February 9, 2017
Kellogg Company
Kellogg Company
2016 FOURTH QUARTER
FINANCIAL RESULTS
February 9, 2017
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 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.
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.
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
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Page 1 of 14
February 9, 2017
Kellogg Company
Q4 2016 – Good Finish, Good Progress
• Good Results: *
 Sequential improvement in net sales
 Gross Margin Expansion
 Better-than-expected OP, EPS and Cash Flow
• Good Progress: *
 On 2016 Priorities
 Toward 2020 Growth Plan
 Toward +350-bp Margin Expansion Target
*All metrics except Cash Flow are on a currency-neutral comparable basis; all metrics except EPS and Cash Flow also exclude Venezuela.
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
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Looking Ahead – Improving Our Performance
• Gradual improvement in top-line trends *
• Confidence in +350-bp Margin Expansion Target
• Increasing Cash Flow **
*
And…
• Transforming U.S. Snacks
* On a currency-neutral comparable basis
** Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
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Page 2 of 14
February 9, 2017
Kellogg Company
U.S. Snacks – From DSD* to Warehouse
Total Kellogg U.S.
•
U.S. Snacks
U.S. Snacks’ DSD
categories/channels
•
•
•
•
All other channels
• Crackers, Cookies,
Wholesome Snacks,
Fruit-Flavored Snacks
Pringles
•
Grocery & Mass Channels
• Crackers, Cookies,
Wholesome Snacks,
Fruit-Flavored Snacks
All Other Business Units
U.S. Snacks’ Pringles + non-DSD
channels
DSD
Warehouse
DSD
Warehouse
Today, more than 3/4 of our U.S. sales,
including more than 1/3 of U.S. Snacks,
are already sold through warehouse distribution.
* “DSD” refers to Direct Store Delivery
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
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U.S. Snacks – From DSD to Warehouse
•
•
•
•
•
•
Millennials
More trips, smaller baskets
Mobile, social media
Perimeter of store
More channels
Emerging E-Commerce
February 9, 2017
Changing
Shopper
Habits
Shifting
Resources
From:
•
Trucks
•
Distribution
Centers
Evolving
Retail
Landscape
KELLOGG COMPANY | Q4 2016 EARNINGS
To:
•
Pack Formats
•
Brand Building,
Innovation, Shopper
Marketing
•
Broader Brand support
6
Page 3 of 14
February 9, 2017
Kellogg Company
U.S. Snacks – From DSD to Warehouse
Effectiveness
• Redeployed resources to
“pull” investment
Efficiency
• Scale
• Joint value creation
with retailers
• Better service
• Cross-category execution
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
7
Exiting DSD in U.S. Snacks – Timeline & Impact
• Announce in Q1, transition in Q2-Q3, running in Q4
• Some volume disruption during transition
• Adjusted list prices re-set gross profit margin
• Overhead savings
• Neutral impact to comparable-basis Operating Profit
in 2017, accretive in 2018
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
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Page 4 of 14
February 9, 2017
Kellogg Company
Summary of Financial Results
Change Versus Prior Year
Full Year 2016
Q4
Net
Sales
Operating
Profit
Earnings
Per
Share
Reported
(1.4)%
(3.8)%
Currency-Neutral Comparable *
1.1%
4.0%
Currency-Neutral Comparable
x-Venezuela *
0.5%
(1.1)%
353.5%
27.8%
Currency-Neutral Comparable *
16.7%
17.7%
Currency-Neutral Comparable
x-Venezuela *
16.0%
6.7%
Reported
(25.0)%
14.0%
Comparable *
16.5%
5.9%
Currency-Neutral Comparable*
25.3%
22.1%
Reported
* Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
9
Project K Update
Extending Project K:
$(0.80)-(0.90) per share of UFCs excluded from Comparable-Basis EPS in 2017
Thru 2016
2017-2019
Cumulative
$(1.1)
$(0.4)-$(0.5)
$(1.5)-$(1.6)
billion
billion
billion
Previous Guidance
$(1.0)-$(1.2)
billion
$(0.2)-$(0.4)
billion
$(1.2)-$(1.4)
billion
Cash Portion
$(0.7)
$(0.4)-$(0.5)
~ $(1.1)
billion
billion
billion
~ $(0.7)
billion
$(0.2)-$(0.4)
billion
$(0.9)-$(1.1)
billion
$600-700
Up-Front Costs
Previous Guidance
Savings
Previous Guidance
February 9, 2017
$296
$300-400
million
million
million
~ $280
million
$145-195
million
$425-475
million
KELLOGG COMPANY | Q4 2016 EARNINGS
Increased ratio of
savings to UFCs
10
Page 5 of 14
February 9, 2017
Kellogg Company
2017 Outlook – Net Sales and Operating Profit
Currency-neutral comparable performance,* excluding Venezuela, year-over-year change
Net Sales
Operating Profit
~ (2)%
+ 7-9%
•
•
DSD transition impacts U.S. Snacks’ volume and prices
RGM drives higher price/mix
•
•
•
Productivity actions, Project K savings, ZBB savings
Modest input deflation
Cost headwinds: Transactional FX, investment in food,
volume impact
DSD exit is neutral to Operating Profit
•
•
•
•
Gross Margin up modestly, as DSD exit partially offsets
underlying expansion
SG&A down as % of sales, led by ZBB, DSD exit
Strong OP margin expansion
* Guidance for net sales and operating profit 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, and other items that could affect comparability. These targets also exclude Venezuela.
