Q2 2012 Printable Slides

1. Kellogg Company August 2, 2012
SECOND QUARTER 2012
FINANCIAL RESULTS
August 2, 2012
Forward‐Looking Statements
This presentation contains by reference, “forward‐looking statements” with projections concerning, among other things,
the integration of the Pringles® business, the Company’s strategy, 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, brand building, ROIC, working capital, growth, new products, innovation, cost reduction projects, 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 integrate the Pringles® business and the realization
of the anticipated benefits from the acquisition 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.
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2. Kellogg Company August 2, 2012
Second Quarter 2012 Overview
 Quarterly results on‐track
 Maintaining outlook for the full‐year, including
investment
 Improvement in North America, and Europe in‐
line with expectations
 Executing our growth strategy –Pringles growth
opportunity
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Pringles
 Day One transition executed very smoothly
 On track to exit from transition services on or ahead of schedule
 Synergy projections remain as expected
 Top-to-Top meetings held with multiple customers – they have
confidence in this brand
 Demand growth remains ahead of last year
 Excited about combining Kellogg and Pringles talent
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3. Kellogg Company August 2, 2012
Summary of Financial Results
Second Quarter 2012
($ millions, except EPS)
Kellogg Company Second Quarter 2012 Year-to-Date 2012
$ Growth $ Growth
Internal Net Sales(a) $ 3,474 2.3% 6,914 1.1%
Internal Operating Profit(a) $ 485 -5.0% 1,020 -5.6%
Reported Earnings Per Share $ 0.84 -10.6% 1.84 -4.7%
(a) Internal net sales and operating profit growth exclude the impact of foreign currency translation and if
applicable, acquisitions and dispositions. In addition to these items, internal operating profit growth also
5 excludes the impact of transaction and integration costs associated with the Pringles acquisition.
Net Sales Components
Second Quarter 2012
(year‐over‐year, % change)
Internal Growth 2.3%
(0.6)% + 2.9% 3.3% (3.0)%
$3.47 B
$3.39 B
+2.6%
2Q 2011 Volume Price / Mix Acq/Div. Currency 2Q 2012
Net Sales Net Sales
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4. Kellogg Company August 2, 2012
Gross Profit
Second Quarter 2012
Gross Profit of $1.4 billion; margin impacted by:
• Continued commodity inflation
• The timing of investment in Supply Chain
• Lower production to reduce levels of inventory
• Pringles
42.6% 40.7%
Margin(a) Margin(a)
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Brand‐Building(a) Investment
Second Quarter 2012
(brand building $)
Higher in 2H
Y-O-Y Change
Int. Growth (b) 10% 4% (9)% (3)% (4)% (5)%
Incr./(Decr.)
Q1 Q2 Q3 Q4 Q1 Q2 2H
2011 2012
(a) Brand building includes advertising, consumer promotions, COGS promotions, and excludes trade spending.
8 (b) Internal brand building growth excludes the impact of foreign currency translation and if applicable,
acquisitions, dispositions, and differences in the number of shipping days.
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5. Kellogg Company August 2, 2012
Internal Operating Profit Performance by Area
Second Quarter 2012
(year‐over‐year % change, internal performance(a))
North America $ 425 +3.3% Good growth
Europe $ 72 -19.9% In-line with expectations
Latin America $ 48 -15.2% Lapping disposal of assets.
+DD brand building
Asia Pacific $ 16 -31.6% Difficult environment in
ANZ and timing
(a) Internal operating profit performance excludes the impact of foreign currency translation and if applicable,
acquisitions and dispositions. In addition to these items, internal operating profit growth also excludes the
9 impact of transaction and integration costs associated with the Pringles acquisition.
Cash Flow(a)
Year‐to‐date 2012
 Cash flow(a) approximately $525 million
 Capital expenditure was $155 million or 2.2% of
net sales
 Remain focused on working capital
 Did not repurchase shares during the quarter
(a) Kellogg defines cash flow as cash from operating activities, less capital expenditures; see reconciliation to GAAP
10 cash flow at the end of this presentation.
