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F500 2021-222-Kellogg

The food manufacturing giant produces cereal and convenience foods across a number of well-known brands, including Corn Flakes, Pringles, and Cheez-It.

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F500-2020-237-Kellogg

The food manufacturing company sells brands including Cheez-It, Eggo, Rice Krispies, and Corn Flakes in more than 180 countries.

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Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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Kellanova is a global snack and cereal conglomerate behind brands such as Pop-Tarts, Pringles, Morningstar Farms, and Eggo. Formerly Kellogg Company, it rebranded as Kellanova in October 2023, while WK Kellogg Co. split off as a North American cereal business. The first Kellogg product was cornflakes, invented in 1898 by W.K. Kellogg and his brother John Harvey Kellogg, and it was designed to feed patients at a sanatorium where John Harvey Kellogg worked. Mars, the owner of candy brands such as M&amp;M’s, acquired Kellanova in 2024 in a $36 billion deal.

Q2 2024

Kellanova Company Profile, Stock Price, News, Rankings

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Kellanova

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Good morning. Welcome to Calanova's Second Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session with publishing analysts. At this time, I would like to turn the call over to John Renwick, Vice President of Investor Relations and Corporate Planning for ColorNova.

Mr. Renwick, you may begin your conference call.

Thank you, operator. Good morning, everyone, and thank you for joining us today for a review of our Q2 results as well as an update on our outlook for 2024. I am joined this morning by Steve Cahillane, our Chairman, President and Chief Executive Officer and Amit Banati, our Vice Chairman and Chief Financial Officer. Slide number 3 shows our forward looking statements disclaimer. As you are aware, certain statements made today, such as projections for Calenova's future performance, are forward looking statements.

Actual results could be materially different from those projected. For further information concerning factors that could cause these results to differ, please refer to the 3rd slide of this presentation as well as to our public SEC filings. A recording of today's webcast and supporting documents will be archived for at least 90 days on the Investor page of www.calanova.com. As always, when referring to our results and outlook, unless otherwise noted, we will be referring to them on an organic basis for net sales and on a currency neutral adjusted basis for operating profit and earnings per share. Also remember that our 2023 results have been recast to treat the spun off W.

K. Kellogg Co. As a discontinued operation in accordance with applicable accounting guidelines. Those recast statements can be found in our Q4 2023 earnings press release from February 8 this year. And now I'll

Thanks, John, and good morning, everyone. We're once again pleased to report strong quarterly results that are clear evidence of our more growth oriented and more profitable portfolio following last fall's spin off. Our year on year organic growth in net sales was again on algorithm and volume trends improved sequentially again outside of Nigeria. Our year on year currency neutral operating profit growth was also on algorithm and we continue to improve our profit margins.

And we've returned to full commercial activity with our stepped up innovation reaching shelves in the Q2. Delighting consumers is never more important than it is right now and we now have our full plan in the marketplace, which should help us continue to improve our in market performance in the second half. On slide number 6, we remind you of our strategy, differentiate, drive and deliver, which we continue to execute, helping us to deliver our near term commitments, but also to build for a strong future and drive shareowner value. On slide number 7, we remind you of our global footprint, whose diversification and exposure to faster growing markets is a true point of differentiation for Kelanova. This differentiated footprint along with our return to full commercial activity around the world contributed to our continued sequential improvement in volume in most of our regions.

The chart on slide number 8 excludes our joint ventures in Africa, where currency driven price increases in Nigeria have resulted in recent elasticities as we expected. We see that our businesses outside those JVs posted a 4th consecutive quarter of sequential improvement in volume. And we drove this sequential improvement across our regions. Europe and the rest of EMEA both recorded moderating volume declines and North America and Latin America both returned to outright volume growth. Another key driver is shown on Slide number 9, innovation.

As discussed previously, we are returning to a full innovation launch calendar after the pandemic era's supply disruptions. As you can see on the slide, we have a plethora of innovations launching across every one of the regions this year, ranging from limited editions to new flavors to amplified wellness credentials to entirely new food platforms. I'll just highlight a few notables. In the second half, we will be launching Pringles Mingle's in North America, our first out of the can launch in the United States in over 15 years. In late Q3, we will be introducing Cheez It to Europe with a big launch in the UK, supported by a full arsenal of sampling, social media and public relations and advertising.

