K - Earnings call transcript Q4 2019

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Operator

Good morning. Welcome to the Kellogg Company's Fourth Quarter 2019 Earnings Call. [Operator Instructions]. Thank you. Please note that this conference is being recorded. I President the Corporate of the Company. time, John over Planning this Kellogg Vice Renwick, Investor at will call turn to for And Relations and Mr. your Renwick, conference may begin you call.

John Renwick

Banati, Steve review CEO; thank Gary. you, joining Chief for this quarter our as XXXX Good joined full and well and initial by of Thank XXXX. you as I fourth our am Cahillane, our morning Officer. us and for today year Amit our results Chairman and a Financial outlook morning for

Slide our shows usual X forward-looking statements disclaimer.

statements As aware, statements. today, are materially for you projections could Kellogg results future certain different forward-looking made are such projected. those performance, as from be Company's Actual

slide information cause well that could as concerning SEC differ, as these to further our please factors the this of public presentation to For third filings. results refer to

of on phone be be A days. least available call will Thursday, via XX February conference archived webcast, replay be also The which will call at available will by today's for XX.

As results referring always, and and share. we net to basis operating them currency-neutral basis currency-neutral when be for sales noted, otherwise for adjusted per a referring profit will on outlook, a on unless earnings to and our

July's discuss divested the that divestiture, note of and only net Additionally, please we profit. referring the sales absence impact be when businesses, we will the last to of

And now I'll turn it over to Steve.

Steven Cahillane

to to sales dependable delivery. all aimed XXXX of investments in foundation on The this year, we primary books, good Thanks, would stayed growth, did is on pleased and through at we're the for and QX. the significant goal was what the solid all in everyone. changes of we with we that. we John, net And return throughout we spite year building in do organic and did said morning, financial We strategy a steady, and now long, plan progress made. XXXX made right and was

fourth through In X our accelerated right growth sustained Slide quarter. fact, we the shows that

sales this four year, that net Deploy price for to several strongest the this grew growth all the in and all For utilized was is in performance full in We we regions, years, We positive for is sales net market management organic evidence restore our and revenue and our and working. quarters quarter growth organic the year key best strategy to Growth all growth our realization growth X in end categories. with full in countries regions. improved return

busy foundation future. as build Even were XXXX driving delivering to the we plans, were changes for on a intended our we important

faster X. make significantly Some and silos, With in regions. of we allocation and the these Slide We changes and then organization America the can holistically business fewer resource restructured layers reduced at XXXX, by on starting our with year, more and international shown North assess the of investments are followed corporate now unit beginning decisions.

in X portfolio its a businesses on enabling and standpoint, rate From our growth divested This our transaction. a profit while focus to sharpen single divestiture organization underlying core businesses. our its improves we portfolio's margins

standpoint, pay proceeds flexibility we $X markets. from in emerging of continue billion We And our by investment using enhanced expand financial scale debt. to an divestiture also build to and the down

in Africa we In in Egypt facility. the We in cereal and shifted Africa. noodles addition businesses, well we to growing rapidly as local production Africa. distribution more of new, to efficient time built Brazil Pringles our of Kellogg production established first up a existing of in South as noodles And Latin for America and

well will capital upfront these future. some into profitable but was the moves, growth to facilitate related There costs and they

we results return that It's detail go more had to we said delivered emphasize and actions of our we want we do, and guidance. portfolio All I our delivering business financial doing these that moment, the what that on but will foundation to includes this with large important, building. a in into dependability Amit also to starts and and were they greatly guided the realignment we contribute important to. are

dependable We of moment, you the plan are in X. in including the this this financial just delivery. to Amit through elements Again, but sustain XXXX, specifics balance key on balanced performance a a plan depicted will Slide walk more

should XXXX First, to feature balance It plan net biggest, think sales organically by continue most be it And grow our between differentiated we be to should little X% again, we is price/mix. the our sustainable. and more and range X% to broad-based, volume in should in that brands. it led a

to as our underlying We'll improve continue swinging profitability, continue to operating impact. productivity chain complete the profit and excluding divestiture utilize We'll tightly. plan growth manage the our management, restoration we improve overhead supply to Go savings of Second, continue generate margin our also we gross the gradually in to On to margins. profit revenue growth, our

Third, we will behind brands. our increase our investment

RX investment paused had advertising opportunities. recall specific is Some sizes. supplier-related when during we its XXXX we increase increase first pullbacks of of and this do most cereal in as related harmonize to pack new such as around is to And in pause the half we U.S. of the

we're growth. build a plan. increase Incogmeato, These with In but forecasts meat opportunities, offset improving commercials our continue other Bowl. as cereal, we're not we the going internationally, unique cash a U.S. enhance Super week this our balanced by down flow are the flexibility, For In all-in and pullbacks. not XXrd We're there year after planning to only we'll by and profit all harmonization-related delivery product using flow, just for for are sustainable to for prudent launch we in are cash financial help foundation and reinvesting of And the that example, alternatives, expansions. during on of dividends our promising also a launches investment. more ready-to-cook debt. our And finally, lapping short, Pop-Tarts a this Pringles paying comprehensive and

let take results you detail. Amit and will our more that, it through turn over with So in to me who financial outlook Amit?

