Kellogg Company Poised for Positive Inflection in 2020; Upgrade to Outperform

K

Target price (12M, US$)

78.00

Outperform Packaged Foods | Upgrade Rating

We are upgrading Kellogg to Outperform and raising our target price to $78/share because we

believe that its portfolio changes and reinvestment spending over the past two years have set

the stage for sustainable revenue growth, margin expansion, and high-single-digit EPS growth.

We are raising our EPS estimates above consensus for 4Q ($0.89 vs. FactSet $0.86), slightly

below for 2020 ($3.97 vs. FactSet $4.02) and above for 2021 ($4.21 vs. FactSet $4.19).

Underappreciated Revenue Growth: With its organic revenue growth rate now at an above-

peer rate of 2%+, we think Kellogg’s stock deserves to be placed in a higher valuation echelon

among its consumer staples peers.

Margins Poised for Expansion. At 13%, Kellogg’s operating margin now encompasses the

full impact of reinvestment spending and temporary dilution from portfolio changes. We expect

the benefits of operating leverage to materialize in 2020 as the pace of reinvestment slows, the

impact of portfolio changes turns favorable, and the high-margin U.S. cereal business stabilizes.

Increasing the Commitment to North American Cereal Poised to Boost the Stock. The

North American cereal category is now showing signs of stabilization even without Kellogg’s

contribution. This reinforces our view that the majority of Kellogg’s problems in this business

(19% of sales) are self-inflicted and can be addressed effectively once management makes a

bigger commitment to the category. As demonstrated by Campbell Soup in 2019, the market

willingly bids up the valuation multiple of a stock when its management team provides a credible

plan for reinvestment in a troubled category.

Valuation. Our target price of $78/share assumes an 18.5x P/E (previously 15.3x) multiple

against our 2021 EPS estimate of $4.21. This assumes that the stock’s valuation premium to

its food peers increases to 10% compared to a 0% premium currently. With only 33% of sell-

side analysts recommending the stock, there is a lot of room for positive re-ratings and some

additional multiple expansion as well. Continued weakness in the U.S. cereal business

represents the biggest downside risk to our target price.

7 January 2020

Equity Research

Americas | United States

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS,

LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business

with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Previous rating Neutral

Previous target price (12M, US$) 60.00

Price (3 Jan 20, US$) 68.00

52-week price range 69.16 - 52.09

Market cap (US$ m) 23,326.17

Enterprise value (US$ m) 30,884

Research Analysts

Robert Moskow

212 538 3095

robert.moskow@credit-suisse.com

Matthew Parker

212 325 4320

matthew.parker@credit-suisse.com

Jacob Nivasch

212 325 5219

jacob.nivasch@credit-suisse.com

Financial and valuation metrics

Year 12/18A 12/19E 12/20E EPS (CS adj.) (US$) 4.34 3.91 3.97 Prev. EPS (US$) - 3.92 3.87 Revenue (US$ m) 13,546.5 13,528.2 13,546.1 EBITDA (US$ m) 2,395.5 2,272.2 2,262.9 P/OCF (x) 12.9 19.7 12.4 EV/EBITDA (current) 12.8 13.5 13.6 Net debt (US$ m) 8,572 7,557 7,381 ROIC (%) 13.38 12.47 11.81

Number of shares (m) 343.03 IC (current, US$ m) 11,731.00 Net debt (Next Qtr., US$ m) 7,557.5 Dividend (current, US$) 2.28 Net debt/tot eq (Next Qtr.,%) 206.4

Source: Company data, Refinitiv, Credit Suisse estimates

Share price performance

On 03-Jan-2020 the S&P 500 INDEX closed at 3234.85Daily

Jan04, 2019 - Jan03, 2020, 01/04/19 = US$57.3

Quarterly EPS Q1 Q2 Q3 Q4 2018A 1.23 1.14 1.06 0.91 2019E 1.01 0.99 1.03 0.89 2020E - - - -

7 January 2020

Kellogg Company 2

Kellogg Company (K) Analyst: Robert Moskow Price (03 Jan 2020): US$68.0 Target Price: (from 60.00) 78.00 Rating: (from Neutral) Outperform Income Statement 12/18A 12/19E 12/20E

Revenue (US$ m) 13,546.5 13,528.2 13,546.1

EBITDA (US$ m) 2,396 2,272 2,263

Depr. & amort. (516) (521) (526) EBIT (US$) 1,880 1,751 1,737

Net interest exp (287) (286) (259) PBT (US$) 1,824 1,687 1,726

Income taxes (301) (339) (362) Profit after tax 1,523 1,348 1,363

Net profit (US$) 1,513 1,339 1,356

Other NPAT adjustments 0 0 0 Cash Flow 12/18A 12/19E 12/20E

Cash flow from operations 1,536 1,181 1,883

CAPEX (578) (630) (610) Free cashflow to the firm 958 551 1,273

Cash flow from investments (948) (630) (610)

Net share issue(/repurchase) (153) (67) 13 Dividends paid (762) (770) (793) Changes in Net Cash/Debt (238) 1,015 177

Balance Sheet (US$) 12/18A 12/19E 12/20E

Cash & cash equivalents 321 336 512 Account receivables 1,375 1,403 1,543 Total fixed assets 3,731 2,840 2,923 Investment securities - - - Total assets 17,780 17,064 17,639

Total current liabilities 4,529 4,311 4,311

Shareholder equity 2,601 3,103 3,679 Total liabilities and equity 17,780 17,064 17,639

Net debt 8,572 7,557 7,381 Per share 12/18A 12/19E 12/20E

No. of shares (wtd avg) 348 342 342 CS adj. EPS 4.34 3.91 3.97 Prev. EPS (US$) - 3.92 3.87 Dividend (US$) 2.20 2.25 2.32 Free cash flow per share 2.75 1.61 3.72 Earnings 12/18A 12/19E 12/20E

Sales growth (%) 5.4 (0.1) 0.1 EBIT growth (%) 0.0 (6.8) (0.8) Net profit growth (%) 8.0 (11.5) 1.3 EPS growth (%) 8.7 (9.9) 1.3 EBITDA margin (%) 17.7 16.8 16.7 EBIT margin (%) 13.9 12.9 12.8 Pretax margin (%) 13.5 12.5 12.7 Net margin (%) 11.2 9.9 10.0 Valuation 12/18A 12/19E 12/20E

EV/EBITDA (x) 12.8 13.5 13.6 P/E (x) 15.7 17.4 17.1 Returns 12/18A 12/19E 12/20E

ROIC (%) 13.4 12.5 11.8 Gearing 12/18A 12/19E 12/20E

Net debt/equity (%) 271.4 206.4 174.2 Quarterly EPS Q1 Q2 Q3 Q4 2018A 1.23 1.14 1.06 0.91 2019E 1.01 0.99 1.03 0.89 2020E - - - -

Company Background

Kellogg Company is engaged in the manufacture & marketing of ready-

to-eat cereal & convenience foods. It principal products are ready-to-eat

cereals & convenience foods, such as cookies, crackers, toaster pastries,

frozen waffles & veggie foods

Blue/Grey Sky Scenario

Our Blue Sky Scenario (US$) (from 72.00) 90.00

Our Blue Sky scenario of $90/share is based on a 19.8x P/E against our

Blue Sky EPS estimate. This represents an 18% premium to its food

peers. We think a higher valuation echelon among its consumer staple

peers would be merited, if 1) Kellogg's organic growth profile accelerates

beyond its current 2% rate, and 2) margins expand due to benefits from

the higher margin cereal business.

Our Grey Sky Scenario (US$) (from 48.00) 62.00

Our Grey Sky scenario of $62/share is based on a 15.5x P/E against our

Grey Sky EPS estimate. This represents an -8% discount to its packaged

food peers and is historically in-line with its discount to its peers. We think

if organic growth stagnated as cereal remains weak, the company's

multiple would re-rate lower back to its 10-year average discount to its

peers.

Share price performance

On 03-Jan-2020 the S&P 500 INDEX closed at 3234.85

Daily Jan04, 2019 - Jan03, 2020, 01/04/19 = US$57.3

Source: Company data, Refinitiv, Credit Suisse estimates

7 January 2020

Kellogg Company 3

Investment Summary

Strong Organic Revenue Growth

Kellogg’s organic revenue growth rate of 2%+ now exceeds its food peers by a significant

degree. Shifting the mix toward snacks and emerging markets rather than breakfast cereal in

developed markets has provided a structural boost to the portfolio. Kellogg achieved this

growth rate through acquisitions, divestitures, and reinvestment spending behind differentiated

snack brands like Cheez It and Pringles.

North American Cereal Problems Largely Self-Inflicted

Our view is that a good portion of the company’s problems in North American cereal (19% of

sales) are self-inflicted. When consumers began exiting the cereal category and shifting to

higher protein diets for breakfast, Kellogg pulled back on its attempts to defend its health and

wellness credentials and shifted resources into indulgent snacks and emerging markets instead.