We've innovated in away from home channels as well, sometimes leveraging these channels to drive consumer awareness. A good example is our partnering with Taco Bell to launch a Big Cheez It Crunchwrap Supreme and a Big Cheez It Tostada. So we feel very good about the quality of our innovations and the buzz, trial and incremental purchases they will generate. Indeed, this heavy innovation calendar should bring us back to normal levels of net sales contribution from innovation. Slide number 10 measures year 1 incremental sales from innovation launches, expressed as a percent of our total net sales.

Notice how the incremental net sales we expect to generate from this year's innovation launches are much higher than the last couple of years when we had been contending with global supply disruptions. Getting back to delighting consumers through innovation is a key component of what we refer to as getting back to full commercial activity. Another good sign is shown on Slide number 11. In our return to full commercial activity, we obviously prioritized our biggest brand Pringles. The chart shows how this investment and activities improving our net sales growth and in market performance for this highly differentiated brand.

All of it led to another quarter of differentiated results starting with organic net sales growth. Slide number 12 shows how we continue to well outpace the median growth of our peer group, including our more directly comparable snacking and international peers. This is precisely the greater growth orientation I mentioned earlier about our strategy and portfolio. Now let's talk about how we are a more profitable company than we were previously. Slide number 13 shows how our year to date gross profit margin and operating profit margin this year as Kelanova are meaningfully higher than the same periods pre pandemic and pre spin off.

And our improvement in margins continued in the Q2 as Amit will discuss in a moment, even with a substantial increase in brand investment. Improving our margins is an important part of our strategy as they fuel our ability to invest in our brands and withstand unexpected shocks. And clearly, we are ahead of pace toward our 2026 target of a 15% operating profit margin. Because of how our business is performing, both from a top line and bottom line perspective, we are now raising our full year guidance. Our first half results came in better than expected and we remain on track for our second half outlook.

We feel good about our commercial activity now fully in the marketplace and that emerging markets will sustain their underlying momentum. Finally, we continue to progress on another element of our strategy and that is our Better Days Promise program. Slide number 15 provides just a few examples of this program in action during the Q2. So let me now turn it over to Amit, who will walk you through our financial results and outlook before I come back and discuss each of our businesses in more detail.

Thank you, Steve, and hello, everyone. Slide number 17 summarizes our key financial results for quarter 2 and the first half. As Steve said, we delivered another quarter of on algorithm results and another quarter of results that exceeded our expectations across all of these key metrics. Our organic growth in net sales in quarter 2 came in at 4%, remaining within our long term target range. On a currency neutral basis, our adjusted operating profit grew by 16% year on year, driven by the organic net sales growth and continued improvement in margins in spite of a double digit increase in brand building.

Our below the line items continued to be a modest year on year headwind, though less than anticipated, resulting in growth in earnings per share of 14% on a currency neutral basis. Meanwhile, free cash flow also continued to increase year on year. Slide number 18 shows the major components of our year on year net sales growth in quarter 2 and the first half. Price mix growth continued to drive organic net sales growth even as it moderated as expected outside of Nigeria, where we executed price increases in quarter 1. Volume declined on elasticity impacts around the world, but especially in Nigeria.

As Steve mentioned, that market accounted for virtually all of our volume decline in quarter 2, so the rest of our portfolio is clearly delivering on planned sequential improvement and even turn to growth in 2 of our regions. Moving along the graph, the small impact from last year's divestiture of our Russia business is now behind us as the transaction anniversaries at the start of quarter 3. Foreign currency translation clipped net sales growth by about 8 percentage points in quarter 2, principally reflecting the Nigerian naira. Now let's discuss profitability starting with our gross profit on Slide number 19. Adjusted basis gross profit continued to increase year on year during quarter 2, up 9% excluding currency and up 5% with currency.

