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Kellogg Company
Page 1 of 11
May 5, 2016
Kellogg Company2016 FIRST QUARTERFINANCIAL RESULTS
May 5, 2016
Forward‐Looking Statements
2
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.
May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
Kellogg Company
Page 2 of 11
May 5, 2016
Overview of First Quarter 2016
3
*On a currency‐neutral comparable basis
May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
• Operating profit and earnings exceeded our expectations
• Good underlying performance and share gains in U.S. Cereal business
• Net sales* performance expected to improve as the year progresses
Reported
$
Reported
Growth
Currency‐Neutral
Comparable Growth*
Currency‐Neutral
Comparable Growth
excl. VZ*
Net Sales $ 3,395 (4.5)% 6.6% (1.0)%
Operating Profit $ 438 14.0% 34.9% 1.7%
First Quarter 2016
Summary of Financial Results
4
* Please refer to appendices for reconciliation of non‐GAAP measures to the most directly comparable GAAP measure.
($ in millions, except EPS)
Earnings Per Share (Comparable*) $0.97 (1)%
May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
Earnings Per Share (Currency‐Neutral Comparable*) $1.33 +36%
Kellogg Company
Page 3 of 11
May 5, 2016
Net Sales Components
5
(year‐over‐year, % change)First Quarter 2016
May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
Q1 2015 Volume Price / Mix Project K / ShipDay Diff.
Acq. / Div. Currency Q1 2016
$3,556 M
+ 7.3%
(4.5)%
+0.4%
$3,395 M
(0.7)%
(11.7)%
Currency‐NeutralComparable Growth
+6.6%, (1)% ex. VZ+0.2%
Currency‐Neutral Comparable Gross Profit*
6
* Please refer to appendices for reconciliation of non‐GAAP measures to the most directly comparable GAAP measure.
First Quarter 2016
38.0%Margin*
40.1%Margin*
2015 2016
First Quarter
$1.5b$1.4b
May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
+ Pricing in Venezuela
‐ Continued investment in food
‐ Category/channel mix
+ On‐track to post improvement for year
Kellogg Company
Page 4 of 11
May 5, 2016
Operating Profit Performance by Region
7
($ in millions, currency‐neutral comparable performance,* year‐over‐year % change )First Quarter 2016
North America
Europe
Latin America
Asia Pacific
$362
$70
$23
$17
8%
329%
(6)%
Net input deflation and savings from Project K and zero‐based budgeting
Driven by timing of investment to support commercial programs, offset by sales performance
Largely due to investment in capabilities and timing of transactional currency impact
Reported
Dollars
Currency‐Neutral
Comparable Growth*
* Please refer to appendices for reconciliation of non‐GAAP measures to the most directly comparable GAAP measure.
1%
Driven by pricing in Venezuela
May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
Operating Cash Flow (after capital expenditure)*
8
* Please refer to appendices for reconciliation of non‐GAAP measures to the most directly comparable GAAP measure.
• First‐quarter cash flow of $(139) million
• Included ≈$145 million associated with a bond tender in the quarter
• Results in‐line with expectations and on‐track to deliver $1.1 billion for the full year
First Quarter 2016(millions)
May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
Kellogg Company
Page 5 of 11
May 5, 2016
Core Working Capital (a)
9
(12‐month rolling, as a percentage of sales)
(a) Internal Kellogg Metric: Period ending. Last 12 months’ average trade receivables and inventory, less 12 months’ average trade payables, divided by last 12 months’ sales.
7.6%7.3%
6.8%6.4%
6.2%5.6%
4Q 2014 1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016
May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
2016 Outlook – Guidance
10
(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. Does include the impact of prior acquisitions and investment in JVs.