R&D spending and marketing support for cereal declined. In 2019, we think the declines

temporarily accelerated when Kellogg pulled back merchandising support while changing its

packaging and ran into supply chain missteps on Honey Snacks and Mini Wheats.

But with consumption trends in the overall U.S. cereal category now stabilizing and Kellogg’s

supply chain disruption now in the rear view mirror, we believe North American Cereal has a

good chance of stabilizing in 2020. We find it encouraging to hear management recognize the

seriousness of the situation and commit to making North American Cereal a bigger priority. In

our view, big brands like Frosted Flakes, Rice Krispies, Mini Wheats, and Special K still

resonate with consumers if given sufficient attention. If the cereal business merely keeps pace

with the current U.S. cereal category growth rate, it would be able to fulfill its role in the Kellogg

portfolio.

Margins Poised for Positive Inflection

Over the past few years, the dilutive impact of acquisitions of faster-growing businesses,

reinvestment spending (especially in single-serve packaging), and sales declines in high-margin

North America cereal have caused Kellogg’s gross margin and operating margin to fall 200 bps

and 500 bps below its food peer averages, respectively.

We expect Kellogg’s margins to improve gradually over the next few years as the dilutive factors

impacting the gross margin begin to reverse and sales growth from investment spending begins

to generate operating leverage. Specifically we expect 40 bps of gross margin expansion in

2020 from the accretive impact of divesting Keebler assets and a 20 bps benefit from stabilizing

the North American cereal business.

Valuation

Our $78 target price for Kellogg is based on an 18.5x P/E (previously 15.3x) against our 2021

EPS estimate. This represents a 10% premium to its food peers. It has traded at a 7%

discount to peers over the past ten years and it is trading in-line with food peers today.

With its organic revenue growth rate now at 2%, we think Kellogg’s stock deserves to be

placed in a higher valuation echelon among its consumer staples peers. In a low cost of capital

environment, the market tends to pay a bigger premium for stocks that have the best visibility

into their long-term cash flows.

Risks

Kellogg’s North American Cereal sales may not stabilize as quickly as we expect. For

example, according to our Nielsen tracking data, U.S. cereal sales still declined in 4Q owing to

continued double-digit declines in Mini Wheats. If sales continue to decline, the dilutive impact

to the company’s margin mix will continue as well.

7 January 2020

Kellogg Company 4

Kellogg’s earnings quality has been weaker than its peers. At only 76% of its adjusted

EPS, Kellogg’s free cash flow conversion has trailed its food peers for the past three years.

We expect free cash flow conversion to improve in 2020 as restructuring expenses related to

Project K diminish and cap ex (particularly for the new go packaging lines) fades back to more

normalized levels. Stronger free cash flow will provide flexibility for the company to return to its

historical pace of share repurchase or make more acquisitions of faster-growth snack

businesses.

We believe consensus estimates for 2020 EPS are too high. In our estimates, we have

taken into account the full impact of dilution from the Keebler divestiture and the likelihood that

Kellogg will reinvest the benefit of its 53rd week into the business. We believe consensus has

underestimated the impact of these factors. However, we think the market will pay more

attention to fundamental organic revenue growth and organic operating income growth as

opposed to EPS when management provides guidance for 2020. We expect organic operating

income growth to accelerate to 3-4% in 2020 compared to flat in 2019.

7 January 2020

Kellogg Company 5

Investment Thesis Details

Strong Organic Revenue Growth

Kellogg is the largest global manufacturer of cereal (about 40% of sales) and the second-

largest global snacks company (50% of sales). Its portfolio of iconic brands includes Special K,

Frosted Flakes, Pringles, Cheez It, Eggo, and RXBar. The Eggo, Morningstar, and Pop Tarts

brands provide additional breadth to its strong position in the U.S. breakfast market.

Shifting the concentration of the portfolio more toward snacks and emerging markets rather

than breakfast cereal in developed markets has boosted Kellogg’s organic growth rate above

2%, which exceeds its food peers by a significant margin.

Figure 1: Kellogg’s Organic Growth Rate Now Exceeds Its U.S.

Food Peers by a Significant Margin

Figure 2: The Turnaround in Kellogg’s North American

Business Is Driving the Company’s Organic Sales Growth

Trends

Source: Company data, Credit Suisse estimates. Food peer average includes CPB,

CAG, GIS, HSY, KHC, MDLZ, SJM, MKC

Source: Nielsen xAOC, Company data, Credit Suisse estimates

0.6

(0.4)

0.4

(0.6)

0.3

2.3 2.4

2.3

(1.0)

(0.5)

-

0.5

1.0

1.5

2.0

2.5

3.0

1Q 18 2Q 18 3Q 18 4Q 18 1Q 19A 2Q 19A 3Q 19E 4Q 19E

Food Average K

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

2Q

19

3Q

19

4Q

19E

NA K Shipment Growth US Nielsen-Consumption Growth

7 January 2020

Kellogg Company 6

Figure 3: In 2015, Cereal in Developed Markets Represented

32% of Kellogg’s Sales

Figure 4: Cereal in Developed Markets in 2020 Will Now

Represent Only 27% of Sales; NA Cereal Is the Only Segment

That Has Declined in a Significant Manner Since 2015

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Differentiated U.S. snack brands like Cheez-It, Pringles, Eggo, Pop Tarts, and Morningstar are

growing at a strong rate. Cheez-It has grown at a double-digit pace this year in the cheese

cracker category by maintaining strong product quality over competition, introducing memorable

marketing programs (especially in college football), and introducing Cheez-It Snap’d baked

snacks, which extended the brand into more frequent and highly incremental “chips-style” usage

occasions. Pringles is up 4% behind effective “flavor stacking” advertising campaigns and

more on-the-go packaging. Pop Tarts is up double-digits this year after launching on-the-go

Pop Tarts Bites.

North America

Cereal, 23%

Internat'l Cerea l

(DMs), 9%

Developed Markets

Snacks, 41%

Developed Markets

Frozen, 12%

Emerging Markets,

14%

North

America Cereal, 19%

Internat'l Cereal (DMs),

8%

Developed Markets

Snacks, 35%

Developed Markets

Frozen, 14%

Emerging Markets, 24%

0% CAGR (ex divestiture)

+11% CAGR with acquisitions

+3%

CAGR

-3% CAGR

-1% CAGR

7 January 2020

Kellogg Company 7

Figure 5: We Estimate That 55% of Kellogg’s Brands in the U.S. Are Growing at a Healthy Rate, Especially Cheez-It, Pringles and

Pop-Tarts. In Contrast, Its Cereal Brands Have Been Declining at a 3% Rate for the Past Three Years

Source: Nielsen xAOC + C through 12/2019. Company data, Credit Suisse estimates

Acquisitions and divestitures have had a profound impact on the company’s growth rate as well.

These transactions include the acquisition of RXBAR in the U.S., the joint venture with Tolaram

in West Africa, and the divestiture of U.S. cookies/fruit snacks/cones. By our math, these

changes boosted the growth profile of Kellogg’s portfolio by 130 bps.

Good 2015 2016 2017 2018

Last 52-

Weeks

% of Total

Sales

3-Yr

CAGR

1-Yr

Growth

Cheez-it 943 991 1,008 1,042 1,185 14% 6% 14%

Pringles 808 821 782 831 859 10% 2% 4%

Pop-Tarts 760 766 738 736 815 10% 2% 11%

Eggo 746 721 749 797 800 10% 4% 1%

Rice Krispie Treats 285 282 292 323 362 4% 9% 12%

Morningstar Farms 286 262 281 305 321 4% 7% 5%

RXBAR 0 4 46 132 142 2% 218% 11%

Bear Naked 73 65 77 79 79 1% 7% 0%

Subtotal 3,900 3,913 3,973 4,244 4,563 55% 5% 8%

Stable 2015 2016 2017 2018

Last 52-

Weeks

% of Total

Sales

3-Yr

CAGR

1-Yr

Growth

Keebler Club 237 243 255 255 256 3% 2% 0%

Subtotal 237 243 255 255 256 3% 2% 0%

Challenged 2015 2016 2017 2018

Last 52-

Weeks

% of Total

Sales

3-Yr

CAGR

1-Yr

Growth

Kellogg RTE Cereal 2,619 2,585 2,452 2,393 2,327 28% -3% -3%

Kashi 309 260 232 206 186 2% -10% -10%

Nutri-Grain 225 219 202 190 194 2% -4% 3%

Keebler Townhouse 220 217 198 185 164 2% -9% -13%

Other Keebler 193 189 169 168 170 2% -4% 2%

Austin 131 122 114 105 101 1% -6% -3%

Other (mostly Special K bars and shakes) 567 424 329 279 214 3% -20% -26%

Special K Pastry Crisps 84 74 54 58 51 1% -12% -12%

Keebler Zesta 57 52 48 46 43 1% -6% -7%

Special K Nourish 19 34 21 22 9 0% -37% -37%

Subtotal 4,423 4,176 3,818 3,652 3,459 42% -6% -6%

Total Company Sales 8,560 8,331 8,046 8,152 8,278 100% 0% 2%

7 January 2020

Kellogg Company 8

Figure 6: By Our Math, Portfolio Changes Have Boosted Kellogg’s Organic Growth

Rate by 130 bps

Source: Company data, Credit Suisse estimates, Nielsen AOCx. Used Nielsen data for 2014-2017 to calculate

growth rate for divested Keebler, fruit snacks business

Kellogg’s $2.2 billion European business has pivoted to a consistent pattern of 2% organic

growth. European cereal has stabilized and is now gaining market share due to effective

marketing behind the Crunchy Nut brand. Pringles is growing at a double-digit pace behind

new flavor introductions, on-the-go pack offerings, and distribution expansion, especially in

Russia.