Amit Banati

everyone. morning, good and Steve, you, Thank

investment four sequential acceleration sales featured year full margin. are net in finished with organic results summarized overhead increased XXXX that on a We featured and A&P X. growth in and four quarter and profit gross effective again Slide It management. in sequential improvement Our quarter also XXXX

of Excluding good the All finish of flow. delivered it year. cash growth, the a year-on-year profit to operating in, the quarter we divestiture, solid another delivered was and impacts we

business on by it operating sales negative We'll were profit these the which obviously July. in the in results of sales, and offset profit quarter net The and and on more moment. earnings closed our at results affected per businesses a reported net absence more detail a go operating divestiture, end four of had into than share. base growth The impact in

with profit. year ago in was as quarter line offset as profit earnings divestiture fourth some by was quarter favorability decreased impact business of the and negative expense items in finished Our the Interest operating four growth expected, per below to using in quarter markets, because the owing share soon base dollars, investments. four quarters very divestiture proceeds Other it in impacted insurance lapping to our of favorable year-on-year, income but to four absolute quarter in which the similar financial the pay recent of in XXXX down debt. was impact

from Our a effective tax rate modest tax benefit. benefited

divestiture, by also $XXX Our specifically million. cash almost flow by the affected was

upfront taxes, was this some but in costs businesses' as, in flow. included taxes divested the are not discussed on As included million, This not divestiture the also most the well impact profits. Remember, previously, the as timing cash the absence $XXX the the significantly, flow, differences proceeds. and are of working cash capital proceeds just

Excluding cash this was divestiture flow impact, quite our stable. base business

incorporate for It's divestiture. had during finished year on important the metrics guidance the XXXX whose the we to changed X to been note that our each guided of only

despite mentioned, reorganizations, Steve predictability near-term As dependability, we're demonstrated for macroeconomic shifts XXXX, investment and some we aiming in challenges, second and particularly in improved even the and that half.

net on of XX. Slide go We'll detail. more growth at Let's with P&L sales the now into top start the

end Once We to coming bringing X grew all of full in continue growth organic quarter sales net four. strong in post X.X% the the in X.X%, our guidance range. organically regions quarter at growth to again, our net year sales and high

the management than continue between Among X% better globally, four we both quarter in led realize a again, quarter categories quarter growth in year-on-year. sales in growth. North of volume, sales of and and Frozen price, the to which solid Cereal quarter in its meaningful our continue four, increasing revenue noodles organic saw and Importantly, post we growth net growth other moderation actions, on more all America's in grew products had flat best a foods X were the much regions. and to balance year, price/mix and continued snacks, of decline. growth reflecting international

impacted In results, divestiture net sales out of the about negatively growth by full X.X%. its first quarter our

quarter the For back of consolidating impact by offset our anniversaried impact distributor, directly was the two. Africa positive its which Multipro, acquisition in West full year,

It quarter. was at Lastly, impact. in year after all X.X% currency fourth running translation a neutral negative finished the negative year, the

profit Slide gross our margin to let's Now turn XX. on

that Our every is gross goal profit to played year was margin and exactly it improve how out. performance this sequentially quarter,

Looking explain at improvement, with divestitures. have let's the mechanical the and buckets impact of this acquisitions to using we been start

The No divestiture three. quarters a and for then headwind full Multipro surprises it as have here, anniversaried in a in month quarter during three. divestiture quarter tailwind more quarter created and consolidation the two, until tailwind of small a as beginning we'll this created two well

ongoing our [indiscernible] may our inflation input inflation there materialize. during was a There packaging moderate some cost This major are so that to is various have at little we sugar, potatoes costs, had of no negative. rate, which more inflationary. and any bucket moderation, our done expected in least modestly the And of savings. types while that productivity cost [indiscernible] remained and Next, underlying XXXX, changes should net see

as anticipated. start-up mix We we bucket, there did four some lastly, and which on plants. new costs during and the moderate growth-related country had is have still we shifts, continued And quarter had to category negative

and of Go margins able pack of price formats. On this the However, sequential with offset we to realization were restoration on our much

traction. past and costs to this over get negative bucket programs start-ups expect of to We we as productivity get the brand and continue XXXX less gain as course other

in of but back On add shifts profit of investment related organic also we growth our quarter. year-on-year in quarter an impact four only good of another in to growth, continue benefits related operating decrease Not quarters, getting Partially sales during to The net to was SG&A to overhead quarter we the realize in the favorability this gross organizational to A&P offsetting elected restructurings divestiture. in decline the prior early the before moderating and from of margin result some overhead investment. was year. increase will this expense, increase

