands and geographies accelerate growth on 4 key platforms where we have leading brands, capabilities and attractive margins and which play in faster growing categories, and reshape our portfolio for growth through acquisitions and divestitures. We made progress against each of these priorities in fiscal 2018. Most of the improvement in our organic sales growth last year was driven by competing more effectively around the world. At the beginning of the year, we said we'd grow our global cereal business in fiscal 2018 and we accomplished that goal. We grew retail sales and market share in the U.
S. Behind strong marketing at higher price points, resulting in improved merchandising performance. At higher price points resulting in improved merchandising performance and we launched the biggest innovation in the U. S. Category this year with chocolate peanut butter Cheerios.
CPW net sales were flat in constant currency in fiscal 2018 with growth in Asia and the Middle East offset by declines in Western Europe. And we grew cereal in our Convenience Stores and Foodservice segment including K-twelve schools and colleges and universities leveraging our strong taste brands like Cinnamon Toast Crunch, our broad portfolio of gluten free cereals including Cheerios and Chex and our granola brands led by Cascadian Farms. In U. S. Yogurt, our goal was to significantly improve our performance by innovating in faster growing segments of the category.
Thanks in large part to our WeBuyYou'll Play and You'll Play mix in innovations, the 2 biggest launches in the category in fiscal 2018, we dramatically reduced our net sales declines and drove share growth in the 4th quarter. We also competed more effectively in fiscal 2018 across a number of regional businesses. We got in the zone on merchandising in the key seasons on our U. S. Soup, refrigerated dough and dessert businesses and we supplemented that with targeted investment including a new advertising campaign on Pillsbury and a new line of Progreso organic soups.
As a result, we saw significant improvement in retail sales performance and we grew market share in aggregate on these businesses for the year. Also on our Wanchai Ferry Frozen Dumplings business in China, we launched premium innovation and expanded distribution helping drive double digit top line growth in 2018. As consumers rapidly evolve the way they buy their food, our e commerce capability is becoming increasingly critical to our ability to compete successfully and we're continuing to leverage our advantage in this space. Our global e commerce business grew at almost 50% in fiscal 2018, including nearly 70% in North America. Our full basket market shares online continue to over index relative to the physical stores in both the U.
S. And Europe and General Mills are seen as a key strategic partner for our e commerce retail customers bringing differential insights and solutions to drive growth. On our 4 Accelerate platforms Haagen Dazs, Nac Bars, Old El Paso and Natural and Organic, we expanded distribution, launched innovation and increased brand awareness in fiscal 2018, laying the foundation to accelerate their growth in 2019. Haagen Dazs retail sales were up double digits in 2018 as we broaden distribution of mini cups and stick bars across Europe and Asia, modernize the brand with the rollout of new packaging and a global advertising campaign and continue to launch remarkable innovation like green tea mochi, peanut butter flavors and limited edition of flower flavors. Retail sales for our snack bars were up low single digits in fiscal 2018 with growth across all geographies including North America, Europe, Asia and Latin America.
New layered bars and soft baked filled squares generated growth for Nature Valley in the U. S. And our businesses in Europe and Mexico leverage our U. S. Product pipeline to accelerate Nature Valley sales.
Fiber One has been a drag on results in the U. S. As we right sized the business and focused our shelf presence on the best turning items. But we saw excellent growth Fiber One in Europe and Australia where the brand is relatively new by expanding distribution and driving brand awareness with increased media support. And increased availability and awareness drove strong double digit growth for Larabar in the U.
S. And our Pillsbury snack bar business in India. Old El Paso performance in 2018 was mixed with overall retail sales up low single digits. Retail sales in Europe and Australia were down modestly as more competitive category dynamics in France and Australia offset good performance in the U. K.
And Nordics. We drove retail sales growth in North America behind our anything goes in campaign as well as execution of initiatives to secure front of store display, allowing us to reach the old El Paso consumers before they pass the produce aisle. For our North American natural and organic portfolio, retail sales were up mid single digits in 2018, which represents a slowdown from the prior year as we exited some tail SKUs and channel specific product lines. We continue to see stronger growth in core products such as Annie's Mac and Cheese and Bunny Grahams, Cascadian Farm Cereal and Epic Meat Snacks. Beyond measured channels, our natural and organic brands are driving our growth in e commerce as early adopters for food online tend to over index toward natural and organic brands.
Overall, these 4 platforms led our growth in fiscal 2018 and I am confident we'll see them accelerate in 2019 as we invest to launch innovation, expand distribution and increase brand awareness. Our 3rd global growth priority is reshaping our portfolio for growth. And we took a major step in this direction in fiscal 2018 with the acquisition of Blue Buffalo, the leading brand in the fast growing wholesome and natural pet food category in the U. S. The transaction closed on April 24 and we're moving full steam ahead with our transition plans, working to bring General Mills expertise to bear where it's needed and ensuring we stay out of their way when it is not.
