Kellogg Company SECOND QUARTER 2017 FINANCIAL RESULTS August 3, 2017

Transcription

1 Kellogg Company SECOND QUARTER 2017 FINANCIAL RESULTS August 3, 2017 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 ability to implement Project K (including the exit from its Direct Story Delivery system) as planned, whether the expected amount of costs associated with Project K will differ from forecasts, whether the Company will be able to realize the anticipated benefits from Project K in the amounts and times expected, the ability to realize the anticipated benefits from Revenue Growth Management, the ability to realize the anticipated benefits and synergies from the 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; 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 opportunities, 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 Appendices 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. 2 Page 1 of 10

2 Overview Business Transformation: On Track Nearing completion of transition to warehouse from DSD Parati (Brazil) integration progressing well Improved cereal performance in core international markets Financials: On Track Sequential improvement in Net Sales Continued Profit Margin improvement Cash Flow on track Note: All referenced metrics are on a currency-neutral comparable basis; Cash Flow is defined as cash from operations less capital expenditure. 3 Priority Restore Top-Line Growth Progress Toward Returning to Growth: On-Trend Food & Packaging Winning Where the Shopper Shops Brand- Building Effectiveness Emerging Markets Return to low single-digit growth * Special K and Kashi Co. stabilizing share in U.S. Cereal Expanding distribution of new Special K and Kashi snack bars Removed-artificials Eggo gaining share Progress on DSD transition U.S. Snacks now 100% warehouse distributed Entering final, winddown phase Pivoting to demandpull model Growth in e-commerce Continued share gains for kid-segment cereal brands Momentum for Cheez-It and Rice Krispies Treats Sequential improvement in U.K., Canada, and Australia cereal Strong growth in Asia, led by Pringles Integration and growth of Parati (Brazil), momentum in Bisco Misr (Egypt) Double-digit growth in Africa and China Joint Ventures ** * All referenced metrics are on a currency-neutral comparable basis. ** Joint Ventures are not included in consolidated results. 4 Page 2 of 10

3 Financial Results Summary Change Versus Prior Year 1 st Half Net Sales Reported (2.5)% (3.3)% Currency-Neutral Comparable * (3.1)% (3.8)% Operating Profit Reported +0.7% (8.4)% Currency-Neutral Comparable * +6.9% +4.6% Earnings Per Share Reported +1.3% +19.4% Currency-Neutral Comparable * +7.7% +11.3% 5 Net Sales Sequential Improvement Net Sales Growth Components Year-over-year, % change Currency-Neutral Comparable Net Sales: Q1: (4.4)% : (3.1)% Q % 1.3% 1.3% 1.3% -1.0% -0.7% -2.5% -5.7% -4.9% -4.1% (Reported-Basis) * The acquisition/divestiture figure includes the negative impact of deconsolidating our Venezuela results, beginning January 1, Volume Price/Mix Acq. & Div. * Currency Net Sales 6 Page 3 of 10

4 Profit Margins Continued Expansion Second Quarter and First Half 2017 % of Net Sales, Gross Profit Margin Operating Profit Margin 39.7% 40.0% +30 basis points 38.9% 39.1% +20 basis points 17.2% 15.6% 15.4% +160 basis points 16.7% +130 basis points 1H 1H Cash Flow On Track First Half 2017 vs. First Half 2016 Cash Flow * Core Working Capital ** 6.0% $ % $ % $ % $ % $ % $0 1H H % 1H H 2017 * Cash Flow defined as cash from operating activities, less capital expenditure. Please refer to appendices for reconciliation of non-gaap measures to the most directly comparable GAAP measure. ** Expressed as % of net sales, Core Working Capital is an internal Kellogg metric defined as last 12 months average trade receivables and inventory, less 12 months average trade payables, divided by last 12 months net sales. 8 Page 4 of 10