Figure 7: Kellogg’s EU Cereal Business (about $1.1 Billion in

Sales) Has Rebounded and Is now Growing at 0-1% Pace in

Terms of Retail Sales

Figure 8: Kellogg’s Overall EU Business (about $2.2 Billion in

Sales) Is now Growing at a Consistent 2% Pace ex FX

Source: Nielsen retail consumption data, Credit Suisse Source: Company shipment data, Credit Suisse

Kellogg’s emerging markets businesses now account for about 22% of the company’s sales

and are growing at a high-single-digit rate. This primarily consists of $1.0 billion in Latin

America (Mexico, Brazil primarily) and about $1.8 billion in African, Middle Eastern, and Asian

countries. Acquisitions in Nigeria, Egypt, and South Africa have created a $1 billion business in

Africa with strong operating scale. Management entered these markets to capitalize on the

strong GDP growth and growing middle class in these markets. Its strategy is to reach

consumers in a broad range of income levels through a wide range of price points across cereal,

snacks, noodles, and biscuits. It will address nutrient gaps for breakfast in the lower-income

Prior Mix

Est

Growth

Rate New Mix

Est

Growth

Rate

Kellogg Core 12,400 0.0% 12,400 0.0%

RXBAR 180 15.0%

Tolaram 900 12.0%

Divested Keebler, Fruit 900 -4.0% -

Total Kellogg 13,300 -0.3% 13,480 1.0%

Difference in Growth Rate 1.3%

1.1%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

Kellogg EU Cereal

-0.6%-0.8%

-3.2%

2.6%2.8%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

2015 2016 2017 2018 2019

7 January 2020

Kellogg Company 9

demographic. In Western Africa, Kellogg has 51% ownership of Multipro (a distributor), a 50-

50 joint venture with Tolaram (sells branded cereal and snacks), and 25% ownership of Dufil

(branded noodles manufacturer) through an investment with Tolaram. Management intends to

keep investing for growth in these markets, but we believe margins can go higher over time now

that the company has achieved more scale, especially in Africa.

Figure 9: Kellogg’s $2.9 billion in Sales in Emerging Markets Is Balanced Between

Three Categories

Source: Company data, Credit Suisse. Kellogg September 2019 presentation shows sales through 1H19

North American Cereal Problems Largely Self-Inflicted

North American cereal is the glaring exception to Kellogg’s return to growth over the past two

years, down 5% year-to-date. The company’s indulgent kids’ brands (which are frequently

used for snacking) have done well, but its health and wellness and family brands have

plummeted. Health and wellness brands represent about 44% of Kellogg’s cereal sales, all-

family 33%, and kids 23%.

Our view is that a good portion of the company problems in cereal are self-inflicted. Consumers

have been exiting the cereal category because they are shifting to higher protein diets. Many of

them view cereal as too sugary and carb-heavy to be considered a healthy meal. When

Kellogg’s attempts in the mid 2010’s to defend its brands health and wellness credentials failed

to gain traction, it exacerbated its problems by shifting its resources further into indulgent

snacks instead. R&D spending and marketing support for cereal declined. In comparison,

General Mills has gained market share by creating effective heart-health news for its Cheerios

brand and extending it into new varieties.

Cereal45%

Noodles & Other27%

Snacks

28%

7 January 2020

Kellogg Company 10

Figure 10: In Our View, Kellogg’s Declining R&D Spending Contributed to the Declines

in Its Health and Wellness Cereal Brands (in $M)

Source: Company data, Credit Suisse

Recent tracking data indicates that the worst might be over for the U.S. cereal category. U.S.

cereal sales are now back to flat after years of declines.

Pricing rose modestly in 2019 after the branded leaders raised prices on selected products

and reduced promotional discounting. General Mills management described the

competitive environment as “rational” on its most recent earnings call in December 2019.

Private label sales actually declined -6.1% in 2019 and lost -40 bps of market share

because retailers are directing their own-brand resources into different categories.

Heavy users are sticking with the category while light users have exited.

Kellogg’s missteps, however, have caused it to lag behind its cereal peers. Its recent attempts

to revive its health and wellness credentials were short-lived. In 2018 management said it

would regain momentum in health and wellness by investing in stronger communication around

“gut health” and the benefits of fiber (like in Raisin Bran) and introduce line extensions with

probiotics. But at the start of 2019, management quickly downplayed the size of this

opportunity by saying it only applied to a small portion of its cereal portfolio.

Sales declines then accelerated during the course of the year when it experienced a product

recall on its Honey Smacks brand and pulled back merchandising support during a complicated

pack-size harmonization transition that stretched from 4Q18 to 1Q19. When Kellogg finished

the pack-size transition, it faced supply chain execution problems on Mini Wheats when it tried

to put the support back in place.

7 January 2020

Kellogg Company 11

Figure 11: U.S. Breakfast Cereal Sales Growth Has Stabilized

but Kellogg’s Sales Have Lagged

Figure 12: Kellogg Has Lost 140 bps of Cumulative Market

Share in Cereal Over the Past Three Years (Worth $130M of

Retail Sales)

Source: Nielsen xAOC, Company data, Credit Suisse Source: Nielsen xAOC, Company data, Credit Suisse

Figure 13: Breakfast Cereal Category Pricing Has Been Strong in 2019, but Kellogg’s

Pricing Has Lagged

Source: Nielsen xAOC, Company data, Credit Suisse

Management clearly recognizes the seriousness of the situation. On its last earnings call,

Kellogg CEO Steve Cahillane described U.S. cereal as “not where we want it to be” and a big

priority for 2020. Management says that it will make a bigger investment in new product

introductions and returning merchandising support back to normal levels. In our view, Kellogg

has enough strong brands in its portfolio to merit investment. Restoring credibility in health and

wellness is critical to Kellogg, given that it is essentially the foundation on which the company

was created over 100 years ago. Big brands like Frosted Flakes, Rice Krispies, Mini Wheats,

and Special K still resonate with consumers if given sufficient attention. If the cereal business

merely keeps pace with the current U.S. cereal category growth rate, it will fulfill its role in the

Kellogg portfolio.

Switching Special K’s positioning back to its original weight loss proposition might be a step in

the right direction. Sales only declined farther when the company tried to switch the positioning

-8.0

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Category Kellogg

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Kellogg Share

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Category Pricing Kellogg Pricing

7 January 2020

Kellogg Company 12

to “wholesome nutrition.” But as indicated in a recent New York Times crossword puzzle in

2019, consumers still view it as a “cereal brand with a weight-loss challenge” even though

Special K no longer conducts weight-loss challenge promotions.

Campbell Soup 2019 Case Study

The trajectory of Campbell Soup’s stock in 2019 serves as a good case study of what happens

when a management team communicates a credible plan for revitalizing its most important

category. During the company’s Investor Day in April 2019, CEO Mark Clouse readily admitted

that he “is not the first person to show up (at Campbell) and say ‘wouldn’t it be great if we could

turn around the soup business’. . . clearly this is not a new idea.”

However, he then made a firm commitment to reversing ten years of weak investment spending

in soup and vowed to put $70 million into product and packaging innovation, advertising, and

merchandising support over a three-year period. Retailers responded positively to the company’s

stronger commitment and provided Campbell with more merchandising support. Investors

responded positively because the company alleviated the concern that Campbell Soup’s most

profitable business would decline indefinitely. We think Kellogg stock would react positively if

management communicated a similar strategy for breakfast cereal.

Figure 14: Campbell’s Canned Soup Dollar Sales Trends

Began to Stabilize in Mid-Year 2019 After Incoming CEO Mark

Clouse Allocated More Resources to the Business

Figure 15: Campbell Stock’s P/E Valuation Multiple Has

Expanded Dramatically Since CEO Clouse Promised to Invest

More Consistently in the Soup Business

Source: Nielsen xAOC + C. 12-week rolling basis. Includes RTS and Condensed,

Excludes Broth. Credit Suisse estimates

Source: FactSet forward P/E, Credit Suisse estimates

Margins Poised for Expansion

As seen in the charts below, Kellogg’s gross margin and operating margin have plummeted over

the past few years and are now well below food peer averages. Based on our analysis of

Kellogg’s brands, categories, and peers, we believe Kellogg’s North American Snacks margin

(400 bps lower than Mondelez) and North American Cereal margin (about 400 bps lower than

General Mills) represent the biggest opportunities for improvement.

