Kellogg Company: Barclays Global ... - investor.kelloggs…investor.kelloggs.com/~/media/Files/K/Kellogg-IR/reports-and... · Kellogg Company September 6, 2017 Page 3 of 18 Barclays

Kellogg Company September 6, 2017

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Kellogg CompanyBarclays Global Consumer Staples Conference

BostonSeptember 6, 2017

Barclays Global Consumer Staples Conference September 6, 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.


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Agenda

3

Transforming Kellogg Company

Transforming U.S. Snacks

Improving Financial Performance


Opportunities Within Industry Trends

4

Return to low single-digit

growth *

On-TrendFood &

Packaging

ChangingRetail

LandscapeSnacking

Emerging Markets


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Barclays Global Consumer Staples Conference September 6, 2017 5

On-Trend Food & Packaging – Special K

2016

Rest of Portfolio

TotalCompany

Special KNet Sales Change, All Categories,

Currency-Neutral Comparable Basis, Excluding Venezuela

Primary Source of Decline

Repositioning and Renovating:

…To Inner StrengthFrom Weight Loss…


-25

-20

-15

-10

-5

0

5

6

On-Trend Food & Packaging – Kashi Company

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

• Renovated food and packaging

• Growing in Natural channel

• Growing consumption and gaining share in mainstream channels

2014 2015 2016

YTD 2017*

Source: Nielsen, xAOC* YTD 2017 is through Aug. 19


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Snacking – Building a Global Snacks Powerhouse

7

• Leverage Pringles global brand

• Sustain momentum in U.S. power brands

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

• Continue global expansion

Going Forward:

2000 2016

$13 Billion

$6 Billion

Snacks

Cereal & Other Snacks

Cereal & Other

Net Sales, Reported Basis


Retail Landscape – Win Where the Shopper Shops

8

Changing Retail Landscape

• Expanding in E-Commerce• Transitioning out of DSD• Building new capabilities

Snacking Anywhere Anytime

• Expanding in high-frequency stores

• Increase share of single-serve

• New pack formats for entry price-points


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Emerging Markets – Building Scale and Growing

9

Kellogg Emerging Markets, Volume in Tons

2012 2016

4.5%CAGR

2013-2016x-JVs and Parati

Joint Ventures

Parati, 2017


Transformation – 2020 Growth Plan

10

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


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Agenda

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Barclays Global Consumer Staples Conference September 6, 2017 12

U.S. Snacks – Right to Grow

• Consumer Trends Toward Snacking

• Big, Differentiated Brands

• Track Record of Innovation

• Advanced Data & Analytics


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U.S. Snacks Roadmap

13

Refocus

2016

• Restructure Network

• Launch ZBB

• Establish RGM Capability

• Distort Resources

Accelerate

2018/2019

• Expand Across Channels

• Drive Joint Value Creation

• Increase Brand Investment

• End to End Focus

Transform

2017-1H 2018

• Exit DSD

• Build New Warehouse Sales Org

• Launch Agile Marketing

• Define New Playbook


Refocus – Strong Progress Made

14

Improved Marketing ROI Leading with Innovation Focused Investment

100

148 156

IndustryBenchmark

Kellogg Snacks2015

Kellogg Snacks2016

Marketing ROI Indexed to Industry Benchmark

204

234

2015 2016

Total Kellogg SnacksInnovation Share indexed to Category Share

Source: Nielsen, xAOC, 52 weeks Source: Marketing Mix Analytics, Internal Data

2.2%

3.8%

Total US Snacks Categories Core 4 Kellogg SnacksBrands

Snacks Core 4 Brands Growth2016 vs. 2015

Source: Nielsen, xAOC, 52 weeks; Core 4 brands include Cheez-It, Club, Rice Krispies Treats, and Pringles


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Transform – DSD Transition On Track

15

Customer Alignment Agreed on list-price adjustment, transition timing, joint business planning