So financial results. to XXXX's wrap up

it's margin We gross and organic performance we'll top growth, sequential sales We across each continue in Let's improvement And most net our brands all that financial priority. our and area. of which we important important turn steady to to was planned, XX. made this in profit make Slide as regions to important in to see returned quarter and categories. grew progress

fast-growing incremental in markets, quarters for certain in primarily invested in We markets. developed in but levels brand-building XXXX's capacity, emerging the We in all We pack future. large year, investment, our lapped formats infusion innovation. year-on-year invested of in fourth invested were supported foods the the key we our brands A&P in and also while And quarter. that increasing lower

for flow. earnings sales, our balance net sheet, the gives operating strengthened we to on guidance down delivered of us profit, flexibility. our divestiture and And share the This We added proceeds financial cash per pay debt. using

let's to Slide guidance, shown with Now our turn XXXX initial XX. on

behind flexibility macro we less opportunities Steve up contend that outlook providing some to favorable and financial the investment step specific a mentioned, environments. need believe prudent to we results delivers we As have with while balanced some

range. run continue X% in We sales the X% expect organic to to net to growth

businesses Some challenging like lap the XXXX, Brazil do near XXXX, and better continue Nigeria, and unusually did others conditions will will while than performances term. face will strong macro in of they in to some

whole, the rate performance. this On solid, growth sustainable represents

improvement. end the the benefit XXXX, about a absence organic expected experience, has negatively of and impact is of growth about adjusted growth, profit of our brands excludes prior operating includes growth impact businesses approximately mechanical to X% divested sales operating the the course, is the also a those X businesses at partially a business. organic base initiatives, to Currency-neutral based points. of by X%, business than profit return in of which, typically X.X only negative which increase on decline offsetting sizable more in percentage This amounts week covered for with base profit, in investment, of XXrd the about net swing for investment, the a growth XXXX from projected benefit XXXX. absence underlying XXrd in divested gradual with growth is as This increased to in operating percentage line our from big by by divestiture. points right a the of Excluded and even a the positive plan The impacts steady, is The week. of

mixed. expected return year base because the assets roughly proceeds, benefit income of divestiture on to full of business by profit our divestiture's higher year. the the portfolio X% of to negative from pay the the items markets, debt by considering than decrease because is in risk on reduce financial last Interest on EPS divestiture the lower to will though by debt full decline by more strong down the year's in are pension the Currency-neutral X% expense a operating adjusted pension expense growth after impact decision Again, line, assets. positive recent impact will be using and and proceeds to of offset X%. be fairly expected our partially reduced interest offset is other Below last our various the of year

and mainly to average will higher we as be rate benefit, other lapping share outstanding drift shares the reduction likely repurchases. will On over discrete tax our prioritize our hand, higher, XXXX's effective due debt

cash billion. shape couple to strongly a roughly base of normal this our $XXX to $X close absence factors base the flow. results rate, business' alter divested of even There definitely This to are that business run our business' less flow the of finally, -- after -- cash should quarters is our million increase And even year.

divestiture sales XX. includes year-on-year which end highly impact in what in in X impact the is almost is first four. first it the to Remember, year-on-year to also you'll quarter quarter see has That's impact absence XXXX. business' of the X in at And of quarter months a has in the divested as year. other The the And and the words, of why much we shown Then business, entirely the the the quarter In second one. only four of impact happens net weeks larger saw three XXXX the [indiscernible] of be as of July. the seasonal quarter Slide similar the only months on This profit. laps should opposed divestiture operating divestiture. impact

to factor second The consider timing investment. of is

reinvesting weighted from why increasing quarters. As help of impact to the even extra this our are we There mentioned, investment good some is it. are XXXX, two fund the reasons to the heavily year-on-year in meaningfully XXrd bulk week profit first

First, there some that deliberate businesses are lapping pullbacks. are

For quarter pull size its last cereal supplier-related the during harmonization. had during RX example, had first and to the pack its U.S. in year following one pullback back quarter two half, recall.

simple is calendar Second, there timing.

to two. For Incogmeato late Pop-Tarts be alternatives Bowl Super early quarter And one our Pringles launch and obviously quarter in had instance, initial ad one. quarter meat of for is scheduled and

increases first So benefits the week, XXrd which only and investment four. then divestiture impact the half And the is quarter weighted. are there

improved plans entered up we XXXX. So XXXX condition our results solid good about in improvement in financial gradual We continued to section. with our and feel XXXX, and for financial financial wrap in

Our are goal the is delivery, steady, we dependable right track. and financial clearly on

turn me our of that, businesses. it of back let with for Steve And each a major review to

Steven Cahillane

Amit. Thanks,

XX. both Slide QX, our improvement of year in structure. to America change, progress a our completing and amidst in North continued organizational with to America begin tremendous North show portfolio Let's to

for the North the On fourth of drowned by recently little in grew the face than business. results the the of get XXXX differentiated about categories. quarter slightly growth absence our was time brands, divestiture and full X% on reflected our out impact X organic America's percentage the on fourth The and well It sales most can was and divested periods of P&L, consumption Both America organically all North led quarter. in was by by points slide the more net of core year. product sales. sales significantly We with incremental represented a we best lines gains This the through XXXX. it in growth net see starts biggest, across our our performance as innovation. since growth It that as consumption, most right in improved you the

good year consumption From grew in of in businesses they of this as a net also profit profit Convenience four. than year-on-year aided the of a divested impact growth categories We most in away-from-home included base quarter key Foodservice the offset than business by and channels underlying more and organically full quarter the results And absence strong look standpoint, sales our are in profit the both increase A&P. in in growth our our mechanical better channels. across our operating growth