I am very pleased to report that Blue Buffalo's solid business momentum has continued. Year to date through April, net sales continue to grow double digits driven by expansion in the food, drug and mass channels and aggressive growth in e commerce, which are more than offsetting declines in the pet specialty channel that are in line with our expectations. This spring, we successfully started up our new treat facility in Joplin, Missouri and we expect to start production at the new Richmond, Indiana factory at the end of the summer, which will help us fuel further distribution expansion. I am confident in our ability to deliver on our plans for continued growth for Blue Buffalo in fiscal 2019. Billy Bishop will share more about those plans at our Investor Day event in 2 weeks.
On that note, let me review our company's 3 key priorities for fiscal 2019, which are summarized on Slide 11. First, we plan to grow our core by competing more effectively and accelerating our differential growth platforms. We expect to deliver further improvement in yogurt in 2019 as we continue to drive innovation in faster growing spaces in the category. We're launching some fantastic new products around the world this year, including a new platform in the U. S.
That offers consumers a modern approach to weight management by delivering a simply better yogurt with high protein and less sugar. We'll continue to compete more effectively cereal in 2019 behind great consumer news and innovation like Cheerios O' Crunch that's hitting the U. S. Shelves this month. We have strong plans across many regional brands including new product news on Totino's Hot Snacks, Progreso Soup, Betty Crocker Desserts and Wanchai Fairy Dumplings.
In total, we expect to grow our global net sales from innovation in fiscal 2019. We also expect to improve our growth in emerging markets, which underperformed in fiscal 2018. With lingering effects from Brazil's enterprise reporting system implementation now behind us, we expect to see better results in Latin America in 2019 and we're investing in accelerate plans for Haagen Dazs and snack bars in Asia. On Old El Paso, we'll build on a strong 2018 Q4 in Europe and Australia, driven by new gluten free tortillas and will strengthen our natural and organic business with news on Annie's Mac and Cheese as well as increased distribution on core Epic meat bars and new Epic performance bars. We'll tell you more about all of these and other 2019 accelerated initiatives at Investor Day.
Our second key priority is to successfully transition Blue Buffalo into the General Mills portfolio. Our focus in fiscal 2019 is on continuing the expansion into the food, drug and mass channel while pressing our advantage in e commerce and maintaining our strength in the important pet specialty channels. We'll also ensure smooth startup of the Richmond facility and will grow the Blue brand relevance with pet parents behind superior communication and brand building support. We are confident that by leveraging the best of Blue Buffalo and General Mills, we'll continue this business' track record of double digit top line growth and even faster bottom line growth in fiscal 2019. Our final priority for 2019 is to deliver our commitments on profit and cash by executing with excellence across the organization.
To combat elevated input cost inflation, we'll increase our cost of good savings this year, driven by a full year of benefits from our new global sourcing initiative. We'll also begin the process of streamlining our North American logistics network, taking miles out of our system and optimizing inventory levels. Beyond we'll look to drive price realization by leveraging our strategic revenue management capability. We came a long way in fiscal 2018 to build our SRM expertise. We hired an expert from the beverage industry to lead this effort.
We brought in other external hires and combine them with internal talent who know General Mills and our categories. And we have developed systems, analytical tools and consistent methodology for identifying the best opportunities for price realization by brand and geography. In fiscal 2019, we're taking actions against these opportunities, leveraging a wide range of SRM levers including price pack architecture changes, trade optimization, mix management and list price increases. As we expect slightly higher benefits from assets, we expect slightly higher benefits from price mix in fiscal 2019 compared to last year. We'll also look to build on our track record of by capitalizing on opportunities to further decrease our core working capital.
With those priorities in mind and including the addition of Blue Buffalo, we expect to deliver on the fiscal 2019 targets laid out on Slide 12, namely, we expect net sales to increase 9% to 10%. We're targeting 6% to 9% growth in adjusted operating profit in constant currency and we expect constant currency adjusted diluted earnings share to range between flat and down 3%, reflecting the investments we're making to build capabilities and accelerate growth as well as the impact of purchase accounting from the Blue Buffalo acquisition. With that, I'll turn it over to John Mulligan to review our fiscal 2018 results and 2019 outlook in more detail.
Thanks, Jeff, and good morning, everyone. Jeff provided a summary of our Q4 financial results. Now I'll share a few additional details starting with the components of net sales growth on slide 14. Organic net sales increased 1% driven by positive net price realization and mix across all four segments, partially offset by lower contributions from organic volume growth. Foreign currency translation was a one point benefit to net sales.
Turning to our segment results on slide 15, North America retail organic net sales were down 1% in the 4th quarter and for the full year. This represents a 400 basis point improvement over our fiscal 2017 growth rate, driven by solid fundamental execution, including better innovation, more compelling marketing and consumer news and stronger in store merchandising. These efforts translate into market share growth for 7 of our top 9 categories in the U. S. In fiscal 2018.
At the operating unit level, U. S. Snacks posted 2% net sales growth in the quarter and for the full year, driven by Nature Valley innovation and product news on Larabar Fruit Snacks. U. S.
Cereal grew net sales 2% in the quarter, behind effective consumer news on core brands, including Lucky Charms and seasonal varieties of Cheerios and Reese's Puffs. Full year U. S. Cereal net sales were flat, while we estimate retail sales grew 1% including non measured channels. On a constant currency basis, Canada net sales declined 5% in the quarter and were down 1% for the full year.