Aligned on-shelf assortment, culled tail SKUs, agreed shelf spaceCore Assortment

Conversion to Warehouse Shipping only to customers’ warehouses, halted DSD deliveries

Completion of Transition Close distribution centers, execute operational “hypercare”Pivot to “pull-model” commercial activities, increase brand investment

Now 100% Warehouse


DSD Transition – What To Expect Next

16

Focused

Stronger

More Profitable

2017 1H 2018 2H 2018 On

• SKU Rationalization

• Transitional pull-back on merchandising

• List-price adjustment

• Reduced “tail” SKUs

• Decline in secondary & tertiary displays

• List-price adjustment

• Increased Brand Investment

• Higher retailer margins

• Scaled One Route to Market

• Increase Brand Investment

• Bigger in-store events and primary displays

• Scaled One Route to Market

• Higher velocity SKUs

• Growth in consumption, share, and net sales *

• Initial overhead reductions

• Improving operating profit margin *

• Full overhead reductions

• Improving operating profit margin *

• Operating profit margin in line with KNA average *

• Less complex portfolio

• Scaled & focused primary displays

* Refers to currency-neutral comparable basis


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Transform – Improved Margin Structure

17

U.S. Snacks, Operating Profit Margin, in Percent, Comparable Basis *

5

7

9

11

13

15

17

19

2015 2016 2017 2018

11.4%

12.5%

2H Improvement

+450 bpfrom 2015

Project K

Zero-Based Budgeting

DSD Transition

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


Accelerate – Redeploy Resources For Growth

18

IncreaseBrand

Investment

New Ways of

Marketing

CustomerJoint Value

Creation

Channel Expansion

End to End Focus

1. 2. 3. 4. 5.

• More support for more brands

• Agile ROI

• Occasion-based

• “Mass-precision” targeting

• Higher retailer margins

• Increased in-store investment

• Scaled-up promotions

• Pack-formats

• Resourcing

• Reduced complexity

• Improved service Reduced waste

• Power of K scale


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Accelerate – Increase Brand Investment

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Increased Investment

Digital Expansion• 65%+ of spend in Digital and Social

• Campaigns that behaviorally lever the digital medium

• +DD Increase in Brand Building• Prioritize by Demand and ROI

1.

New Brand Campaigns• Cheez-It, Pringles, Rice Krispies Treats• Master Brand Campaign on Keebler, Special K


Accelerate – New Ways of Marketing

20

Occasion Based Demand Landscape

Mass PrecisionTargeting Capability

Real Time Optimization

Identifies white space opportunity

• Precision Identified White Space• Insight Driven Demand

• Tailored Consumer Experiences• Increased Brand Relevance

• Investment Pressure by Design• Improved Return on Investment

2.

Right Message, Right Consumer,

Right Time

http://www.experian.co.uk/blogs/latest-thinking/importance-audience/

http://www.createasoft.com/Products/SimTrack-Health


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Accelerate – Customer Joint Value Creation

21

3.

• Priority Brand Activation

• Data-Driven Big Bets

• In-store Reinvention

• Unique Shopper Experiences

Growing Consumption Together


Accelerate – Channel Expansion & Pack Formats

22Source: Nielsen AOD – xAOC + Convenience – Calendar Year 2016

4.

Kellogg Single Serve Category Development

Immediate Consumption

Shared Consumption

On the Go – Bulk Pack

On the Go - Pantry PackOn the Go – Bulk Variety Pack

Index:155

Index:74

Index:47

Index:80

Index:64


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Accelerate – End to End Focus

23

5.