So we profitability in even as the for line worked improving future. restore make growth to to continue progress we top investing in North underlying America, and our

snacks, detail. start category North category major more each little in with discuss largest let's America We'll Slide Now in on XX. our a

led as driven sales all each quarter just see, also net launches been is in class the our revitalize As many XXXX organic in revitalized has power driven This another of and solid this other was by you we by consumption of years was can recorded year, And to brands brands but it in successful we we that XXXX. most in innovation our that categories. growth X began business. of by in it

to Cheez-It from on sensational and In growth platform of year's whose equally continue core we strength outpace year category double-digit Snap'd. the came innovation the lineup from this crackers, this the

returned we to Importantly, the also cracker as Club brand well. growth

commercial but continue will expect also in crackers We have XXXX. grow comparisons to capacity in Snap'd. for have added be and to supply-constrained tougher, plans, we we'll strong Yes,

fourth to a continued the despite strong ago notably in grow Pringles quarter performance. lapping consumption year

been has we pack Go consumption incremental, immediate continue to grow including line multi packs. our and Wavy new Our formats, the and also On

with the have kicked new we got this XXXX, plans during Super weekend off them for last our and We strong ad brand in Bowl.

cover packaging increase potato to Pringles. rising are and grow continue can we a recent to even sharply with costs, confident we So price

Rice quarter from in core innovation. in Krispies to another Finally, Nutri-Grain, also we XXXX accelerated from consumption. we and XXXX, and powerhouse in whose extended is back revitalization bounced growth good include brand our growth portable brand Treats both Pop-Tarts efforts to growth and grew which snacks, a -- year wholesome had

its America snacks So good growth. sustain to is in North position

in XX. to Let's Slide now turn cereal

sales see, talked approach meaningfully We can net moderated as last to not to about our it. fourth we our opposed declines do big return less take our decision to as more quarter activity. disruptive you size bang gradual, As previously We've in regret approach. a to full the commercial harmonization year a pack

that Our immensely we cross-promote shoppable, couldn't shelf and is brands previously. can more we

In fire behind business. not full than While consumption the made we meant yet compared our of quarters, towards X%. That's quarter, this for progress on a almost able stabilizing being to by us. down our fourth being In the quarter, all moderation. it declined couple cylinders our best to X% it's year significant consumption a less

growth brands We, share Frosted in ramped Tiger Pops like segment, campaign its the Taste/Fun share again, Flakes and well consumption where in and Corn activity. Loops, accelerating as our grew and Krave with up we growth behind Froot Mission as commercial

late In K overall. in further moderate positioning we quarter, declines campaign health the in brand's and helping our air fourth went wellness, the third Special new on slower and saw this segment in declines and the quarter,

segment in our is we leads, but instead didn't which many where on Our not were ensure brand growth we one advertising yet activity due lapped principally shifts all quarter footing. progress. to year four, behind good fully production is choosing that haven't only made to and recent the ago to solid third family quarters, This and return in fourth the

markets we for incredibly about lot fact to good snacks, is foods and performance businesses, recognize return reason, the is sight and we our to cereal and XXXX it talk improve that in lose we I expect but as that never important support. legacy. of us, our We full a to emerging brand's frozen

full to be we activity. we cereal, ability in perform commercial plan In that more more no confidence plan in-store emphasize about. with and our it much year good innovation, respect mistake, to XXXX, investing brand-building better I to in a of feel Make it. exciting executing more that want very in XXXX. our to are win includes a a activity, we'll It's behind

and again the see growth. Morningstar foods We It XX. accelerated XXXX of generated category on Morningstar, as can North line, plant-based Clearly, gaining and meat Slide discussed, frozen its at fourth we we're growth Farms, Let's the the Consumption product our Incogmeato this in K-XX leading the increased should share. communication, quarter of growth segments, quarter in again, built with slide. performance. Impressively, our with working, breadth across quarter discussion expanding as ready-to-cook the a along brand double-digit America complete first And consumption the accelerated on we've we'll you of strong frozen late line. share also distribution. schools. good driven was rate, Foodservice with our and has is note on product alternatives, been enter brand another in

obviously, excited So business. Morningstar we're about Farms our

frozen organic for Kashi the Eggo's growth from premium consumption and frozen frozen for as griddle In French has Fluffy subcategories, waffles, as nearly business, which which waffles breakfast, and the a as reflected the year. and well Overall, of sustained its this continued declined the pancakes phasing breakfast French X% led occasion. Thick certain accelerated our toast, as also this all encompasses natural out pancakes grew consumption has products. grew toast our year-on-year we subline, by including but expected, XX%. core growth noncore & in pursue innovation quarter category full our in in been by and by Eggo slightly almost That segments momentum

and growth North expect steady America frozen in growth behind momentum foods XXXX. of continued expansion the As and we invest Eggo, Morningstar sustained in Farms in we

our the with our growth fourth organic sales quarter this Slide year quarter mature challenging Now good and very net with straight starting markets retailer Europe, XX. a on some region another let's and region, businesses, Europe ninth in very environments. discuss international had We was in of

