Kellogg Company 2016 THIRD QUARTER FINANCIAL RESULTS November 1, 2016

Transcription

1 Kellogg Company 2016 THIRD QUARTER FINANCIAL RESULTS Agenda Overview Financials North America Europe Latin America Asia Pacific Summary John Bryant, Chairman & Chief Executive Officer Ron Dissinger, Chief Financial Officer Paul Norman, President Kellogg North America Chris Hood, President Kellogg Europe Maria Fernanda Mejia, President Kellogg Latin America Amit Banati, President Kellogg Asia Pacific John Bryant, Chairman & Chief Executive Officer Q&A 2 Page 1 of 21

2 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 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 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. Non-GAAP Financial Measures. 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. 3 Q3 Update Key Messages Results: Ahead of expectations on margins and tax rate Progress: Tangible progress against 2020 Growth Plan and 2016 priorities Outlook: Sequential improvement in Q4 and in 2017 *On a currency-neutral comparable basis 4 Page 2 of 21

3 Strategic Priorities 2020 Growth Plan 5 Progress One Year After Day at K November, 2015 November, 2016 Win in Breakfast Be a Global Snacking Powerhouse Double Our Emerging Market Engine Win Where the Shopper Shops Fuel for Growth Stabilize Core 4 RTEC Markets Pringles Expansion Emerging Markets Sales Capabilities Productivity & Savings Progress in 3 of 4 core markets Pringles growth in all Regions Emerging Markets growth, JVs growth, acquisitions Revenue Growth Management, High Frequency Stores, Specialty Channels Project K, ZBB, new Marketing Model; improved OP margins *On a currency-neutral comparable basis 6 Page 3 of 21

4 Summary of Financial Results Change Versus Prior Year Q3 Year to Date Net Sales Operating Profit Earnings Per Share Reported (2.2)% (4.5)% Currency-Neutral Comparable * (1.0)% 4.8% Currency-Neutral Comparable x-venezuela * (1.6)% (1.6)% Reported 22.9% 14.8% Currency-Neutral Comparable * 6.8% 17.9% Currency-Neutral Comparable x-venezuela * 5.0% 3.9% Reported 41.4% 14.7% Comparable * 12.9% 2.9% Currency-Neutral Comparable* 17.6% 21.1% 7 Net Sales Components Third Quarter 2016 (year-over-year, % change) (a) YTD: (1.3)% 6.1% 0.2% (9.5)% Excluding VZ (1.2) (0.4) 0.3 (1.6) a) Other includes Project K, acquisitions, divestitures, and shipping day differences. 8 Page 4 of 21

5 Gross Profit Margin * Currency-Neutral, Comparable Basis, Excluding Venezuela, Gross Profit as % of Net Sales* + Productivity, Project K, ZBB efficiencies, - Adverse mix, transactional FX, investment in food - Lower production volume 9 Operating Profit Margin* Currency-Neutral, Comparable Basis, Excluding Venezuela, Operating Profit as % of Net Sales* + Up 90 bp ex-venezuela in Q3 + Productivity, Project K, ZBB efficiencies + Improvement in all Regions + On-track to post improvement for year 10 Page 5 of 21

6 Cash Flow * $ in Millions, Year to Date Through Q includes $(97) million from bond tender + Continued reduction in core working capital* as % of sales + On-track to achieve $1.1 billion cash flow* for the full year * Cash Flow is Operating Cash Flow After Capital Expenditure; Year to Date through Q 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. For Cash Flow, please refer to appendices for reconciliation of non-gaap measures to the most directly comparable GAAP measure Guidance Including Venezuela Excluding Venezuela Net Sales (a) Currency-Neutral Comparable ~ 4% Previous: 4-6% ~ (1)% Previous: Flat 2H improvement less than expected Still expecting sequential improvement in Q4 Operating Profit (a) Currency-Neutral Comparable % Previous: 15-17% +4-6% Previous: 4-6% Still expecting high end of the range Better margin expansion offsets lower sales EPS (b) Currency-Neutral Comparable EPS (b) Comparable $ $4.23 Previous: $4.11-$4.18 $ $3.71 Previous: $3.58-$3.65 Increased guidance range Q3 s tax favorability more than offsets impact of curbed Q4 share buybacks (for acquisition) Currency impact is $0.01 less negative than previous estimate (a) 2016 guidance for currency-neutral comparable net sales and operating profit excludes the impact of acquisitions, dispositions, currency translation, differences in the number of shipping days, mark-tomarket adjustments, integration costs, costs related to Project K, Venezuela remeasurement, VIE deconsolidation, and other items that could affect comparability. (b) 2016 guidance for comparable EPS excludes the impact of differences in the number of shipping days, mark-to-market adjustments, integration costs, costs related to Project K, Venezuela remeasurement, and other items that could affect comparability. Does include the impact of prior acquisitions and investment in JVs. Currency-neutral comparable EPS also excludes the impact of currency translation. 12 Page 6 of 21