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%Mark Clouse Becomes CEO

Jan 2019

13.1

19.1

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Mark Clouse Becomes CEO

Jan 2019

7 January 2020

Kellogg Company 13

Figure 16: Kellogg’s Gross Margin Has Fallen 500 bps From Its

Peak and Is Now More Than 200 bps Below Its Food Peer

Average

Figure 17: Kellogg’s EBIT Margin Is Now Almost 500 bps Below

Its Food Peer Average

Source: Company data, Credit Suisse estimates. Group average includes CAG,

CPB, GIS, HSY, KHC, MKC, MDLZ, SJM

Source: Company data, Credit Suisse estimates, Group average includes CAG,

CPB, GIS, HSY, KHC, MKC, MDLZ, SJM

Figure 18: We Estimate that Kellogg’s North American Snacks and Cereal Divisions

Have Operating Margins that Are 400-500 bps Below Their Closest Peers

Source: Company data, Credit Suisse estimates

Management breaks down the factors driving its recent gross margin declines into three

buckets: (i) mechanical, (ii) growth-related and (iii) on-going. We expect 40 bps of gross

margin expansion in 2020 from improving trends in all three of these factors:

36.9%

37.9%37.5%

36.3% 36.1%

39.1% 39.2%

38.0%

35.6%

33.9%

31.0%

32.0%

33.0%

34.0%

35.0%

36.0%

37.0%

38.0%

39.0%

40.0%

2015 2016 2017 2018 2019E

Group K

17.3%

19.1% 19.2%18.3% 17.9%

14.3%15.4%

14.7%13.9%

13.1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2015 2016 2017 2018 2019E

Group K

16%

20%

18%

23%

10%

12%

14%

16%

18%

20%

22%

24%

Kellogg NorthAmerica Snacks

(CS estimate)

Mondelez NorthAmerica

Kellogg NorthAmerica Cereal(CS estimate)

General MillsNorth America

Division

7 January 2020

Kellogg Company 14

Figure 19: Headwinds to Kellogg’s Gross Margin Are Beginning to Moderate

Source: Company data, Credit Suisse

“Mechanical Impact.” We expect a positive swing in the “mechanical” bucket as Kellogg

fully laps the acquisition of its Tolaram business in Africa and exits its Keebler business. In

3Q, the divestiture of Keebler provided a “mechanical” benefit to Kellogg’s gross margin of

about 20 bps. This will expand to about 30 bps in 4Q because it will have three months of

impact instead of two. We expect another 20 bps of benefit in 2020 as this impact flows

through for an additional seven months in 2020.

“Growth-Related Impact.” The company cited about 50 bps of growth-related dilution

from the negative mix shift away from higher-margin cereal to lower-margin snacks and

emerging markets. By our math, about 20 bps of the headwind will dissipate in 2020 if the

company stabilizes its North American cereal business. The growth-related bucket also

includes headwinds from the investments and costs related to food and on-the-go

packaging. Management said that this headwind will become less severe during 4Q19 and

into 2020 as it fully installs new packaging lines and begins repatriating volume from third-

party co-packers in North America. It also opened a local production line for Pringles in

Brazil.

Figure 20: We Estimate that North America Cereal’s 5% Sales Decline in 2019 Hurt

Kellogg’s Gross Margin by 20 bps

Source: Company data, Credit Suisse estimates

“Ongoing Factors.” The company cited about 50 bps of dilution from higher input cost

inflation, due to difficult comparisons to favorable hedges in the prior year. Management

expects this bucket to improve sequentially in 4Q19, but not quite as quickly as it

previously expected. In 2020, we expect the dilution to moderate as the comparisons to

prior year hedges normalize and revenue growth management initiatives continue to gain

traction.

Sales in Prior Year (ex FX) Current Sales

Mix Sales ($M) GM Mix Sales ($M) GM

Rest of Kellogg 79.6% 10,550 31.3% 81.0% 10,935 31.3%

NA Cereal 20.4% 2,700 47.0% 19.0% 2,565 47.0%

Total 13,250 34.5% 13,500 34.3%

Estimated Headwind to Gross Margin from NA Cereal Sales Declines -0.2%

7 January 2020

Kellogg Company 15

Cash Flow Conversion Will Improve

Kellogg’s free cash flow conversion ratio has trailed its peer group over the past three years.

We expect two of the factors driving this dynamic to improve in 2020. First, Kellogg’s capital

expenditure is likely to fade back to more normalized levels now that it has come to the end of

its investment phase in new packaging lines. Second, we expect negligible restructuring

charges now that the company has come to the end of its multi-year $1.4 billion Project K

restructuring program.

With the company’s Net Debt to EBITDA ratio now back to a very conservative level of 3.3x, we

believe company will allocate more cash flow to share repurchases in 2020 than the $200M it

spent in 2019.

Figure 21: Kellogg, Kraft Heinz, and Mondelez have very low free cash flow per share in relation to their EPS; Campbell has very

high free cash flow per share. For SJM, the major difference between FCF/share and EPS relates to Smucker’s ongoing practice

of excluding $2.11 of amortization expense when it presents adjusted EPS in its results

Source: Company data, Credit Suisse estimates. Kellogg and Kraft Heinz’s free cash flow includes collections from securitized trade receivables 2016-2018 before their

accounting restatements. Analysis includes actual results through FY 19 mid-year companies and FY 18 for calendar year

.

Company EPS 3 Yr FCF/Share 3 Yr

FCF per Share/Adj. EPS 3

Year EPS 1 Yr

FCF/Share 1

Yr

FCF per

Share/Adj. EPS 1

Year

CPB 8.52$ 9.43$ 111% 2.61$ 3.35$ 129%

GIS 9.41$ 10.27$ 109% 3.22$ 3.75$ 116%

HSY 14.38$ 9.19$ 64% 5.36$ 6.05$ 113%

MKC 13.02$ 13.79$ 106% 4.98$ 4.90$ 99%

CAG 5.86$ 5.79$ 99% 2.01$ 1.90$ 94%

SJM 23.97$ 22.19$ 93% 8.29$ 6.85$ 83%

MDLZ 6.41$ 3.98$ 62% 2.43$ 1.92$ 79%

KHC 10.32$ 5.15$ 50% 3.52$ 2.50$ 71%

K 12.07$ 9.19$ 76% 4.33$ 2.75$ 64%

7 January 2020

Kellogg Company 16

Figure 22: Kellogg’s Capital Expenditures as a Percent of Sales Have Increased

Significantly Due to Investments in New Packaging Lines and Emerging Markets. We

Expect the Rate of Spending to Fade Back to More Normalized Levels in 2020

Source: Company data, Credit Suisse estimates

Figure 23: We Expect Kellogg’s Free Cash Flow to Improve in

2020 Compared to 2019 (in $M)

Figure 24: Kellogg’s Net Debt to EBITDA Ratio Is Improving as

a Result of Proceeds from the Keebler Assets Divestiture

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Valuation

Our target price for Kellogg is based on an 18.5x P/E (previously 15.3x) against our 2021 EPS

estimate, which represents a 10% premium to its food peers compared to its in-line multiple

today and its 7% discount historically. We believe the premium is merited because its 2%

organic growth profile is stronger than its packaged food peers.

4.1%

3.9% 3.9%

4.3%

4.7%

4.5%

4.2%

3.4%

3.6%

3.8%

4.0%

4.2%

4.4%

4.6%

4.8%

2015A 2016A 2017A 2018A 2019E 2020E 2021E

2019E 2020E

Adjusted Net Income 1,330 1,360

D&A 520 525

Cap Ex (630) (610)

Non-Cash Income (250) (250)

Working Capital Changes (100) (100)

Capital Gains Tax on Keebler Sale (330) -

Restructurig Charges (40)

Free Cash Flow 500 925

Free Cash Flow ex Capital Gains Tax 830 925

Dividends (770) (793)

Remaining Cash Available 61 132

3.0 3.0

3.5 3.6

3.3 3.3

2.5

2.7

2.9

3.1

3.3

3.5

3.7

2015A 2016A 2017A 2018A 2019E 2020E

7 January 2020

Kellogg Company 17

Figure 25: We Believe Kellogg’s Multiple Will Re-Rate Higher to above the Packaged

Food Group’s Average of 16.8x as Investors Begin to Appreciate Kellogg’s above-

Average Organic Growth Profile

Source: FactSet, Company data, Credit Suisse

Blue Sky: Our Blue Sky projects a price of $90/share and is based on a 19.8x P/E against

our Blue Sky EPS estimate. This represents an 18% premium to its food peers. We think a

higher valuation echelon among its consumer staples peers would be merited, if 1) Kellogg’s

organic growth profile accelerates beyond its current 2% growth profile, and 2) margins expand

due to benefits from the higher margin cereal margin business.