gaming, growth year. grew featuring markets On new targeted program to our crisps expand the formats. in U.K. full led Asia-inspired Driving promotional high growth Leading gains and the this and continuing region a by quarter a rice-infused finished It Go throughout our platform Spain. toward the has innovation been double-digit the pack like growth consumption been Pringles, has which with in single-digit and

in executing lap but and our plans XXXX, strong, We Pringles are for well. have we're big to growth commercial

a cereal taste had cereal. good year by second good in We to returned Coco and our of and a Crunchy led fourth good half consumption like Nut, Region-wide, Tresor. growth in brands Pops quarter the XXXX also growth in

and XXXX. packaging similar confidence in executing U.K., elsewhere Special to the returned has K programs New positioning in giving growth us in

market, pleased grew for almost especially the year with performance X% U.K. by We're consumption the we X% more the fourth that our In and in overall. than in quarter.

on innovation to is So we've good Squares continuing U.K., this reasons believe least the on be work we the XXXX. in got master cereal and Europe XXXX France We performance Italy. the we snacks of progress stable in in made can more on plans in wholesome with in have expansion good to to our and transforming business extra brand at some Kellogg's brand XXXX. still in There Krispies stabilize good do, in for by Rice

Within as Granola. emerging local as an Russia and cereal, Russia, behind strong in in we have launch Central and double-digit is our Europe. Europe, Krave brand, do XXXX, brand share that In Extra well and market, the gaining growth consumption generated of we

to in rate Europe. Russia, We expand share. we to and Meanwhile, Central a into double-digit expand also growing continue continued Pringles gaining consumption at

deliver growth confident good in growth Europe have be and margin still reorganization in executed have expansion. XXXX. we investment reasons and So room increase a And that to in revenue management in with top XXXX we XXXX, to in enhanced line we again

turn on Latin Let's Slide America XX. to

divestiture. We net net in sales though XXXX, the organic continue by to affected sales grow reported were

share X was this continue did in and was we slide. In of transition XXXX, XXXX growth The a in major economic key market, business, America Mexico. in categories, Latin to principally challenges. drive all shown it momentum, we and the as momentum on year consumption our For and

market. in sustain commercial us have XXXX, again we in can momentum this that important confidence We giving plans strong

we distributors, chain. and changing The Brazil our where are where in transition supply was transforming we in Central are America

in Specifically, São we site started for new production production up Brazil, we plant our Pringles our into Paulo of São Lourenço and cereal modern out on a first [ph]. moved local in Paraty

supply quarter have and -- All during especially and of three these incremental four. they These behind us during chain constraints moved did in temporary benefits, XXXX. quarter actions but result issues supply long-term strong costs

affect In is were softness biggest market Brazil to our America And continues then well. Meantime, there seeing challenges. across our economic Central the softness and Rico, Caribbean in subregion, categories. economic Puerto categories as all

able While conditions, been drinks. in cookies, has these consumption salty have cereal, our growth we growth to our and in been snacks categories, sustain slowed by including Brazil key powder

we the XXXX, economic a in Kellogg persist top in positioned line XXXX be and expect in in while typical growth line challenges was like are So Latin back bottom may not year XXXX. these both how markets. into in we for America, and we to

We'll with net strong finished XXXX the shown our We region, Slide on AMEA, XX. update growth finish our very fourth business fastest-growing quarter. organic with AMEA sales in right through

the of branded expansion business. of the strategy and East, play continued to results a and our noodles our new with year out of Kellogg's rapid a Africa Our as first in well AMEA full as realignment Multipro into Middle North Africa Turkey businesses

in growth. off generate of [indiscernible] conditions managing We in challenging strong started up Africa. [indiscernible] through Though Middle in of Africa. during of that by macroeconomic strong production growth year Pringles, we slowed the conditions, continue partners key West to our [indiscernible] the this experience East, good in particularly in in business brand the paid and South saw and results This [indiscernible] [indiscernible] competitive local

XXXX, was growth Asia growth in in cereal, market We consumption In by this Australia, accelerating the also region, aided cereal XXXX, by and in generated returned good for in during in quarter. in gains growth to growth fourth Pringles. in share we broad-based markets. And cereal developed growth quarter. several fourth driven the our even was Pringles both including Consumption

good We a and also saw consumption share Pringles. gains in

fourth incremental should and AMEA in our place incur view slowdown back costs in in profit for even continued related fundamentals Pringles, in for costs we are We XXXX. which West did start-up was in growth So growth of Africa, temporary, production some some in quarter, would to with but XXXX. economic-related during as AMEA these the be

wrap with summary a brief up XX. Let's on Slide

profit many in of essential top discussed XXXX. sustainable, line and and growth XXXX net As it and is cash we growth to XXXX times, our we consistent the this. objective this organic return growth. sales and achieved for returning our stabilized element hardest as XXXX, most We And flow solid was in accelerated primary to to to

operating to to we aside XXXX, good in net can this. and our sales mechanical grow leaving impact Now be profit, are divestiture. both goal is of There confident do the our negative reasons

all, more even couple geared our toward years a than portfolio growth was is of it of today ago. First