7 2016 Guidance Other Items $ in Millions, Except Per-Share Data Currency Translation Venezuela $(0.41)/sh. No change Currency Translation Others $(0.11)/sh. $0.01 better than previous guidance Interest Expense ~$400 No change; includes $150 from bond tender Comparable Tax Rate (a) ~25% Previously 27% Share Buybacks $ Previously $ ; curbed in Q4 for Brazil acquisition Up-Front Costs (post-tax) $(0.40)-(0.50) No change; pre-tax $(0.56)-(0.71) Integration Costs (post-tax) ~$(0.03) High end of previous $(0.02)-(0.03) range, due to Brazil acquisition; pre-tax ~$(0.04) (a) 2016 guidance excludes the impact of currency translation, differences in the number of shipping days, mark-to-market adjustments, integration costs, costs related to Project K, Venezuela remeasurement, VIE deconsolidation, and other items that could affect comparability. Please refer to appendices for reconciliation of non-gaap measures to most directly comparable GAAP measure Preliminary Outlook Currency-neutral comparable performance,* excluding Venezuela, year-over-year change Net Sales Operating Profit 2017 ~ flat + HSD OP Margin: 16-17% Prudent outlook on volume Price realization through Revenue Growth Management Ongoing productivity initiatives, savings from Project K, savings from Zero-Based Budgeting Meaningful progress toward 2018 OP margin goal * Guidance is on a currency-neutral comparable basis, which means it excludes the impact of acquisitions, dispositions, currency translation, mark-to-market adjustments, integration costs, costs related to Project K, Venezuela remeasurement, and other items that could affect comparability. These targets also exclude Venezuela. 14 Page 7 of 21

8 Regional Targets Through 2018 * Change in Net Sales and Operating Profit Margin, excluding Venezuela, from 2015 through 2018 Net Sales * Operating Margin * North America ~ Flat bp Europe ~ Flat bp Latin America Asia Pacific Low SD Low SD bp bps Total ~ Flat ~18% OP Margin * Guidance given on a currency-neutral comparable basis, which means it excludes the impact of acquisitions, dispositions, currency translation, mark-to-market adjustments, integration costs, costs related to Project K, Venezuela remeasurement, and other items that could affect comparability. This guidance also excludes Venezuela. 15 Financials One Year Later November, 2015 November, 2016 Grow Sales and Share OP Margin Expansion Top-Quartile TSR Grow Sales and Share OP Margin Expansion Top-Quartile TSR Fuel for Growth Be a Global Snacking Powerhouse Double Our Emerging Market Engine 2016: +1-3% Net Sales, +4-6% Operating Profit, +6-8% EPS (all incl. Venezuela) Operating profit margin of 17-18% by 2020 Deliver targets for base productivity, Project K, and ZBB Make selective acquisitions/investments in areas of natural/organic, emerging markets, global snacks Hitting high end of Operating Profit and EPS ranges, but short on Net Sales excluding Venezuela Operating profit margin of ~18% through 2018 Raised targets for ZBB; delivering targets for base productivity and Project K Growth in Egypt acquisitions and JV/investment in Nigeria; acquisition of Pure Organic (U.S.), and pending acquisition in Brazil * Guidance given on a currency-neutral comparable basis. 16 Page 8 of 21

9 North America Paul Norman President, Kellogg North America 2015 Net Sales $9.1 billion 17 North America One Year Later November, 2015 November, 2016 Win in Breakfast Be a Global Snacking Powerhouse Win in Breakfast Fuel for Growth Stabilize Cereal Revitalize Snacks Transform Kashi & Frozen Drive Fuel for Growth Core 6 RTEC brands share gain YTD YTD consumption growth for Big 3 crackers, Rice Krispies Treats, and Pringles; +DD in on-the-go offerings Transformations taking longer than anticipated Expansion in gross margin and operating profit margin * * Refers to currency-neutral comparable basis. 18 Page 9 of 21

