Webcast k q3_2012_earnings

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  • 1. THIRD QUARTER 2012FINANCIAL RESULTSNovember 1, 2012
  • 2. Forward-Looking StatementsThis presentation contains by reference, “forward-looking statements” with projections concerning, among other things, theintegration of the Pringles® business, the Company’s strategy, and the Company’s sales, earnings, margin, operatingprofit, costs and expenditures, interest expense, tax rate, capital expenditure, dividends, cash flow, debt reduction, sharerepurchases, costs, brand building, ROIC, working capital, growth, new products, innovation, cost reduction projects, andcompetitive pressures. Forward-looking statements include predictions of future results or activities and may contain thewords “expects,” “believes,” “should,” “will,” “anticipates,” “projects,” “estimates,” “implies,” “can,” or words or phrases ofsimilar meaning.The Company’s actual results or activities may differ materially from these predictions. The Company’s future results couldalso be affected by a variety of factors, including the ability to integrate the Pringles® business and the realization of theanticipated 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 productintroductions; the recoverability of the carrying value of goodwill and other intangibles; the success of productivityimprovements and business transitions; commodity and energy prices; labor costs; disruptions or inefficiencies in supplychain; the availability of and interest rates on short-term and long-term financing; actual market performance of benefit plantrust investments; the levels of spending on systems initiatives, properties, business opportunities, integration of acquiredbusinesses, 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 ultimateimpact 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 updatethem publicly.Non-GAAP Financial Measures. This presentation includes the following non‐GAAP financial measures: internal netsales, internal operating profit, cash flow and adjusted earnings per share. Please refer to the Appendix for a reconciliation ofthese non‐GAAP financial measures to the most directly comparable GAAP financial measures.2
  • 3. Third Quarter 2012 Overview  Sales growth on-track with full-year expectations  Strong performance in North America  Improving trends in Europe  Investing for growth in Asia Pacific and Latin America  Pringles performing better than expected3
  • 4. Growing Confidence in Pringles  Sales growth exceeded expectations  Great people  Integration on track4
  • 5. Summary of Financial Results Third Quarter 2012 ($ millions, except EPS) Kellogg Company Third Quarter 2012 Year-to-Date 2012 Reported Internal Reported Internal $ Growth Growth $ Growth Growth (a) Net Sales $ 3,720 12.3% 2.8% 10,634 4.4% 1.7% (a) Operating Profit $ 479 3.2% -4.9% 1,499 -5.1% -5.4% Reported Earnings Per Share $ 0.82 2.5% 2.66 -2.6% EPS, excl. integration costs (b) $ 0.86 7.5% 2.77 1.5% (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 excludes the impact of transaction and integration costs associated with the Pringles acquisition. (b) Please refer to Appendix 5 for a reconciliation of this non‐GAAP financial measure to the most directly comparable GAAP financial measure.5
  • 6. Net Sales ComponentsThird Quarter 2012(year-over-year, % change) 11.1% Internal Growth 2.8% (1.6)% $3.72 B + 2.7% 0.1% $3.31 B +12.3% 3Q 2011 Volume Price / Mix Acq./Div. Currency 3Q 2012 Net Sales Net Sales6
  • 7. Gross Profit Third Quarter 2012 $1,442 +7% $1,350 Q3 2011 Q3 2012 Gross Margin (a) 40.7% 38.8% 40.7% Gross Margin % impacted by: Margin(a) - Continued commodity inflation - The quarter’s recall - Pringles7 (a) Reported gross profit as a percent of net sales
  • 8. Brand-Building(a) Investment Third Quarter 2012 (brand building $) Higher in 4QY-O-Y ChangeInt. Growth (b) 10% 4% (9)% (3)% (4)% (5)% 7% Incr./(Decr.) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4E 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 integration costs.
  • 9. Internal Operating Profit Performance by Area Third Quarter 2012 (year-over-year % change, internal performance(a)) North America $ 381 -1.6% +10% brand building and 6% growth excluding recall Europe $ 84 -7.7% In-line with guidance and sequential improvement Latin America $ 35 -16.7% Trade inventory reductions and +DD brand building Asia Pacific $ 29 -3.4% Better performance and +DD brand building (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 impact of integration9 costs associated with the Pringles acquisition.