seeing only Second, and we're [indiscernible]. broad-based been in not all organic growth, across regions but net sales multi-quarter it's improving in momentum the

and investing profitability. with finally, execution XXrd has we're a a a our leaning in improved we've in capabilities And investment realigned improved improving organization, that Fourth, year incremental week. promising our into gradually enhanced Third, opportunities, service. we're

growth isn't financial the of more Growth cash operating our next compensation Deploy flow on just to and the for paper. on well. phase organization balance made to metrics, focusing We're we've model, our and profit words and changes moving programs Returning to incentive strategy as

growing and start, We improve a for excellent flow and are for XXXX was XXXX dependently profit sales, long foundation an cash time. building a it. will on

our of couldn't As and the to always, I'd our dedication of really any skill organization. do We without this associates. like thank

we'll that, it for questions. with open up And your

Operator

Instructions]. [Operator

from comes Powers Bank. Deutsche Steve question with first Our

Stephen Powers

the guess that only XXXX about -- is as go really low we to discussed, question past business growth your either line business So top the look, of ahead performance part? a despite this without product you line you've way, XX been investing higher over Is of inflect you're on week of I'm is growth of will of do that But you think do that solution. expected that a Is definitely despite day do as underlying take improvement the about cost it reinvestment lot think part what sure in the high? that's you really momentum has plus that and the of conservatism bit just extra at. that? improved. just, and year, to And doing guiding acceleration. and through I forward the growth rate And any Maybe underlying XXXX months, what productivity the run plus? the top how how think we guess beyond? not profit I the is, further single-digit further

Steven Cahillane

Thanks question, Great. the for Steve.

our that we're profit divestiture. back really swing I'd that a think but swing the we underline ex giving would prudent, to consider I the guidance is also X-point

a business from from is to perspective, minus improvement. we think, base a X, meaningful X So plus a

we remarks, as prepared top mentioned the XXXX. X.X% performance the line during perspective, in XXXX it's at since And we best a had from plus

continuing reinvestment of we're X% long X% against So line based that see. to guiding time. period growth that's on substantial business towards that And we opportunities quite top with terrific the a in

feel we'll across momentum, but many prudent, and be with broad-based that's we continuing that categories. which line so very pleased is top And

think we on on strategy. so And It's plan. it's

to show against our good progress continue portfolio. We

us. reorganizations The behind are

good year. place. this very Our service We're growth management very got plans from innovation good in some productivity We've lapping levels revenue are improving.

Our to emerging markets continue perform very well.

continued pleased positive we're XXXX. well of momentum. shooting again, as where operating we we for. as positive so XXXX top momentum is continued And We good end the X-point swing a will year what as profit be line with think are a we're in And

Operator

question from with Jason next Goldman The Sachs. English is

Jason English

Two questions, if I may.

us give cereal to that? some Can you made business. context comprehensive more a North First, America reference you to your rejuvenate program around

Steven Cahillane

for the that we us price underwent But for bang, thanks Jason, will, to because of competitive a year, behind reasons. the package obviously, was question. going I whole now. as transformation last that's lot give -- detail, not said, I big I'm a Yes.

from the and momentum. good look good in got year Taste/Fun segment did we entered so it well we And shape. you XXXX, a we've at if segment, perspective, And on the in

good good showing program, momentum. as game, Mission things at like look You Krave, complete our Corn Loops bowl with Froot well. football a momentum, continues to Pops college Tiger show

good. that's so And been

Rice is K wellness. more all we where in and in yet, with that fixed on -- a big our focused new simple the on segment haven't family to the cutting we and just seen and program in Frosted declines Mini-Wheats fact, we Krispies focused mitigating in that, Special get have big against the have really food Our to it. own It's program K, actually we half Special and we've the

promotional year we We activity we Mini-Wheats, front last responds brand based on where Frosted our held some against as promise constraints it. lot with we in us. that back Now got see of of good had know on network. good were realigning know we we've We that ideas a supply

to I a see we we the compete it, it in three us that and year segments cereal. XXXX much we in, we're as win said, at in So better as look for as

Jason English

more question, holistically, second just My shape the Okay. at looking P&L. of your

packaged suggests by is a year delta substantial with You're out delta. already at your lowest compression going the fairly further large-cap even there foods guidance And that, EBIT. margin company the next widen margin, that to overall

business? coming You a is I this that good at good margin -- generally operating for for think look like It's price give categories durable surface your portfolio, of your profit perspective this offer Because seems bit you margins, said in margins. Can you if P&L. and I with also I'm growth not points you operating what thought profit at X% brands still us you're to the to your X% confounded, it and rate you're a was a on durable that business. should afford

Steven Cahillane

Thanks, Jason.

year return question. aiming let well. the said as that. to What saw reinvest I and you chime I'll business it's start of as an and the top we've for through we we're think And expansion to is excellent Amit all this happy in line in growth. course margin

constructively in You the as margin XXXX. to where into the that sequential quarter. And course as improvement we're go year, saw across of we through continue our are. to dissatisfied aim the And a we including expansion is margins fourth

got ongoing So to that. we do believe improve opportunities we've on

want... as look margin well. always expand a many our not And of base. Amit, do off North business, we'll and as continue continue coming XXXX, in our We're transformation to only that of you work opportunities for cost business look European address lot costs the at in of our relentlessly America to we