Grey Sky: Our Grey Sky projects a price of $62/share and is based on a 15.5x P/E against

our Grey Sky EPS estimate. This represents an -8% discount to its packaged food peers and is

historically in-line with its discount to its peers. We think if organic growth stagnated as cereal

sales continue to decline, the company’s multiple would re-rate lower back to its 10-year

average discount to its peers.

7 January 2020

Kellogg Company 18

Figure 26: Our Blue Sky Scenario Assumes that Organic Growth Accelerates and

Margins Expand, while Our Grey Sky Scenario Assumes that Organic Growth

Stagnates and Margins Contract

Source: Company data, Credit Suisse estimates

Figure 27: We Believe that Kellogg’s P/E Multiple Can Re-Rate Toward Campbell’s and Hershey’s if Organic Growth Stays at

2%+. There Is a High Correlation in the Staples Sector Between P/E Multiples and Organic Growth Rates

Source: Company data, Credit Suisse estimates. Organic growth rates are for the companies’ current fiscal years. Used FY 20 estimates for mid-year fiscal year

companies CPB, CLX, GIS, PG, SJM

P/E 19.8x P/E 18.5x P/E 15.5x

EPS $4.53 EPS $4.21 EPS $4.02

TP $90 TP $78 TP $62

Assumptions: Assumptions: Assumptions:

Organic Growth 3.0% Organic Growth 2.0% Organic Growth 0.0%

EBIT Margin 13.9% EBIT Margin 13.1% EBIT Margin 12.7%

FY 21 FY21 FY21

Sales $13,953 Sales $13,817 Sales $13,546

EBIT $1,939 EBIT $1,813 EBIT $1,720

Tax Rate 21% Tax Rate 21% Tax Rate 21%

Net Income $1,532 Net Income $1,422 Net Income $1,359

Shares 338 Shares 338 Shares 338

EPS $4.53 EPS $4.21 EPS $4.02

Blue Sky Base Case Grey Sky

BGS

CPB

CHD

CLX KO

CL

CAG

BN-FR

GIS

HSY

K

KMB

KHC

MKC

MDLZ

NESN-CHPEP

PG

SJM

UL

R² = 0.6101

10.0

15.0

20.0

25.0

30.0

35.0

-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

Forw

ard

P/E

Mu

ltip

le

Current FY Organic Growth Rate Estimate

7 January 2020

Kellogg Company 19

2020 Estimates

Our EPS estimate of $3.97 for Kellogg in 2020 is below consensus mainly because of

technical differences. In our estimates, we have taken into account the full impact of dilution

from the Keebler divestiture and the likelihood that Kellogg will reinvest the benefit of its 53rd

week back into the business. We believe consensus has underestimated the impact of these

factors.

But we think the market will pay more attention to fundamental organic revenue growth and

organic operating income growth as opposed to EPS when management provides guidance for

2020. On these metrics, we expect management to guide an improvement in core operating

income growth to 3-4% (up from flat in 2019) and 1-2% organic growth rate (in-line with

2020). We expect the stock to react favorably if guidance is in this direction.

Figure 28: While Our 4Q19 EPS Estimate Is Above The Street’s Estimate, We Are

Below The Street’s FY20 EPS Estimate

Source: FactSet, Company data, Credit Suisse estimates

K

2019Q4 Results CS Estimate Consensus Difference (CS - Consensus)

Sales ($) $3,173 $3,171 $2

Sales Growth (%) -4.3% -4.4% 0.1%

Gross Profit ($) $1,079 $1,079 $0

Gross Margin (%) 34.0% 34.0% 0.0%

EBITDA ($) $552 $531 $21

EBITDA Margin (%) 17.4% 16.8% 0.6%

EBIT ($) $391 $403 -$12

EBIT Margin (%) 12.3% 12.7% -0.4%

Tax Rate 21.0% 20.7% 0.3%

Adjusted EPS $0.89 $0.86 $0.03

FY19 CS Estimate Consensus Difference (CS - Consensus)

Sales $13,528 $13,526 $2

Sales Growth (%) -0.1% -0.2% 0.0%

Gross Profit ($) $4,559 $4,542 $17

Gross Margin (%) 33.7% 33.6% 0.1%

EBITDA ($) $2,272 $2,267 $5

EBITDA Margin (%) 16.8% 16.8% 0.0%

EBIT ($) $1,751 $1,761 -$10

EBIT Margin (%) 12.9% 13.0% -0.1%

Tax Rate (%) 20.1% 19.7% 0.4%

Adjusted EPS $3.91 $3.89 $0.03

FY20 CS Estimate Consensus Difference (CS - Consensus)

Sales $13,546 $13,306 $240

Sales Growth (%) 0.1% -1.6% 1.8%

Gross Profit ($) $4,623 $4,539 $85

Gross Margin (%) 34.1% 34.1% 0.0%

EBITDA ($) $2,263 $2,311 -$48

EBITDA Margin (%) 16.7% 17.4% -0.7%

EBIT ($) $1,737 $1,791 -$55

EBIT Margin (%) 12.8% 13.5% -0.6%

Tax Rate (%) 21.0% 20.7% 0.3%

Adjusted EPS $3.97 $4.02 -$0.06

7 January 2020

Kellogg Company 20

Figure 29: Our 2020 EPS Estimate Is Slightly Below Consensus Due to Technical

Differences

Source: Company data, Credit Suisse estimates

2019 Guidance

Net sales growth of +1-2% on both a currency-neutral and organic basis.

Currency-neutral adjusted operating profit decline in the range of 4% to 5%, primarily

reflecting the impact of the divestiture. Ex the divestiture and currency, management

expects flat operating profit.

Currency-neutral adjusted EPS is expected to decline by approximately 10% primarily

reflecting the lapping of year-ago tax benefits, lower “other income” related to beginning-

of-year pension assets, and the impact of the divestiture.

Free cash flow is expected to be approximately $0.5 billion for the year, primarily reflecting

the impact of the Keebler divestiture.

CS 2019 EPS $3.91

Operating

Income Impact

Loss of Keebler Profits (7 mos) (0.24)$ 82$

Core Operating Profit Growth 0.19$ 64

Lower Interest Expense 0.08$ 27

Higher "Other Income" 0.08$ 26

Higher Tax Rate (0.05)$

CS 2020 EPS $3.97

Assumptions

"Core" Operating Income Growth 3.8%

Higher Tax Rate -1%

FX impact 0

Shares 342

Full Year Keebler O.I. Estimate 141$

5 Months Keebler O.I. Estimate 59$

7 J

anuary 2

020

Kello

gg C

om

pany

21

Figure 30: Quarterly Income Statement

Source: Company data, Credit Suisse estimates

2018A 2019E 2020E

($MM, except per share)

MAR-

Q1A

JUN-

Q2A

SEP-

Q3A

DEC-

Q4A 2018A

MAR-

Q1A

JUN-

Q2A

SEP-

Q3A

DEC-

Q4E 2019E

MAR-

Q1E

JUN-

Q2E

SEP-

Q3E

DEC-

Q4E 2020E

Net sales 3,401 3,360 3,469 3,317 13,547 3,522 3,461 3,372 3,173 13,528 3,358 3,319 3,389 3,480 13,546

y/y growth % 4.7% 5.8% 6.9% 4.6% 5.4% 3.6% 3.0% (2.8%) (4.3%) (0.1%) (4.6%) (4.1%) 0.5% 9.7% 0.1%

Cost of sales 2,166 2,157 2,234 2,169 8,726 2,360 2,304 2,211 2,094 8,969 2,237 2,197 2,210 2,280 8,923

Gross income 1,235 1,203 1,235 1,148 4,821 1,162 1,157 1,161 1,079 4,559 1,122 1,122 1,179 1,201 4,623

Margin % 36.3% 35.8% 35.6% 34.6% 35.6% 33.0% 33.4% 34.4% 34.0% 33.7% 33.4% 33.8% 34.8% 34.5% 34.1%

SG&A (ex one-time) 735 727 764 715 2,941 697 705 718 688 2,808 683 694 730 780 2,887

% of sales 21.6% 21.6% 22.0% 21.6% 21.7% 19.8% 20.4% 21.3% 21.7% 20.8% 20.3% 20.9% 21.5% 22.4% 21.3%

Operating income 500 476 471 433 1,880 465 452 443 391 1,751 439 428 450 420 1,737

y/y growth % 7.5% (0.4%) (4.0%) (2.9%) 0.0% (7.0%) (5.0%) (5.9%) (9.7%) (6.8%) (5.7%) (5.3%) 1.5% 7.5% (0.8%)

Margin % 14.7% 14.2% 13.6% 13.1% 13.9% 13.2% 13.1% 13.1% 12.3% 12.9% 13.1% 12.9% 13.3% 12.1% 12.8%