U. S. Meals and Baking net sales were down 2% in the quarter and were flat for the full year with increases in Annie's Mac and Cheese, Totino's Hot Snacks and Betty Crocker Desserts offsetting declines on Helpers and Specialty Potatoes. U. S.
Yogurt net sales were down 5% in the quarter, marking the 4th consecutive quarter of improvement as declines on Greek and Light segments were partially offset by contributions from We by Yoplait and Yoplait Mixins innovations. Constant currency segment operating profit increased 7% in the 4th quarter due to positive net price realization and mix, increased savings from global sourcing and lower SG and A expenses, partially offset by input cost inflation. Full year segment operating profit declined 4% in constant currency, driven by input cost inflation, higher operational cost and increased merchandising, partially offset by lower SG and A. In Convenience Stores and Foodservice, 4th quarter organic net sales were up 5%, led by strong performance on our frozen meals, cereal and snack platforms. Fruit snacks and our Pillsbury Stuffed Waffle performed well in C stores, while our cereal offerings continue to generate good growth in foodservice channels.
Full year organic net sales were up 3%, driven by growth on the Focus 6 platforms and benefits from index pricing on bakery flour. Segment operating profit increased 11% in the 4th quarter, driven by benefits from net price realization and cost savings initiatives, partially offset by higher transportation costs and commodity inflation. Full year segment operating profit declined 2%, reflecting higher input costs, partially offset by positive net price realization and benefits from cost savings initiatives that accelerated in the back half of the year. Our Europe and Australia segment finished the fiscal year with positive momentum and delivered a solid year on the top line. Organic net sales increased 4% in the 4th quarter, driven by strong growth on snack bars, Haagen Dazs and Old El Paso.
Full year organic net sales were up 2%. Constant currency segment operating profit increased 37% in the quarter due to favorable sales mix, net price realization and benefits from cost savings initiatives. Full year segment operating profit was down 22% in constant currency, driven by significant raw material inflation and currency driven inflation on products imported into the U. K. In our Asia and Latin America segment, organic net sales were flat in the 4th quarter and down 2% for the full year.
Remember that last year's Q4 included an extra month of results in Brazil as we align that business to our fiscal calendar. Excluding that difference, organic net sales would have been up double digits in the quarter, led by continued growth in Haagen Dazs in Asia, Wanchaifeiri in China and our snacks businesses in India and Latin America. Segment operating profit declined $13,000,000 in the quarter, driven by higher input cost and SG and A expenses as well as the impact of the reporting difference. For the full year, segment operating profit was $40,000,000 compared to $84,000,000 a year ago. Turning to margins on slide 19, we delivered 70 basis points of improvement in our adjusted gross margin and a 170 basis point increase in our adjusted operating profit margin in the 4th quarter, driven by positive net price realization and mix, increased benefits from cost savings initiatives and lower SG and A expenses.
Full year margins were down year over year due to higher input cost inflation, operational cost and merchandising, partially offset by savings, positive net price realization and lower SGA expenses, including an 8% decline in Media. Slide 20 summarizes our full year joint venture results. Jeff already shared fiscal 2018 sales results for CPW. Haagen Dazs Japan constant currency net sales were up 1% for the full year, driven by volume growth on core mini cups. Combined after tax earnings from joint ventures totaled $85,000,000 for the year, down 3% in constant currency, primarily driven by input cost inflation, especially on vanilla for HDJ and a restructuring charge at CPW.
Slide 21 summarizes other noteworthy income statement items in the Q4. Restructuring and impairment charges totaled $151,000,000 including $97,000,000 of impairment charges related to the Yolky, Mountain High and Immaculate Baking brand intangible assets. Corporate unallocated expenses, excluding $30,000,000 related to acquisition transaction cost as well as other items affecting comparability decreased $23,000,000 from a year ago, driven by various non recurring items. Net interest expense increased $68,000,000 Approximately half of that increase was due to incremental interest paid on newly issued debt and the remaining portion was related to the bridge term loan financing for the Blue Buffalo acquisition, which was excluded from adjusted earnings. The adjusted effective tax rate for the quarter was 26.7 percent compared to 26.8% a year ago.
And average diluted shares outstanding increased 1% in the quarter, reflecting the additional equity raised in March as part of the Blue Buffalo financing. Slide 22 provides our balance sheet and cash flow highlights for fiscal 2018. Our year end core working capital balance totaled $580,000,000 down 27% versus the prior year as benefits from our terms extension program more than offset higher receivables and inventory balances from consolidating Blue Buffalo's assets acquired in the 4th quarter. Full year operating cash flow was $2,800,000,000 up 18% from a year ago, primarily driven by improvements in working capital. Fiscal 2018 capital investments totaled $623,000,000 or 4% of company net sales.
Full year free cash flow grew 28 percent to $2,200,000,000 which represents a 120% conversion rate on our adjusted after tax earnings. And we paid $1,100,000,000 in dividends in fiscal 2018. Slide 23 highlights some key financial assumptions for fiscal 2019. We expect input cost inflation to be approximately 5%, 1 point higher than fiscal 2018 levels. We're roughly 40% covered on our global commodity positions at this point in the year.
