Kellogg Company FOURTH QUARTER 2017 FINANCIAL RESULTS February 8, 2018

Size: px

Start display at page:

Download "Kellogg Company FOURTH QUARTER 2017 FINANCIAL RESULTS February 8, 2018"

Moris Blake
6 years ago
Views:

Kellogg Company FOURTH QUARTER 2017 FINANCIAL RESULTS February 8, 2018 Forward-Looking Statements This presentation contains, or incorporates by reference, forward-looking statements with projections

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

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

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,

1 Kellogg Company FOURTH QUARTER 2017 FINANCIAL RESULTS February 8, 2018 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 benefits from our implementation of a more formal Revenue Growth Management discipline, 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 11

2 Recasts & Terminology Changes Revenue Recognition Accounting Change, Recasting for Comparability Pension/Post-Retirement Expense Accounting Change, Recasting for Comparability Transfer of SKUs Shift of certain SKUs out of U.S. Morning Foods and into U.S. Snacks, Recasting 2017 for Comparability Non-GAAP Measures Aligning to Internal Management metrics and Industry Practices On Guidance, Good Progress Delivered on Financial Outlook Delivered 2017 guidance for Net Sales, Operating Profit, EPS, and Cash Flow Project K and ZBB drove substantial margin expansion Improved net sales performance in 2H Boosted brand-building investment in Q4 Progressed on Strategic Initiatives DSD transition in U.S. Snacks Acquisition of on-trend brands/food Global expansion of Pringles Stabilization of core developed international cereal markets Expansion in emerging markets Expansion in ecommerce Note: All referenced metrics are on a currency-neutral comparable basis; Cash Flow is defined as cash from operations less capital expenditure. 4 Page 2 of 11

3 2018 Plan Complete Project K initiatives realize savings, plan next productivity projects Post-DSD U.S. Snacks operate in new go-to-market, re-set P&L, boost reinvestment Increase Brand Investment higher investment, behind better growth ideas Integrate and growing acquired businesses RXBAR, Parati Invest to grow in our joint ventures expand in Africa and China and still deliver mid-single-digit Operating Profit growth * and achieve Margin Expansion target (excluding accounting change) * Please refer to appendices for reconciliation of non-gaap measures to the most directly comparable GAAP measure, as well as 2017 recast information for accounting-rules changes.. 5 Financial Results 2017 Summary Change Versus Prior Year Q4 Full Year Net Sales Reported +3.6% (0.7)% Currency-Neutral Comparable* (1.5)% (2.6)% Within Guidance Operating Profit Reported % +39.5% Currency-Neutral Comparable* +4.1% +7.6% Within Guidance Earnings Per Share Reported % +84.7% Currency-Neutral Comparable* +3.3% +9.1% Within Guidance 6 Page 3 of 11

Net Sales Underlying Improvement Net Sales Growth * Year-over-year, % change 1Q17 2Q17 3Q17 4Q17 Strong 2H Improvement: DSD Transformation (list-price adjustment, SKU rationalization) Pringles return

4 Net Sales Underlying Improvement Net Sales Growth * Year-over-year, % change 1Q17 2Q17 3Q17 4Q17 Strong 2H Improvement: DSD Transformation (list-price adjustment, SKU rationalization) Pringles return to growth (Europe 1H disruption) Frozen Foods acceleration (Eggo, Morningstar Farms) Stabilized international cereal markets (U.K., Australia, Canada) Improved Special K performance (cereal sales and consumption) Accelerated emerging markets growth (Asia, Middle East) 7 Margin Expansion Initiatives On Track Project K Zero-Based Budgeting Return on Investment Network Restructuring Global Business Services Organizational Design Go-to-Market Model Discretionary Spending Process and Tools Policies Budgeting from Zero Revenue Growth Management New Marketing Model Savings $ million run-rate in 2019 Savings $ million run-rate in 2018 Higher ROI on commercial investment $480 million through 2017 $400 million through 2017 Ongoing 8 Page 4 of 11

Profit Margins Continued Expansion Fourth Quarter and Full Year 2017 % of Net Sales, Comparable Basis Gross Profit Margin Operating

DSD re-set +80 basis points +150 basis points 9 Cash Flow Delivered On Target $ in Millions Cash Flow * Core Working Capital **

Please refer to appendices for reconciliation of non-gaap measures to the most directly comparable GAAP measure.