10 U.S. Morning Foods 2016 Results & Outlook Currency-Neutral Comparable Basis Q3 Sequential Improvement in Consumption % vs. YAG, Kellogg (excl. Kashi), 13-week Periods Q3 YTD Net Sales * (4)% (2)% Op. Profit * +6% +12% OP Margin * +190 bp +270 bp Share gains in Cereal, led by Core 6 Continued Pop-Tarts growth Trade-inventory reduction OP margin expansion led by ZBB and Project K Source: Nielsen Q4: Strong operating profit growth, sequential improvement in net sales 19 U.S. Morning Foods 2017 Priorities Sequential improvement in net sales, strong operating profit margin expansion * Food That Rocks investing in on-trend food Brands That Matter focusing investment on our most important brands Shopping Experiences that Inspire leveraging new capabilities to win in store Boost Margins Project K, ZBB, and Revenue Growth Management * Refers to currency-neutral comparable basis. 20 Page 10 of 21

11 U.S. Snacks 2016 Results & Outlook Currency-Neutral Comparable Basis Q3 Q3 YTD Net Sales * 0% (2)% Op. Profit * +12% +8% OP Margin * +120 bp +120 bp Growth in focus brands and single-serve offerings Continued share gains in Crackers, led by Big 3 Weight management offerings still in decline OP margin expansion, driven by Project K, ZBB Q4: Strong operating profit growth, sequential improvement in net sales 21 U.S. Snacks 2017 Priorities Return net sales to growth; continued operating profit margin expansion * Continue to drive core brands Accelerate single-serve expansion Restage Special K and Nutri-Grain Expand Revenue Growth Management * Refers to currency-neutral comparable basis. 22 Page 11 of 21

12 U.S. Specialty Channels 2016 Results & Outlook Currency-Neutral Comparable Basis Q3 Q3 YTD Net Sales * +1% +2% Op. Profit * +8% +8% OP Margin * +140 bp +110 bp Growth in 3 core channels Held or gained share in most channel/categories Gaining new category captaincies Strong operating profit margin expansion Q4: Steady sales and operating profit growth 23 U.S. Specialty Channels 2017 Priorities Steady net sales growth, continued operating profit margin expansion * Sustain growth in core channels and categories Expand reach into emerging channels Continue Revenue Growth Management * Refers to currency-neutral comparable basis. 24 Page 12 of 21

13 North America Other 2016 Results & Outlook Currency-Neutral Comparable Basis Q3 Q3 YTD Net Sales * (6)% (5)% Op. Profit * (13)% (13)% OP Margin * (100) bp (120) bp Canada cost and pricing impact of transactional FX Eggo syrup carriers returned to growth Extended transitions: Kashi portfolio, Morningstar Farms packaging, SKU prioritization in frozen handhelds Q4: Good operating profit growth on moderating sales declines 25 North America Other 2017 Priorities Return to top-line growth, improve operating profit margin * Grow Kashi cereal, Eggo Stabilize Canada, Morningstar Farms Transform Kashi snacks * Refers to currency-neutral comparable basis. 26 Page 13 of 21

14 Europe Chris Hood President, Kellogg Europe 2015 Net Sales $2.5 billion 27 Europe One Year Later November, 2015 November, 2016 Win in Breakfast Be a Global Snacking Powerhouse Double Our Emerging Market Engine Win Where the Shopper Shops Fuel for Growth Stabilize cereal Grow Pringles Develop Wholesome Snacks Emerging Markets: Triple Arabia, Double Russia by 2020 Expand in other channels Deliver Project K savings, launch ZBB Stabilized 5 of 6 geographic clusters; U.K. soft Strong Pringles growth YTD Wholesome Snacks growing YTD Strong growth in acquired Egypt businesses, Russia up strongly YTD Expanding in e-commerce Higher operating profit margin * * Refers to currency-neutral comparable basis. 28 Page 14 of 21

15 Europe 2016 Results & Outlook Currency-Neutral Comparable Basis Q3 Q3 Softness in the U.K. Outside U.K., broad-based growth and sequential share improvement Continued Pringles expansion YTD Net Sales * (1)% (1)% Op. Profit * +8% +4% OP Margin * +130 bp +70 bp Strong operating-margin improvement Q4: Sales flat to down, operating profit up strongly 29 Europe 2017 Priorities Sequential improvement in sales, increase operating profit margin * Stabilize U.K. cereal Continue Pringles expansion Roll out Revenue Growth Management Deliver Project K and ZBB savings * Refers to currency-neutral comparable basis. 30 Page 15 of 21