We're targeting cost of goods sold savings of approximately $450,000,000 which is ahead of year ago levels, driven by a full year benefit from our global sourcing initiative. We planned significant growth investments in our Accelerate platforms, especially Haagen Dazs and snack bars as well as in global capabilities like e commerce. These initiatives will enhance our growth in fiscal 2019 and will drive further acceleration in 2020 and beyond. Below the profit line, we expect net interest expense to total approximately $550,000,000 driven by higher debt levels resulting from the Blue Buffalo financing. We're planning for an adjusted effective tax rate of 23% to 24%, reflecting a full year impact of U.
S. Tax reform. We anticipate average diluted shares to increase roughly 4% driven by our equity issuance. And we expect the Blue Buffalo deal will be approximately $0.04 dilutive in fiscal 2019 adjusted diluted EPS. This includes a this includes $0.09 of non cash expenses from the inventory step up and purchase price amortization charges.
Based on these assumptions, slide 24 summarizes our fiscal 2019 outlook for our key financial metrics. As Jeff noted, reported net sales are expected to increase 9% to 10%, including the addition of Blue Buffalo. We project organic net sales to range between flat and up 1%. On operating profit, we've made a change from our historic practice of guiding to total segment operating profit and instead we're providing guidance on adjusted operating profit which includes corporate items. For fiscal 2019, we estimate constant currency adjusted operating profit will increase 6% to 9% from the base of $2,700,000,000 reported in fiscal 2018 with 11 points of growth coming from Blue Buffalo, inclusive of the purchase accounting impact.
Constant currency adjusted diluted EPS is expected to range between flat and down 3% from the base of $3.11 earned in fiscal 2018. We're targeting free cash flow conversion of at least 95% of adjusted after tax earnings. And as Jeff noted earlier, these targets include another year of double digit top line and even stronger bottom line growth for Blue Buffalo in fiscal 2019, excluding the impact of purchase accounting. Let me also comment briefly on our view of phasing for the year. Blue Buffalo purchase accounting will be a $0.07 drag in fiscal in EPS in Q1 driven by the inventory step up.
In addition, while we enter the year with a high level of input cost inflation, we expect price mix benefits from SRM will build over the course of the year. As a result, we expect constant currency adjusted diluted EPS will be down double digits in the first quarter and will strengthen through the rest of the year. With that, let me turn you back over to Jeff for some closing remarks.
Thanks Don and let me close with some final thoughts. We took an important first step in fiscal 2018 returning our business to sustainable top line growth. And we're leveraging our compete, accelerate and reshape growth priorities to further improve our growth profile going forward. In 2019, we're investing behind capabilities and accelerate platforms to get our core business back to growth and we'll successfully transition Blue Buffalo into We're taking actions on our margins as well. In fiscal 2019, we'll deliver higher savings and we'll see increased benefits from strategic revenue management and administrative cost savings actions announced last quarter.
Still, those won't be enough to fully offset higher inflation and the incremental growth investments we're making this year. So we're also working on additional initiatives that will primarily drive efficiencies beyond 2019, including our logistics network reorganization, further enterprise process transformation efforts and initiatives to improve our international margins. And we continue to see opportunities to reduce working capital and drive free cash flow growth. In summary, we're committed to our consumer first strategy and our global growth priorities. We're also confident that we're on the right path to consistently generate profitable growth and top tier returns for our shareholders.
With that, we'll wrap up our prepared remarks and open the call for questions. Operator, can you
please get us started?
And we'll get to our first question on the line from Brian Spillane with Bank of America. Please go ahead.
Hey, good morning everyone.
Good morning, Chris.
Just had a, I guess, a question about gross profits in fiscal 2019. And I guess two questions. One, I think if I did the math correct, seems to imply that you'll need about a point or a little more than or between a point and two points of price mix in order to sort of hold gross margins flat for the year. Is that the right way to think about it?
Yes, Brian, it is. As we said with higher inflation even at 5%, given our pricing of 1% or 2% is enough to with combined with is enough to offset that level of inflation. So that's the way to think about our F 2019 gross margin.
Okay. And then I guess, so as we're modeling it out, is you're looking at the operating profit growth expectation for the year, is the assumption that you'll be able to get hold gross margins flat for this year or might that not be the case?
Well, we would expect to be flat or better, especially with the inclusion of Blue Buffalo, with the accretion we'll get from Blue Buffalo in the year.
Okay. All right. Thank you.
Thank you very much. We'll get to our next question on the line from the line of Ken Goldman from JPMorgan. Please go ahead.
Hi, good morning. Hi, Ken. Jeff Harmening, I guess I was curious for your take on this. One of the questions I get on the space in general is how do we get out of the pendulum cycle, right, where for a certain period of time companies in the food space focus on margins and then for a certain period of time, they focus on sales and they may have to invest to get those sales. It feels like from a General Mills perspective, right now Mills is focusing more on the top line, willing to sacrifice some margin in the short term.