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6. Kellogg Company August 2, 2012
2012 Outlook:
Reaffirming the Outlook
Full Year
Internal Net Sales (a) 2 – 3%
Internal Operating Profit (a) Lower by
Including Investment in Innovation,
Brand Building, and SAP, but excluding Pringles
2 – 4%
EPS $3.18 – 3.30
(As Reported, including Pringles)
(a) Internal sales and operating profit growth exclude the impact of foreign currency translation and if
applicable, acquisitions and dispositions. In addition to these items, internal operating profit
growth also excludes the impact of transaction and integration costs associated with the Pringles
11 acquisition.
2012 Outlook:
Reaffirming the Outlook
Changes From Previous Guidance
Previous, As‐Reported Guidance $ 3.18 ‐ $ 3.30
(a)
Change, Impact from FX $ (0.02) ‐ $ (0.02)
One‐Time Change, Transaction‐Related Items (0.02) (0.02)
One‐Time Tax Benefit 0.04 0.04
Guidance Range $ 3.18 ‐ $ 3.30
12 (a) At current spot rates.
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7. Kellogg Company August 2, 2012
Net Sales
Second Quarter 2012
(internal net sales growth(a), year‐over‐year % change)
4%
-1%
Kellogg North America Kellogg International
(a) Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions,
13 dispositions and differences in the number of shipping days.
North America Net Sales
Second Quarter 2012
(internal net sales growth(a), year‐over‐year% change)
9%
Building on
Difficult 6%
Comps.
4%
1%
U.S. Morning U.S. Snacks (c) U.S. Specialty (d) North America
Foods & Kashi (b) Other(e)
(a) Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions
and differences in the number of shipping days.
(b) Includes U.S. cereal, Pop-Tarts, health and wellness, and Kashi businesses.
(c) Includes U.S. cookies, crackers, cereal bars, and fruit-flavored snack businesses.
(d) Includes food service, convenience and Girl Scouts businesses.
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(e) Includes the U.S. frozen and Canadian businesses.
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8. Kellogg Company August 2, 2012
North American Innovation
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9. Kellogg Company August 2, 2012
U.S. Snacks(a)
(b)
Second Quarter 2012 – excl. Pringles
Net Sales
$759
$742
$725 $729 $727
$702
Q1 Q2 Q3 Q4 Q1 Q2
2011 2012
(a) Includes U.S. cookies, crackers, cereal bars, and fruit-flavored snacks
businesses.
17 (b) Internal sales growth excludes the impact of foreign currency translation
and if applicable, acquisitions and dispositions.
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10. Kellogg Company August 2, 2012
Category Growth Kellogg Share
$ in Billions
Wholesome
Snacks
$3.1(a) 4.8%(a) 30.8%(b)
Crackers $5.6(a) 4.0%(a) 30.1%(b)
Cookies $5.3(a) 5.1%(a) 15.5%(b)
Salty Snacks $5.2(a) 4.8%(a) 10.6%(b)
(Potato Chips)
19 (a) Nielsen XAOC data, 52-week, 2011.
(b) Nielsen XAOC data, 12-week through 30 June, 2012.
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11. Kellogg Company August 2, 2012
15 Consecutive Years of Growth
1996 2011
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Special K
• Strong innovation
• Passionate consumers
• Household penetration growth
and gap
• SK franchise point of entry
• Immediate effect of TV activity
Special K brand
growth in snacks
Cracker Chips
All Other
22 2008 2009 2010 2011 2012E
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12. Kellogg Company August 2, 2012
Unit Sales
3%
2%
Category Keebler Fudge
Shoppe
Previous 52 Weeks
Current 52 Weeks Sandies
Chips
Deluxe
* Source: Nielsen all-channel consumption,
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52-week period ending 30 June, 2012)
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13. Kellogg Company August 2, 2012
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Successful Innovation – Snacks
% Sales from Innovation Kellogg Innovation Sales
3-Year Rolling* Annual
Cookies Crackers Wholesome Snacks 2006 2007 2008 2009 2010 2011 2012
Kellogg Competitor 1
Competitor 2 Competitor 3
2 Breakthrough Innovation Awards New Product Pacesetter Award
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* Source: Nielsen all channel consumption 2009, 2010, 2011
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14. Kellogg Company August 2, 2012
A majority of Kellogg’s U.S. Snacks’ net sales
($2.4 billion in 2011) distributed via DSD
Total number of stores serviced 22,000
Average number of stores per territory 16
Average store visits per week 4.5
Total deliveries a week 28,000
Average deliveries per store per week 1.3
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15. Kellogg Company August 2, 2012
International Growth
Second Quarter 2012
(internal net sales growth(a), year‐over‐year % change)
7%
Europe Asia Pacific Latin America
(2)%
(4)%
(a) Internal sales growth excludes the impact of foreign currency translation and if applicable,
29 acquisitions, dispositions, and differences in the number of shipping days.