16 Latin America Maria Fernanda Mejia President, Kellogg Latin America 2015 Net Sales $1.0 billion Note: Region pie chart based on 2016, to more appropriately represent remeasured Venezuela currency. 31 Latin America One Year Later November, 2015 November, 2016 Win in Breakfast Be a Global Snacking Powerhouse Double Our Emerging Market Engine Win Where the Shopper Shops Enable the Growth Fuel for Growth Lead category growth Drive market expansion Win where shoppers shop Make supply chain a competitive advantage Cereal & Snacks share up in core markets Special K innovation exceeding expectations Building Masterbrand, up strongly YTD Scaling up Brazil with Parati acquisition Excelling at Retail Execution Increasing HFS Distribution & Coverage Driving network utilization Delivering Efficiency Programs 32 Page 16 of 21

17 Latin America Building Scale & Capabilities Pending Acquisition of ~ $190 million NSV Key Player in Cookies & Crackers Strong brands Strength in South region Opportunity for Kellogg: Scale Brazil, strengthen Mercosur Expand Supply Chain Network Increase HFS distribution Further Geo-expansion in LA 33 Latin America 2016 Results & Outlook Currency-Neutral Comparable Basis Excl. Venezuela Q3 Q3 YTD Net Sales * +2% (1)% Op. Profit * +31% (3)% OP Margin * +300 bp (30) bp Strengthening Cereal leadership in core markets Driving Snacks momentum Expanding productivity programs Regional economic slowdown, adverse FX Innovation Commercial Programs Q4: Sales up low single-digit, operating profit up strongly 34 Page 17 of 21

18 Latin America 2017 Priorities Innovation Deliver low single-digit net sales growth, improve operating-profit margins * Accelerate Profitable Growth, focusing on: Mexico, Cereal Consumption & Snacks Winning in HFS Packaging Transformation and HFS Integrate Parati Execute Revenue Growth Management Step-change Supply Chain optimization Commercial Programs * Refers to currency-neutral comparable basis. 35 Asia Pacific Amit Banati President, Kellogg Asia Pacific 2015 Net Sales $0.9 billion Sub-Saharan Africa Asia Australia/ New Zealand Snacks Breakfast 36 Page 18 of 21

19 Asia Pacific One Year Later November, 2015 November, 2016 Be a Global Snacking Powerhouse Double Our Emerging Market Engine Balancing the portfolio Shift toward Emerging Markets and Snacks Win in Breakfast Stabilize ANZ Cereal share back up to flat in ANZ Be a Global Snacking Powerhouse Double Our Emerging Market Engine Double Snacks Double Asia, Triple India Scale Up Africa Strong Pringles growth Growth in Asia Growth in Nigeria JV/investment 37 Asia Pacific 2016 Results & Outlook Currency-Neutral Comparable Basis Q3 Q3 YTD Net Sales * +1% +2% Renovation & Innovation in ANZ Op. Profit * +6% +5% OP Margin * +40 bp +20 bp Australia stabilizing Pringles momentum and expansion Emerging-markets growth Joint ventures performing well Growing Penetration in Asia Pringles Expansion Q4: Sequential acceleration in net sales growth 38 Page 19 of 21

20 Asia Pacific Unconsolidated Ventures Unconsolidated Joint Ventures and Investment Stakes Strong DD Growth Strong DD Growth 39 Asia Pacific 2017 Priorities Continued net sales growth, and improved operating profit margins * Revitalizing On-Trend Be Natural brand Australia hold cereal share, turn around snacks Emerging markets and snacks growth Innovation in Cereal Strong growth in the joint ventures Stepped up focus on margin ZBB, RGM Pringles Expansion * Refers to currency-neutral comparable basis. Expanding Wholesome Snacks 40 Page 20 of 21

21 Summary Good progress on 2020 Growth Plan priorities Sequential sales improvement Unprecedented earnings visibility Confidence in 2018 profit margin goals * Guidance is on a currency-neutral comparable basis, excluding Venezuela 41 Kellogg Company THIRD QUARTER 2016 FINANCIAL RESULTS Q&A Page 21 of 21