Kellogg Company November 3, 2011

Transcription

1 Third Quarter 2011 Financial Results November 3, Forward Looking Statements This presentation contains, or incorporates by reference, forward looking statements with projections concerning, among other things, the Company s strategy, and the Company s sales, earnings, margin, operating profit, costs and expenditures, interest expense, tax rate, capital expenditure, investments, dividends, cash flow, debt reduction, share repurchases, costs, brand building, ROIC, working capital, growth, new products, innovation, cost reduction projects, and competitive e pressures. Forward looking statements include predictions of future results or activities ities and may contain the words expects, believes, should, will, will deliver, anticipates, projects, estimates, 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 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 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 publicly update them. 2 Page 1of 13

2 Overview Continue on path to rebuild momentum Solid top line growth Significant operating profit headwinds Lapping 2010 incentive compensation adjustment Cost pressures and supply chain reinvestment 2011 operating profit and earnings per share guidance lowered 33 Path to Rebuilding Momentum Generating sustainable momentum takes time 2012 will be another rebuilding year Investing in the business for long term growth Supply chain SAP re implementation Brand building 4 Page 2of 13

3 Building a Stronger Supply Chain Food protection plan key foundational components Hazard Analysis HACCP Programs Materials Ingredients Packaging Transportation Key Manufacturing Programs GMP SSOP Hygienic Zoning Hygienic Equipment & Infrastructure Skills / Culture Training and Education Verification / Validation Lethality Validation Environmental Monitoring Audits 55 Path to Rebuilding Momentum Generating sustainable momentum takes time 2012 will be another rebuilding year Investing in the business for long term growth Supply chain SAP re implementation Brand building 6 Page 3of 13

4 Summary of Financial Results ($ millions, except EPS) Reported Growth Internal / Currency Neutral Growth Net Sales $ 3,312 5% 3% Operating Profit $ 464 (14)% (16)% Earnings Per Share $ 0.80 (11)% (13)% Internal net sales and operating profit growth exclude the impact of foreign currency translation and if applicable, acquisitions, dispositions and shipping day differences. Currency-neutral earnings per share growth excludes the impact of translational foreign exchange. 7 Net Sales Components (year-over-year % change) Internal YOY Change +3.1% 4.9% 5.0% 1.8% Volume Net Sales Price / Mix Currency (1.9)% YTD +6.8% +0.2% +3.8% +2.8% 8 Page 4of 13

5 Gross Profit $1.4 B $1.3 B Q Q Gross Margin 43.4% 40.7% 9 Reported gross profit as a % of net sales Brand Building Investment (brand building percent to net sales) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Year Over Year Change Internal Growth (6)% (1)% 5% 1% 10% 4% (9)% YTD: 1% Internal Growth a) Brand building includes advertising, consumer promotions and COGS promotions. b) Internal brand building growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions, and shipping day differences. Page 5of 13

6 Internal Operating Profit Performance by Area (year-over-year % change, internal performance ) 19% Total Company North America Europe Asia Pacific Latin America (16)% (13)% (21)% (14)% YTD (8)% (6)% (13)% +13% (14)% Internal operating profit performance excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions and shipping day differences. Cash Flow Year to date 2011 cash flow $877 million Full year cash flow outlook remains $1.1 $1.2 billion range Full year CapEx at 4 5% of net sales Share repurchases of approximately $690 million year to date Kellogg defines cash flow as cash from operating activities, less capital expenditures; see reconciliation to GAAP cash flow at the end of this presentation. Page 6of 13

7 2011 Outlook Internal Net Sales Up 4 to 5% Internal Operating Profit Down 2 to 4 % Earnings Per Share Approximately Flat currency neutral basis Internal net sales and operating profit growth exclude the impact of foreign currency translation and if applicable, acquisitions, dispositions and shipping day differences Currency-neutral earnings per share growth excludes the impact of translational foreign exchange Outlook Investing for Sustainable Growth 2012 Investments (incremental growth versus prior year) Supply Chain SAP Re implementation Brand Building continued investment $20 $30 million sales growth 1414 Page 7of 13

8 2012 Outlook (Preliminary) Internal net sales growth of +4 to 5% Stronger innovation and increased brand building Earnings per share growth of +2 to 4% (currency neutral basis ) Rt Return cash to shareowners Internal net sales and operating profit growth exclude the impact of foreign currency translation and if applicable, acquisitions, dispositions and shipping day differences Currency-neutral earnings per share growth excludes the impact of translational foreign exchange. Innovation 1616 Page 8of 13

9 North America Net Sales (internal net sales growth, year-over-year% change) 12% 4% 3% Total North America 0% Retail Cereal Retail Frozen & Snacks (c) Specialty Channels (d) YTD +5% +5% +4% +9% Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions and differences in the number of shipping days. Includes U.S. and Canada retail cereal. (c) Includes biscuits, wholesome snacks, Pop-Tarts and fruit snacks. (d) Includes Frozen Foods, Food Away From Home and custom manufacturing. North America Retail Cereal (internal net sales growth, year-over-year % change) 13% 0% Q1 Q2 Q3 Q4 (6)% (3)% 2% 0% Q1 Q2 Q3 (13)% Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions and differences in the number of shipping days. Page 9of 13