Summary
 Quarterly results on‐track
 Maintaining outlook for the full‐year,
including investment
SUMMARY
 Improvement in North America, and
SETTING THE FOUNDATION
Europe in‐line with expectations
 Executing our growth strategy –
Pringles growth opportunity
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16. Kellogg Company August 2, 2012
Appendix 1
Reconciliation of Kellogg‐Defined Cash Flow to GAAP Cash Flow (a)
Year-to-date period ended
June 30, July 2,
(unaudited) 2012 2011
Operating activities
Net income $659 $707
Adjustments to reconcile net income to
operating cash flows:
Depreciation and amortization 194 175
Deferred income taxes (38) (1)
Other 34 25
Postretirement benefit plan contributions (32) (183)
Changes in operating assets and liabilities (137) (77)
Net cash provided by operating activities 680 646
Less:
Additions to properties (155) (243)
Cash flow $525 $403
(a) We use this non‐GAAP financial measure of cash flow to focus management and investors on the amount of cash
available for debt repayment, dividend distributions, acquisition opportunities, and share repurchases.
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Appendix 2
Analysis of net sales and operating profit performance
Second quarter of 2012 versus 2011
U.S.
Morning Foods U.S. U.S. North America North Latin Asia Corp- Consoli-
(dollars in millions) & Kashi Snacks Specialty Other America Europe America Pacific orate dated
2012 net sales $ 939 $ 803 $ 252 $ 369 $ 2,363 $ 613 $ 274 $ 224 $ - $ 3,474
2011 net sales $ 927 $ 729 $ 232 $ 343 $ 2,231 $ 634 $ 281 $ 240 $ - $ 3,386
% change ‐ 2012 vs. 2011:
Volume (tonnage) (a) .3% ‐3.2% ‐1.6% ‐1.4%
‐ ‐.6%
Pricing/mix 3.6% ‐.4% 8.4% ‐.6%
‐ 2.9%
Subtotal - internal business (b) 1.2% 4.1% 6.3% 8.9% 3.9% -3.6% 6.8% -2.0% - 2.3%
Acquisitions (c) ‐% 6.2% 2.3% .8% 2.4% 7.9% .6% 5.7%
‐ 3.5%
Divestitures (d) ‐% ‐% ‐% ‐% ‐% ‐% ‐% ‐2.7%
‐ ‐.2%
Foreign currency impact ‐% ‐% ‐% ‐2.3% ‐.4% ‐7.6% ‐10.2% ‐7.5%
‐ ‐3.0%
Total change 1.2% 10.3% 8.6% 7.4% 5.9% -3.3% -2.8% -6.5% - 2.6%
U.S.
Morning Foods U.S. U.S. North America North Latin Asia Corp‐ Consoli‐
(dollars in millions) & Kashi Snacks Specialty Other America Europe America Pacific orate dated
2012 operating profit $ 183 $ 117 $ 55 $ 70 $ 425 $ 72 $ 48 $ 16 $ (76) $ 485
2011 operating profit $ 176 $ 111 $ 56 $ 63 $ 406 $ 102 $ 61 $ 25 $ (51) $ 543
% change ‐ 2012 vs. 2011:
Internal business (b) 3.3% .1% -3.2% 14.5% 3.3% -19.9% -15.2% -31.6% -4.8% -5.0%
Acquisitions (c) ‐% 6.8% 2.8% .1% 2.3% 1.2% ‐% .1% ‐.3% 1.9%
Divestitures (d) ‐% ‐% ‐% ‐% ‐% ‐% ‐% 4.9% ‐% .3%
Integration impact (e) ‐% ‐1.2% ‐% ‐% ‐.3% ‐7.1% ‐.3% ‐3.3% ‐43.1% ‐5.8%
Foreign currency impact .1% ‐% ‐% ‐3.1% ‐.5% ‐4.4% ‐6.9% ‐3.8% ‐% ‐2.1%
Total change 3.4% 5.7% -.4% 11.5% 4.8% -30.2% -22.4% -33.7% -48.2% -10.7%
(a) We measure the volume impact (tonnage) on revenues based on the stated w eight of our product shipments.