  • 10. Cash Flow(a) Year-to-date 2012 $1,113 $877 $827 40.7% Margin(a) YTD 2010 YTD 2011 YTD 2012 (a) Kellogg defines cash flow as cash from operating activities, less capital expenditures. Please refer to Appendix 1 for a10 reconciliation of this non‐GAAP financial measure to the most directly comparable GAAP financial measure.
  • 11. 2012 Outlook Full Year Internal Net Sales (a) 2 – 3% Internal Operating Profit (a) Lower by Including the Impact of the Recall, but excluding the impact of Pringles 4 – 6% EPS $3.18 – 3.30 (As Reported, including Pringles) (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 excludes the11 impact of transaction and integration costs associated with the Pringles acquisition.
  • 12. North American Growth 2012 (internal net sales growth(a), year-over-year % change) 4% 4% 2% First Quarter Second Quarter Third Quarter (a) Internal net sales growth excludes the impact of foreign currency translation and if applicable, acquisitions and12 dispositions.
  • 13. U.S. Snacks(a) Third Quarter 2012 (internal net sales MM) $865 $803 $725 $729 $727 $742 $702 2.3% 4.1% 0.3% Growth(b) Growth (b) Growth(b) Q1 Q2 Q3 Q4 Q1 Q2 Q3 2011 2012 (a) Includes U.S. cookies, crackers, cereal bars, savory snacks, and fruit-flavored snacks businesses.13 (b) Internal net sales growth excludes the impact of foreign currency translation and if applicable, acquisitions and dispositions.
  • 14. U.S. Specialty(a) Third Quarter 2012 (internal net sales MM) $348 $323 $252 $264 $232 $234 $219 7.8% 6.3% 5.5% Growth(b) Growth (b) Growth(b) Q1 Q2 Q3 Q4 Q1 Q2 Q3 2011 2012 (a) Includes food service, convenience and Girl Scouts businesses.14 (b) Internal net sales growth excludes the impact of foreign currency translation and if applicable, acquisitions and dispositions.
  • 15. North America Other(a) Third Quarter 2012 (internal net sales MM) $388 $358 $359 $368 $369 $343 $311 3.4% 8.9% 5.2% Growth(b) Growth (b) Growth(b) Q1 Q2 Q3 Q4 Q1 Q2 Q3 2011 2012 (a) Includes U.S. Frozen and Canadian businesses.15 (b) Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions and dispositions.
  • 16. U.S. Morning Foods & Kashi(a) Third Quarter 2012(internal net sales MM) $958 $941 $939 $946 $927 $897 $829 -1.7% 1.2% 5.4% Growth(b) Growth (b) Growth(b) Q1 Q2 Q3 Q4 Q1 Q2 Q3 2011 2012 (a) Includes U.S. cereal, Pop-Tarts, health and wellness, and Kashi businesses. (b) Internal net sales growth excludes the impact of foreign currency translation and if applicable, acquisitions and16 dispositions.
  • 17. DavidDenholm
  • 18. Morning Foods and Kashi Quarterly Growth 2012 (internal net sales growth(a), year-over-year % change) 5.4 1.6 1.2 -1.7 First Quarter Second Quarter Third Quarter Year-to-Date (a) Internal net sales growth excludes the impact of foreign currency translation and if applicable, acquisitions and18 dispositions.
  • 19. Cereal: Morning Foods and Kashi Sales and Share Growth, Third Quarter 2012 (internal net sales growth(a), category share(b) Net Sales Growth +6% Category Share +0.3 pts. (a) Internal net sales growth excludes the impact of foreign currency translation and if applicable, acquisitions and dispositions.19 (b) Year-over-year change. Source: A.C. Nielsen, 12-Weeks ended 10/1/12, xAOC, RTEC Category
  • 20. Morning Foods Q3 Highlights Strong Olympic Successful Brand Building Execution Innovation • Path to Purchase • Digital Activation • Largest PR Program20
  • 21. Cereal Innovation Share Leader (rolling share) Share of RTEC Innovation (xAOC) (a) 50% 35% Kellogg (w/Kashi) Next Biggest Competitor21 (a) Source: Nielsen Scantrack 1/1/10 –9/8/12
  • 22. Pop-Tarts – “30 Years of Growth” (year-over-year $ growth 2001 - 2011) Continual Growth1981 01 02 03 04 05 06 07 08 09 10 11 Iconic Good Strong Brand Economics Execution22
  • 23. Morning Foods — Pop-Tarts Sales and Share Growth, Third Quarter 2012 (internal net sales growth(a), category share(b) Net Sales Growth +6% Category Share +0.5 pts. (a) Internal net sales growth excludes the impact of foreign currency translation and if applicable, acquisitions and dispositions.23 (b) Source: A.C. Nielsen, 12-Weeks ended 10/1/12, xAOC, Toaster Pastry Category, year-over-year change.