When do we, in your view, get to the period where we have sustainable top line growth and margin growth where you're not necessarily investing more every year to get to that top line growth? Is that a late 2019 thing? I'm just trying to get a sense of your timing for because without that it's hard to sort of get that bottom line growth that
the space used to have.
Yes, I think Ken, I think it's a fair question. What I would say is that the key for us as I've talked about is to try to get to the middle of the boat. On the one hand on the one side of the boat you have all going to drive cost savings and the other side of the boat is driving growth without regard to what your profit is. I think the key for us is to get to the middle of the boat. And what you've seen from us over this last year and what you'll see next year is a greater emphasis on top line growth than we've had, but it's certainly not at the expense of efficiency.
And so we're driving better top line growth across all of our 4 segments and we plan to do that in fiscal 2019. At the same time, we are continuing to drive efficiencies. I think that's why I laid out that is going to be increasing next year. We took some administrative actions in the Q4 to reduce our admin load and we're looking at redoing our logistics network. And so for us the key is to get in the middle of the boat.
As we look at 2019, one of the things that we realized that we'll have to do is we'll have to make some investments in growth capabilities in order to drive that continued growth. We're really pleased with the 400 basis improvement that we've made this year. If we can make another 100 basis point improvement next year, that will give us a long way to get back to sustainable growth. And if you add on top of that, maybe 75 points of organic growth from the growth of Blue Buffalo, you start to get to a place where you're between 1% 2% growth. So we feel like we've made significant improvements in 2018.
We'll take another big step forward in 2019. And my hope is that in the next year or after that we can get back to a sustainable level, which is about 3% top line growth. So we feel like we're making good progress on that front. And the key for us is to invest in the right capabilities, whether it's e commerce or grow things like capabilities and Haagen Dazs for driving freezers or things like that and to make sure we're doing that while maintaining our efficiency.
Okay. Thank you very much.
Thank you. We'll get
to our next question on the line from the line of Chris Growe with Stifel. Please go ahead with your question.
Hi, good morning. I just had a question for you, if I could. First of all, on one of the things that was a big factor here for the Q4 was freight inflation. So I want understand perhaps to Don, how much of that 5% inflation would you say is driven by freight cost being up year over year?
Yes. Our logistics cost we expect to be higher than that 5%. So it is driving it up. We also expected to see the heavier weight of that in the 1st part of the year because it accelerated as F 2018 unfolded. So both expected to be the one of the key drivers of our inflation and to be just a little bit more front loaded.
Okay. And just a quick question if I can ask in relation to Blue Buffalo. You have a lag in the way you're reporting that business. Is there an extra month that comes through in the year in terms of the way you report that extra month that I guess the kind of the month of May, if you will?
Yes. Not in fiscal 2019. At some point, we would expect to align it with our reporting calendar, but that's not baked into our fiscal 2019 plan or guidance.
Okay. Thank you very much.
Thank you. We'll get
our next question on the line from Akshay Jagdale with Jefferies. Please go ahead with your question.
Good morning. This is actually Luby on for Akshay. Apologies if I missed this earlier, but how should we think about organic sales growth in the North America retail business for fiscal 2019, are there any sort of puts and takes that we should be thinking about here in the New Year?
We didn't give any guidance for segment growth and we'll talk more about what we expect out of our segments at our Investor Meeting in a couple of weeks. What I will say is that if you look at our business next year not only for North America but retail but in general, I would expect it to get incrementally better again on yogurt in the U. S. I mean, we were down over 20% in the Q1 and reduced that to minus 5% in the Q4 and we like our innovation coming out and we are doing well. And so I would certainly hope that and plan in the coming year that our yogurt business will continue to get better.
We actually gained share in the Q4. And I think more broadly as you look at us as an organization, we had a rough first half in Brazil and not great in Asia, but we really accelerated growth in the back half of the year in those geographies behind our growth platforms, namely snack bars like in India and in the Middle East and Haagen Dazs and Wanchai Ferry in China. And so I would expect incremental growth for us to come in our emerging markets, particularly with Brazil as we are lapping the systems implementation and in China where we saw a lot of growth coming in the second half of the year.
Got it. Thanks. But so just to follow-up on that, in North America, obviously, the organic sales growth trends over the last several quarters have improved quite a bit. Would we do you expect in fiscal 2019 to see positive organic sales growth in North America?
Well, look, we'll talk about that in detail in a couple of weeks. And I don't mean to dodge the question, but I guess I'll dodge the question only to say that we'll talk more about that. What I will say is that one of the things I'm really pleased about in our North America business is how broad our growth was. I mean we gained share in 7 out of 9 categories this year, including many of our most important categories. Those categories represent 80% of our business.
And I think when some folks talk about the year we have, they talk about lapping a tough year a year ago, which is certainly true. And we gained share in soup and we did better on refrigerated baked goods, but really the gains were broad based. If you look across our bars business, you look across yogurt, we improved, you look across cereal, we improved. And so that momentum I think will carry into next year in particular I think what gets underestimated is that we came into the year with a distribution drag. We're down about 4 or 5 points of distribution and we're exiting the 4th quarter with distribution relatively flat.
