Kellogg Company Page 1 of 21 November 1, 2016 Kellogg Company 2016 THIRD QUARTER FINANCIAL RESULTS November 1, 2016 Agenda November 1, 2016 KELLOGG COMPANY | Q3 2016 EARNINGS Overview John Bryant, Chairman & Chief Executive Officer Financials Ron Dissinger, Chief Financial Officer North America Paul Norman, President Kellogg North America Europe Chris Hood, President Kellogg Europe Latin America Maria Fernanda Mejia, President Kellogg Latin America Asia Pacific Amit Banati, President Kellogg Asia Pacific Summary John Bryant, Chairman & Chief Executive Officer Q&A 2
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Kellogg Company
Page 1 of 21
November 1, 2016
Kellogg Company 2016 THIRD QUARTER
FINANCIAL RESULTS November 1, 2016
Agenda
November 1, 2016 KELLOGG COMPANY | Q3 2016 EARNINGS
Overview John Bryant, Chairman & Chief Executive Officer
Financials Ron Dissinger, Chief Financial Officer
North America Paul Norman, President Kellogg North America
Europe Chris Hood, President Kellogg Europe
Latin America Maria Fernanda Mejia, President Kellogg Latin America
Asia Pacific Amit Banati, President Kellogg Asia Pacific
Summary John Bryant, Chairman & Chief Executive Officer
Q&A
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Kellogg Company
Page 2 of 21
November 1, 2016
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 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 and synergies from the acquisitions in the amounts and at the times expected, the impact of competitive conditions; the effectiveness of pricing, advertising, and promotional programs; the success of innovation, renovation and new product introductions; the recoverability of the carrying value of goodwill and other intangibles; the success of productivity improvements and business transitions; commodity and energy prices; labor costs; disruptions or inefficiencies in supply chain; the availability of and interest rates on short-term and long-term financing; actual market performance of benefit plan trust investments; the levels of spending on systems initiatives, properties, business opportunities, integration of acquired businesses, and other general and administrative costs; changes in consumer behavior and preferences; the effect of U.S. and foreign economic conditions on items such as interest rates, statutory tax rates, currency conversion and availability; legal and regulatory factors including changes in food safety, advertising and labeling laws and regulations; the ultimate impact of product recalls; business disruption or other losses from war, terrorist acts or political unrest; and other items. Forward-looking statements speak only as of the date they were made, and the Company undertakes no obligation to update them publicly.
Non-GAAP Financial Measures. This presentation includes non‐GAAP financial measures. Please refer to the Appendices for a reconciliation of these non‐GAAP financial measures to the most directly comparable GAAP financial measures. Management believes that the use of such non-GAAP measures assists investors in understanding the underlying operating performance of the company and its segments.
November 1, 2016 KELLOGG COMPANY | Q3 2016 EARNINGS 3
Q3 Update – Key Messages
*On a currency-neutral comparable basis
November 1, 2016 KELLOGG COMPANY | Q3 2016 EARNINGS
Results: Ahead of expectations on margins and tax rate
Progress: Tangible progress against 2020 Growth Plan and 2016 priorities
Outlook: Sequential improvement in Q4 and in 2017
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Kellogg Company
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November 1, 2016
Strategic Priorities
November 1, 2016 KELLOGG COMPANY | Q3 2016 EARNINGS
2020 Growth Plan
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Progress – One Year After “Day at K”
*On a currency-neutral comparable basis
November 1, 2016 KELLOGG COMPANY | Q3 2016 EARNINGS
a) Other includes Project K, acquisitions, divestitures, and shipping day differences.
(a)
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Gross Profit Margin *
* Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.
November 1, 2016 KELLOGG COMPANY | Q3 2016 EARNINGS
Currency-Neutral, Comparable Basis, Excluding Venezuela, Gross Profit as % of Net Sales*
+ Productivity, Project K, ZBB efficiencies,
- Adverse mix, transactional FX, investment in food
- Lower production volume
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Operating Profit Margin*
* Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.
+ Up 90 bp ex-Venezuela in Q3
+ Productivity, Project K, ZBB efficiencies
+ Improvement in all Regions
+ On-track to post improvement for year
November 1, 2016 KELLOGG COMPANY | Q3 2016 EARNINGS
Currency-Neutral, Comparable Basis, Excluding Venezuela, Operating Profit as % of Net Sales*
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Kellogg Company
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November 1, 2016
Cash Flow *
For Cash Flow, please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.