  • 24. Pop-Tarts An Iconic Kellogg Brand 1.Break-through advertising 2.Big innovation platforms Pop-Tarts 84% share(a) 3.Win in-store every day24 (a) Source: AC Nielsen xAOC, Dollar Share (52 weeks ending 9/22/12)
  • 25. U.S. Morning Foods & Kashi – Summary Excellent Categories Good Share Performance Iconic Brands Great Team25
  • 26. International Growth 2012(internal net sales growth(a), year-over-year % change) 1% -1% -4% First Quarter Second Quarter Third Quarter26 (a) Internal net sales growth excludes the impact of foreign currency translation and if applicable, acquisitions and dispositions.
  • 27. International Growth Third Quarter 2012 (internal net sales growth(a), year-over-year % change) 7% 4% Europe Latin America Asia Pacific (2)% (a) Internal net sales growth excludes the impact of foreign currency translation and if applicable, acquisitions and dispositions.27
  • 28. Summary Sales growth on-track with full-year expectations Strong performance in North America Improving trends in EuropeSUMMARYSETTING THE FOUNDATION Investing for growth in Asia Pacific and Latin America Pringles performing better than expected28
  • 29. Appendix 1 Reconciliation of Kellogg-Defined Cash Flow to GAAP Cash Flow (a) Year-to-date period ended September 29, October 1, (unaudited) 2012 2011 Operating activities Net income $955 $997 Adjustments to reconcile net income to operating cash flows: Depreciation and amortization 302 270 Deferred income taxes (40) (2) Other 57 133 Postretirement benefit plan contributions (43) (187) Changes in operating assets and liabilities 144 58 Net cash provided by operating activities 1,375 1,269 Less: Additions to properties (262) (392) Cash flow $1,113 $877 (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.29
  • 30. Appendix 2 Analysis of net sales and operating profit performance Third 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 $ 946 $ 865 $ 264 $ 388 $ 2,463 $ 685 $ 292 $ 280 $ - $ 3,720 2011 net sales $ 897 $ 727 $ 234 $ 359 $ 2,217 $ 585 $ 274 $ 236 $ - $ 3,312 % change - 2012 vs. 2011: Volume (tonnage) (a) .5% -2.2% -3.5% 9.0% - .1% Pricing/mix 3.2% -.3% 7.1% -2.2% - 2.7% Subtotal - internal business (b) 5.4% .3% 5.5% 5.2% 3.7% -2.5% 3.6% 6.8% - 2.8% Acquisitions (c) -% 18.7% 7.4% 3.2% 7.4% 25.7% 6.6% 18.4% - 11.3% Dispositions (d) -% -% -% -% -% -% -% -2.8% - -.2% Foreign currency impact -% -% -% -.2% -% -6.0% -3.6% -3.9% - -1.6% Total change 5.4% 19.0% 12.9% 8.2% 11.1% 17.2% 6.6% 18.5% - 12.3% 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 $ 137 $ 116 $ 62 $ 66 $ 381 $ 84 $ 35 $ 29 $ (50) $ 479 2011 operating profit $ 134 $ 94 $ 64 $ 65 $ 357 $ 84 $ 43 $ 23 $ (43) $ 464 % change - 2012 vs. 2011: Internal business (b) 2.7% -3.0% -8.6% -1.4% -1.6% -7.7% -16.7% -3.4% -6.1% -4.9% Acquisitions (c) -% 33.5% 5.5% 3.2% 10.4% 19.1% 2.0% 27.3% -6.4% 12.4% Dispositions (d) -% -% -% -% -% -% -% 7.9% -% .4% Integration impact (e) -% -7.8% -% -% -2.1% -7.9% -.8% -2.6% -7.8% -3.9% Foreign currency impact -.1% -% -% -% .1% -4.0% -.6% -.8% -% -.8% Total change 2.6% 22.7% -3.1% 1.8% 6.8% -.5% -16.1% 28.4% -20.3% 3.2% (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, 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 September 29, 2012 from the acquisition of Pringles. (d) Impact of results for the quarter ended September 29, 2012 from the divestiture of Navigable Foods.30 (e) Includes impact of integration costs associated w ith the Pringles acquisition.