5 Full Year 2017 Reaffirming Guidance Current Previous In the Second Half: Net Sales ~ (3)% ~ (3)% - Overlay of DSD price adjustment / disruption + Sequential improvement in rest of business, led by Pringles Operating Profit Earnings Per Share Cash Flow Cash From Ops., Less Capital Expenditure +7-9% +7-9% + Productivity savings offset Net Sales decline - Higher y-o-y investment and tax rate in Q3 + DSD overhead savings weighted to Q % +8-10% $1.1-$1.2 bn $1.1-$1.2 bn 9 Kellogg North America Overview Net Sales * (2)% (3)% Op. Profit * +7% +2% OP Margin * +170 bp +110 bp Sequential NSV improvement, across several businesses RTEC category remained soft, but share performance improving DSD transition on track and nearing completion Strong margin expansion continues 10 Page 5 of 10

6 Transition From DSD On Track Customer Alignment: Agreed on Kellogg list-price adjustment to customers, transition timing, joint business planning Core Assortment: Aligned on-shelf assortment, culled tail SKUs Conversion to Warehouse: Shipping only to customers warehouses, halted DSD deliveries Now 100% warehouse distributed Entering final, winddown phase Pivoting to demand-pull Completion of Transition: Close distribution centers, execute operational hypercare, pivot to pull-model commercial activities, increasing brand investment 11 U.S. Snacks Performance & Priorities Net Sales * 0% (3)% Op. Profit * (1)% (14)% OP Margin * (10) bp (140) bp Highlights: DSD transition well executed and on track Pipeline-fill offset by reduced promo activity Increased Brand-Building investment Transition from DSD Increase brand support Strong operating profit margin expansion 12 Page 6 of 10

7 U.S. Morning Foods Performance & Priorities Net Sales * (7)% (6)% Op. Profit * +5% +5% OP Margin * +290 bp +270 bp Gradual improvement in net sales performance Strong operating profit margin expansion Highlights: Category-wide consumption remained soft Share gains in kids brands Special K innovation and media campaign OP margin expansion led by ZBB and Project K 13 U.S. Specialty Channels Performance & Priorities Net Sales * +2% +4% Op. Profit * +15% +12% OP Margin * +300 bp +180 bp Steady sales and operating profit growth Expand reach, improve core mix Highlights: Continued growth Expansion in emerging channels Continued operating profit margin expansion 14 Page 7 of 10

8 North America Other Performance & Priorities Net Sales * (3)% (4)% Op. Profit * +18% +13% OP Margin * +280 bp +240 bp Improvement in sales performance Growth in operating profit and operating profit margin Highlights: Eggo: Growth from removed artificials and new licensed-equity food Kashi Company: Share gain in cereal and significant improvement in snacks trends Canada: Broad-based share gains Strong operating profit margin improvement Canada 15 Europe Performance & Priorities Net Sales * (7)% (8)% Op. Profit * (1)% (3)% OP Margin * +90 bp +60 bp Highlights: Promotion delays following Q1 Pringles pricing negotiations Sequential improvement again in U.K. cereal Continued operating margin improvement 0% -5% -10% Stabilize the U.K. Increase operating profit margin Kellogg U.K. Cereal Consumption -15% Jan P1 Feb P2 Mar P3 Apr P4 May P5 Jun P6 Share pt chg Source: -2.6 Nielsen Sales % Chg -14% -5% -4% -4% -1% 0% 16 Page 8 of 10

9 Latin America Performance & Priorities Net Sales * (4)% (3)% Op. Profit * (15)% +1% OP Margin * (160) bp +60 bp Highlights: Decline driven by Caribbean/Central America Continued growth in Mexico and Mercosur Integration and momentum of Parati Grow sales Integrate Parati Increase operating profit margin 17 Asia Pacific Performance & Priorities ; does not include joint ventures Net Sales * 2% 3% Op. Profit * +35% +31% OP Margin * +210 bp +210 bp Accelerate net sales growth Improve operating profit margins Highlights: Australia: Continued sequential improvement in net sales Broad-based growth in Asia Pringles momentum and expansion Joint ventures performing well Strong operating profit margin expansion 18 Page 9 of 10

10 In Summary On track for 2017 sales, profit, earnings, and cash flow DSD transition nearing completion Committed to returning to top-line growth * All referenced metrics are on a currency-neutral comparable basis; Cash Flow is defined as cash from operations less capital expenditure. 19 Page 10 of 10