Kellogg Companyinvestor.kelloggs.com/~/media/Files/K/Kellogg-IR/reports-and... · Kellogg Company...

Kellogg Company June 13, 2017

of 16

Kellogg CompanyDeutsche Bank Global Consumer Conference

Paris, FranceJune 13, 2017

DB Global Consumer Conference June 13, 2017

Forward-Looking Statements

2

This presentation contains, or incorporates by reference, “forward-looking statements” with projections concerning, among other things, the Company’s global growth and efficiency program (Project K), the integration of acquired businesses, the Company’s strategy, zero-based budgeting, and the Company’s sales, earnings, margin, operating profit, costs and expenditures, interest expense, tax rate, capital expenditure, dividends, cash flow, debt reduction, share repurchases, costs, charges, rates of return, brand building, ROIC, working capital, growth, new products, innovation, cost reduction projects, workforce reductions, savings, and competitive pressures. Forward-looking statements include predictions of future results or activities and may contain the words “expects,” “believes,” “should,” “will,” “anticipates,” “projects,” “estimates,” “implies,” “can,” or words or phrases of similar meaning.

The Company’s actual results or activities may differ materially from these predictions. The Company’s future results could also be affected by a variety of factors, including the ability to implement Project K (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.

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.


of 16


Agenda

3

Top-Line Growth

Financial Visibility

At Our Core


Transformation

4

Composition of Net Sales, Reported Basis, Kellogg Company

Cereal

Snacks

Frozen/Other

$13 billion$6 billion

2000

CerealSnacks

Frozen/Other

2016


of 16


Industry Trends & Changes – Our Responses

5

• Renovating our Health & Wellness brands• Removing artificial ingredients• Innovating on taste

Food Beliefs

Snacking

Media

Retail Landscape

Emerging Markets

DB Global Consumer Conference June 13, 2017 6

Changing Food Beliefs – The Brand Most Impacted

2016

Rest of Portfolio

TotalCompany

Net Sales GrowthCurrency-Neutral Comparable Basis, Excluding Venezuela

Need to Reposition and Renovate:

…To Inner StrengthFrom Weight Loss…


of 16


Similar Renovation – Making Progress on Kashi

7

-25

-20

-15

-10

-5

0

5

Kashi Company, RTE Cereal Consumption Sales, Change Vs. Prior Year, Nielsen AOD xAOC

Cereal: • Growing in Natural channel • Sequentially improving in

mainstream channels

Kashi Company, Wholesome Snacks Points of Distribution, Nielsen AOD xAOC

Snacks: • Renovation launched in Q1• Re-building distribution

2014 2015 2016

Q1 2017


Updating Rest of Portfolio

8

• Removing “negatives”

• Adding “positives”

• Taste is still king


of 16



9

• Renovating our Health & Wellness brands• Removing artificial ingredients• Innovating on taste

• Expanding internationally• Making biggest brands even bigger• Freeing up resources for investing in U.S. Snacks

Food Beliefs

Snacking

Media

Retail Landscape

Emerging Markets


Building a Global Snacking Powerhouse

10

• Leverage Pringles global brand

• Sustain momentum in U.S. power brands

• Redeploy DSD resources to support more U.S. brands

• Selectively expand U.S. brands abroad

Going Forward:

2000 2016

$13 Billion

$6 Billion

Snacks

Cereal & Other Snacks

Cereal & Other

Net Sales, Reported Basis


of 16


Pringles – Big, Growing, Global Snacks Brand

11

North America

Europe

Latin America

Asia

Pacific

2016 Net Sales, Reported Basis

2013 2014 2015 2016

Net Sales, Constant-Currency Basis *+6%

CAGR2014-2016

* Constant-currency net sales are translated using 2016 foreign exchange rates. Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.


Big, Growing, Expandable U.S. Snacks Brands

12

Share Leader in U.S. Crackers

1996 2016

+6%4-YearCAGR

+7%+4-YearCAGR

Net Sales *

* Reported Basis

Net Sales *

20162015201420132012


of 16


DSD Exit – Redeploying Resources

13

DSD:Declining

ROI

Brands:More

Investment

Warehouse:Scale &

Efficiency

Retailer:Margin & Velocity

• Shopping multiple channels• Centralized shelf and

merchandising decisions

• Responsive to demand-pull investment

• More for Big 3 Crackers, Rice Krispies, Pringles, Keebler

• Support for broader set of brands in the portfolio

• Already in place• Higher fill rates• Lower cost• Comparable in-market

metrics

• Cost-to-serve price adjustment

• Leverages retailers’ strength in warehouse and distribution

• Backroom space for click-and-collect

• Velocities improve on increased brand support



14

• Renovating our Health & Wellness brands• Reducing artificial ingredients• Innovating on taste


• Changing our Marketing Model• Building capabilities in social media• Emphasis on real-time ROI

Food Beliefs

Snacking

Media

Retail Landscape

Emerging Markets


of 16


New Marketing Model

15

• “Agile” ROI – Marketing Mix Model moving to real time• Digital – Migrating with consumer• Prioritization – To highest ROI brands and activities• Resource Shift – Moving from “Push” to “Pull” in Snacks

Advertising as % of Net Sales, Reported Basis

0%

2%

4%

6%

Fiscal 2016

• All figures are based on company disclosures or published analyst estimates; peers comprised of large-cap, U.S.-based packaged foods companies.

