Kellogg Company February 21, Boca Raton February 21, 2018

Transcription

1 Boca Raton February 21, 2018 Deploy For Growth 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. CAGNY 2018 I DEPLOY FOR GROWTH 2 1 of 24

2 Reasons to Believe Special Food, Brands, & Culture Sound Financial Footing Commitment and Ideas for Growth Health & Wellness heritage In most households Taste, convenience, nutrition, affordability Weighted toward snacking Will to win Reduced cost structure Improving top-line performance Durable cash flow Better commercial plans Increased investment New growth platforms CAGNY 2018 I DEPLOY FOR GROWTH 3 Agenda Foundation for Growth Current Trajectory for Growth Deploy for More Growth A Realistic Algorithm for Growth CAGNY 2018 I DEPLOY FOR GROWTH 4 2 of 24

3 Big, Strong, Relevant Brands 2017 Net Sales, $ in Billions, Global >$1 billion $ billion $ billion CAGNY 2018 I DEPLOY FOR GROWTH 5 A Health & Wellness Company CAGNY 2018 I DEPLOY FOR GROWTH 6 3 of 24

4 A Snacking Company Composition of Net Sales, Total Company CAGNY 2018 I DEPLOY FOR GROWTH 7 A Global Company Composition of Kilos, Total Company CAGNY 2018 I DEPLOY FOR GROWTH * Shaded area represents percentage of volume associated with Joint Ventures, if we were to include our share of their kilos. 8 4 of 24

5 Increasing Emerging Markets Scale & Portfolio Kellogg Emerging Markets, Volume in Kilos Joint Ventures Snacks: 19% of Volume Snacks: 43% of Volume x-jvs 6.8% CAGR x-jvs CAGNY 2018 I DEPLOY FOR GROWTH 9 Agenda Foundation for Growth Current Trajectory for Growth Deploy for Growth A Realistic Algorithm for Growth CAGNY 2018 I DEPLOY FOR GROWTH 10 5 of 24

6 Assessing Growth Portfolio Segments Net Sales, 2017 Growing, larger scale * Excludes joint ventures Already growing Developed Markets Frozen Emerging Markets * Developed Markets Cereal Stabilizing Developed Markets Snacks Returning to growth CAGNY 2018 I DEPLOY FOR GROWTH 11 Developed Markets Cereal Recent Past Current Progress Path Forward Consumers to protein Special K decline Stabilized Canada, U.K., Australia Stabilizing Special K Expanding granola Expanding occasions Influencing food beliefs New pack formats Executing playbook Channels expansion CAGNY 2018 I DEPLOY FOR GROWTH 12 6 of 24

7 Developed Markets Snacks Recent Past Current Progress Path Forward Special K decline DSD declining ROI Pringles global growth Transition from DSD Rationalizing tail SKUs Increased Brand Building New pack formats RXBAR growth platform CAGNY 2018 I DEPLOY FOR GROWTH 13 Developed Markets Frozen Recent Past Current Progress Path Forward Portfolio trimmed for focus Strong growth Innovation/renovation On-trend categories Focus on core CAGNY 2018 I DEPLOY FOR GROWTH 14 7 of 24

8 Emerging Markets * Excludes joint ventures * Recent Past Current Progress Path Forward Lacked scale Limited portfolio Challenging macro environment Organic growth Pringles expansion Brazil & Egypt acquisitions Joint Ventures growth Pringles expansion Granola & wholesome snacks New pack formats M&A CAGNY 2018 I DEPLOY FOR GROWTH 15 Path to Low Single-Digit Sales Growth Net Sales Growth, Currency-Neutral Current Trajectory ~+1% +MSD Stable +LSD Deploy For Growth +1-3% +LSD CAGNY 2018 I DEPLOY FOR GROWTH 16 8 of 24

9 Agenda Foundation for Growth Current Trajectory for Growth Deploy for More Growth A Realistic Algorithm for Growth CAGNY 2018 I DEPLOY FOR GROWTH 17 Deploy For Growth CAGNY 2018 I DEPLOY FOR GROWTH 18 9 of 24

10 Win Through Occasions Getting the Food Right Removing negatives Adding positives Taste is still king CAGNY 2018 I DEPLOY FOR GROWTH 19 Win Through Occasions Getting the Packaging Right Single-Serve, Share of Category, Across All Kellogg U.S. Categories 12.4% 7.2% Source: Nielsen AOD xaoc + Convenience Calendar Years CAGNY 2018 I DEPLOY FOR GROWTH of 24