5 Profit Margins Continued Expansion Fourth Quarter and Full Year 2017 % of Net Sales, Comparable Basis Gross Profit Margin Operating Profit Margin Increased, excl. DSD re-set Increased, excl. DSD re-set +80 basis points +150 basis points 9 Cash Flow Delivered On Target $ in Millions Cash Flow * Core Working Capital ** $1,138 $1,121 $1, % 4.0% 3.0% * 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. 10 Page 5 of 11

6 2018 Financial Guidance Net Sales Reported Net Sales Growth,, Vs. Recast 2017* ~ Flat ~ (1)-0% Underlying Business ~ (1)% DSD Transition 1-2% Acquisition RXBAR Improvement from 2017 s (1.6)% x-dsd growth 1H carryover of list-price adjustment and SKU rationalization 10 months of acquired sales, plus strong double-digit organic growth * Please refer to appendices for reconciliation of non-gaap measures to the most directly comparable GAAP measure, as well as 2017 recast information for accounting-rules changes Financial Guidance Operating Profit Adjusted Operating Profit Growth, Currency-Neutral, Vs. Recast 2017 * Savings Project K and ZBB Reinvestment Brand Building, capabilities (overhead), food/packaging (COGS) Acquisitions RXBAR Adjusted Operating Profit: +4-6%, currency neutral Achieves 18% OP Margin excluding pending accounting changes * Please refer to appendices for reconciliation of non-gaap measures to the most directly comparable GAAP measure, as well as 2017 recast information for accounting-rules changes. 12 Page 6 of 11

7 2018 Financial Guidance Earnings Per Share Adjusted EPS Growth, Currency-Neutral, Vs. Recast 2017 * Net Sales ~Flat Adjusted Operating Profit +4-6% * U.S. Tax Reform: Reduces Effective Tax Rate Pension changes Reduces Other Income Deleverage capital structure Moderates increase in Interest Expense * Adjusted EPS +9-11% * Please refer to appendices for reconciliation of non-gaap measures to the most directly comparable GAAP measure, as well as 2017 recast information for accounting-rules changes Financial Guidance Summary * Growth vs. Recast 2017* Net Sales (a) ~ Flat Down (1)-(2)% on Organic basis Organic decline comprised of DSD exit ~(1)%, with underlying business improving to (0)-(1)% Includes roughly 1-2% of acquisition-related sales (RXBAR) Adjusted Operating Profit (b) +4-6% Achieves 3-year OP margin target (excl. pending accounting changes) Productivity savings, partially reinvested in Brand Building Includes impact of acquisitions +1-2% Adjusted EPS (b) +9-11% Higher interest expense due to acquisition Tax rate 20-21%, due to Tax Reform Modest decrease in average shares outstanding Cash Flow $ billion Underlying growth plus Tax Reform benefit Includes remaining cash outlays for Project K Includes capital expenditure of ~0.5 billion * Please refer to appendices for reconciliation of non-gaap measures to the most directly comparable GAAP measure, as well as 2017 recast information for accounting-rules changes. (a) 2018 guidance for Net Sales growth excludes the impact of foreign currency translation. Organic growth also excludes acquisitions, divestitures, and changes in shipping days. (b) 2018 guidance for adjusted Earnings Per Share excludes the impact of mark-to-market adjustments and costs related to Project K. Currency neutral also excludes the impact of foreign currency translation. 14 Page 7 of 11

8 U.S. Snacks Performance & Priorities Net Sales * (6)% (4)% Op. Profit * +18% +6% What to Watch For in 2018: Expanded brand support Steady consumption improvement Re-shaped P&L post-dsd OP Margin * +360 bp +130 bp Resumed promo activity post-dsd Consumption growth for key supported brands Double-digit investment in Brand Building DSD overhead savings boosted OP 15 U.S. Morning Foods Performance & Priorities Net Sales * (5)% (5)% Op. Profit * (14)% +1% OP Margin * (190) bp +130 bp What to Watch For in 2018: Stabilize RTEC share Invest behind adult-segment brands Pop-Tarts food news E-Commerce expansion Re-Stabilizing Special K Cereal: Change in Share vs. Year Ago Special K back to share growth Improved Pop-Tarts performance Readied stronger 2018 commercial plan Source: Nielsen, xaoc 16 Page 8 of 11