10 North America Retail Snacks (internal net sales growth, year-over-year % change) 5% 5% 3% 3% 1% 0% Q4 Q1 Q2 Q3 Q1 Q2 Q (1)% Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions and differences in the number of shipping days. North America Frozen and Specialty Channels (internal net sales growth, year-over-year % change) 8% 10% 12% 4% Q1 Q2 Q3 Q4 Q1 Q2 Q3 (4)% (5)% (9)% Includes Frozen Foods, Food Away From Home and custom manufacturing. Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions and differences in the number of shipping days. Page 10 of 13

11 International Growth (internal net sales growth, year-over-year % change) 9% 2% 2% Total International (2)% Europe Latin America Asia Pacific YTD +2% (1)% +9% +3% Internal sales growth excludes the impact of foreign currency translation and if applicable, acquisitions, dispositions and differences in the number of shipping days. Summary Path to Rebuild Momentum Committed to long term health of the business Driving brand building and innovation to sustainably win in the marketplace Investing in our supply chain Committed to returning to long term annual growth targets over time 2222 Page 11 of 13

12 Appendix 1 Reconciliation of Kellogg-Defined Cash Flow to GAAP Cash Flow Year-to-date period ended October 1, October 2, (unaudited) Operating activities Net income $997 $1,055 Adjustments to reconcile net income to operating cash flows: Depreciation and amortization Deferred income taxes (2) (53) Other Postretirement benefit plan contributions (187) (45) Changes in operating assets and liabilities 58 (259) Net cash provided d by operating activities iti , ,079 Less: Additions to properties (392) (252) Cash flow $877 $ 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. Appendix 2 Reconciliation of 2011 Reported Earnings per Share to Currency-Neutral Earnings per Share for Guidance 2010 Reported EPS $ Currency-Neutral EPS Guidance - % -1% to +1% 2011 Currency-Neutral EPS Guidance - $ $ 3.27 to $ 3.33 Estimated FX impact at Forward Rates $ 0.08 $ Reported EPS Guidance $ 3.35 to $ 3.41 We use this non-gaap measure to focus management and investors on local currency results, thereby providing visibility to the underlying trends of the company Currency-neutral earnings per share growth excludes the impact of translational foreign exchange. Page 12 of 13

13 Appendix 3a Analysis of net sales and operating profit performance Third quarter of 2011 versus 2010 North Latin Asia Consoli- (dollars in millions) America Europe America Pacific Corporate dated 2011 net sales $ 2,217 $ 585 $ 274 $ 236 $ - $ 3, net sales $ 2,130 $ 564 $ 247 $ 216 $ - $ 3,157 % change vs. 2010: Volume (tonnage) -.7% -4.5% -3.0% -5.0% % Pricing/mix 4.4% 2.9% 12.3% 7.0% - 5.0% Subtotal - internal business 3.7% -1.6% 9.3% 2.0% - 3.1% Foreign currency impact.4% 5.2% 1.3% 7.8% - 1.8% Total change 4.1% 3.6% 10.6% 9.8% - 4.9% North Latin Asia Consoli- (dollars in millions) America (c) Europe America Pacific Corporate (c) dated 2011 operating profit $ 357 $ 84 $ 43 $ 23 $ (43) $ operating profit $ 407 $ 102 $ 34 $ 25 $ (27) $ 541 % change vs. 2010: Internal business -12.7% -20.9% 19.0% -13.6% -54.5% -15.7% Foreign currency impact.5% 4.5% 2.8% 4.5% - 1.6% Total change -12.2% -16.4% 21.8% -9.1% -54.5% -14.1% (c) Includes Australia, Asia, and South Africa. We measure the volume impact (tonnage) on revenues based on the stated w eight of our product shipments. Research and Development expense totaling $3 million for the quarter ended October 2, 2010 w as reallocated to Corporate from North America Appendix 3b Analysis of net sales and operating profit performance Year-to-date 2011 versus 2010 (dollars in millions) North America Europe Latin America Asia Pacific Corporate Consolidated 2011 net sales $ 6,812 $ 1,840 $ 816 $ 715 $ - $ 10, net sales $ 6,469 $ 1,730 $ 709 $ 629 $ - $ 9,537 % change vs. 2010: Volume (tonnage) 1.0% -2.7% -% -% -.2% Pricing/mix 3.8% 2.2% 8.8% 2.6% - 3.8% Subtotal - internal business 4.8% -.5% 8.8% 2.6% - 4.0% Foreign currency impact.5% 6.8% 6.3% 11.1% - 2.8% Total change 5.3% 6.3% 15.1% 13.7% - 6.8% (dollars in millions) North America (c) Europe Latin America Asia Pacific Corporate (c) Consolidated 2011 operating profit $ 1,203 $ 287 $ 152 $ 79 $ (142) $ 1, operating profit $ 1,269 $ 307 $ 126 $ 82 $ (123) $ 1,661 % change vs. 2010: Internal business -5.7% -12.8% 12.6% -13.7% -14.9% -7.6% Foreign currency impact.5% 6.4% 7.5% 9.9% - 2.7% Total change -5.2% -6.4% 20.1% -3.8% -14.9% -4.9% (c) Includes Australia, Asia, and South Africa. We measure the volume impact (tonnage) on revenues based on the stated w eight of our product shipments. Research and Development expense totaling $8 million for the year-to-date period ended October 2, 2010 w as reallocated to Corporate from North America Page 13 of 13