Amit Banati

what said. bit just think I a Steve on

start stabilize for if kind a to be our think with would goal gross I -- of margin. gross from XXXX you margin,

that moderating and pricing we expect of input a in see offset I think combination to program. as the costs through would savings XXXX as our well

goal from stabilize So gross forward. margin be standpoint, our a going would to margin gross the

investment our standpoint. And XXXX we'd opportunities see in in in I that continue to planning think top in the that we to from drive a to behind as brand-building the like invest line. increase year are to remarks, prepared meaningfully we next we momentum mentioned those are opportunities

number SG&A the on of and a realign the seeing of always an you're that post initiatives that's working that P&L. benefits business initiated to something standpoint, We've the divestiture, come on. we're through the From

think And Scale making [indiscernible] expect we're then in I'd see businesses. from margin of our -- on we progress [indiscernible] to gross we the those an emerging good emerging standpoint, scale the margins. the markets margins as improve should in say I [indiscernible]. market emerging improves, market

Operator

is from question Dickerson with Jefferies. next Rob The

Robert Dickerson

the number on question It's side. three margin Great.

seemed just some as -- X [indiscernible] you profit first et improvement is XXXX sounds your through So there's margin, like you margin to stabilize the cetera. operating gross sales organic said expectation so it sequential year, it investment, hopeful sounds, like just -- you're maybe X of calling in half two, in get it growth, given around

when growth brand not line, mix, the investing. it's bit was speak, actually relative basis to one your historically just so to, does lower. little if Jason So you it mean because, has Kellogg that overall increase you. and of an to advertising as Obviously, structure plan on advertising that reallocation? your peers, in support, what in is other massively And investments is a we alluded was like as or support brand that and that say under top [indiscernible] margin you given for operating But invest to asked I more kind have

to that to over So yes, driven improve time, a leverage? actual guess, is by hopefully volume basically, short your investment to question get in dollars will your I point margin you increase

Steven Cahillane

reinvest question, to going the increasing growth. do our Rob. we're brand-building investment week. is plan on to answer to than yes, to for continue simple said XXrd more we We've going that. Thanks to drive We're that the The Yes. our

plus, And committed we're incremental because you you done And in week being have so little above more. responded brands and see that we've bit we're to when you the -- and that XXrd invested at investment that and a could doing revitalized see the week the very look that a really we've well. XXrd

Cheez-It showing Treats, in Snap'd, I marketplace. so Pop-Tarts, and momentum mentioned And Krispies cereal. terrific all Rice Cheez-It the

the we're We've do at come Europe and opportunities Taste/Fun have free. environment got as I've around we're pleased a seeing macroeconomic early good those that of a And doesn't challenging look indications It Europe, we our in there, to despite for there. many momentum with said. see we countries. we job when brands,

Incogmeato. the I So final [indiscernible] Farms ability our And ROIs tell prepared continues very good investment. in we called on our well, you our is, to business mentioned to the very as Morningstar thing I'll get see remarks do brand

[indiscernible] exactly it, buying but big reasons, against to investing and into to not we're for see what spending going something. brand-new that, and we're very opportunity. launch, in we that We're spend we a [indiscernible] I'm which a competitive going against get Now obviously, as

food. there. have you terrific We've We're CAGNY got all when tried it -- at excited to we're

the sustainable performance. dependable that which continues long-term margin our see we So and continues incrementality beginning swing top long-term this very line, think launch. and excited, is gets into the what investment committed in off XXXX, that us will we're again, pay it growth we're enthusiastic balanced that plan for future the as is looking expansion well because, X-point we the and pay again that of to that's what And we behind have, off

Robert Dickerson

free a then Great. follow-up flow. quick just on cash And Okay.

repurchase -- not the and buying pulling little acquisition more and on let's but a of back the be time, to cleaner forward I think of balance have more a bit net bit bit a sheet, firepower back bit vis-à-vis the flexibility near-term activity going have a a acquisitions really a on lot more on is stock? there Is little bit you said benefit, you rationale a there's front, say, deleverage. little focusing -- financial same now you'd like at flexibility, just and to

Amit Banati

Yes.

I think that's right.

year pay down us be using to cash next create will flow I free going forward. the our think and it flexibility for debt

Operator

Laurent next The from Guggenheim. Grandet with question is

Laurent Grandet

I disappointing. were divestiture this you like mean, or is performing the mean, line line dig more in I mean I I XXXX. so, guidance. a Organic X.X%, mean, growth on top [Indiscernible] guidance I And did, sorry. to X%, more XXXX, business. bit I mean, X%, the a year we than the top almost expecting less in plus

everything seems XXXX, businesses, it what -- the to in is watch you that you right So what going your is is in highlight in surprising all what direction. also when

question. makes what missed pessimistic so that's a way? in you there So anything first there? is So And we my