We've been gaining distribution. In fact, we've been gaining distribution in categories like cereal. And so that will be a tailwind for us that John Nudi will speak more about in a couple of weeks.
That's helpful. Thanks. I'll get back in queue.
Thank you very much. We'll get to our next question on the line from the line of Jason English with Goldman Sachs. Please go ahead.
Hey, good morning folks. Thank you for letting me ask a question. I'm actually going to try to jam 2 questions in here. First, we obviously we came into the year with a lot of talk about this transitory pain on trade spend accrual with this anticipation of a sizable reversal late this year. You didn't make any comments about it.
So can you comment now and maybe give us some quantification of how much of that reversal benefit was evident in 4th quarter results?
Yes, Jason, this is Don. We came through as we had indicated. Again, it was a year over year comparison. So it wasn't so much what we had to do in 2018 is what the quirk of our 2017 recognition. So it came through as we expected.
That's what allowed us to bring our operating profit, our segment operating profit in on guidance. So it came at the magnitude we had guided before.
And then What was the magnitude?
Carry by me.
So yes, we said about it was about 100 basis points in the first half of the year, negative about 100 basis points positive in the second half. And you see that flow through as we saw a little bit better price mix appreciation in the Q3. That was a piece of it.
That's helpful. Thank you. And the question on the guidance, you're guiding to sort of ex buff EBIT down 4% to 5%, I think for the year. But you're guiding organic sales flat to up, you're guiding to in response to Spillane's question for flattish gross margins. What's driving the underlying standalone EBIT decline?
Yes. So our guidance for EBIT in total is 6% to 9% growth, 11 points of that coming from Blue Buffalo. So you can do the math on what the base business is going to do down low single digits to 85%. So what's driving that? We are obviously in total getting the benefit of accretion from Blue Buffalo.
We are getting benefit from from increased and from our pricing as well. But the headwinds are higher level of inflation. We are seeing embedded in that, of course, is the purchase price accounting for Blue Buffalo. That's part of the 11% from Blue Buffalo. But most importantly, below the gross margin, we're seeing increased growth driving capability investments and accelerate investments.
Jeff talked about many of these as we think about driving and putting additional investment behind Haagen Dazs, Snack Bars, Old El Paso, e Commerce, continuing to build our data analytical capabilities to drive SRM. All those are embedded in below the gross margin line. We also frankly have about a $40,000,000 incentive true up year over year. And then I mentioned a couple of discrete favorable non recurring items in our Q4 corporate items that will lap as well.
Okay. Thank you. I'll pass it on.
Thank you very much. We'll get to our next question on the line from the line of Robert Moskow with Credit Suisse. Please go ahead.
Hi. Thank you, Jeff and Don. There was a comment during the script saying that your merchandising levels were actually down in 4th quarter. And I guess that means like in terms of retail activity. Can you help explain why that was year over year?
And then what kind of merchandising activity do you expect in fiscal 2019? Do you expect to have equal amounts, more amounts, trying to understand that. And then just one little thing, I think you said your inflation number embeds the purchase accounting increase. It doesn't sound like real like commodity inflation. Did I hear that right?
Thanks.
No, you did not hear that right. The 5% doesn't include any impact from the purchase accounting.
Don was saying it will be 11 points of impact of EBIT growth is includes the purchase accounting for Blue Buffalo.
Okay. Thank you.
Yes. And as you Rob, you had a question about merchandising in Q4. I think the reference I had in the script was to our cereal merchandising, which was down double digits. And I mentioned that only because there's been a lot of commentary about how we just bought share in cereal with merchandising up. I think it's really important that people listening to this call understand that we actually drove share growth in cereal in the Q4 with merchandising being down double digits, which really speaks to our baseline or our non promoted business, which was up over 2% during the quarter.
And the reason why that's important, I mean, we had really good new products. Our marketing is terrific. I highlighted Lucky Charms and Cheerios. I could also highlight Cinnamon Toast Crunch or Reese's Puffs. And so as we look at this year, we're really pleased with our cereal business and the fact that we could grow share in the Q4 with merchandising being down double digits, I think speaks to what we've been talking about, which is the strength of our marketing ideas and our marketing execution in cereal.
As we look at next year, John Nudi will talk more about that in a couple of weeks, so I'll leave that to him. But think we'll see some tailwinds from new products in our U. S. Business as we will for our business in general. And also distribution, I think that's probably something that people under underestimated that we came into this year with some distribution gaps because we discontinued a lot of SKUs.
And as we look at fiscal 2019, we look to either hold steady or grow our distribution. That's on the basis of our broad top line momentum. And so John will talk more about that in a couple
weeks. I
just have to follow-up. When you grow your distribution, does that come with higher slotting fees also?
In the U. S, slotting fees are not a huge expense in general. They come with some slotting fees, but not but that's not a huge cost driver for us.
Okay. Thank you.
Thank you very much. We'll get our next question on the line from Pablo Zwajnik with SIG. Please go ahead with your question.
Thank you. Just two questions. Jeff, on the pricing front, obviously, significant improvement globally and also in the U. S. Can you just put some context for that?