This sustains a strong trend as you can see on the slide. Meanwhile, we also continue to improve our gross profit margin with quarter 2's margin up close to 3 40 basis points year on year. As we've discussed previously, the discontinued operations accounting used to recast 2022 and the 1st 3 quarters of 2023 takes into account only the expenses associated with our transition services agreement and not the pass through of those expenses to W. K. Kellogg Company.

Year on year, this comparison item again contributed about 100 basis points of our margin expansion during quarter 2. And as we've also discussed previously, currency devaluations affected our country mix contributing a year on year margin benefit in quarter 2 of approximately 150 basis points, a little less than quarter 1 and something that should moderate more meaningfully in the second half as we lap last year's largest devaluation of the naira. Leaving out these 2 transitory items, our gross margin was still up by around a percentage point year on year, a recovery that continues to be aided by a resumed higher level of productivity and moderating input cost inflation. The fact that this gross margin restoration has continued to run ahead of pace gives us additional confidence in our full year outlook of more than 35%. We are experiencing growth and margin expansion at the operating profit line 2 as shown on slide number 20.

Operating profit in quarter 2 grew 16% excluding currency and 13% with currency, sustaining a trend of year on year growth. Even if you exclude the impact of the year ago absence of transition services expense pass through, our operating profit grew by more than 6% on this currency neutral basis remaining on our algorithm. This underlying growth was driven by an improving gross profit margin and good discipline on overhead, all of which more than offset the impact of a double digit increase in brand building investment. Even with increased investment, we are improving our profitability and marching solidly towards our guidance for an operating profit margin of over 14% in 2024 and our target of 15% by 2026. Moving down the P and L, we come to our earnings per share walk on slide number 21.

As you can see, all of our EPS growth in quarter 2 was attributable to our growth in operating profit just as it was in quarter 1. Looking at our below the line items, we can see that they again largely offset each other. Interest expense again increased meaningfully year on year reflecting higher interest rates. This was partially offset by an increase in other income, principally reflecting interest income and investment gains. Our effective tax rate remained in the mid-twenty 2 percent range.

Joint venture earnings and minority interest were relatively immaterial year on year. Our average shares outstanding were flat. The result of these items was an increase in adjusted basis EPS of 12% in quarter 2 and 14% on a currency neutral basis. Let's now turn to Slide number 22, which shows our free cash flow and net debt positions through quarter 2. We remain ahead of last year on free cash flow through the first half, though as we mentioned previously, some of this is related to the timing of a planned distribution from a post retirement fund, which is expected to be offset later in the year.

Even aside from that though, our cash flow generation remains solid. Meantime, we have continued to trim our net debt even as we return sizable cash to share owners mostly through our dividend. And our debt leverage remains well below our targeted ratio of net debt to trailing EBITDA of 3 times giving us excellent financial flexibility. Now let's discuss our increased guidance for the full year 2024 as shown on Slide number 23. With half the year behind us, it is time to narrow the ranges we first gave at our Day at K Investo event 12 months ago.

And because of the strength of our first half performance, we are in a position to raise this guidance. For net sales, we now expect organic growth of above 3.5%, an increase from our previous guidance that reflects our better than expected first half performance. We are prudently keeping our second half assumptions largely unchanged. Organic growth, of course, excludes currency translation, which based on exchange rates we saw during quarter 2 would be a headwind of about 7% for the full year. For adjusted basis operating profit, we are raising and narrowing the range to 1.875 to $1,900,000,000 again, primarily reflecting our first half delivery.

We continue to expect margin expansion for the year reaching above 35% for gross margin and above 14% for operating margin, though the year on year impacts moderate in the second half, mainly because of what we are lapping then. We don't provide guidance on currency translation, but to give you an idea, if the exchange rates experienced during quarter 2 hold for the year, it would be about a negative 3% headwind to our operating profit. Guidance for adjusted basis earnings per share increases to a range of $3.65 to $3.75 which incorporates the higher operating profit and other income that we experienced in the first half. Specifically, other income should retain its first half upside before settling back to a run rate of $15,000,000 to $20,000,000 per quarter in the second half. Our effective tax rate is now expected to be in the mid-twenty 2 percent range, only slightly better than we previously communicated.