End to End Supply Chain

• Improved Service Levels

• Reduced Waste

• “Power of K” Commercial Scale

• New and Ongoing Efficiencies

• Improved Profit Margins

Kellogg&

Customer


U.S. Snacks – Summary

24

• Go-to-Market• Commercial Capabilities• Profit Margins

• Stronger shelf• Higher retailer margins• Increased Brand investment• Right pack for right channel

SustainableSales and Profit

Growth

Transform

Accelerate


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Agenda

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Reaffirming 2017 Guidance

26

Net SalesCurrency-Neutral Comparable Basis*

~ (3)%

Operating ProfitCurrency-Neutral Comparable Basis*

+7-9%

Earnings Per ShareCurrency-Neutral Comparable Basis*

+8-10%

Cash FlowCash From Ops., Less Capital Expenditure

$1.1-$1.2 bn

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


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Priority – Restore Top-Line Growth

27

* All referenced metrics are on a currency-neutral comparable basis.

Return to low single-digit

growth *

On-TrendFood &

Packaging

ChangingRetail

LandscapeSnacking

Emerging Markets

** Joint Ventures are not included in consolidated results.

• Stabilizing Special K & Kashi

• Next nutrition trend in Cereal

• Omni-Channel approach

• Getting pack formats right

• Single route to market

• DSD resources redeployed to pull-investment

• Snacking trends leveraged globally with big brands

• Increasing single-serve offerings and growth

• Increased scale

• Greater snacking presence

• Organic growth, plus acquisitions, plus JVs **


Margin Expansion Initiatives – On Track

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• 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


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Visibility to +350 Basis Points

29

Operating Profit Margin, Comparable Basis, Excluding Venezuela

2015 2016 2017 2018

+ Project K

+ ZBB

+ RGM/Marketing Model

- Invest in Food

- Volume and Country Mix

- Input Costs / FX

+350 bpfrom 2015


Strong Cash Flow

30

* 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

Investment-Grade Debt

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:

*

**


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Growing the Right Way

31


In Summary

32

• Driving to return to top-line growth

• Transforming U.S. Snacks

• Delivering strong profit-margin expansion


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September 6, 2017

Kellogg CompanyBarclays Global Consumer Staples Conference

Q&A


Appendices

31

Exhibit 1

Kellogg Company and Subsidiaries

Year ended 2016 and 2015

2016 2015

Reported operating margin 10.1% 11.9%

Project K and cost reduction activities -2.4% -1.6%

Other costs impacting comparability 0.0% 2.1%

Comparable operating margin 12.5% 11.4%

Reconciliation of Non-GAAP Amounts - U.S. Snacks Reported Operating

Margin to Comparable Operating Margin


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Appendices

31

Exhibit 2

Kellogg Company and Subsidiaries

Reconciliation of Non-GAAP amounts - 2017 Full Year Guidance*

Net sales Operating profit EPS

Currency-Neutral Comparable Guidance Approx. (3.0%) 7.0% - 9.0% $4.03 - $4.09

Foreign currency impact (1.3%) (1.6%) Approx. ($.06)

Comparable Guidance Approx. (4.3%) 5.4% - 7.4% $3.97 - $4.03

Impact of certain items that are excluded from Non-GAAP guidance:

Project K and cost reduction activities (pre-tax) - (2.8%) - (6.3%) ($1.28) - ($1.14)

Integration costs (pre-tax) - 0.3% ($.03) - ($.02)

Acquisitions/dispositions (pre-tax) 1.4% 1.0% $0.08

Income tax benefit applicable to adjustments, net** $.37 - $.33

* 2017 full year guidance for net sales, operating profit, and earnings per share are provided on a non-GAAP, comparable, and currency-neutral 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.


Appendices

31

Exhibit 3

Reconciliation of Non-GAAP amounts - Cash Flow Guidance

(millions)

Approximate

Full Year 2017

Net Cash provided by (used in) operating activities $1,600 - $1,700

Additions to properties ($500)

Cash Flow $1,100 - $1,200

Documents

Kellogg Company: Barclays Global ... - investor.kelloggs…investor.kelloggs.com/~/media/Files/K/Kellogg-IR/reports-and... · Kellogg Company September 6, 2017 Page 3 of 18 Barclays