KELLOGG COMPANY 2019 Q3 EARNINGS October 29, 2019 KELLOGG COMPANY - - PDF document

▶
kellogg company 2019 q3 earnings
SMART_READER_LITE
LIVE PREVIEW

KELLOGG COMPANY 2019 Q3 EARNINGS October 29, 2019 KELLOGG COMPANY - - PDF document

Sep 09, 2023 494 likes •619 views

Kellogg Company October 29, 2019 KELLOGG COMPANY 2019 Q3 EARNINGS October 29, 2019 KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019 Welcome, Agenda & Disclaimers John Renwick VP Investor Relations & Corporate Planning KELLOGG

slide-1
SLIDE 1

Kellogg Company October 29, 2019 1 of 12

KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019

October 29, 2019

KELLOGG COMPANY 2019 Q3 EARNINGS

KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019

Welcome, Agenda & Disclaimers

John Renwick VP Investor Relations & Corporate Planning

2

slide-2
SLIDE 2

Kellogg Company October 29, 2019 2 of 12

KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019 3

Forward-Looking Statements

This presentation contains, or incorporates by reference, “forward-looking statements” with projections concerning, among other things, the Company’s global growth and efficiency program (Project K), the integration of acquired businesses, the Company’s strategy, zero-based budgeting, and the Company’s sales, earnings, margin, operating profit, costs and expenditures, interest expense, tax rate, capital expenditure, dividends, cash flow, debt reduction, share repurchases, costs, charges, rates of return, brand building, ROIC, working capital, growth, new products, innovation, cost reduction projects, workforce reductions, savings, and competitive

  • pressures. Forward-looking statements include predictions of future results or activities and may contain the words “expects,” “believes,” “should,” “will,” “anticipates,”

“projects,” “estimates,” “implies,” “can,” or words or phrases of similar meaning. The Company’s actual results or activities may differ materially from these predictions. The Company’s future results could also be affected by a variety of factors, including the expected benefits and costs of the divestiture of selected cookies, fruit and fruit flavored-snacks, pie crusts and ice cream cones businesses of the Company, the risk that disruptions from the divestiture will divert management's focus or harm the Company’s business, risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures, revenues, expenses, earnings, synergies, indebtedness, financial condition, losses and future prospects, risks associated with the Company’s provision of transition services to the divested businesses post-closing, the ability to implement restructurings as planned, whether the expected amount of costs associated with restructurings will differ from forecasts, whether the Company will be able to realize the anticipated benefits from restructurings in the amounts and times expected, the ability to realize the anticipated benefits and synergies from business acquisitions in the amounts and at the times expected, the impact of competitive conditions; the effectiveness of pricing, advertising, and promotional programs; the success of innovation, renovation and new product introductions; the recoverability of the carrying value of goodwill and other intangibles; the success of productivity improvements and business transitions; commodity and energy prices; transportation costs; labor costs; disruptions or inefficiencies in supply chain; the availability of and interest rates on short- term and long-term financing; actual market performance of benefit plan trust investments; the levels of spending on systems initiatives, properties, business

  • pportunities, integration of acquired businesses, and other general and administrative costs; changes in consumer behavior and preferences; the effect of U.S. and

foreign economic conditions on items such as interest rates, statutory tax rates, currency conversion and availability; legal and regulatory factors including changes in food safety, advertising and labeling laws and regulations; the ultimate impact of product recalls; business disruption or other losses from war, terrorist acts or political unrest; and other items. Forward-looking statements speak only as of the date they were made, and the Company undertakes no obligation to update them publicly. This presentation includes non‐GAAP financial measures. Please refer to the earnings press release, which is available on the Investor Relations page on the Company’s website, www.Kelloggcompany.com, for a reconciliation of these non‐GAAP financial measures to the most directly comparable GAAP financial measures. Management believes that the use of such non-GAAP measures assists investors in understanding the underlying operating performance of the company and its segments. KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019