• Advertising Remains at Industry-Leading Levels• Reduced in recent years by:

• Shift to Digital• Shift to Food Investment• Zero-Based Budgeting• Foreign Exchange

Kellogg

Peer Avg.



16

Food Beliefs

Snacking

Media

Retail Landscape

Emerging Markets



• Changing our Marketing Model• Building capabilities in social media• Emphasis on near-term ROI

• Developing capabilities in emerging channels• Investing in single-serve and other pack formats• Redeploying single-channel DSD resources


of 16


Win Where the Shopper Shops – Capabilities

17

Increased small can

availability

Winning Wholesome

Snacks

Evolved Cereal offer

to win

Expanding distribution in emerging markets

High-Frequency Stores

Route to Market Winning Portfolio

E-Commerce

• Digital Shelf• Click & Collect• Home Delivery

• Local distributors• Acquired capabilities and

scale


Pack Formats for the Right Occasion & Channel

18

Kellogg Category

6.5%

11.0%

Single-Serve, Share of Category, Across All Kellogg U.S. Categories, 2016

Source: Nielsen AOD – xAOC + Convenience – Calendar Year 2016


of 16



19

Food Beliefs

Snacking

Media

Retail Landscape

Emerging Markets



• Changing our Marketing Model• Building capabilities in social media• Emphasis on near-term ROI

• Driving Pringles, shifting portfolio toward snacks• Building scale through acquisitions and joint ventures• Driving cereal category development

• Developing capabilities in emerging channels• Investing in single-serve and other pack formats• Redeploying single-channel DSD resources


Emerging Markets – Building Scale

20

Kellogg Emerging Markets, Volume in Tons

2012 2016

4.5%CAGR

2013-2016

x-JVs and Parati

Joint Ventures

Parati, 2017

http://www.multi-pro.com/index.html

http://www.multi-pro.com/index.html


of 16


Agenda

21

Top-Line Growth


At Our Core


Priority – Restore Top-Line Growth

22

Return to low single-digit

growth

Stabilize:Special K &

Kashi

Redeploy:DSD to Brand Investment

Sustain:Growing Brands

Accelerate:Emerging Markets

Note: Refers to currency-neutral comparable net sales growth.


of 16


Margin Expansion Initiatives – On Track

23

• Network Restructuring

• Global Business Services

• Organizational Design

• Go-to-Market Model

• Discretionary Spending

• Process and Tools

• Policies

• Budgeting from Zero

• Revenue Growth Management

• New Marketing Model

Project K Zero-Based Budgeting Return on Investment

Savings $600-700 million run-rate in 2019

Savings $450-500 million run-rate in 2018

Higher ROI on commercial investment


Visibility to +350 Basis Points

24

Operating Profit Margin, Comparable Basis *, Excluding Venezuela

2015 2016 2017 2018

14.4% 15.4%+ Project K

+ ZBB

+ RGM/Marketing Model

- Invest in Food

- Volume and Country Mix

- Input Costs / FX

+350basis points

* Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.


of 16


Cash Flow – Trending Higher

25

* Cash Flow defined as cash from operating activities, less capital expenditure.

** “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.

Dividend

Bolt-On Acquisitions

Share Repurchases

Debt Reduction

Priorities:

Net Income – Increasing on higher margins

Core Working Capital – Steady improvement, led by payables; opportunities in inventory

Restructuring Cash Outlays – Diminish after 2017

Capital Expenditure – Settling back to 3-4% of net sales

Drivers:

*

**


Agenda

26

Top-Line Growth


At Our Core


of 16


Strategy – the Other Side of the “House”

27

DB Global Consumer Conference June 13, 2017 28

Most Improved Brand

Palm O

il

Recognition for Our Efforts

2013-2016

1.9BFood Servings

Donated

Climate Response highest ranked U.S.-based company


of 16


In Summary…

29

• We can and will return to top-line growth

• We already have visibility into improvedprofitability and cash flow

• We remain true to our Founder’s values

Note: All referenced metrics are on a currency-neutral comparable basis; Cash Flow is defined as cash from operations less capital expenditure.

June 13, 2017

Kellogg CompanyDB Global Consumer Conference

Q&A


of 16


Appendices

31

Exhibit 1

Kellogg Company and Subsidiaries

Reconciliation of Non-GAAP Amounts - Reported Operating Margin to Comparable Operating Margin

excluding Venezuela

Year ended 2016 and 2015

2016 2015

Reported operating margin 10.7% 8.1%

Mark-to-market -2.0% -3.3%

Project K and cost reduction activities -2.5% -2.4%

Other costs impacting comparability 0.0% 0.5%

Integration and transaction costs -0.1% -0.2%

Venezuela remeasurement -0.1% -0.9%

Comparable operating margin 15.4% 14.4%

Comparable operating margin excluding Venezuela 15.4% 14.4%


Appendices

32

Exhibit 2

Kellogg Company and Subsidiaries

Reconciliation of Non-GAAP Amounts - Pringles Reported Net Sales CAGR to

Constant-Currency Net Sales CAGR

Year ended 2013 to 2016

Reported net sales CAGR 2.4%

Foreign currency impact -3.6%

Constant-currency net sales CAGR 6.0%

2013 to 2016

Kellogg Companyinvestor.kelloggs.com/~/media/Files/K/Kellogg-IR/reports-and... · Kellogg Company...

Documents

Transcript of Kellogg Companyinvestor.kelloggs.com/~/media/Files/K/Kellogg-IR/reports-and... · Kellogg Company...