Printable Slides - Investor Relations

May 5, 2016
Kellogg Company
Kellogg Company
2016 FIRST QUARTER
FINANCIAL RESULTS
May 5, 2016
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. May 5, 2016
KELLOGG COMPANY | Q1 2016 EARNINGS
2
Page 1 of 11
May 5, 2016
Kellogg Company
Overview of First Quarter 2016
• 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
*On a currency‐neutral comparable basis
May 5, 2016
KELLOGG COMPANY | Q1 2016 EARNINGS
3
Summary of Financial Results
($ in millions, except EPS)
First Quarter 2016
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%
Earnings Per Share (Comparable*)
Earnings Per Share (Currency‐Neutral Comparable*) $0.97 (1)%
$1.33 +36%
* Please refer to appendices for reconciliation of non‐GAAP measures to the most directly comparable GAAP measure.
May 5, 2016
KELLOGG COMPANY | Q1 2016 EARNINGS
4
Page 2 of 11
May 5, 2016
Kellogg Company
Net Sales Components
First Quarter 2016
(year‐over‐year, % change)
Currency‐Neutral
Comparable Growth +6.6%, (1)% ex. VZ
+0.2%
+ 7.3%
$3,556 M
+0.4%
(0.7)%
(11.7)%
$3,395 M
(4.5)%
Q1 2015
Volume
Price / Mix
May 5, 2016
Project K / Ship
Day Diff.
Acq. / Div.
Currency
Q1 2016
KELLOGG COMPANY | Q1 2016 EARNINGS
5
Currency‐Neutral Comparable Gross Profit*
First Quarter 2016
$1.5b
$1.4b
+ Pricing in Venezuela
‐
Continued investment in food
‐
Category/channel mix
First Quarter
38.0%
Margin*
40.1%
Margin*
2015
2016
+ On‐track to post improvement for year
* Please refer to appendices for reconciliation of non‐GAAP measures to the most directly comparable GAAP measure.
May 5, 2016
KELLOGG COMPANY | Q1 2016 EARNINGS
6
Page 3 of 11
May 5, 2016
Kellogg Company
Operating Profit Performance by Region
First Quarter 2016
($ in millions, currency‐neutral comparable performance,* year‐over‐year % change )
Reported
Currency‐Neutral Dollars
Comparable Growth*
North America
$362
8%
Net input deflation and savings from Project K and zero‐based budgeting
Europe
$70
1%
Driven by timing of investment to support commercial programs, offset by sales performance
Latin America
$23
329%
Driven by pricing in Venezuela
Asia Pacific
$17
(6)%
Largely due to investment in capabilities and timing of transactional currency impact
* Please refer to appendices for reconciliation of non‐GAAP measures to the most directly comparable GAAP measure.
May 5, 2016
KELLOGG COMPANY | Q1 2016 EARNINGS
7
Operating Cash Flow (after capital expenditure)*
First Quarter 2016
(millions)
• 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
* Please refer to appendices for reconciliation of non‐GAAP measures to the most directly comparable GAAP measure.
May 5, 2016
KELLOGG COMPANY | Q1 2016 EARNINGS
8
Page 4 of 11
May 5, 2016
Kellogg Company
Core Working Capital (a)
(12‐month rolling, as a percentage of 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
(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. May 5, 2016
KELLOGG COMPANY | Q1 2016 EARNINGS
9
2016 Outlook – Guidance
Guidance From Q4 2015 Call
Current Guidance Q1 2016
2015 Reported earnings per share
Items affecting comparability
$1.72 1.81 $1.72 1.81 2015 Comparable earnings per share (EPS)
$3.53 $3.53 EPS growth (+6‐8%)
Currency‐neutral comparable 2016 EPS (a)
Estimate for impact of currency, ex. VZ
Estimate for impact of VZ currency
Total impact of currency
Comparable 2016 EPS
Integration costs
Up‐front costs
EPS growth (+13‐15%)
$3.74 ‐ $3.81
$4.00 ‐ $4.07
(≈0.06)
(≈0.04)
(≈0.10)
(≈0.06)
(≈0.30)
(≈0.36)
$3.64 ‐ $3.71
$3.64 ‐ $3.71
$(0.02) ‐ (0.03)
$(0.40) ‐ (0.50)
$(0.02) ‐ (0.03)
$(0.40) ‐ (0.50)
(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
10
Page 5 of 11
May 5, 2016
Kellogg Company
2016 Outlook
Ex. Venezuela
Incl. Venezuela
+0‐2%
+4‐6%
+4‐6%
+11‐13%
Net Sales(a)
Currency‐Neutral Comparable
Operating Profit(a)
Currency‐Neutral Comparable
$4.00 to $4.07
EPS(b)
Currency‐Neutral Comparable
(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
11
Introduction – North America
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 May 5, 2016
KELLOGG COMPANY | Q1 2016 EARNINGS
12
Page 6 of 11
May 5, 2016
Kellogg Company
U.S. Morning Foods
First Quarter 2016
Kellogg Core Six Brands and Overall
Portfolio Driving Share Growth
Year‐Over‐Year Dollar Share Change(a)
Kellogg’s Core Six(b)
Kellogg’s Brand(c)
0.5%
0.5%
0.2%
FY 2015
May 5, 2016
0.2%
Q1 2016
(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
KELLOGG COMPANY | Q1 2016 EARNINGS
13
U.S. Snacks
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 May 5, 2016
KELLOGG COMPANY | Q1 2016 EARNINGS
14
Page 7 of 11
May 5, 2016
Kellogg Company
U.S. Specialty
First Quarter 2016
• Share gains in the Convenience channel
• K‐12 and on‐the‐go growth in
Foodservice
• Distribution gains in Vending
May 5, 2016
KELLOGG COMPANY | Q1 2016 EARNINGS
15
North America Other
First Quarter 2016
• Great new innovation launching in Frozen Food
• Performance of Kashi cereal
improved and great innovation launching
• Growth in Canadian Cereal and Wholesome Snacks businesses
May 5, 2016
KELLOGG COMPANY | Q1 2016 EARNINGS
16
Page 8 of 11
May 5, 2016
Kellogg Company
Summary – North America
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 May 5, 2016
KELLOGG COMPANY | Q1 2016 EARNINGS
17
Europe
First Quarter 2016
• Continued strong growth in the Pringles business • Growth in the
Wholesome Snack business
• New innovation and support planned in Cereal business
May 5, 2016
KELLOGG COMPANY | Q1 2016 EARNINGS
18
Page 9 of 11
May 5, 2016
Kellogg Company
Latin America
First Quarter 2016
• Broad‐based share gains
• Strong performance of Snack business
• Challenging economic environment
May 5, 2016
KELLOGG COMPANY | Q1 2016 EARNINGS
19
Asia Pacific
First Quarter 2016
• Good sales growth in Asia • Pringles posted strong growth
• Our JVs continue to perform well
May 5, 2016
KELLOGG COMPANY | Q1 2016 EARNINGS
20
Page 10 of 11
May 5, 2016
Kellogg Company
Summary
• 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
21
Kellogg Company
FIRST QUARTER 2016 FINANCIAL RESULTS
Q&A
May 5, 2016
Page 11 of 11