May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
Guidance From
Q4 2015 Call
Current Guidance
Q1 2016
2015 Reported earnings per share $1.72 $1.72
Items affecting comparability 1.81 1.81
2015 Comparable earnings per share (EPS) $3.53 $3.53
EPS growth (+6‐8%) EPS growth (+13‐15%)
Currency‐neutral comparable 2016 EPS (a) $3.74 ‐ $3.81 $4.00 ‐ $4.07
Estimate for impact of currency, ex. VZ (≈0.06) (≈0.06)
(≈0.04) (≈0.30)
Total impact of currency (≈0.10) (≈0.36)
Comparable 2016 EPS $3.64 ‐ $3.71 $3.64 ‐ $3.71
Integration costs $(0.02) ‐ (0.03) $(0.02) ‐ (0.03)Up‐front costs $(0.40) ‐ (0.50) $(0.40) ‐ (0.50)
Estimate for impact of VZ currency
Kellogg Company
Page 6 of 11
May 5, 2016
2016 Outlook
11
EPS(b)Currency‐Neutral Comparable
Operating Profit(a)Currency‐Neutral Comparable
Net Sales(a)Currency‐Neutral Comparable
+4‐6%
+11‐13%
$4.00 to $4.07
(a) 2016 guidance excludes the impact of acquisitions, dispositions, 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.
(b) 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, and other items that could affect comparability. Does include the impact of prior acquisitions and investment in JVs.
May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
Ex. Venezuela Incl. Venezuela
+0‐2%
+4‐6%
Introduction – North America
12May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
Return to Profitable Growth
• Accelerate momentum behind advantaged brands in Cereal, Snacks, and Frozen
• Transform Veggie and unlock the full potential of Kashi Company
• Expand margins (while investing to grow) –Project K and ZBB
Kellogg Company
Page 7 of 11
May 5, 2016
U.S. Morning Foods
13May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
First Quarter 2016
Kellogg Core Six Brands and Overall Portfolio Driving Share Growth
Year‐Over‐Year Dollar Share Change(a)
0.5% 0.5%
0.2% 0.2%
FY 2015
Kellogg’s Brand(c)
Kellogg’s Core Six(b)
(a) AC Nielsen Scantrack, xAOC, week‐ending 04/02/2016; (b) Core 6 = Special K, FMW, Raisin Bran, Frosted Flakes, Foot Loops, Rice Krispies; (c) Kellogg excl. Kashi
Q1 2016
U.S. Snacks
14May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
First Quarter 2016
• Good growth in Big Three Cracker brands
• Continued good performance from Pringles
• Expect sequential improvement in sales across the balance of the year
Kellogg Company
Page 8 of 11
May 5, 2016
U.S. Specialty
15
• Share gains in the Convenience channel
• K‐12 and on‐the‐go growth inFoodservice
• Distribution gains in Vending
May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
First Quarter 2016
North America Other
16
• Great new innovation launching in Frozen Food
• Performance of Kashi cerealimproved and great innovation launching
• Growth in Canadian Cereal and Wholesome Snacks businesses
May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
First Quarter 2016
Kellogg Company
Page 9 of 11
May 5, 2016
Summary – North America
17May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
• Accelerate momentum behind advantaged brands in Cereal, Snacks, and Frozen
• Transform Veggie and unlock the full potential of Kashi Company
• Expand margins (while investing to grow) –Project K and ZBB
Return to Profitable Growth
Europe
18
• Continued strong growth in the Pringles business
• Growth in theWholesome Snack business
• New innovation and support planned in Cereal business
May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
First Quarter 2016
Kellogg Company
Page 10 of 11
May 5, 2016
Latin America
19
• Broad‐based share gains
• Strong performance of Snack business
• Challenging economic environment
May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
First Quarter 2016
Asia Pacific
20
• Good sales growth in Asia
• Pringles posted strong growth
• Our JVs continue to perform well
May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
First Quarter 2016
Kellogg Company
Page 11 of 11
May 5, 2016
Summary
21
• Good start to the year
• Progress on food improvements, Pringles expansion, sales capabilities, and savings initiatives
• Building momentum as the year progresses, as we expected
May 5, 2016 KELLOGG COMPANY | Q1 2016 EARNINGS
May 5, 2016
Kellogg CompanyFIRST QUARTER 2016 FINANCIAL RESULTS
Q&A