Kellogg Company
September 8, 2011
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1 | September 8, 2011 | Barclays 2011 Back to School Conference
1
This presentation contains, or incorporates by reference, “forward‐looking statements” with projections concerning, among other things, the Company’s strategy, 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, brand building, ROIC, working capital, growth, new products, innovation, cost reduction projects, and competitive pressures. Forward‐looking statements include predictions of future results or activities and may contain the words “expects,” “forecasts,” “believes,” “should,” “will,” “will deliver,” “anticipates,” “projects,” “estimates,” 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 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 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 publicly update them.
2 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 1 of 22
Kellogg Company
September 8, 2011
 Path to rebuilding momentum
John Bryant
 Marketing & consumer agenda
Mark Baynes
 Financial model
Ron Dissinger
 Long‐term growth potential
and Q&A
John Bryant
y
™
®
™
®
®
™
®
®
3 | September 8, 2011 | Barclays 2011 Back to School Conference
2010
Grow Internal Net Sales1
Net Sales
Improve Price / Mix
Grow Gross Profit Dollars1
Sustainable
Growth
Drive Innovation2
Overhead Discipline1
Grow Brand Building1
1) Internal metrics exclude the impact of foreign currency translation and if applicable, acquisitions,
dispositions and shipping day differences.
2) Rolling 3‐year innovation. 4 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 2 of 22
Kellogg Company
September 8, 2011
Supply chain
significant progress
Innovation
Deflation
Non‐measured channels
5 | September 8, 2011 | Barclays 2011 Back to School Conference
Food protection plan – key foundational components
Hazard Analysis Materials
HACCP Programs
Ingredients
Key Manufacturing
Programs
Skills / Culture Skills / Culture
Verification / Validation
Packaging
GMP
SSOP
Transportation
Hygienic
Zoning
Hygienic Equipment & Infrastructure
Training and Education
Training and Education
Lethality Validation
Environmental Monitoring
Audits
6 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 3 of 22
Kellogg Company
September 8, 2011
2010
Grow Internal Net Sales(a)
Improve Price / Mix
2011
Grow Gross Profit Dollars
Sustainable
Growth
Drive Innovation(b)
Overhead Discipline(a)
Grow Internal Net Sales1
Grow Gross Profit Dollars1
Grow Brand Building(a)
Improve Price / Mix
Sustainable
Growth
Drive Innovation2
Overhead Discipline1
Grow Brand Building1
1) Internal metrics exclude the impact of foreign currency translation and if applicable, acquisitions,
dispositions and shipping day differences.
2) Rolling 3‐year innovation. 7 | September 8, 2011 | Barclays 2011 Back to School Conference
Net Sales from current –year innovation
Net Sales from innovation over 3 years
more than
2011
12.3%
2009
2010
2011 2012 Estimate Forecast
2009
13.5%
2010
≈14%
16.0%
more than
2011
2012 2011 Estimate Forecast
8 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 4 of 22
Kellogg Company
September 8, 2011
DRIVERS
4 – 5%
• Base price increase
• Trade spend decrease
• Coupon reductions
• Innovation driving 2009
2010
2011 Est.
positive mix
9 | September 8, 2011 | Barclays 2011 Back to School Conference
Trade spend reduction – example
2010
$2.50
2011
$2.99
Special K Year‐to‐Date
Results
+12%
$ sales vs. YAG
$ sales vs YAG
Source: Nielsen 24 w/e 6/18/11 vs. YA; promoted price point increase on select Special K SKUs representing approximately 20% of total Special K gross sales
10 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 5 of 22
Kellogg Company
September 8, 2011
Internal Net Sales Trends
Year‐over‐year growth
5%
5%
4 –5%5%
3%
‐1%
2007 2008 2009 2010 2011
Guidance
11 | September 8, 2011 | Barclays 2011 Back to School Conference
Gross Profit Dollar Growth
Internal, year‐over‐year growth
6%
5%
2 –3%3%
2%
‐2%
2007 2008 2009 2010 2011
Guidance
12 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 6 of 22
Kellogg Company
September 8, 2011
 Remain disciplined on overhead in 2011
 Significant bonus headwind in 2011
 Long‐term goal of half the rate of sales growth (HOG)
 Will
Will continue to invest in digital and R
continue to invest in digital and R&D D
capabilities
13 | September 8, 2011 | Barclays 2011 Back to School Conference
Advertising as a Percent of Net Sales
9%
Over
$1 billion
7%
6%
5%
3%
Kellogg
A
B
C
D
Peers
3%
3%
3%
E
F
G
Source: Data from most recent 10‐K filing as of 07/28/11.
14 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 7 of 22
Kellogg Company
September 8, 2011
Brand Building Growth
5%
Internal, year‐over‐year
2%
‐2%
2%
LSD
flat
0%
2007 2008 2009 2010 2011
Estimate
Note: LSD = low single‐digit
15 | September 8, 2011 | Barclays 2011 Back to School Conference
 Stabilized our business in 2011 with strong top‐line growth driven by t
t li
th d i
b
innovation
 Will need to increase brand‐building investment in 2012 to continue regaining momentum
t
16 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 8 of 22
Kellogg Company
September 8, 2011
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9/7/2011
17 | September 8, 2011 | Barclays 2011 Back to School Conference
17
The right brands
The right brands . . .