Overview

Steve Cahillane Chairman & Chief Executive Officer

4

slide-3
SLIDE 3

Kellogg Company October 29, 2019 3 of 12

KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019 5

On Strategy

Pie Chart: % of Total Net Sales YTD 2019 Boxes: Long-Term Expected Organic-Basis Net Sales Growth

In Q3:

  • Closed divestiture, which

improves growth profile, profit margins, and financial flexibility

  • Sustained growth momentum in

Emerging Markets

  • Sustained growth momentum in

Developed Markets Snacks

  • Accelerated growth in Developed

Markets Frozen

  • Restored brand activity in

Developed Markets Cereal

KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019 6

On Plan

* Organic net sales growth excludes the impact of foreign currency translation, acquisitions, divestitures, and changes in shipping days.

slide-4
SLIDE 4

Kellogg Company October 29, 2019 4 of 12

KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019

Financial Results & Outlook

Amit Banati Chief Financial Officer

7 KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019 8

Q3 – Summary of Financial Results

Reported Currency-Neutral Adjusted* * Please refer to Q3 2019 earnings press release tables for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.

$ in Millions, % Change Versus Prior Year, Except Cash Flow

Net Sales Operating Profit Earnings Per Share

Reported Currency-Neutral *

  • Organic growth again in all four Regions in Q3
  • Improved price realization continued in Q3
  • Two months of negative divestiture impact in Q3
  • Reported results impacted by multi-employer pension withdrawal
  • Divestiture impact starting end of July
  • Input-cost inflation and costs related to alternative pack formats
  • Investments in capabilities, offset by reorganization savings
  • Q3 Reported results impacted by multi-employer pensions withdrawal
  • Tax benefit in Q3; lapped year-ago discrete tax benefits in 1H

9 Mos. Results +1.2% +3.5% (24.5)% (4.3)% (9.4)% (41.5)%

Cash Flow

  • In-line with expectations
  • Q3 & Q4 negatively impacted by divestiture

$489 Q3 Results (2.8)% (1.5)% (33.4)% (4.4)% (33.9)% (0.9)%

Currency-Neutral Adjusted* Reported

*

Organic *

2.4% 1.6%

slide-5
SLIDE 5

Kellogg Company October 29, 2019 5 of 12

KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019 9

Net Sales – Sustaining Good Organic Growth

Year-over-year, % change

Net Sales Growth by Components*

* Please refer to Q3 2019 earnings press release tables for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.

  • Broad-based organic

growth

  • Led by snacks
  • Revenue growth

management

Q3 2019:

KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019 10

Margin – Cost & Mix Impacts, Sequential Improvement

* Please refer to Q1 2018 through Q3 2019 earnings press release tables for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.

Gross Profit Margin

Gross Profit Margin, Currency-Neutral Adjusted Basis*

Change in Gross Profit Margin

Year-On-Year Change in Gross Profit Margin, Currency-Neutral Adjusted Basis, in Percentage Points

slide-6
SLIDE 6

Kellogg Company October 29, 2019 6 of 12

KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019 11

Below-the-Line Items – Abating Headwinds in 2H

* Please refer to Q3 2019 earnings press release tables for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.

  • Interest Expense $0

+$8

  • Other Income $(1)

$(22)

  • Tax Rate (1.1)pt.

+4.0pt.

$ in Millions, Adjusted Basis*, Versus Year Ago, Increase/(Decrease) Q3 2019

  • Vs. Year Ago

9 Mos. 2019

  • Vs. Year Ago

**

** Reported basis KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019 12

Divestiture – Timeline & Impacts

1H 2019

April 1 Transaction Announced June 18 Business Realignment Announced July 28 Transaction Completed

2H 2019

  • Transition Services
  • Debt Reduction
  • Realignment Starts
  • 5 months of dilution

2020

  • Transition Services
  • Realignment Completed
  • 7 months of dilution

December 28 Fiscal 2019 Ends

slide-7
SLIDE 7

Kellogg Company October 29, 2019 7 of 12

KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019

  • On track
  • Absence of divested businesses in 2H
  • Cost pressures and pack-format cost comparisons moderate in 2H
  • On track for favorable end of range
  • Tax rate now expected to be ~20%; lapping ~ 5 pts. of discrete tax benefits of 1H 2018
  • Interest expense up on acquisition debt (1H) and the early redemption of debt (Q3), partially
  • ffset by debt reduction (Q4)
  • Other income decreases on lower pension asset value, but less now with Q3 favorability