U.S. Specialty Channels Performance & Priorities Net

Profit * +3% +9% What to Watch For in 2018: Steady

growth in key channels OP Margin * +20 bp +150 bp

emerging channels Continued operating profit margin

Watch For in 2018: Frozen momentum Canada steady

9 U.S. Specialty Channels Performance & Priorities Net Sales * +2% +3% Op. Profit * +3% +9% What to Watch For in 2018: Steady sales growth Expand reach, improve core mix Share growth in key channels OP Margin * +20 bp +150 bp Continued top-line growth Continued expansion in emerging channels Continued operating profit margin expansion 17 North America Other Performance & Priorities Net Sales * +1% (1)% Op. Profit * (9)% +12% OP Margin * (160) bp +190 bp What to Watch For in 2018: Frozen momentum Canada steady improvement RXBAR expansion Strong momentum for Eggo and Morningstar Farms Kashi Co. share gain led by Bear Naked Canada in growth again Substantial increase in Brand Building Source: Nielsen, xaoc, Frozen Syrup Carriers, Frozen Vegetarian/Vegan 18 Page 9 of 11

Europe Performance & Priorities Net Sales * +3% (4)% Op.

Increase operating profit margin Pringles Europe Net Sales** vs.

19 Latin America Performance & Priorities Net Sales * (1)% (2)% Op.

10 Europe Performance & Priorities Net Sales * +3% (4)% Op. Profit * (4)% (3)% OP Margin * (100) bp Flat Pringles growth in consumption and net sales U.K. cereal stabilized Substantial increase in Brand Building U.K. RTEC Share Stabilizing: Change in Share vs. Year Ago Source: Nielsen What to Watch For in 2018: Pringles firmly in growth Improving sales performance in cereal Increase operating profit margin Pringles Europe Net Sales** vs. YAG ** Constant-currency net sales are translated using 2016 foreign exchange rates. 19 Latin America Performance & Priorities Net Sales * (1)% (2)% Op. Profit * (1)% (2)% OP Margin * (10) bp Flat Mexico consumption and sales growth Integration and momentum of Parati Slowing declines in Caribbean/Central America What to Watch For in 2018: Growth in Pringles Expansion of Parati Stabilization in Caribbean/Central America Better Second Half, Led by Largest Market: Currency-Neutral Comparable Net Sales Growth vs. YAG * 1H H Page 10 of 11

Asia Pacific Performance & Priorities ; does not include joint ventures Net Sales * +4% +3% Op.

Year Ago Source: Nielsen 21 In Summary Strong Foundation Solid 2017 Confidence in 2018 Special brands, food, and culture Sound

11 Asia Pacific Performance & Priorities ; does not include joint ventures Net Sales * +4% +3% Op. Profit * +6% +18% OP Margin * +10 bp +130 bp Australia cereal share gains continued Strong growth in Asia Pringles momentum and expansion Significant increase in Brand Building Joint ventures rapid growth What to Watch For In 2018: Cereal and Pringles growth in Asia & Africa Stable Australia Continued growth in JVs Growing Australia RTEC Share: Change in Share vs. Year Ago Source: Nielsen 21 In Summary Strong Foundation Solid 2017 Confidence in 2018 Special brands, food, and culture Sound financial footing Big strategic moves Delivered on expected results Tangible signs of progress Stronger commercial plan Balance between investment and profitability Committed to returning to growth 22 Page 11 of 11

Kellogg Company THIRD QUARTER 2017 FINANCIAL RESULTS October 31, 2017

Kellogg Company THIRD QUARTER 2017 FINANCIAL RESULTS October 31, 2017 Forward-Looking Statements This presentation contains, or incorporates by reference, forward-looking statements with projections concerning,