The right ideas . . . The right investment . . .
18 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 9 of 22
Kellogg Company
September 8, 2011
Significant upgrade of our marketing capabilities in the last 2 years
 Enhanced category understanding globally to create stronger portfolio design and investment focus
 Strengthening our innovation capability and delivery while building stronger long‐term visibility
 Improving returns on our marketing investment through significant upgrade in our creative, media / digital capability and focus
 Becoming a stronger technology‐enabled organization to drive stronger participation in all aspects of the emerging digital agenda
 A marketing function upgraded in talent and capability to operate effectively in the changing brand and consumer landscape
19 | September 8, 2011 | Barclays 2011 Back to School Conference
To maximize growth and returns,
g
,
it is key that we optimize our portfolio design by market to ensure we are
maximizing coverage of the core category needs and aligning our investment and aligning our investment accordingly.
20 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 10 of 22
Kellogg Company
September 8, 2011
Global Segmentation
• Common / category understanding across 16 markets
• Studies conducted amongst adults / moms
• Largest global study conducted at Kellogg
• Provides common view, language and approach across markets
Benefits
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Every brand plan must strive to build credibility b ild
dibili
and relevance amongst users and non‐users. We accomplish this by executing fresh and powerful ideas that drive breakthrough and differentiation
within the categories in which we compete.
22 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 11 of 22
Kellogg Company
September 8, 2011
To win in our categories, we must have bigger and better ideas
Targeting Prospects
•
•
•
Boomers
Millenials
Hispanics
Building Category Credentials
•
•
Love Your Cereal
Breakfast 365
Driving Brand Reappraisal
(non‐food)
•
•
•
•
•
•
•
SpK drop a jeans size
All‐Bran 7‐day promise Kashi day of change
Line extensions
New brands
New categories
Rice Krispies recipes
Driving Brand Reappraisal
(food renovation)
•
•
•
Innovation
Communications Ideas
New campaign idea
Coco Pops – Choc ’N Roll
•
•
Kids fiber / whole grain U.S.
•
Extended media presence
SpK restage Mexico
New media partnerships
23 | September 8, 2011 | Barclays 2011 Back to School Conference
Idea
Idea
Strengthening the front‐end process
Idea
Consumer insight
Brand/
Portfolio strategy
Four Lens approach to insight generation
Platforms identified as broad opportunity areas for idea development
Good ideas
A bigger funnel of well‐connected ideas
24 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 12 of 22
Kellogg Company
September 8, 2011
Line Extension / Existing Brands
•
•
•
•
Expansion of Ideas across Markets
Special K Clusters (Europe)
•
Crunchy Nut from UK to US
All‐Bran Golden Crunch (UK)
•
Trésor from France to UK to Mexico
Mini‐Wheats
Touch of Fruit (US)
Eggo – Thick & Fluffy Waffle (US)
•
New to Category
•
Special K Cracker Chips (US)
•
Be Natural Cereal (Australia)
Fiber Plus from US to Canada & UK
25 | September 8, 2011 | Barclays 2011 Back to School Conference
Discovery
Priority Setting & LT Visibility
3–5 years
New Science and Technology
Consumer Insights
Trends
Brands
Development
Aligned Hunting Grounds
Portfolio
Prioritization
36‐Month Business Unit Calendar
Resource
Allocation
Advanced Innovation & Technology
Global R&D
MARKETING INNOVATION
26 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 13 of 22
Kellogg Company
September 8, 2011
As the consumer marketing landscape grows increasingly complex, having the ability to reach
the right people, with the right message
at the right time and place
g
p
is essential to advancing the effectiveness and
efficiency of our marketing investment. 27 | September 8, 2011 | Barclays 2011 Back to School Conference
New Reality
New Opportunity
All media is becoming
All media is becoming digitally‐enabled media
Deliver integrated
Deliver integrated experiences across Paid, Owned, Earned media
Creating Integrated Experience Plans
Advancing
Capability & Process
Restructured Agency Model
Fewer, ,
Better, Aligned
Paid Own Earn
28 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 14 of 22
Kellogg Company
September 8, 2011
Smart
Phone
Media Partnerships –
Print & On‐line
Out of Home
TV
Desktop
EARNED
Display
Social Media
Store
29 | September 8, 2011 | Barclays 2011 Back to School Conference
Global Return on Investment
ROI Learnings Driving Continued Improvement
One model
Three partners
Common global application
1
2
Weighted Persuassion Rating
Creative Quality
3
Digital Venture Fund
+80% of copy tested copy
tested
performed
Strong to Very Strong
Fueling and Fueling and
funding inspiration
Creative Idea
Experience
Technology
Awareness Index Rating 1) Cost per thousand media impressions 2) Click‐through rate 3) Cost per click
30 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 15 of 22
Kellogg Company
September 8, 2011
Invite
Grow
Connect
Digital Marketing
Digital Platform
Consumer Database
Formed
Formed consumer‐centric digital marketing IT function enabling marketing agenda
Built global digital Built global
digital
platform for superior consumer experience and efficient content