11 Win Through Occasions Building a Stronger Innovation Pipeline CAGNY 2018 I DEPLOY FOR GROWTH 21 Shape a Growth Portfolio Investing Where the Growth Is Accelerated Growth in 17 Global Expansion 20+ Years of Growth +DD Consumption Growth in 17 CAGNY 2018 I DEPLOY FOR GROWTH +DD Consumption Growth in 17 +DD Consumption Growth in of 24

12 Shape a Growth Portfolio M&A For Growth & Scale 2017 Net Sales: +Double Digits * 2017 Net Sales: +Triple Digits * 2017 Net Sales: +Double Digits 2017 Net Sales: +Double Digits CAGNY 2018 I DEPLOY FOR GROWTH * Year-on-Year growth since acquisition, currency-neutral 23 Create World Class Marketing Big Ideas, Big Events Consumption +DD Weeks before and after Super Bowl (U.S. Pringles) CAGNY 2018 I DEPLOY FOR GROWTH of 24

13 Create World Class Marketing Customized Messaging When you watch avideo about how to cook aturkey When you watch videosabout the latest new techgadgets When you watch avideo about kid friendlycrafts When you watch a video about kid friendlymeals Consumption +10% Latest 13 weeks (U.S. Rice Krispies Treats) CAGNY 2018 I DEPLOY FOR GROWTH 25 Create World Class Marketing Brand Experience & Conversation Consumption +12% in 2017 (U.K. Corn Flakes) CAGNY 2018 I DEPLOY FOR GROWTH of 24

14 Create World Class Marketing Cultural Relevance October 2017: Most-ever Eggo social mentions in a single month Q4 2017: Eggo consumption +14% year-onyear CAGNY 2018 I DEPLOY FOR GROWTH 27 Deliver Perfect Service & Store Aiming for Perfect Service CAGNY 2018 I DEPLOY FOR GROWTH of 24

15 Deliver Perfect Service & Store Aisle Reinvention Early in Roll-Out; Strong Lift In Test; Strong Lift CAGNY 2018 I DEPLOY FOR GROWTH 29 Deliver Perfect Service & Store In-Store Theater Australia Spain CAGNY 2018 I DEPLOY FOR GROWTH of 24

16 Deliver Perfect Service & Store E-Commerce E-Commerce Sales approx. +40% in 2017 CAGNY 2018 I DEPLOY FOR GROWTH 31 People Must Be Competitive Advantage Talent, Tools, Technology Differentiating performance and rewards Realigning compensation to drive growth behaviors Focusing on leadership and commercial capabilities Leveraging new technologies CAGNY 2018 I DEPLOY FOR GROWTH of 24

17 Change Is Already Visible Including in Q4 17! Targeted areas of growth Increased Brand Building More differentiated Innovation Faster expansion in Emerging Markets New cereal plant in Nigeria M&A for scale or white-space CAGNY 2018 I DEPLOY FOR GROWTH 33 Agenda Foundation for Growth Current Trajectory for Growth Deploy for More Growth A Realistic Algorithm for Growth CAGNY 2018 I DEPLOY FOR GROWTH of 24

18 Financial Approach Balance Financial Delivery: Capital Allocation: Dividend Bolt-On Acquisitions Share Repurchases Investment-Grade Debt CAGNY 2018 I DEPLOY FOR GROWTH 35 Sound Financial Footing Adjusted EPS Growth, Currency-Neutral Basis; Cash Flow in Billions Guidance Adjusted EPS * +23% +9% +9-11% Cash Flow ** $1.1 $1.1 $ Restructuring Outlays: $0.1 $0.2 $0.2 Cash Flow x-restructuring Outlays: $1.2 $1.4 $ Reduced cost structure Stabilized price/mix Restructuring-related cash outlays Pringles capacity expansion * Please refer to appendices for reconciliation of non-gaap measures to the most directly comparable GAAP measure. ** 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. CAGNY 2018 I DEPLOY FOR GROWTH of 24

19 Margins Continuous Focus on Productivity Operating Profit Margin, Currency-Neutral Comparable Basis CAGNY 2018 I DEPLOY FOR GROWTH 37 Affirming 2018 Guidance & Plan Growth vs. Recast 2017* Delivering margin expansion and improving top-line performance. Completing several critical strategic transitions. Net Sales (a) Currency Neutral Adjusted Operating Profit (b) Currency-Neutral Adjusted EPS (b) Currency-Neutral Cash Flow ~ Flat +4-6% +9-11% $1.2-$1.3B Completing Project K initiatives Operating in post-dsd U.S. Snacks Increasing Brand Investment Integrating and growing acquired businesses Investing to grow joint ventures Incorporating U.S. Tax Reform * 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 Currency Neutral Net Sales growth excludes the impact of foreign currency translation. (b) 2018 guidance for adjusted Operating Profit and 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. CAGNY 2018 I DEPLOY FOR GROWTH of 24