Other income (expense) 61 67 64 39 231 43 56 63 60 222 62 62 62 62 248

Interest expense (69) (72) (72) (74) (287) (74) (75) (72) (65) (286) (64) (65) (65) (65) (259)

Pretax income 492 471 463 398 1,824 434 433 434 386 1,687 437 425 447 417 1,726

Income tax 64 70 89 78 301 91 89 78 81 339 92 89 94 88 362

Tax rate 13.0% 14.9% 19.2% 19.6% 16.5% 21.0% 20.6% 18.0% 21.0% 20.1% 21.0% 21.0% 21.0% 21.0% 21.0%

Earnings/(loss) from JV 1 (2) (2) 0 (3) (2) (1) (2) 1 (4) (2) 1 1 1 1

Minority Interest (3) (2) (2) (7) 4 (6) (1) (2) (5) 4 (4) (4) (4) (8)

Net income 429 396 370 318 1,513 345 337 353 304 1,339 347 333 350 327 1,356

Diluted shares 348 348 349 348 348 343 341 342 342 342 342 342 342 342 342

Recurring EPS 1.23 1.14 1.06 0.91 4.34 1.01 0.99 1.03 0.89 3.91 1.01 0.97 1.02 0.96 3.97

y/y growth % 15.1% 17.5% 3.2% (1.8%) 8.7% (18.4%) (13.2%) (2.5%) (2.7%) (9.9%) 0.9% (1.6%) (0.9%) 7.5% 1.3%

Sales breakdown

Volume 2.9 2.8 1.9 (0.2) 1.9 (0.5) (1.0) (0.7) 0.1 (0.5) 0.3 0.3 0.3 0.3 0.3

Price/Mix (2.3) (3.2) (1.5) (0.4) (1.9) 0.8 3.3 3.1 2.5 2.4 1.9 2.0 2.0 2.0 2.0

Currency 2.5 (0.4) (2.5) (3.0) (0.8) (3.7) (1.9) (1.3) (0.7) (1.9) (0.4) (0.2) 0.4 0.2 (0.0)

Acquisitions 1.6 6.7 8.9 8.2 6.3 6.9 2.6 (3.9) (6.2) (0.1) (6.5) (6.2) (2.2) 0.0 (3.8)

53rd week 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 7.2 1.7

Total 4.7 5.9 6.8 4.6 5.5 3.5 3.0 (2.8) (4.3) (0.1) (4.6) (4.1) 0.5 9.7 0.1

Organic Growth Ex Venezuela 0.6 (0.4) 0.4 (0.6) 0.0 0.3 2.3 2.4 2.5 1.9 2.2 2.3 2.4 2.3 2.3

7 J

anuary 2

020

Kello

gg C

om

pany

22

Figure 31: Segment Information

Source: Company data, Credit Suisse estimates

2018A 2019E 2020E 2019E

($MM, except per share) MAR JUN SEP DEC 2018A MAR JUN SEP DEC 2019E MAR JUN SEP DEC 2020E

Sales

North America 2,330 2,127 2,188 2,043 8,688 2,289 2,148 2,059 1,865 8,361 2,086 1,959 2,006 2,014 8,065

Morning Foods 691 643 683 626 2,643 -5.0% -5.0% -4.8%

Snacks 762 745 737 713 2,957 0.0% 4.0% 5.2%

Specialty 398 277 285 275 1,235

Frozen 479 462 483 429 1,853 -1.0% 3.0% 0.6%

Europe 520 559 531 591 2,201 497 541 527 587 2,152 501 550 551 644 2,246

Latin America 232 239 239 237 947 225 239 244 244 952 224 239 248 268 978

AMEA 319 435 511 446 1,711 511 533 542 477 2,063 548 570 585 554 2,257

Total 3,401 3,360 3,469 3,317 13,547 3,522 3,461 3,372 3,173 13,528 3,358 3,319 3,389 3,480 13,546

Sales Growth

North America 1.8% (0.8% ) 1.2% (1.7% ) 0.2% (1.8% ) 1.0% (5.9% ) (8.7% ) (3.8% ) (8.9% ) (8.8% ) (2.6% ) 8.0% (3.5% )

Europe 1.4% (1.4% ) (11.4% ) (3.4% ) (3.9% ) (4.4% ) (3.2% ) (0.8% ) (0.7% ) (2.2% ) 0.8% 1.7% 4.5% 9.7% 4.4%

Latin America 5.5% 3.2% 1.7% (7.8% ) 0.4% (3.0% ) (0.2% ) 2.1% 3.1% 0.5% (0.6% ) 0.2% 1.5% 9.6% 2.7%

AMEA 40.5% 87.5% 105.2% 87.4% 80.9% 60.2% 22.5% 6.1% 7.0% 20.6% 7.2% 7.0% 8.0% 16.1% 9.4%

Total 4.7% 5.8% 6.9% 4.1% 5.4% 3.6% 3.0% (2.8% ) (4.3% ) (0.1% ) (4.6% ) (4.1% ) 0.5% 9.7% 0.1%

Operating Earnings

North America 409 397 374 327 1,507 395 374 351 295 1,415 365 345 355 315 1,380

Europe 67 74 77 80 298 67 72 69 75 283 70 75 72 80 297

Latin America 24 22 31 40 117 22 22 28 37 109 22 22 31 39 114

AMEA 41 41 48 44 174 48 49 56 47 200 50 50 56 49 205

Mark for Pension accounting

Corporate (41) (58) (59) (58) (216) (68) (64) (61) (63) (256) (68) (64) (64) (63) (259)

Total Reported Operating Profit 500 476 471 433 1,880 465 453 443 391 1,752 439 428 450 420 1,737

M2M Adjustment 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Adjusted Operating Profit 500 476 471 433 1,880 465 453 443 391 1,752 439 428 450 420 1,737

Check 500 476 471 433 1,880 465 452 443 391 1,751 439 428 450 420 1,737

$1.23 $1.14 $1.06 $0.91 $4.34 $1.01 $0.99 $1.03 $0.89 $3.91 $1.01 $0.97 $1.02 $0.96 $3.97

Operating Earnings Growth

North America 3.8% (3.4% ) (8.8% ) (13.0% ) (5.3% ) (3.4% ) (5.8% ) (6.1% ) (9.8% ) (6.1% ) (7.6% ) (7.8% ) 1.1% 6.8% (2.5% )

Europe (6.9% ) (6.3% ) (8.3% ) (1.2% ) (5.7% ) 0.0% (2.7% ) (10.4% ) (6.3% ) (5.0% ) 4.0% 4.0% 4.0% 7.0% 4.8%

Latin America (29.4% ) (24.1% ) 24.0% 42.9% 0.9% (8.3% ) 0.0% (9.7% ) (7.5% ) (6.8% ) 0.0% 0.0% 10.7% 5.4% 4.6%

AMEA 78.3% 95.2% 92.0% 69.2% 83.2% 17.1% 19.5% 16.7% 6.8% 14.9% 4.2% 2.0% 0.0% 4.3% 2.5%

Total 7.5% (0.4% ) (3.9% ) (2.9% ) 0.1% (7.0% ) (4.8% ) (5.9% ) (9.7% ) (6.8% ) (5.7% ) (5.5% ) 1.5% 7.5% (0.9% )

Operating Margins

North America 17.6% 18.7% 17.1% 16.0% 17.3% 17.3% 17.4% 17.0% 15.8% 16.9% 17.5% 17.6% 17.7% 15.6% 17.1%

Morning Foods 22.0% 23.0% 19.2% 15.5% 20.0%

Snacks 14.2% 15.3% 16.7% 18.5% 16.1%

Specialty 20.1% 21.7% 22.1% 18.9% 20.6%

Other 14.4% 16.2% 11.8% 10.7% 13.3%

Europe 12.9% 13.2% 14.5% 13.5% 13.5% 13.5% 13.3% 13.1% 12.8% 13.2% 13.9% 13.6% 13.0% 12.5% 13.2%

Latin America 10.3% 9.2% 13.0% 16.9% 12.3% 9.8% 9.2% 11.5% 15.1% 11.4% 9.8% 9.2% 12.5% 14.6% 11.7%

AMEA 12.9% 9.4% 9.4% 9.9% 10.2% 9.4% 9.2% 10.3% 9.8% 9.7% 9.1% 8.8% 9.6% 8.8% 9.1%

Total 14.7% 14.2% 13.6% 13.1% 13.9% 13.2% 13.1% 13.1% 12.3% 13.0% 13.1% 12.9% 13.3% 12.1% 12.8%

Total Adjusted Operating Profit 14.7% 14.2% 13.6% 13.1% 13.9% 13.2% 13.1% 13.1% 12.3% 13.0% 13.1% 12.9% 13.3% 12.1% 12.8%

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Figure 32: Segment Information