Implemented state
Implemented
state‐
of‐the‐art consumer database; rapidly scaling size and capability
31 | September 8, 2011 | Barclays 2011 Back to School Conference
 Marketing and consumer agenda fully aligned to support the path to rebuilding momentum
 Playing our game playing our game better
 Significant upgrade of our marketing capability through the development of The K Way
• Stronger consumer centricity
Investing in talent and capability against changing in talent and capability against changing
• Investing
consumer / brand landscape
 Win in our categories through the right brands, the right ideas and the right investment
32 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 16 of 22
Kellogg Company
September 8, 2011
Frosted Flakes
Town House
Special K
All‐Bran (Australia)
33 | September 8, 2011 | Barclays 2011 Back to School Conference
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9/7/2011
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Page 17 of 22
Kellogg Company
September 8, 2011
Operating Principles
Grow Internal Net Sales1
Grow Gross Profit Dollars1
LT Outlook: grow in line with sales or slightly above
l
li htl b
LT Outlook: 3 to 4%
LT Outlook: 3 to 4%
Improve Price / Mix
Overhead Discipline1
Sustainable
Growth
LT Outlook: improvements to mitigate inflation
Drive Innovation2
LT Outlook: approx. 15% of net sales
LT Outlook: half the rate of sales growth
Grow Brand Building1
LT Outlook: low to mid single‐
digit growth
1) Internal metrics exclude the impact of foreign currency translation and if applicable, acquisitions,
dispositions and shipping day differences.
2) Rolling 3‐year innovation. 35 | September 8, 2011 | Barclays 2011 Back to School Conference
Operating Principles
Grow Net Earnings
LT Outlook: mid single‐digit growth
Increase Return on Invested Capital
LT Outlook: improve over time
Manage
for Cash
Return Cash to Shareowners
– dividends
– share repurchases
Reduce Core
Working Capital
LT Outlook: continuous improvement
Prioritize Capital Expenditure
LT Outlook: 3 to 4% of sales
36 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 18 of 22
Kellogg Company
September 8, 2011
• Dividends per share (five‐year CAGR1) +8%
• Average annual share repurchases2 >$650 million
$1.6
$1.4 est.
$1.1
$1.1
(billions)
$0.7
Dividends
Share Repurchases
2007
2008
2009
1) CAGR base year 2006 to estimate for 2011. 2) Average annual share repurchases 2007 through estimate for 2011.
2010
2011
Estimate
37 | September 8, 2011 | Barclays 2011 Back to School Conference
(billions)
Allocation of Cash
Cumulative 2007 – 20111
Cash from options 2
Net cash from operations 3
Discretionary pension contributions 4
Acquisitions
Dividends
Share repurchases
(billions)
Net Debt5
1) Data for 2011 are estimates only.
2) Cash proceeds from issuances of stock related to employee stock
option exercises.
3) Cash from operations less capital spending before incremental pension contributions.
4) Incremental pension contribution above base, net of tax.
5) Net debt includes current maturities of long‐term debt, notes payable, and long‐term debt less total cash and cash equivalents.
38 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 19 of 22
Kellogg Company
September 8, 2011
 Committed to returning cash to shareowners through dividends and share repurchases
dividends and share repurchases
 Evaluate bolt‐on acquisitions or other partnerships to support long‐term growth strategy
 Comfortable with capital structure and
credit rating
 Operating principles are a foundational
element of our business
39 | September 8, 2011 | Barclays 2011 Back to School Conference
Long‐term Guidance
Internal Net Sales1
Internal Operating Profit1
Earnings Per Share
Earnings Per Share2
+3 to 4%
+ Mid single‐digits
+ High single‐digits
currency‐neutral basis
1) Internal net sales and operating profit growth exclude the impact of foreign currency translation and if applicable, acquisitions,
dispositions and shipping day differences.
2) Currency‐neutral earnings per share growth excludes the impact of translational foreign exchange.
40 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 20 of 22
Kellogg Company
September 8, 2011
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9/7/2011
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41
Long‐term Annual Internal
Net Sales2 Growth Targets
Core RTEC 1
Global Snacks
Emerging & Developing RTEC
North America Frozen
Core RTEC
Snacks
N.A. Frozen
Developing RTEC
Emerging RTEC
Total Company
Total Company
+ low SD
+ mid SD
+ mid SD
+ mid SD
+ high SD
3 to 4%
3 to 4%
Note: Pie chart excludes other businesses not in these categories such as global foodservice and specialty channels, totaling less than $1 billion. 1Core RTEC includes United States, Canada, United Kingdom, Ireland, Australia and New Zealand.
2Internal net sales growth exclude the impact of foreign currency translation and if applicable, acquisitions, dispositions and shipping day differences.
42 | September 8, 2011 | Barclays 2011 Back to School Conference
Page 21 of 22
Kellogg Company
September 8, 2011
 Committed to realistic goals and managing the business for the long term
business for the long term
 Committed to brand building and innovation
to sustainably win in the marketplace
g
g
g
 Exciting long‐term growth potential
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