We hear all this commentary about tough retail environment, retailer pressures being difficult for CPG companies to get pricing through. And obviously, pricing was a big lever for your company this quarter in terms of improving gross margins. So just help us understand that what has changed or maybe nothing has changed and the pricing power was there all along. It was just a matter of timing. And then the second very brief question, just on Blue Buffalo, can't you I'm trying to do the math in terms of the underlying sales growth that you're projecting.
I mean, obviously, you're adding it's adding 9% to sales in fiscal year 2019, but we don't know exactly what the base is. So just some comments in terms of underlying growth there embedded in the projection. And if you can, any comments in terms of is Indiana plant on schedule? I know you said late summer, how aggressive can the entry be into FDM in fiscal year 2019, I. E, Walmart?
Any color you could give there in terms of sales trends and outlook for Blue Buffalo would help? Thanks.
All right, Pablo. Let me try to take those one at a time and if I miss one, it's not on purpose. But as we look at Q4 on pricing, I think the first thing to recognize when it comes to strategic revenue management, you see this in our 4th quarter. We talked about pricing. There really are a lot of levers including mix.
And in our Q4, we drove a lot of positive mix. And I'll give you a couple of examples. In Europe, these accelerators that we've talked about like Haagen Dazs and Old El Paso and bars, not only are they in fast growing categories, but they're also mix accretive. And so to the extent we accelerate growth on those, you see it come through in the pricing, you come and see it come through in our margins, you see it come through in profitability. And so in our Q4 in Asia and in Europe, you saw quite a bit of mix.
And so you'll see that in the U. S, you'll see a pullback in merchandising a little bit in the Q4 and that drove about a point of pricing for us in the Q4. And so as we talk and think about pricing, it really is pricing and mix. So there are a lot of different levers associated with that. In terms of the commentary on what's changed, if you look more broadly, I mean, we saw in 2018 about 2% pricing across our categories in North America as opposed 1% pricing the year before.
So we in our category themselves, we've seen again product mix is a part of that, but we've seen some pricing appreciation. Inflations, whether it's on logistics or whether it's on labor costs and manufacturing or whether it's on input costs. And no one wants to lead with pricing. We're all trying to become more efficient just like we are with our logistics network and and that's certainly the first line of defense. But when you get to levels of inflation for us that reach 4% in this current fiscal year and we're projecting at 5%, you need a little bit of pricing in addition to all those other cost levers to offset it.
And I think we're seeing that broadly. The other theme and I'm not sure that you asked this, but I want to I think it's important is that there's been a lot of commentary about retailer competition. There certainly is a lot of retailer competition and particularly about e commerce. And I don't want this point to go by, but we grew our e commerce business by 50% globally this past year and 70% in North America. And we over index in the categories we compete including about a 120 index on our full basket sales relative to what we have in brick and mortar.
And so there's been a lot of talk in the industry about kind of e commerce being the death of brands and especially food brands. And all we keep doing is growing our e commerce business and growing our share within it. And so we're particularly pleased about that and that's why we're going to continue to invest in that capability as we look into F 2019. Then you asked a question about Blue Buffalo and I'm not going to give specifics about our distribution plans. Billy Bishop will talk about Blue Buffalo later.
What I will say is that when it comes to supply chain that we got a treats facility up online a little bit ahead of schedule and the Richmond facility is due to come online later this summer. The Blue Buffalo have been really impressed with their supply chain team. They've got really high quality supply chain team. We're going to add to that capability because we have more high quality supply chain folks. And I think for us the key is that with Blue Buffalo, I'm not sure we're going to speed up their acceleration into the channel.
I think we're going to help them do is execute with excellence, so we're confident in our FDM expansion plans. At the same time, So we're confident in our FDM expansion plans. At the same time, we're growing our we think we're growing our share in e commerce and that business is growing really quickly. And we haven't forgotten about the pet specialty channel. And even though that channel is declining, it's still a very important channel for us and we'll look to distinguish ourselves across channels on Blue Buffalo.
And Pablo, this is Don. Just in terms of the baseline, obviously, you have the Blues reported results through calendar 2017. Think about the accretion you'd expect in Q1 for them and that probably provides a pretty good base. We'll be issuing an 8 ks with the pro form a results for the combined company just a handful of days and that will give you better line of sight.
That's helpful. Thanks.
Thank you very much. We'll get to our next question on the line from John Baumgartner with Wells Fargo. Please go ahead.
Jeff, can you speak a bit more to the reinvestment plans for fiscal 2019? And how does that F 2019 plan differ from what was undertaken in F 2018? What did you learn from this past year's reinvestments in terms of what worked and maybe what was less successful versus expectations?
Well, what I would say is that we have increased confidence going into F 2019 that some of the things we put in place if we double down on those investments that they'll work and I'll use e commerce as an example of that. We are going to increase our investment in e commerce this coming year because we saw the investments pay off in that as indicated in our growth rates. But beyond that, I would say that we saw acceleration in the back half of this year, especially the Q4. We put some money against acceleration on Haagen Dazs and on bars. And we really saw some really strong results in both Asia and in Europe.