These factors are partially offset by interest expense now expected to be higher given quarter 2's run rate and joint venture earnings and minority interest collectively should run a little bit more negative in the second half than the first. And we are raising our outlook for free cash flow to just above $1,000,000,000 with year on year growth driven by operating profit and despite capital expenditure temporarily elevated as a percentage of sales for expanded Pringles capacity in emerging markets as well as usual cash outlays related to our 2 network optimization projects. So we remain in a very good financial position. Our quarter 1 and quarter 2 results came in better than expected, enabling us to raise our guidance for the full year. And we are confident in the second half.

We have solid commercial plans that already are improving our volume performance around the world and this is starting to show up more plainly in our in market data as well. Our profit margins continue to improve progressing faster than planned, enabling us to reinvest in our brands. And our balance sheet and cash flow remain in strong shape. And with that, let me now turn it back to Steve for a run through of our businesses around the world.

Thanks, Amit. Let's start with Kelanova North America in Slide number 26. Our organic net sales were +1 percent in North America in the 2nd quarter. Lapping last year's revenue growth management actions and last year's relative lack of merchandising activity, our price mix was down slightly continuing and as expected moderation that began over a year ago. Our performance on volume meanwhile improved sequentially for a 4th consecutive quarter and turned positive in the 2nd quarter.

Industry wide elasticities continued to be a growth headwind across our retail categories, but our return to full commercial activity, including our launches of innovation reaching shelves during the Q2, led to volume growth in both consumption and shipments in our U. S. Retail business. This was augmented by strong growth outside of these measured U. S.

Channels in our U. S. Away from home business and our business in Canada. North America's operating profit increased substantially year on year as margins continue to improve. Even excluding the impact of year earlier recast figures not incorporating the pass through of transition service expenses, North America's operating profit grew at a double digit pace aided by productivity and absorbing increased investment behind our brands.

Slide number 27 shows North America's split between Snacks and frozen foods. During the Q2, our snacks business increased both in volume and price mix year on year, generating organic net sales growth of more than 1% even as it faced a relatively strong prior year quarter. In our much smaller frozen foods business, net sales were off slightly in the 2nd quarter as we faced our toughest quarterly comparison of the year, but we did increase volume led by Eggo. Slide number 28 shows our volume recovery playing out in measured channels. We expect to sustain this improvement in consumption volume and share performance through the second half.

So North America is delivering strong financial results while getting back to full commercial activity that is taking hold in the form of improving volume performance, both in shipments and consumption. And as we think about the year, as shown on Slide number 29, we remain right on track. We have increased brand building and merchandising and our stepped up innovation is now in the marketplace. And we expect these investments to continue to improve our in market performance in the second half. Meanwhile, our margins continue to recover ahead of pace.

This is a more focused team and portfolio since the spin off and we expect continued delivery in the second half. Now let's turn to Kelanova Europe and Slide number 30. Our organic basis net sales in Europe declined a little less than 1% in the 2nd quarter against our toughest quarterly comparison of the year. Our volume declines moderated led by growth in Snacks in the UK. Currency neutral adjusted basis operating profit grew by close to 7% year on year despite last year's mid year divestiture of Russia.

Profit margins continue to recover with a strong rebound in profit margins funding a significant boost in brand building investments. On Slide 31, you can see our 2 major category groups in Europe. Snacks, which represent over half of our sales in Telenova Europe grew organically by 1% year on year despite lapping last year's strongest double digit growth. Pringles continues to perform well with strong consumption growth across key markets with particularly strong share gains in the UK and Spain and continued expansion in Poland and Romania. And in portable wholesome snacks, we gained share in our biggest market, which is the UK.

In cereal, net sales declined by less than 3% in the quarter on category elasticities. Slide number 32 reminds you of what we've been planning for in Europe in 2024. Despite the slight quarter 2 decline against tough comps, we remain on track to deliver a 7th straight year of organic net sales growth in Europe. Pringles continues to demonstrate momentum supported by innovation and exciting promotional partnerships. And we are ready and excited for our late quarter 3 launch of Cheez It in the UK, which will expand our snacking portfolio in Europe.