Source: Company data, Credit Suisse estimates

2018A 2019E 2020E

Volume MAR JUN SEP DEC 2018A MAR JUN SEP DEC 2019E MAR JUN SEP DEC 2020E

North America 1.5% (0.3% ) (0.5% ) (1.6% ) (0.2% ) (1.7% ) (1.8% ) (2.5% ) (0.7% ) (1.7% ) 0.0% 0.0% 0.0% 0.0% 0.0%

Europe 6.1% 6.2% 4.0% 2.2% 4.6% 2.8% 1.3% 2.1% 1.0% 1.8% 1.0% 1.0% 1.0% 1.0% 1.0%

Latin America 2.8% 13.1% 10.9% (0.2% ) 6.7% 0.8% (2.1% ) 2.1% 1.0% 0.5% 0.0% 0.0% 0.0% 0.0% 0.0%

AMEA 7.0% 4.4% 2.9% 4.5% 4.5% 0.7% 0.0% (0.1% ) 2.0% 0.6% 1.0% 1.0% 1.0% 1.0% 1.0%

Total 2.9% 2.8% 1.9% (0.2% ) 1.9% (0.5% ) (1.0% ) (0.7% ) 0.1% (0.5% ) 0.3% 0.3% 0.3% 0.3% 0.3%

53rd Week

North America 0.0% 0.0% 0.0% 7.0% 1.7%

Europe 0.0% 0.0% 0.0% 7.0% 2.0%

Latin America 0.0% 0.0% 0.0% 7.0% 1.9%

Asia Pacific 0.0% 0.0% 0.0% 8.0% 2.0%

Total 0.0% 0.0% 0.0% 7.2% 1.8%

Price/Mix

North America (2.1% ) (3.3% ) (0.8% ) (0.6% ) (1.7% ) 0.2% 2.9% 2.7% 2.0% 1.9% 1.0% 1.0% 1.0% 1.0% 1.0%

Europe (3.9% ) (0.3% ) (2.7% ) (1.2% ) (2.0% ) 1.6% 0.5% 2.1% 0.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%

Latin America 0.5% (3.9% ) (0.4% ) 4.8% 0.2% 3.5% 4.4% 3.8% 4.0% 3.9% 2.0% 2.0% 2.0% 2.0% 2.0%

AMEA (0.8% ) 0.6% 0.7% 0.8% 0.4% 3.4% 8.5% 7.7% 7.0% 6.7% 7.0% 7.0% 7.0% 7.0% 7.0%

Total (2.3% ) (3.2% ) (1.5% ) (0.4% ) (1.9% ) 0.8% 3.3% 3.1% 2.5% 2.4% 1.9% 2.0% 2.0% 2.0% 2.0%

F/X

North America 0.2% 0.1% (0.3% ) (0.3% ) (0.1% ) (0.3% ) (0.1% ) (0.1% ) 0.0% (0.1% ) 0.1% 0.2% 0.0% 0.0% 0.1%

Europe 12.2% 3.6% (1.8% ) (4.4% ) 2.2% (8.8% ) (5.0% ) (4.9% ) (1.7% ) (5.0% ) (1.2% ) (0.3% ) 2.5% 0.7% 0.5%

Latin America 2.0% (5.7% ) (9.1% ) (6.5% ) (4.9% ) (7.3% ) (2.1% ) (3.4% ) (1.9% ) (3.6% ) (2.6% ) (1.8% ) (0.5% ) 0.6% (1.0% )

AMEA 4.8% (10.1% ) (17.3% ) (19.2% ) (11.8% ) (17.1% ) (5.8% ) (1.5% ) (2.0% ) (6.6% ) (0.8% ) (1.0% ) (0.0% ) 0.1% (0.4% )

Total 2.5% (0.4% ) (2.5% ) (3.0% ) (0.8% ) (3.7% ) (1.9% ) (1.3% ) (0.7% ) (1.9% ) (0.4% ) (0.2% ) 0.4% 0.2% 0.0%

Acquisitions

North America 2.2% 2.7% 2.7% 0.9% 2.1% 0.0% 0.0% (6.0% ) (10.0% ) (3.7% ) (10.0% ) (10.0% ) (3.6% ) 0.0% (5.9% )

Europe 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Latin America 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% (0.8% ) 0.0% (0.2% ) 0.0% 0.0% 0.0% 0.0% 0.0%

AMEA 0.0% 65.9% 92.7% 101.3% 66.1% 73.4% 19.9% 0.0% 0.0% 23.3% 0.0% 0.0% 0.0% 0.0% 0.0%

Total 1.6% 6.7% 8.9% 8.2% 6.3% 6.9% 2.6% (3.9% ) (6.2% ) 0.0% (6.5% ) (6.2% ) (2.2% ) 0.0% (3.7% )

Total

North America 1.8% (0.8% ) 1.1% (1.6% ) 0.2% (1.8% ) 1.0% (5.9% ) (8.7% ) (3.6% ) (8.9% ) (8.8% ) (2.6% ) 8.0% (3.1% )

Europe 14.4% 9.5% (0.5% ) (3.4% ) 4.8% (4.4% ) (3.2% ) (0.7% ) (0.7% ) (2.2% ) 0.8% 1.7% 4.5% 9.7% 4.5%

Latin America 5.3% 3.5% 1.4% (1.9% ) 2.1% (3.0% ) 0.2% 1.7% 3.1% 0.6% (0.6% ) 0.2% 1.5% 9.6% 2.9%

AMEA 11.0% 60.8% 79.0% 87.4% 63.9% 60.4% 22.6% 6.1% 7.0% 24.0% 7.2% 7.0% 8.0% 16.1% 9.5%

Total 4.7% 5.9% 6.8% 4.7% 5.5% 3.5% 3.0% (2.8% ) (4.3% ) (0.0% ) (4.6% ) (4.1% ) 0.5% 9.7% 0.5%

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Figure 33: Value Drivers

Source: Company data, Credit Suisse estimates

2018A 2019E 2020E

MAR-Q1A JUN-Q2A SEP-Q3A DEC-Q4A 2018A MAR-Q1A JUN-Q2A SEP-Q3A DEC-Q4E 2019E MAR-Q1E JUN-Q2E SEP-Q3E DEC-Q4E 2020E

Net Income 444 599 383 (82) 1,344 285 292 248 514 1,339 347 333 350 327 1,356

Cash 370 257 309 321 321 272 340 453 336 336 380 424 468 512 512

Inventory 1,214 1,291 1,319 1,330 1,330 1,319 1,234 1,200 1,463 1,463 1,507 1,551 1,595 1,639 1,639

A/R 1,601 1,530 1,612 1,375 1,375 1,633 1,643 1,643 1,403 1,403 1,438 1,473 1,508 1,543 1,543

A/P 2,230 2,306 2,367 2,427 2,427 2,370 2,401 2,338 2,209 2,209 2,209 2,209 2,209 2,209 2,209

Working Capital 585 515 564 278 278 582 476 505 657 657 736 815 894 973 973

Capital Expenditures (132) (138) (119) (189) (578) (148) (146) (142) (194) (630) (152) (152) (152) (152) (610)

Depreciation + Amortization 122 112 140 142 516 124 119 117 161 521 132 132 132 132 526

Intangibles 8,164 9,463 9,427 9,411 9,411 9,403 8,458 8,414 9,411 9,411 9,411 9,411 9,411 9,411 9,411

Total Assets 16,702 17,901 18,114 17,780 17,780 18,465 18,669 17,499 17,064 17,064 17,208 17,352 17,496 17,639 17,639

Total Current Liabilities 4,515 3,966 4,030 4,529 4,529 4,978 4,989 4,389 4,311 4,311 4,311 4,311 4,311 4,311 4,311

Total Liabilities 14,148 14,497 14,499 14,621 14,621 15,368 15,457 14,211 13,403 13,403 4,311 4,311 4,311 4,311 13,403

Shareholder's Equity 2,538 2,838 3,048 2,601 2,601 2,533 2,650 2,727 3,103 3,103 3,247 3,391 3,535 3,679 3,679

Current Debt 408 331 208 686 686 1,114 1,076 191 686 686 686 686 686 686 686

Total Debt 8,289 9,068 8,923 8,893 8,893 9,297 9,338 7,874 7,893 7,893 7,893 686 7,893 7,893 7,893

Net Debt 7,919 8,811 8,614 8,572 8,572 9,025 8,998 7,421 7,557 7,557 7,513 262 7,425 7,381 7,381

Invested Capital 12,225 14,009 13,983 13,616 13,616 14,329 14,416 12,848 13,104 13,104 13,204 13,303 13,403 13,503 13,503

EBIT 500 476 471 433 1,880 465 452 443 391 1,751 439 428 450 420 1,737

NOPAT 435 405 380 348 1,569 368 359 363 309 1,399 347 338 355 332 1,372

ROIC 14.2% 11.6% 10.9% 10.2% 11.5% 10.3% 10.0% 11.3% 9.4% 10.7% 10.5% 10.2% 10.6% 9.8% 10.2%

EBITDA 622 588 611 575 2,396 589 571 560 552 2,272 570 559 581 552 2,263

Operating Cash Flow 228 219 377 400 1,536 70 450 434 227 1,181 392 392 392 392 1,567