And I'll give you a couple of examples. We turned on advertising for the first time on Fiber One Bars in Australia and saw really good results. And so we decided to turn that advertising on in the UK and my guess is we'll see good results there as well. And on Haagen Dazs, we've doubled down on some of our new product efforts and I'm particularly pleased with how we progressed in Asia behind our growth on Haagen Dazs and in the Q4 we accelerated growth in Europe on Haagen Dazs behind increased marketing spending as well as increased new product introductions. And so we'll spend more on R and D for example on those businesses we look into the coming year.
And then finally I'll highlight India. We don't talk a lot about India, but we had tremendous growth in bars in India and the Middle East. And we look to continue that this next year. And so what we've done at the end of fiscal 2018, which you start to see in our Q4, we'll continue on the next year. And what I will also tell you is that there'll probably be some things that don't work as well as we want.
And we're keeping a close
eye on all of our investments and we'll double down on the
things that really work well. And if things don't work But we what I will say is we have increased confidence based on what we saw in the But we what I will say is we have increased confidence based on what we saw in the Q4 that we're accelerating on the right platforms and the things that we're doing are making a difference.
Great. And then Don, how should we think about advertising spend in F 2019? Is that up? And by how much? Not sure if I missed that.
Yes. For our media spend for next year, we're really talking about a total brand investment. And we do expect it to be up in 2019. Media will for our base business will likely be flattish, but we'll have additional investment in customer activation and e commerce things that don't necessarily hit the media line. Obviously, our total brand investment will be significantly when you roll Blue Buffalo in.
So we have a lot we have a number of tools that we use to grow our sales. They don't all land in the media line as we talked about in the last few calls. But in total, we expect our media to be roughly flat at our base business.
Okay. Thanks for your time.
Thank you very much. We'll get to our next question on the line from Steven Sekulow with UBS. Please go ahead.
Hi, good morning. Two part question. First part for Don, I want to dig into the inflation a little bit in productivity. What were the total savings for calendar or fiscal 2018?
About they're about $400,000,000 Steve. This is Jeff. Okay.
Got you. And then in terms of for your input cost inflation for 5%, is that just for raw materials and packaging? Or does that include the logistics inflation that was up significantly this year? Just want to know if those are 2 separate pieces.
No, that's all in. 5% is everything against our COGS.
Okay, got you. All right, that's helpful. And then for Jeff, just to understand the core U. S. Business, I realize you're not going to guide to organic sales for next year until maybe the Analyst Day.
But can you give us a little bit of texture as to the different big businesses, whether cereal, yogurt? Should we think about those businesses for the full year next year? How should those trend relative to how we exited the 4th quarter? Just because the first half of twenty eighteen was a little bit soft. So I just want to understand how does the go forward trend stack up versus how we kind of exited 4Q?
Thanks.
Yes. Well, I would say, one of the I mean, I'm at the risk of repeating myself. I appreciate the question. I think the thing I'm most pleased about is the broad based improvement. And what I would hope for next year is that we continue to have broad based improvement.
As I mentioned, I mean yogurt is the one that improved the most throughout the year and we'll look for that to continue. The business we probably had outsized growth this year was on soup because we had a really tough year the prior year. We made some investments in our soup business. Our competitor didn't have the best year. And so in 2018, we probably had some outsized growth on our soup business and maybe we'll repeat that and maybe we won't.
But that one I wouldn't look for outsized growth on that one only because we had a particular poor year the year before we came back with a particularly good year. On the rest of it, I think the key is that we really liked our marketing efforts and our new product efforts. And to the extent that your marketing is good and your innovation is good, those things are repeatable. And I think what you'll see for us next year is that broad based, we think our new product innovation is good. Our retailers think it's good, which is also important.
And it's really good in our big category. So cereal and snacks and yogurt and reveal those plans in more depth. But we have good new product innovation at the end of last year. We have good new product innovation this year and that will help us drive distribution growth, which will be a tailwind for us as opposed to a year ago. And I'll save the rest for John Dutti in a couple of weeks and he can give you some more detail.
All right. Thanks.
Yes. Tommy, I think we'll try to get one quick one in here. I know everybody is going to transition to another call in a couple of minutes. So maybe time for one more. Certainly.
We'll proceed with our final question from the line of David Driscoll with Citi Research. Please go right ahead.
Hi. This is Alexis Borden in for David this morning. Just a quick one. How did the truck strike in Brazil affect your Q4, if at all? And how might it flow into next year?
Well, the as we think about the Q4, I think, first of all, Brazil is less than 3% of our entire business. And it had a little impact on the last few days of the last quarter and it'll have a little impact on the 1st few days in the next quarter. But overall, an organization, it's not going to be a huge factor for us. Certainly, the SAP implementation from last year was a much bigger factor than what we've seen in the trucking so far this year in Brazil.
Okay. Thank you.
All right. Quick one. Thanks, Homi. I think, thanks everybody for your attention. Feel free to reach out over the course of the day if you have more questions.
I'll be on the phone all day. Thanks again and we'll talk to you soon.
Thank you very much and thank you everyone Lisa. And gentlemen, this concludes the conference call for today. We thank you for your participation. Please disconnect your lines. Have a great day everyone.