In cereal, innovations like Tresor Brownie are now in market and promotions like our Kellogg sponsored football camps are underway in the UK. So we're confident that we can manage through category wide elasticity headwinds. Meanwhile, we are making progress on our plans for optimizing our cereal portfolio and manufacturing network. Now let's look at our emerging markets regions, starting with Latin America and Slide number 33. Latin America's net sales increased by 4% organically in the 2nd quarter, sustaining a mid single digit growth rate on top of big growth in the year earlier quarter.

Price mix growth is moderating as expected as we lap prior year actions to offset high cost inflation. Importantly, volume returned to growth in the quarter with gains in both snacks and cereal and led by Mexico. Operating profit increased in the 2nd quarter on top of strong year ago growth. Slide number 34 shows our Latin American net sales growth by category group. Organic net sales for our snacks business in Latin America grew 4% year on year with growth in both volume and price mix.

Salty snacks categories remain in growth across key markets in the region despite elasticities and Pringles has continued to outpace the category in our 2 largest markets, Mexico and Brazil. Our cereal net sales also increased by 4% in the quarter, sustaining volume growth. Cereal categories in the region remain in growth despite elasticities and we have outpaced the category this year in key markets, Mexico and Brazil. Slide number 35 reminds you of what to watch for in our Latin America business this year. Here too, we expect a 7th straight year of organic net sales growth and we expect the growth to come from both snacks and cereal.

Margins should improve, reflecting price pack architecture efforts as well as operating efficiencies and the potential for moderating input cost pressures later in the year. So through the first half, Latin America is right on track. And we'll finish with our EMEA region, starting with Slide number 36. Once again, currency influenced price increases in Nigeria drove substantially all of the regions 16% organic net sales growth in the quarter. Our business there continues to execute well, pricing again earlier this year to keep up with currency rates and during the Q2, its volume declines were not as severe as expected.

This may have positive implications for our second half forecasts, but we are taking a prudent approach. Nevertheless, these short term challenges are dramatically outweighed by the long term growth opportunity that this growing market and our advantaged assets provide us. Outside of Nigeria and our joint ventures with Talaram, our organic net sales increased at a mid single digit rate in the 2nd quarter. Volume declined only slightly year on year despite category elasticities and the negative demand impact of tensions in the Middle East. On a currency neutral basis, EMEA's operating profit grew by 9% with growth in both Nigeria and in the rest of EMEA and margins continuing to improve even with a substantial increase in brand building investment.

On Slide number 37, we see how our net sales growth split by major category groups. Noodles and Other's 26% organic growth reflects the currency driven pricing in Nigeria, which was only partially offset by elasticity driven double digit declines in volume. Meanwhile, we continue to drive strong growth for Kellogg's Noodles in South Africa and Egypt, gaining distribution and share in those markets and successfully launching this quarter into Saudi Arabia. In snacks, we grew net sales organically by about 13% year on year with broad based growth across the region led by Pringles. In cereal, our organic net sales grew 4% and this too was broad based across the region in spite of category elasticities.

For EMEA, in 2024, we continue to watch for the elements listed on Slide number 38. We expect this region to record yet another year of good organic net sales growth and we expect growth both within Nigeria and in the rest of the region. Noodles remains a growth business for us in Africa. Pringles will sustain its momentum supported by innovation, pack formats and distribution. And we expect to sustain growth in cereal led by emerging markets.

Meanwhile, EMEA's improvement of profit margins should continue. So let me summarize with Slide number 40. With each passing quarter, including the Q2, it should be increasingly clear that Kelanova today has a strategy and portfolio that is more focused, more growth oriented and more profitable than ever before. We're delivering on algorithm performance amidst a challenging industry environment. We have strengthened commercial plans for 2024 and they are already starting to yield gradual improvements in volume.

We are committed to improving our profit margins and this improvement remains ahead of pace. We are raising our guidance, thanks to a strong first half and enviable position to be in, especially in the current industry environment. And yet, we refuse to sit still. We continue to create the future, be it in adding growth capacity in Pringles in emerging markets, expanding Cheez It into Europe, expanding noodles in Africa or continuing to increase investment behind a portfolio with some of the most differentiated brands in the world. This commitment to driving shareholder value is shared by all of our Kelanova team members who deserve our thanks for all that they do.