(b) Internal net sales and operating profit grow th for 2012, exclude the impact of acquisitions, divestitures, transaction and integration costs
and impact of currency. Internal net sales and operating profit grow th are non-GAAP financial measures w hich are reconciled to the
directly comparable measures in accordance w ith U.S. GAAP w ithin these tables.
(c) Impact of results for the quarter ended June 30, 2012 from the acquisition of Pringles.
(d) Impact of results for the quarter ended June 30, 2012 from the divestiture of Navigable Foods.
(e) Includes impact of transaction and integration costs associated w ith the Pringles acquisition.
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17. Kellogg Company August 2, 2012
Appendix 3
Analysis of net sales and operating profit performance
Year-to-date 2012 versus 2011
U.S.
Morning Foods U.S. U.S. North North Latin Asia Corp‐ Consoli‐
(dollars in millions) & Kashi Snacks Specialty America Other America Europe America Pacific orate dated
2012 net sales $ 1,880 $ 1,545 $ 600 $ 737 $ 4,762 $ 1,151 $ 544 $ 457 $ - $ 6,914
2011 net sales $ 1,885 $ 1,454 $ 555 $ 701 $ 4,595 $ 1,255 $ 542 $ 479 $ - $ 6,871
% change ‐ 2012 vs. 2011:
Volume (tonnage) (a) ‐1.7% ‐7.9% ‐2.2% 1.3%
‐ ‐2.7%
Pricing/mix 4.4% 1.0% 9.3% ‐1.5%
‐ 3.8%
Subtotal - internal business (b) -.3% 3.2% 7.2% 6.1% 2.7% -6.9% 7.1% -.2% - 1.1%
Acquisitions (c) -% 3.1% 1.0% .4% 1.1% 4.0% .3% 2.8%
‐ 1.7%
Divestitures (d) -% -% -% -% -% -% -% ‐3.3%
‐ ‐.3%
Foreign currency impact -% -% -% ‐1.5% ‐.2% ‐5.4% ‐7.1% ‐3.8%
‐ ‐1.9%
Total change -.3% 6.3% 8.2% 5.0% 3.6% -8.3% .3% -4.5% - .6%
U.S.
Morning Foods U.S. U.S. North North Latin Asia Corp‐ Consoli‐
(dollars in millions) & Kashi Snacks Specialty America Other America Europe America Pacific orate dated
2012 operating profit $ 342 $ 235 $ 126 $ 140 $ 843 $ 150 $ 99 $ 50 $ (122) $ 1,020
2011 operating profit $ 357 $ 235 $ 121 $ 133 $ 846 $ 203 $ 109 $ 56 $ (99) $ 1,115
% change ‐ 2012 vs. 2011:
Internal business (b) -4.5% -2.4% 2.8% 7.4% -1.0% -19.8% -3.8% -14.7% -.4% -5.6%
Acquisitions (c) -% 3.2% 1.3% .1% 1.1% .6% -% -% ‐.1% .9%
Divestitures (d) -% -% -% -% -% -% -% 5.6% -% .3%
Integration impact (e) -% ‐.5% -% -% ‐.2% ‐3.6% ‐.1% ‐1.5% ‐22.2% ‐2.8%
Foreign currency impact -% -% -% ‐2.0% ‐.3% ‐3.4% ‐5.8% .1% -% ‐1.3%
Total change -4.5% .3% 4.1% 5.5% -.4% -26.2% -9.7% -10.5% -22.7% -8.5%
(a) We measure the volume impact (tonnage) on revenues based on the stated w eight of our product shipments.
(b) Internal net sales and operating profit grow th for 2012, exclude the impact of acquisitions, divestitures, transaction and integration costs
and impact of currency. Internal net sales and operating profit grow th are non-GAAP financial measures w hich are reconciled to the
directly comparable measures in accordance w ith U.S. GAAP w ithin these tables.
(c) Impact of results for the year-to-date period ended June 30, 2012 from the acquisition of Pringles.
(d) Impact of results for the year-to-date period ended June 30, 2012 from the divestiture of Navigable Foods.
(e) Includes impact of transaction and integration costs associated w ith the Pringles acquisition.
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SECOND QUARTER 2012
FINANCIAL RESULTS
August 2, 2012
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