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
11
2017 Outlook – Earnings Per Share
Currency-neutral comparable performance,* excluding Venezuela, year-over-year change
2016
2017
OP Growth
+7-9%
(Currency-Neutral
Comparable-basis)
EPS
$3.74
(Comparable-basis)
Venezuela
$(0.02)
(Deconsolidation)
Restated Base
(Currency-Neutral
Comparable-basis)
$3.72
Below the Line
EPS Growth
(Currency-Neutral
Comparable-basis)
Currency Translation
EPS
~ 1%
+8-10%
$4.03-4.09
~ $(0.12)
$3.91-3.97
(Comparable-basis)
•
Guidance for operating profit 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, and other items that could affect comparability. These targets also exclude Venezuela.
•
Guidance for EPS is on a currency-neutral basis, which means it excludes the impact of currency translation, mark-to-market adjustments, integration costs, costs related to Project K, and other
items that could affect comparability. This target also excludes Venezuela.
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
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Page 6 of 14
February 9, 2017
Kellogg Company
U.S. Morning Foods – Results & Outlook
Currency-Neutral Comparable Basis
Q4
2016
Net Sales *
(1)%
(2)%
Op. Profit *
+29%
+16%
OP Margin *
+480 bp
+320 bp
2017:
• Improve net sales
performance
• Strong operating profit
margin expansion
Q4 Highlights:
•
Held RTEC share, collectively
gaining share in Core 6 brands
•
Continued Pop-Tarts growth
•
OP margin expansion led by ZBB
and Project K
* Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
13
U.S. Snacks – Results & Outlook
Currency-Neutral Comparable Basis
Q4
2016
Net Sales *
+2%
(1)%
Op. Profit *
+9%
+9%
OP Margin *
+80 bp
+110 bp
2017:
• Transition from DSD
• Strong operating profit
margin expansion
Q4 Highlights:
•
Sequential improvement in net sales
•
Continued share gains in Crackers,
led by Big 3 collective increase
•
Share gain in Wholesome Snacks
•
Growth in Pringles
•
OP margin expansion driven by
Project K, ZBB
* Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
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Page 7 of 14
February 9, 2017
Kellogg Company
U.S. Specialty Channels – Results & Outlook
Currency-Neutral Comparable Basis
Q4
2016
Net Sales *
+5%
+3%
Op. Profit *
+13%
+9%
OP Margin *
+160 bp
+130 bp
2017:
• Steady sales and
operating profit growth
Q4 Highlights:
•
Growth in key channels
•
Held or gained share in most channel/categories
•
Gaining new category captaincies
•
Strong operating profit margin expansion
* Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
15
North America Other – Results & Outlook
Currency-Neutral Comparable Basis
Q4
2016
Net Sales *
(4)%
(5)%
Op. Profit *
+9%
(8)%
OP Margin *
+210 bp
(40) bp
Canada
2017:
• Gradual improvement in
sales performance
• Growth in operating profit
Q4 Highlights:
•
Eggo consumption and share growth
•
Canada sequential sales improvement
•
Extended transitions: Kashi portfolio,
Morningstar Farms packaging, SKU
prioritization in frozen handhelds
* Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
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Page 8 of 14
February 9, 2017
Kellogg Company
Europe – Results & Outlook
Currency-Neutral Comparable Basis
Q4
2016
Net Sales *
(1)%
(1)%
Op. Profit *
+24%
+9%
OP Margin *
+330 bp
+130 bp
2017:
• Stabilize the U.K.