And now we'd be happy to take your questions.

Thank you. We will now begin the question and answer session with publishing Our first question comes from Rob Dickerson with Jefferies. Your line is open. Please go ahead.

Super. Thanks so much. Good morning. So Steve, I guess, clearly, we could see the improvement in North America volumes, which is great. Part of that looks to be from some proactive price investment.

So I'm just curious, I think you said, as you think through the back half, you do expect back half sustained volume improvement and then you have great innovations played. So really kind of the simple question is just as you go for the sustained volume improvement in the back half of North America, would you say most of that is coming from these things like incremental distribution, innovation or have you just been very proactive in the right way, kind of focused on certain price points that's been driving that volume improvement relative to the industry? Thanks.

Yes. Thanks for the question, Rob. What I tell you is, we've talked about getting back to full commercial activation and that's really the story in North America. It's really led by Pringles, which returned first and has terrific momentum. It includes increased distribution with new shelf resets in the Q2, as you mentioned.

It includes a full commercial innovation activation. We're back to levels that we haven't seen since pre pandemic. And it's really that, Rob. It's a full commercial activation, gaining momentum. We returned to volume growth in the Q2 in North America.

That will continue into the 3rd Q4 and actually improve as activation around Cheez It and some of our other brands starts to catch up to what we've done with Pringles. So and in terms of pricing, we had to take, as you well know, a lot of price in the last 2 years. And so we're returning to the type of price promotion activity more or less that we saw pre pandemic in a very rational environment. So bright spot for us is the second half of the year and the volume that we've seen in

We now turn to Chris Carey with Wells Fargo Securities. Your line is open. Please go ahead.

Hi, good morning everyone. I wanted to ask about Europe, the volume under pressure as pricing is decelerating, but you also have some innovation coming, I think you highlighted Cheez It. So just how would you characterize your go forward in Europe? I know looking for another year of growth, but maybe how do you view kind of exit rate in the complexion of trend in the market as you think about balancing price and volume going forward?

Yes, Chris. So I'd start with Europe is a tough environment, always has been. It's tough this year. But in the Q2, we faced our toughest comps, particularly with Pringles. And you heard us say in the prepared remarks that we have a lot of confidence.

We're going to continue to grow in Europe and So lots of confidence in Europe, lots of confidence in Europe continuing to grow. So lots of confidence in Europe, lots of confidence in Europe continuing to grow. You saw that Snacks did grow in the 2nd quarter. That will accelerate in the 3rd and Q4 based on the activations. And we are very excited about the Cheez It launch in the Q4.

And when I say very excited, it's just a great program that they put together in the UK. The customers are excited about it. The consumer testing of the product is outstanding. And so we see big things for Cheez It in the next couple of years. It's going to be a real growth driver for us.

So bullish on Europe despite a challenging environment. I know that makes us a little different than some others, but our team has delivered now 7 years of growth in Europe. And so that will continue this year.

Thanks, Steve. And if I could, just as a follow-up on the pricing comment in North America, It's great to see the volumes in place. You did make a comment, I think, in the prepared remarks about some year ago, timing impact with promotion or price activity. But would you expect pricing to stay negative as you certainly as you're clearly seeing this positive and constructive uplift in volume as we go forward? Thanks so much.

We see pricing remaining very rational in the environment. Remember, we're lapping a real dearth of activity last year. So that's what you see when you see our year over year comparisons. We've talked about it quite a lot. We pulled back on commercial activation because of the bottlenecks shortages.

We were perhaps a little late compared to others in returning, but we've returned. But it's all very rational, very prudent and we see good volume growth and a good balance between price mix volume in the back half of the year for North America.

Our next question comes from Peter Galbo with Bank of America. Your line is open. Please go ahead.

Hey guys, good morning. Thanks for taking the question.