13

2019 Full-Year Outlook – Increased Confidence

* Please refer to Q3 2019 earnings press release tables for reconciliation of non-GAAP measures to the most directly comparable GAAP measure. (a) 2019 guidance for Currency Neutral Net Sales growth excludes the impact of foreign currency translation. Organic growth also excludes acquisitions, divestitures, and changes in shipping days. (b) 2019 guidance for adjusted Operating Profit and adjusted Earnings Per Share excludes the impact of mark-to-market adjustments, restructuring programs, and other gains/costs impacting

  • comparability. Currency neutral also excludes the impact of foreign currency translation.

Adjusted EPS(b)

Currency Neutral

Adjusted Operating Profit(b)

Currency Neutral

Net Sales(a)

Currency Neutral

+1-2% (4)-(5)% (10)-(11)%

  • Increased confidence in organic growth of +1-2%
  • Multipro acquisition impact for 4 months; divestiture impact for 5 months
  • Gradual improvement in balance between volume and price/mix

Cash Flow*

  • On track
  • Absence of divested businesses’ cash flow
  • Tax impact on divestiture proceeds
  • Up-front cash costs related to transaction and previously announced business realignment

Growth vs. Prior Year, except Cash Flow*

Previous Guidance

+1-2% (4)-(5)% ~ (10) %

Updated Guidance Changes & Assumptions

~$0.5 billion

after divestiture/business realignment

~$0.5 billion

after divestiture/business realignment KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019

Business Updates

Steve Cahillane Chairman & Chief Executive Officer

14

slide-8
SLIDE 8

Kellogg Company October 29, 2019 8 of 12

KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019 15

North America – Improving Top-Line

* Please refer to the Q3 2019 earnings press release for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.

  • Strong growth by key snacks

brands

  • Accelerated growth by

MorningStar Farms

  • Gradual return to brand activity

in cereal

  • RGM yielding positive price

realization

  • Divestiture completed, transition

services and business realignment underway Q3 Highlights:

Currency-Neutral, unless otherwise noted

  • Sustained momentum in

snacks power brands

  • RX recovery and

expansion

  • Gradual stabilization in

cereal

  • Steady growth in frozen

foods

  • Adapt to new org

structure

  • Divestiture to focus

portfolio What to Watch for in 2019:

Categories: Ready-to-eat cereal, crackers, salty snacks, toaster pastries & wholesome snacks, frozen syrup carriers, frozen veggie foods; since-divested cookies and fruit snacks included through Q2 2019 Q3 9 Mos. Net Sales * (5.8)% (2.1)% Organic * 0.2% (0.1)%

  • Adj. Op. Profit *

(5.6)% (4.9)% KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019 16

North America Snacks – Strong Growth Continues

Net Sales on Currency-Neutral Basis

* Please refer to the Q3 2019 earnings press release for reconciliation of non-GAAP measures to the most directly comparable GAAP measure. Q3 9 Mos. Net Sales * (7.6)% (1.3)% Organic* +5.2% +2.8%

  • Strong innovation
  • Sustained growth in
  • n-the-go
  • Effective brand

building

Sustaining Momentum in U.S. Snacks

Kellogg Retail Sales, Year-On-Year Percent Change

Source: Nielsen, xAOC; YTD 2019 and Q3 2019 ending 9/28/19

slide-9
SLIDE 9

Kellogg Company October 29, 2019 9 of 12

KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019 17

North America Cereal – Getting Back to Brand Activity

Net Sales on Currency-Neutral Basis

* Please refer to the Q3 2019 earnings press release for reconciliation of non-GAAP measures to the most directly comparable GAAP measure. Q3 9 Mos. Net Sales * (4.8)% (4.6)%

Gradual Return from Pack Harmonization

Change vs. Year Ago, Retail Sales, Kellogg Cereal, U.S.