20 Targeting Long-Term Sustainable Growth All Growth Rates are Currency-Neutral Net Sales Adjusted Operating Profit Adjusted EPS 1-3% 4-6% 6-8% Dividend Yield 2-3% * Total Shareowner Return 8-11% * Dependable growth, augmented by M&A, complemented by dividend yield. CAGNY 2018 I DEPLOY FOR GROWTH * Independent of changes in valuation multiple and market fluctuations 39 Values CAGNY 2018 I DEPLOY FOR GROWTH of 24

21 In Summary Strong foundation for growth Visible progress Deploying for growth Seeking balanced financial delivery CAGNY 2018 I DEPLOY FOR GROWTH 41 APPENDIX CAGNY 2018 I DEPLOY FOR GROWTH 21 of 24

22 EPS Reconciliation to non-gaap Measure Growth Rate Reported EPS $ 3.62 $ 1.96 $ 1.96 $ 1.72 Mark-to-market (pre-tax) 0.13 (0.74) (0.74) (1.25) Project K and cost reduction activities (pre-tax) (0.75) (0.92) (0.92) (0.91) Debt redemption (pre-tax) - (0.43) (0.43) - VIE deconsolidation (pre-tax) Venezuela deconsolidation (pre-tax) - (0.20) (0.20) - Venezuela remeasurement (pre-tax) - (0.03) (0.03) (0.47) Income tax impact applicable to adjustments, net U.S. Tax Reform adoption impact (0.01) Foreign currency impact (0.01) - (0.57) - Growth Rate Currency-neutral Adjusted EPS $ 4.04 $ % $ 4.29 $ % Note: These figures are not yet recast for the accounting-standards changes effective in Cash Flow Reconciliation to non-gaap Measure Kellogg Company and Subsidiaries Reconciliation of Non-GAAP amounts - Reported Cash Flow to Kellogg-Defined Cash Flow Years ended Exhibit Operating Activities Net Income $ 614 $ 695 $ 1,269 Adjustments to reconcile net income to operating cash flows: Depreciation and amortization Postretirement benefit plan expense (427) Deferred income taxes (169) (26) (56) Stock compensation Venezuela deconsolidation 72 Venezuela remeasurement VIE deconsolidation (49) Non current income taxes payable (21) (12) 144 Other 8 (62) 27 Postretirement benefit plan contributions (33) (33) (44) Changes in operating assets and liabilities, net of acquisitions Net cash provided by (used in) operating activities 1,691 1,628 1,646 Less: Additions to properties (553) (507) (501) Cash flow (operating cash flow less property additions) (a) $ 1,138 $ 1,121 $ 1,145 (a) Cash flow is defined as net cash provided by operating activities less capital expenditures. We use this non-gaap financial measure to focus management and investors on the amount of cash available for debt repayment, dividend distributions, acquisition opportunities and share repurchase of 24

23 Financial Guidance Reconciliation to non-gaap Measures Kellogg Company and Subsidiaries Reconciliation of Non-GAAP amounts Full Year Guidance* Exhibit 3 Impact of certain items excluded from non-gaap guidance: Net Sales Operating Profit Effective Tax Rate Earnings Per Share Project K and cost restructuring activities $90-110M $ Income Tax benefit applicable to adjustments, net** $ Adjusted, currency-neutral guidance Flat 4-6% 20-21% 9-11% * 2018 full year guidance for net sales, operating profit, and earnings per share are provided on a non-gaap basis only because certain information necessary to calculate such measures on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted without unreasonable efforts by the Company. The Company is providing quantification of known adjustment items where available. ** Represents the estimated income tax effect on the reconciling items, using weighted-average statutory tax rates, depending upon the applicable jurisdiction. Reconciliation of Non-GAAP amounts - Cash Flow Guidance (billions) Approximate Full Year 2018 Net cash provided by (used in) operating activities $1.7 - $1.8 Additions to properties ~($.5) Cash Flow $1.2 - $ Recast Items Accounting Standard Change Comparable Basis Reported Basis of 24

24 2017 Recast Items Product Transfers of 24