Kellogg Company February 21, 2018 1 of 24 Deploy For Growth Boca Raton February 21, 2018 CAGNY 2018 I DEPLOY FOR GROWTH Forward-Looking Statements This presentation contains, or incorporates by reference, “forward-looking statements” with projections concerning, among other things, the Company’s global growth and efficiency program (Project K), the integration of acquired businesses, the Company’s strategy, zero-based budgeting, and the Company’s sales, earnings, margin, operating profit, costs and expenditures, interest expense, tax rate, capital expenditure, dividends, cash flow, debt reduction, share repurchases, costs, charges, rates of return, brand building, ROIC, working capital, growth, new products, innovation, cost reduction projects, workforce reductions, savings, and competitive pressures. Forward-looking statements include predictions of future results or activities and may contain the words “expects,” “believes,” “should,” “will,” “anticipates,” “projects,” “estimates,” “implies,” “can,” or words or phrases of similar meaning. The Company’s actual results or activities may differ materially from these predictions. The Company’s future results could also be affected by a variety of factors, including the ability to implement Project K (including the exit from its Direct Story Delivery system) as planned, whether the expected amount of costs associated with Project K will differ from forecasts, whether the Company will be able to realize the anticipated benefits from Project K in the amounts and times expected, the ability to realize the benefits from our implementation of a more formal Revenue Growth Management discipline, 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. 2
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Kellogg Company February 21, 2018
1 of 24
Deploy For Growth
Boca RatonFebruary 21, 2018
CAGNY 2018 I DEPLOY FOR GROWTH
Forward-Looking Statements
This presentation contains, or incorporates by reference, “forward-looking statements” with projections concerning, among other things, the Company’s global growth and efficiency program (Project K), the integration of acquired businesses, the Company’s strategy, zero-based budgeting, and the Company’s sales, earnings, margin, operating profit, costs and expenditures, interest expense, tax rate, capital expenditure, dividends, cash flow, debt reduction, share repurchases, costs, charges, rates of return, brand building, ROIC, working capital, growth, new products, innovation, cost reduction projects, workforce reductions, savings, and competitive pressures. Forward-looking statements include predictions of future results or activities and may contain the words “expects,” “believes,” “should,” “will,” “anticipates,” “projects,” “estimates,” “implies,” “can,” or words or phrases of similar meaning.
The Company’s actual results or activities may differ materially from these predictions. The Company’s future results could also be affected by a variety of factors, including the ability to implement Project K (including the exit from its Direct Story Delivery system) as planned, whether the expected amount of costs associated with Project K will differ from forecasts, whether the Company will be able to realize the anticipated benefits from Project K in the amounts and times expected, the ability to realize the benefits from our implementation of a more formal Revenue Growth Management discipline, 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.
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Reasons to Believe
Special Food, Brands,
& Culture
Sound Financial Footing
Commitment and Ideas for Growth
• Health & Wellness heritage
• In most households
• Taste, convenience, nutrition, affordability
• Weighted toward snacking
• Will to win
• Reduced cost structure
• Improving top-line performance
• Durable cash flow
• Better commercial plans
• Increased investment
• New growth platforms
CAGNY 2018 I DEPLOY FOR GROWTH 3
Agenda
• Foundation for Growth
• Current Trajectory for Growth
• Deploy for More Growth
• A Realistic Algorithm for Growth
CAGNY 2018 I DEPLOY FOR GROWTH 4
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Big, Strong, Relevant Brands2017 Net Sales, $ in Billions, Global >$1 billion
$0.5-1.0 billion
$0.3-0.5 billion
CAGNY 2018 I DEPLOY FOR GROWTH 5
A Health & Wellness Company
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A Snacking CompanyComposition of Net Sales, Total Company
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A Global CompanyComposition of Kilos, Total Company
CAGNY 2018 I DEPLOY FOR GROWTH 8* Shaded area represents percentage of volume associated with Joint Ventures, if we were to include our share of their kilos.
* Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.** Cash Flow defined as cash from operating activities, less capital expenditure. Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.
(a) 2018 guidance for Currency Neutral Net Sales growth excludes the impact of foreign currency translation.
(b) 2018 guidance for adjusted Operating Profit and Earnings Per Share excludes the impact of mark-to-market adjustments and costs related to Project K. Currency neutral also excludes the impact of foreign currency translation.
* Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure, as well as 2017 recast information for accounting-rules changes.
Delivering margin expansion and improving top-line performance.Delivering margin expansion and improving top-line performance.
Completing several critical strategic transitions.
Completing several critical strategic transitions.
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Targeting Long-Term Sustainable Growth
Net Sales
Adjusted Operating Profit
Adjusted EPS
1-3%
4-6%
6-8%
Dependable growth, augmented by M&A, complemented by dividend yield.Dependable growth, augmented by M&A, complemented by dividend yield.
CAGNY 2018 I DEPLOY FOR GROWTH
Dividend Yield 2-3%
Total Shareowner Return 8-11%
*
*
* Independent of changes in valuation multiple and market fluctuations 39
All Growth Rates are Currency-Neutral
Values
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In Summary…
• Strong foundation for growth
• Visible progress
• Deploying for growth
• Seeking balanced financial delivery
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APPENDIX
CAGNY 2018 I DEPLOY FOR GROWTH
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EPS – Reconciliation to non-GAAP Measure
Note: These figures are not yet recast for the accounting-standards changes effective in 2018.
Cash Flow – Reconciliation to non-GAAP MeasureKellogg Company and Subsidiaries
Years ended 2015-2017 Exhibit 2
2015 2016 2017Operating ActivitiesNet Income 614$ 695$ 1,269$ Adjustments to reconcile net income to operating cash flows:
Depreciation and amortization 534 517 481 Postretirement benefit plan expense 320 198 (427) Deferred income taxes (169) (26) (56) Stock compensation 51 63 66 Venezuela deconsolidation 72 Venezuela remeasurement 169 11 VIE deconsolidation (49) Non current income taxes payable (21) (12) 144 Other 8 (62) 27
Postretirement benefit plan contributions (33) (33) (44) Changes in operating assets and liabilities, net of acquisitions 267 205 186 Net cash provided by (used in) operating activities 1,691 1,628 1,646 Less:Additions to properties (553) (507) (501) Cash flow (operating cash flow less property additions) (a) 1,138$ 1,121$ 1,145$
(a) Cash flow is defined as net cash provided by operating activities less capital expenditures. We use this non-GAAP financial measure to focus management and investors on the amount of cash available for debt repayment, dividend distributions, acquisition opportunities and share repurchase.
Reconciliation of Non-GAAP amounts - Reported Cash Flow to Kellogg-Defined Cash Flow
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Financial Guidance – Reconciliation to non-GAAP Measures
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Kellogg Company and SubsidiariesReconciliation of Non-GAAP amounts - 2018 Full Year Guidance*
Exhibit 3
Impact of certain items excluded from non-GAAP guidance: Net SalesOperating
ProfitEffective Tax Rate
Earnings Per Share
Project K and cost restructuring activities $90-110M $0.27-0.32Income Tax benefit applicable to adjustments, net** $0.05-0.06Adjusted, currency-neutral guidance Flat 4-6% 20-21% 9-11%
Reconciliation of Non-GAAP amounts - Cash Flow Guidance(billions)
ApproximateFull Year 2018
Net cash provided by (used in) operating activities $1.7 - $1.8Additions to properties ~($.5)Cash Flow $1.2 - $1.3
* 2018 full year guidance for net sales, operating profit, and earnings per share are provided on a non-GAAP basis only because certain information necessary to calculate such measures on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted without unreasonable efforts by the Company. The Company is providing quantification of known adjustment items where available.
** Represents the estimated income tax effect on the reconciling items, using weighted-average statutory tax rates, depending upon the applicable jurisdiction.