Steven Cahillane

I since way XXXX guidance. X.X%. been performed everybody remind just as again, it we you, characterize call prudent wouldn't that pessimistic Thank Laurent. I'd with the guidance. in since it XXXX And plus that performed it's we I'd

hurdles got had And in all obviously, we've that have successful big some innovations lapping that drove performance, to we that this year the we'll we'll that anniversary. so be place

do but we to we be we're how that. think that, we'll Now be want prudent confident about able in to

in certain macroeconomic challenging have markets We like West forth. also potentially Africa conditions so Brazil and and

So the that our we will But better. get our continuing anniversary think behind prudent. on and and is do mean, based wrong. X% and macroeconomic not on momentum conditions, we history investing and continue We long-term momentum, and plan us do momentum potential I the

Laurent Grandet

second is about exactly my And Yes. Brazil Nigeria. actually, and question

and You what from mentioned to X softness there in coming and Could in elaborate those of mean, some you remark, expect? color please your a I more give regions. prepared magnitude bit terms us

Steven Cahillane

Yes.

slowdown. saw definitely So if a I macroeconomic a Africa. start with We West slowdown,

our very some saw You and in well. We're it peers' forth. results of still performing so

not So plan double but a turbulence, in the high the market fourth continuing as is digits, we good. single digits quarter, out some coming same we on there's high and -- that. where single quite think, digits of That's perform

in general. Brazil, goods consumer obviously, of same conditions, forth and type macroeconomic so affecting consumer sentiment that's

continue we well. perform Now to

gain Our continue to share. and categories cookies, biggest crackers, to we continue well, perform our

for we reason a see prudence. worry, see don't for So but a we reason

very we Latin We wonderful very São Pringles line on Paraty. lines moved, pleased supply changes in our production production in cereal also the that a facility about in facility. We're world-class a as brand-new made to said, Paraty, also We chain old in Brazil. a in plant Paulo first opened America, in I

volatile in lot are two a But to reasons to by be markets. about ensure just those want we're emerging markets and there's positive of nature, that we our again, approach. So prudent

Operator

with Bryan from of next The Spillane is America. Bank question

Bryan Spillane

is understanding that to re-basing of mitigated you've -- is the items in those income, overhead becomes investments, operating not about And second 'XX nature? it wanted the One divestiture I investments? more the your kind through that the the Or got really A&C be Keebler fiscal much 'XX. two and -- sort that TSA XXXX. higher thinking [indiscernible] was of just stranded the overheads maybe flowing for then guess, think just in fiscal better I a agreement, incremental I because a the two, stranded get would Just better onetime of of related, reflection is are of my

if remind overhead, So an on that. the just, again, and you stranded the us the mitigating of idea of size can give us then pacing

Steven Cahillane

second question, Yes. take one. start the and Bryan. the I'll let for Thanks Amit

will So right? you the can think in some of that marketing onetime So in and launch we're RX nature, the of Incogmeato recall being it'll lapping. of this terms only investment launch once,

bit opportunistic a would being how as being you agile really to take event onetime there's investments can think the So XXXX week, a onetime. look year interesting particularly be In want I throughout you go not a necessarily And categories against to think this? in. in XXrd of re-base we as the we're competing investments is in Do we'll we as nature. required, obviously, but about that towards continue

Amit Banati

Yes.

Just on the stranded costs.

to realigning continue terms already see obviously, in the expect XXXX. through some come in And and we'd of to that organization. of initiated 'XX, So some we've benefits we've actions come in seen

as our run our of However, TSA, are, course the through to TSA we XXXX. well. And we expect

TSA, off XXXX. once So some come addressing that the that, in be would more we of would fall

a mixed So it's bag.

Bryan Spillane

stranded overheads of more remaining? in the with fall terms Is 'XX what's into in of of 'XX versus magnitude order recapture of

Amit Banati

will impact XXXX stranded also deal I'd 'XX some we're with be some costs once costs. addressing XXXX. definitely in in and those That the but already. in would But be definitely come say XXXX balanced, we there TSA stranded off it's and

mix. it's So

Steven Cahillane

only time Operator, has be more we and have to for short. question, it one

Operator

Goldman comes that from And question JPMorgan. Ken with

Kenneth Goldman

not, about I'll you on very ago? its a you what's to distribution on talked us months Can -- few our Steve, extent going I a update had a there? give us update it give make if can has you short. And the bit you quick whether But recovered a hoped know quick little RXBAR.

Steven Cahillane

yes. Ken. Yes. to simple Thanks is the question, that for answer A

And that will you continues find fact, the example, a to now. recovered its minis, it's to exciting distribution. So expand distribution. right beyond really its can in RX coming channel lot previous for innovations oats that. highs and, RXBAR expanding of in there's Club expand

the we're that and you if momentum focusing momentum. in encouraged bouncing proud there we the Nielsen see It's Now And that potential back we business. nicely. velocities latest bouncing on the that it's you can at back to really its data, really the team that brand see in advertising the and back. and by business look the of see getting and We're

Operator

over question-and-answer closing to session. our I would to back like concludes for turn remarks. the Renwick This John any conference

John Renwick

your us everyone, to Thanks, today. do and hesitate interest, please not call for

Operator

now The today's concluded. you has attending conference Thank for presentation.

disconnect. may You now

Kellogg (K) 6 Feb 202019 Q4 Earnings call transcript