Source: Nielsen, xAOC

  • Taste-Fun brands

collectively back in growth

  • H&W brands starting to

moderate

  • All-Family down on

delayed Mini-Wheats campaign

Q1 Pack Harmonization Q2 Pack Harmonization Q2 Pack Harmonization

KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019 18

North America Frozen Foods – Plant-Based Acceleration

Net Sales on Currency-Neutral Basis

* Please refer to the Q3 2019 earnings press release for reconciliation of non-GAAP measures to the most directly comparable GAAP measure. Q3 9 Mos. Net Sales * +0.6% +0.8%

Reaccelerating Growth for MorningStar Farms

% Growth in Retail Sales

Source: Nielsen, x-AOC

slide-10
SLIDE 10

Kellogg Company October 29, 2019 10 of 12

KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019 19

Europe – Steady Growth

* Please refer to the Q3 2019 earnings press release for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.

  • Pringles momentum
  • Cereal sales stable,

consumption up slightly

  • Wholesome snacks

stabilizing, led by U.K. growth

  • Russia growth continues
  • RGM yielding positive

price realization

  • Higher costs

Q3 Highlights:

Currency-Neutral, unless otherwise noted

  • Pringles sustained

momentum

  • Share growth in cereal
  • Transformation of

wholesome snacks

  • Expansion in Russia and

Central Europe What to Watch for in 2019:

Q3 9 Mos. Net Sales * 4.2% 3.4%

  • Adj. Op. Profit *

(5.3)% 1.8%

Europe – Stabilizing Cereal, Maintaining Snacks Momentum

Kellogg Europe Net Sales Growth* KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019 20

Latin America – Sustained Momentum

* Please refer to the Q3 2019 earnings press release for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.

  • Mexico growth momentum

continues

  • Mercosur growth in spite of

challenging conditions

  • Andean region returns to

growth

  • Revenue Growth Management

yielding price realization

  • Modest impact from Keebler

divestiture Q3 Highlights:

Currency-Neutral, unless otherwise noted

  • Expansion of Parati
  • Growth in Pringles
  • Mexico cereal growth
  • Stabilization of

Caribbean/Central America What to Watch for in 2019: Mexico: Momentum in Cereal

Q3 9 Mos. Net Sales * 5.1% 3.9% Organic * 5.9% 4.2%

  • Adj. Op. Profit *

(4.8)% (4.0)% Source: Nielsen Ready-to-Eat Cereal, % Growth in Retail Sales

slide-11
SLIDE 11

Kellogg Company October 29, 2019 11 of 12

KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019 21

AMEA – Strong, Broad-Based Growth

* Please refer to the Q3 2019 earnings press release for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.

  • Africa growth driven by Multipro

and noodles expansion

  • Strong Pringles growth continues
  • Cereal growth led by emerging

markets and stable Australia

  • Revenue Growth Management

yielding price realization Q3 Highlights:

Currency-Neutral, unless otherwise noted

  • Expansion in Africa
  • Sustained Pringles growth
  • Continued cereal growth

in Asia & Africa

  • Stable Australia

What to Watch for in 2019:

Q3 9 Mos. Net Sales * 7.6% 32.4% Organic * 7.6% 7.0%

  • Adj. Op. Profit *

17.9% 23.5%

AMEA Growing in Cereal, Snacks and Noodles

Net Sales ($USD) KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019

Summary

Steve Cahillane Chairman & Chief Executive Officer

22

slide-12
SLIDE 12

Kellogg Company October 29, 2019 12 of 12

KELLOGG COMPANY | Q3 2019 EARNINGS | October 29, 2019 23

Turning Around

Net Sales Growth, in Percent, Organic Basis *

* Organic net sales growth excludes the impact of foreign currency translation, acquisitions, divestitures, and changes in shipping days.

On Strategy:

  • Portfolio reshaping
  • Snacks, emerging markets, plant-

based foods

  • Investment in capabilities
  • Realigned organization for agility

On Plan:

  • Organic net sales growth
  • Sequential gross margin

improvement

  • Confidence in full-year outlook