November 1, 2016 KELLOGG COMPANY | Q3 2016 EARNINGS
* “Cash Flow” is Operating Cash Flow After Capital Expenditure; Year to Date through Q3 2016. “Core Working Capital” is an internal Kellogg metric defined as last 12 months’ average trade receivables and inventory, less 12 months’ average trade payables, divided by last 12 months’ net sales.
$ in Millions, Year to Date Through Q3
+ 2016 includes $(97) million from bond tender
+ Continued reduction in core working capital* as % of sales
+ On-track to achieve $1.1 billion cash flow* for the full year
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2016 Guidance
(a) 2016 guidance for currency-neutral comparable net sales and operating profit excludes the impact of acquisitions, dispositions, currency translation, differences in the number of shipping days, mark-to-market adjustments, integration costs, costs related to Project K, Venezuela remeasurement, VIE deconsolidation, and other items that could affect comparability.
(b) 2016 guidance for comparable EPS excludes the impact of differences in the number of shipping days, mark-to-market adjustments, integration costs, costs related to Project K, Venezuela remeasurement, and other items that could affect comparability. Does include the impact of prior acquisitions and investment in JVs. Currency-neutral comparable EPS also excludes the impact of currency translation.
November 1, 2016 KELLOGG COMPANY | Q3 2016 EARNINGS
EPS(b)
Currency-Neutral Comparable
Operating Profit(a)
Currency-Neutral Comparable
Net Sales(a)
Currency-Neutral Comparable
~ 4%
+15-17%
$4.16 - $4.23
~ (1)%
+4-6%
• 2H improvement less than expected • Still expecting sequential improvement
in Q4
• Still expecting high end of the range • Better margin expansion offsets lower
sales
Previous: Flat Previous: 4-6%
Previous: 4-6%
• Increased guidance range • Q3’s tax favorability more than offsets
impact of curbed Q4 share buybacks (for acquisition)
• Currency impact is $0.01 less negative than previous estimate
Previous: $4.11-$4.18
Previous: 15-17%
* Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.
Excluding Venezuela
Including Venezuela
EPS(b)
Comparable
$3.64 - $3.71 Previous: $3.58-$3.65
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Kellogg Company
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November 1, 2016
2016 Guidance – Other Items
(a) 2016 guidance excludes the impact of currency translation, differences in the number of shipping days, mark-to-market adjustments, integration costs, costs related to Project K, Venezuela remeasurement, VIE deconsolidation, and other items that could affect comparability. Please refer to appendices for reconciliation of non-GAAP measures to most directly comparable GAAP measure.
November 1, 2016 KELLOGG COMPANY | Q3 2016 EARNINGS
$ in Millions, Except Per-Share Data
• Currency Translation – Venezuela $(0.41)/sh. No change
* Guidance is on a currency-neutral comparable basis, which means it excludes the impact of acquisitions, dispositions, currency translation, mark-to-market adjustments, integration costs, costs related to Project K, Venezuela remeasurement, and other items that could affect comparability. These targets also exclude Venezuela.
• Prudent outlook on volume
• Price realization through Revenue Growth Management
• Ongoing productivity initiatives, savings from Project K, savings from Zero-Based Budgeting
• Meaningful progress toward 2018 OP margin goal
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Kellogg Company
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November 1, 2016
Regional Targets Through 2018 *
November 1, 2016 KELLOGG COMPANY | Q3 2016 EARNINGS
Change in Net Sales and Operating Profit Margin, excluding Venezuela, from 2015 through 2018
* Guidance given on a currency-neutral comparable basis, which means it excludes the impact of acquisitions, dispositions, currency translation, mark-to-market adjustments, integration costs, costs related to Project K, Venezuela remeasurement, and other items that could affect comparability. This guidance also excludes Venezuela.
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North America
Europe
Latin America
Asia Pacific
~ Flat
~ Flat
Low SD
Low SD
+ 400-450 bp
+ 300-350 bp
+ 100-200 bp
+ 100-200 bps
Net Sales * Operating Margin *
Total ~ Flat ~18% OP Margin
Financials – One Year Later
* Guidance given on a currency-neutral comparable basis.
November 1, 2016 KELLOGG COMPANY | Q3 2016 EARNINGS