  • 31. 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 $ 2,826 $ 2,410 $ 864 $ 1,125 $ 7,225 $ 1,836 $ 836 $ 737 $ - $ 10,634 2011 net sales $ 2,782 $ 2,181 $ 789 $ 1,060 $ 6,812 $ 1,840 $ 816 $ 715 $ - $ 10,183 % change - 2012 vs. 2011: Volume (tonnage) (a) -1.0% -6.1% -2.7% 3.9% - -1.8% Pricing/mix 4.0% .6% 8.6% -1.8% - 3.5% Subtotal - internal business (b) 1.6% 2.2% 6.7% 5.8% 3.0% -5.5% 5.9% 2.1% - 1.7% Acquisitions (c) -% 8.3% 2.9% 1.4% 3.2% 10.9% 2.4% 8.0% - 4.9% Dispositions (d) -% -% -% -% -% -% -% -3.3% - -.2% Foreign currency impact -% -% -% -1.1% -.1% -5.6% -5.9% -3.7% - -2.0% Total change 1.6% 10.5% 9.6% 6.1% 6.1% -.2% 2.4% 3.1% - 4.4% 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 $ 479 $ 351 $ 188 $ 206 $ 1,224 $ 234 $ 134 $ 79 $ (172) $ 1,499 2011 operating profit $ 491 $ 329 $ 185 $ 198 $ 1,203 $ 287 $ 152 $ 79 $ (142) $ 1,579 % change - 2012 vs. 2011: Internal business (b) -2.6% -2.6% -1.1% 4.5% -1.2% -16.3% -7.4% -11.4% -2.1% -5.4% Acquisitions (c) -% 11.9% 2.7% 1.1% 3.9% 6.1% .6% 7.9% -2.1% 4.3% Dispositions (d) -% -% -% -% -% -% -% 6.7% -% .4% Integration impact (e) -% -2.6% -% -% -.7% -4.9% -.3% -1.8% -17.8% -3.2% Foreign currency impact .1% -% -% -1.3% -.3% -3.5% -4.4% -.7% -% -1.2% Total change -2.5% 6.7% 1.6% 4.3% 1.7% -18.6% -11.5% .7% -22.0% -5.1% (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 September 29, 2012 from the acquisition of Pringles.31 (d) Impact of results for the year-to-date period ended September 29, 2012 from the divestiture of Navigable Foods. (e) Includes impact of transaction and integration costs associated w ith the Pringles acquisition.
  • 32. Appendix 4 Reconciliation of 2012 Earnings per Share Guidance Q3 Guidance Base Kellogg Base Business $3.27 – $3.34 Pringles Accretion 0.11 – 0.13 Share Repurchases (0.05) – (0.05) Currency (0.05) – (0.05) 3.28 – 3.37 Pringles One-Time Integration Costs (0.14) – (0.17) Transaction-Related 0.03 – 0.03 Tax Benefit 0.04 – 0.04 (0.07) – (0.10) Reported EPS $3.18 – $3.3032
  • 33. Appendix 5 Reconciliation of GAAP Earnings per Share to Adjusted Earnings per Share(a) Third Quarter Year-to-date 2012 2012 Reported Earnings per Share $0.82 $2.66 Transaction and Integration Costs $0.04 $0.11 Adjusted Earnings per Share $0.86 $2.77 (a) We use this non-GAAP measure of earnings per share to focus management and investors on earnings33 per share excluding the impact of costs related to the integration of the Pringles business.