Free Cash Flow 96 81 258 211 958 (78) 304 292 33 551 239 239 239 239 957

Divestitures/(Acquisitions) 0 (416) 0 0 (416) 0 1,324 0 8 1,332 0 0 0 0 0

Share Repurchase 0 (50) (70) (200) (320) (220) 0 0 0 (220) (35) (35) (35) (35) (140)

Share Issuances 50 20 90 7 167 7 5 28 113 153 38 38 38 38 153

Gross Debt Incr (Reduce) 360 (1,000) 0

Dividends (187) (187) (194) (194) (762) (192) (188) (194) (196) (770) (198) (198) (198) (198) (793)

Dividends/Share $0.54 $0.54 $0.56 $0.56 $2.20 $0.56 $0.56 $0.56 $0.57 $2.25 $0.57 $0.57 $0.59 $0.59 $2.32

Debt/EBITDA 3.6 3.3 3.3

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Figure 34: Annual Income Statement

Source: Company data, Credit Suisse estimates

($MM, except per share) 2014A 2015A 2016A 2017A 2018A 2019E 2020E 2021E 2022E 2023E

Net sales 14,580 13,528 12,983 12,854 13,547 13,528 13,546 13,817 14,024 14,235

y/y growth % (1.4%) (7.2%) (4.0%) (1.0%) 5.4% (0.1%) 0.1% 2.0% 1.5% 1.5%

Cost of sales 8,906 8,235 7,891 7,961 8,726 8,969 8,923 9,051 9,186 9,324

COGS % 61.1% 60.9% 60.8% 61.9% 64.4% 66.3% 65.9% 65.5% 65.5% 65.5%

Gross income 5,674 5,293 5,092 4,893 4,821 4,559 4,623 4,766 4,838 4,911

Gross margin 38.9% 39.1% 39.2% 38.1% 35.6% 33.7% 34.1% 34.5% 34.5% 34.5%

SG&A 3,519 3,354 3,089 3,014 2,941 2,808 2,887 2,954 2,953 2,950

% of Sales 24.1% 24.8% 23.8% 23.4% 21.7% 20.8% 21.3% 21.4% 21.1% 20.7%

Integration Charges 52 24 0 0 0 0 0 0

M2M pension restatement 1,007 882 0 0 0 0 0 0

Operating income 2,155 1,939 2,003 1,879 1,880 1,751 1,737 1,813 1,885 1,961

Margin % 14.8% 14.3% 15.4% 14.6% 13.9% 12.9% 12.8% 13.1% 13.4% 13.8%

y/y growth % (0.4%) (10.0%) 3.3% (6.2%) 0.0% (6.8%) (0.8%) 4.4% 4.0% 4.0%

Other Income 10 (21) 9 252 231 222 248 248 248 248

Interest expense (209) (227) (253) (256) (287) (286) (259) (251) (246) (241)

Pretax income 1,956 1,691 1,759 1,875 1,824 1,687 1,726 1,809 1,887 1,967

Income tax 551 432 434 482 301 339 362 380 396 413

Tax rate 28.2% 25.6% 24.7% 25.7% 16.5% 20.1% 21.0% 21.0% 21.0% 21.0%

Earnings/(loss) from JV (7) 0 2 7 (3) (4) 1 1 1 1

Minority Interest (7) (5) (8) (8) (8) (8)

Net income 1,398 1,259 1,327 1,400 1,513 1,339 1,356 1,422 1,484 1,547

EPS $3.88 $3.54 $3.74 $4.00 $4.34 $3.91 $3.97 $4.21 $4.42 $4.64

y/y growth % 3.0% (8.8%) 5.7% 6.7% 8.7% (9.9%) 1.3% 6.1% 5.1% 5.0%

Diluted shs. outstanding 360 355 354 350 348 342 342 338 336 333

EBITDA 2,658 2,473 2,520 2,360 2,396 2,272 2,263 2,344 2,422 2,503

Net Debt 6,927 7,508 7,487 8,334 8,572 7,557 7,381 7,180 6,935 6,646

Debt/EBITDA 2.6 3.0 3.0 3.5 3.6 3.3 3.3 3.1 2.9 2.7

Volume -2.5% -0.7% -0.9% -3.2% 1.9% -0.5% 0.3% 1.0%

Price/Mix 0.5% 1.9% 4.9% 0.5% -1.9% 2.4% 1.7% 1.0%

Currency -0.8% -7.5% -8.0% 0.2% -0.8% -1.9% 0.0% 0.0%

Acquisitions 0.0% 0.4% 0.0% 2.2% 6.3% -0.1% -3.8% 0.0%

53rd week 1.3% -1.3% 0.0% 0.0% 0.0% 0.0% 1.7% 0.0%

Organic Growth ex Venezuela -0.8% -1.1%

Capital Expenditures (582) (553) (507) (501) (578) (630) (610) (580)

Free Cash Flow 1,211 1,138 1,121 1,128 958 551 957 1,231

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Companies Mentioned (Price as of 03-Jan-2020) Campbell Soup Company (CPB.N, $48.43) General Mills (GIS.N, $51.94) J.M. Smucker Co. (SJM.N, $102.29) Kellogg Company (K.N, $68.0, OUTPERFORM, TP $78.0) Mondelez (MDLZ.OQ, $54.24) The Hershey Company (HSY.N, $145.26) The Kraft Heinz Company (KHC.OQ, $31.24)

Disclosure Appendix

Analyst Certification

I, Robert Moskow, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Kellogg Company (K.N)

K.N Closing Price Target Price

Date (US$) (US$) Rating

13-Jan-17 71.38 77.00 N

10-Feb-17 76.00 80.00

04-May-17 70.40 75.00

18-May-17 70.08 71.00

25-Jul-17 67.57 68.00

03-Aug-17 70.36 70.00

20-Oct-17 61.45 65.00

01-Nov-17 63.01 68.00

06-Feb-18 65.16 70.00

16-Apr-18 63.83 63.00

12-Jun-18 65.71 68.00

02-Aug-18 69.88 71.00

09-Aug-18 71.30 75.00

31-Oct-18 65.48 70.00

14-Nov-18 62.46 66.00

03-Jan-19 56.74 57.00

08-Feb-19 55.36 54.00

02-Aug-19 63.40 60.00

* Asterisk signifies initiation or assumption of coverage.

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most att ractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as Europea n (excluding Turkey) ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin America, Turkey and Asia (excluding Japan and Australia), stock ratings are based on a stock’s total return relative to the average to tal return of the relevant country or regional benchmark (India - S&P BSE Sensex Index); prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analys t’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time.

N EUT RAL

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Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 48% (31% banking clients)

Neutral/Hold* 38% (26% banking clients)

Underperform/Sell* 13% (22% banking clients)

Restricted 2%

*For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

Important Global Disclosures

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Target Price and Rating Valuation Methodology and Risks: (12 months) for Kellogg Company (K.N)

Method: Our target price of $78/share and Outperform rating assumes an 18.5x P/E multiple against our 2021 EPS estimate. This assumes that the stock’s valuation premium to its food increases to 10% compared to a 0% premium today. With its organic revenue growth rate now at 2%, we think Kellogg’s stock deserves to be placed in a higher valuation echelon among its consumer staples peers.

Risk: Continued weakness in the U.S. cereal business represents the biggest downside risk to our $78 target price and Outperform rating for Kellogg.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): GIS.N, KHC.OQ, CPB.N, MDLZ.OQ Credit Suisse provided investment banking services to the subject company (GIS.N, KHC.OQ, CPB.N, MDLZ.OQ) within the past 12 months. Within the last 12 months, Credit Suisse has received compensation for non-investment banking services or products from the following issuer(s): KHC.OQ, CPB.N, MDLZ.OQ Credit Suisse has managed or co-managed a public offering of securities for the subject company (KHC.OQ, MDLZ.OQ) within the past 12 months.

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Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): GIS.N, KHC.OQ, CPB.N, MDLZ.OQ Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (K.N, GIS.N, SJM.N, KHC.OQ, CPB.N, MDLZ.OQ, HSY.N) within the next 3 months. Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non-investment-banking, securities-related: KHC.OQ, MDLZ.OQ Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non-investment-banking, non securities-related: CPB.N, MDLZ.OQ Credit Suisse or a member of the Credit Suisse Group is a market maker or liquidity provider in the securities of the following subject issuer(s): CPB.N, GIS.N, SJM.N, K.N, MDLZ.OQ, HSY.N, KHC.OQ A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (GIS.N, KHC.OQ, CPB.N, MDLZ.OQ) within the past 12 months.

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Important Regional Disclosures

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7 January 2020

Kellogg Company 29

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