• Increase operating profit
margin
Q4 Highlights:
•
Softness in the U.K.
•
Sustained Pringles growth
•
Emerging-markets growth
•
Strong operating-margin
improvement
* Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
17
Latin America – Results & Outlook
Currency-Neutral Comparable Basis
Excl. Venezuela
Q4
2016
Net Sales *
+5%
+1%
Op. Profit *
+35%
+3%
OP Margin *
+210 bp
+20 bp
2017:
• Continue sales growth
• Increase operating profit
margin
Q4 Highlights:
*
•
Sequential improvement in sales growth
•
Double-digit growth in Snacks
•
Closed Parati acquisition in Brazil
•
Strong profit-margin expansion
Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
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Page 9 of 14
February 9, 2017
Kellogg Company
Asia Pacific – Results & Outlook
Currency-Neutral Comparable Basis
Q4
Year
Net Sales *
+1%
+2%
Op. Profit *
(4)%
+2%
OP Margin *
(50) bp
+10 bp
2017:
• Continued net sales
growth
• Improved operating profit
margins
Q4 Highlights:
•
Australia: Sequential improvement in net
sales
•
Strong growth in Korea, Sub-Saharan Africa
•
Pringles momentum and expansion
•
Economic disruptions in India, Thailand
•
Joint ventures performing well
* Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
19
CFO Transition
Thanks, Ron!
February 9, 2017
Welcome, Fareed!
KELLOGG COMPANY | Q4 2016 EARNINGS
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Page 10 of 14
February 9, 2017
Kellogg Company
Summary
• Better-than-expected finish to 2016
• Exiting DSD to transform U.S. Snacks
• Strong earnings growth in 2017
• Confidence in 2018 profit margin goals
* Guidance is on a currency-neutral comparable basis, excluding Venezuela
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
21
Kellogg Company
FOURTH QUARTER 2016
FINANCIAL RESULTS
Q&A
February 9, 2017
Page 11 of 14
February 9, 2017
Kellogg Company
Kellogg Company
FOURTH QUARTER 2016
FINANCIAL RESULTS
SUPPLEMENTAL
SLIDES
February 9, 2017
Net Sales Components
Fourth Quarter 2016
(year-over-year, % change)
Currency-Neutral
Comparable Growth
$3,142 M
+0.4%
+0.7%
+0.6% ex. VZ
(0.1)% ex. VZ
+0.0%
(2.5)%,
$3,097 M
(2.0)% ex. VZ
Q4 2015
Full Year:
Excluding VZ
Volume
Price / Mix
(a)
Other
Currency
(0.9)%
4.9%
0.2%
(8.0)%
(0.8)
(0.3)
0.2
(1.7)
Q4 2016
$13,014
a) Other includes Project K, acquisitions, divestitures, and shipping day differences.
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
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Page 12 of 14
February 9, 2017
Kellogg Company
Gross Profit Margin *
Currency-Neutral, Comparable Basis, Excluding Venezuela, Gross Profit as % of Net Sales*
40.0%
38.0%
+ Up 40 bp ex-Venezuela in Q4
36.0%
+
Productivity, Project K, ZBB
efficiencies
-
Adverse mix, transactional FX,
investment in food
34.0%
32.0%
30.0%
Q4
Year
2015
2016
* Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
25
Operating Profit Margin*
Currency-Neutral, Comparable Basis, Excluding Venezuela, Operating Profit as % of Net Sales*
16.0%
+
Up 220 bp ex-Venezuela in Q4
15.0%
+
Productivity, Project K, ZBB
efficiencies
+
Improvement in all Regions
in 2016
+
Up 110 bp ex-Venezuela for
year, progressing toward +350
bp goal through 2018
14.0%
13.0%
12.0%
11.0%
10.0%
Q4
2015
2016
Year
* Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
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Page 13 of 14
February 9, 2017
Kellogg Company
Core Working Capital*
12-month rolling, as a percentage of net sales
7.6%
7.3%
6.8%
6.4%
6.2%
5.6%
5.0%
4.5%
4.0%
4Q 2014 1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016 3Q 2016 4Q 2016
* “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.
February 9, 2017
KELLOGG COMPANY | Q4 2016 EARNINGS
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