Kellogg Companyinvestor.kelloggs.com/~/media/Files/K/Kellogg-IR/reports-and... · Kellogg Company May 4, 2017 ... Kellogg North America –Overview 12 ... Warehouse‐distribution

Kellogg Company May 4, 2017

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Kellogg Company2017 FIRST QUARTERFINANCIAL RESULTSMay 4, 2017

Q1 Kellogg Company Earnings May 4, 2017

Forward‐Looking Statements

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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.


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Q1 Overview

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• Consumption – Industry‐wide softening in January and February in U.S.

• Shipments – Also affected by trade‐inventory from Q4, price‐pack changes on Pringles

• Margins – Continued expansion through Project K, Zero‐Based Budgeting, sequential

improvement in price/mix

• Earnings – Continued Operating Profit growth, tax‐rate timing, on track for year

• Cash Flow – Increased year‐on‐year, working capital improvement, on track for year

* All referenced metrics are on a currency‐neutral comparable basis; Cash Flow is defined as cash from operations less capital expenditure.


2020 Growth Plan – Addressing These Trends

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• On‐Trend Food & Packaging

Progress made in Q1 toward:

• Omni‐Channel Approach & Capabilities

• Emerging Markets Scale & Expansion

• Margin Expansion for Fuel and Earnings


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Reported (17.6)%

Currency‐Neutral Comparable * 2.2%

Financial Results – Summary

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

Change Versus Prior Year

Net Sales

OperatingProfit

EarningsPerShare

Reported 51.0%

Currency‐Neutral Comparable* 13.5%

Reported (4.1)%

Currency‐Neutral Comparable * (4.4)%

Q1


Net Sales – Impacted by Volume

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First Quarter 2017

$3,395 M +1.3%

$3,254 M(5.7)%

(1.0)%

Currency‐NeutralComparable Growth

+1.3%

Year‐over‐year, % change

*

* The acquisition/divestiture figure includes the negative impact of deconsolidating our Venezuela results, beginning January 1, 2017.


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Productivity Initiatives – On Track

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Network Restructuring

Zero‐Based Budgeting

Go‐to‐Market Model

Global Business Services

Organizational Design


Profit Margins – Continued Expansion

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32.0%

34.0%

36.0%

38.0%

Q1 2016 Q1 2017

First Quarter 2017% of Net Sales, Currency‐Neutral Comparable Basis, Excluding Venezuela

Gross Profit Margin

9.0%

11.0%

13.0%

15.0%

17.0%

Q1 2016 Q1 2017

Operating Profit Margin


+20basis points

+110basis points


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Cash Flow – On Track

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($160)

($120)

($80)

($40)

$0

$40

$80

$120

Q1 2016 Q1 2017

Cash Flow *

First Quarter 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.

Excluding Bond Tender of $(144)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Q1 2016 Q1 2017

Core Working Capital **

** “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.


2017 – Updated Guidance

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Net SalesCurrency‐Neutral Comparable Basis

Updated Previous

~ (3)% ~ (2)%‐ Q1 decline‐ Broader U.S. consumption softness+ Sequential improvement in coming quarters

Operating ProfitCurrency‐Neutral Comparable Basis

+7‐9% +7‐9%+ No change + Productivity savings offset lower Net Sales

Earnings Per ShareCurrency‐Neutral Comparable Basis

+8‐10% +8‐10% + No change

Cash FlowCash From Ops., Less Capital Expenditure

$1.1‐$1.2 bn + No change$1.1‐$1.2 bn


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2017 – Phasing Factors to Consider

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Sequential improvement in top‐line

DSD transition timing• Overlap of Warehouse and DSD costs during Q2‐Q3 transition• Overhead savings largely start in Q4


Kellogg North America – Overview

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• Strong margin expansion continues

• Slow start on sales

• DSD transition progressing well

• Strong commercial plans ahead


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U.S. Specialty Channels – Performance & Priorities

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Q1

Net Sales * +5%

Op. Profit * +9%

OP Margin * +90 bp


• Strong growth

• Expansion in emerging channels

• Continued operating profit margin expansion

Currency‐Neutral Comparable Basis

2017:• Steady sales and

operating profit growth• Expand reach, improve

core mix

Q1 Highlights:


North America Other – Performance & Priorities

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• Category slowdowns in January/February

• Eggo removal of artificial ingredients

• Kashi segment gained share in cereal

• Strong operating profit margin improvement

Q1

Net Sales * (6)%

Op. Profit * +8%

OP Margin * +200 bp



2017:• Improvement in sales

performance• Growth in operating profit

and operating profit margin

Canada

Q1 Highlights:


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U.S. Morning Foods – Performance & Priorities

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• Category slow‐downs in January/February

• Trade inventory reduced from Q4

• Growth in kids brands; timing of Special Kand Mini‐Wheats innovation

• OP margin expansion led by ZBB and Project K

Q1

Net Sales * (6)%

Op. Profit * +5%

OP Margin * +250 bp


2017:• Gradual improvement in

net sales performance• Strong operating profit

margin expansion


Q1 Highlights:


U.S. Snacks – Performance & Priorities

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• Category slow‐downs in January/February

• Trade inventory reduced from Q4

• Announced and commenced exit from DSD

• Continued share gains in Crackers, led by Big 3 collective increase

Q1

Net Sales * (6)%

Op. Profit * (27)%

OP Margin * (270) bp



2017:• Transition from DSD• Increase brand support• Strong operating profit

margin expansionQ1 Highlights:


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Transition From DSD – On Track

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Q1 Q2 Q3 Q4

Announce

Transition Planning

Customer Transitions

Complete the Exit

Portfolio Optimization

100%40%

% of U.S. Snacks’ Net Sales distributed through Warehouse‐distribution system:


Europe – Performance & Priorities

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• Pringles disruption on price‐pack changes

• Softness in U.K. cereal, but sequential improvement

• Sustained operating‐margin improvement

Q1

Net Sales * (8)%

Op. Profit * (6)%

OP Margin * +40 bp



2017:• Stabilize the U.K.• Increase operating profit

margin

Q1 Highlights:


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Latin America – Performance & Priorities

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• Distributor transitions in Peru and Central America

• Strong growth in Mexico, and in Pringles across the Region

• Integration and momentum of Parati

• Strong profit‐margin expansion

Q1

Net Sales * (1)%

Op. Profit * +21%

OP Margin * +300 bp



2017:• Grow sales• Integrate Parati• Increase operating profit

margin

Q1 Highlights:


Asia Pacific – Performance & Priorities

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Q1

Net Sales * +3%

Op. Profit * +28%

OP Margin * +190 bp

• Australia: Sequential improvement in net sales

• Strong growth across Asia

• Pringlesmomentum and expansion

• Joint ventures performing well

• Strong operating profit margin expansion



2017:• Sustain net sales growth• Improve operating profit

margins

Q1 Highlights:


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In Summary…

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• Q1 sales impacted by industry‐wide consumption softening in January/February, and by shipment timing

• On track for 2017 profit, earnings, and cash flow

• Progress made on 2020 Growth Plan

• Profit‐Margin expansion continues

• 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.

May 4, 2017

Kellogg CompanyFIRST QUARTER 2017 FINANCIAL RESULTS

Q&A

Documents

Kellogg Companyinvestor.kelloggs.com/~/media/Files/K/Kellogg-IR/reports-and... · Kellogg Company May 4, 2017 ... Kellogg North America –Overview 12 ... Warehouse‐distribution