Steve, maybe in our just continued tour of the

world here, having gone through North America and Europe, Latin America, I think you kind of had more of a standout quarter relative to what some of the peers have said, particularly around maybe some delay in stimulus payments in Mexico, and then also some weakness in Brazil. So maybe you can just talk a bit about more specifically the Kelanova quarter in Mexico and Brazil and then relative to kind of the macro that you're seeing there

Yes. So it was a good quarter in Latin America. Cereal and snacks all growing, Mexico having a terrific quarter, kind of record shares in the cereal business in Mexico and Pringles continuing to do extremely well despite being somewhat capacity constrained because we're sourcing out of Jackson, Tennessee. Next year, we'll be sourcing out of Mexico. So really bullish on Pringles' future opportunities in Mexico because of local sourcing.

Brazil, you have to remember Brazil was really impacted by some pretty devastating floods, but the underlying business in Brazil remains strong, really driven also by Pringles. Pringles momentum in Brazil is very, very good. So the Brazilian business is strong, but impacted by pretty devastating floods that obviously we all saw on the news.

Our next question comes from Robert Moskow with TD Cowen. Your line is open. Please go ahead.

you could talk about North America price sensitivity in terms of like tax sizes and the price points. One of your competitors said that when price points get above a certain level like above $4 it's led to consumers actually exiting the category and they've made some pretty substantial changes to adjust to that. Would you agree with that or is it just not really affecting your

not it's more extreme because the consumer is under so much pressure. So we've always talked about entry price points. We've always talked about price package architecture. Going back a number of years, we've been investing in the capability to have more pack sizes to hit different price points. But I think what you're hearing in this environment is perhaps more than in a very long period of time, the absolute dollars are under more pressure.

So the basket that people can fill is affected obviously by the absolute dollars in their pocket. And as the consumer is so strained, it's become heightened in terms of making sure that you hit those right price points. Particularly with consumers under $100,000 in household income with kids, that's where we're seeing the price sensitivity. And it also varies by where you are in the monthly cycle as well. So we look at all of that.

It is important more important in this environment than perhaps a more normalized environment.

Can I ask a follow-up? How meaningful is your Pringles launch that the mixed Pringles launch in the back half? And what was the insight that made you think that coming introducing something out of the can is going to compete well in that very competitive marketplace?

Yes. So I wouldn't look at Pringles, Mingles being a meaningful difference maker in terms of our SV forecast for the balance of the year. We're only starting to tip it and really we'll activate it more in the Q1 of next year. The insight is that people love the brand to begin with. We haven't stretched that brand outside the can, so that's a meaningful innovation.

The product is extruded. It is in the shape of a bow tie, Mr. Pringle's bow tie. So it plays more on the Mr. P iconography than it does the can.

We believe the product tests extremely well and Pringles stands for snacking in so many ways. So we're giving a launch outside the can and we'll see how it goes.

We now turn to David Palmer with Evercore ISI. Your line is open. Please go ahead.

Thanks. I wanted to just ask a couple of questions on North America Snacks. You said in your comments, Steve, that there was consumption growth in the quarter in 2Q. Was that we see consumption being down a bit. I assume maybe there was some growth in Canada or beyond the measured channels that we can't see.

Maybe you can comment on that. But more importantly, I'm just wondering in the data that we are going to be tracking, are you expecting a return to at least that low single digit growth that you're expecting in the beginning of the year for the second half in just the consumption, the Mule Plus type stuff that has pretty good coverage? Would you expect that? And would the improvement if so, would the improvement be in the areas you were targeting earlier in the year around some of the merchandising and innovation on Cheez It and Rice Krispies Treats? Thank you.

Yes, David, thanks for the question. What you're seeing in the measured channels, you hit on it, what you're not seeing is very good growth in Canada and very good growth in our away from home channels. So the non measured channels performed at a rate that led to consumption growth overall in North America. Pringles also you see doing extremely well, lots and lots of momentum on Pringles. You see that in the measured channels, but it's also the same in the non measured channels.

So all those things together are what's leading the consumption growth. Going forward to your question, we would expect to see improvement in the measured channels. As I mentioned, you've seen it in Pringles, which was kind of first out of the gate with our investments and with return to full commercial activation. You'll see that with the other big brands. You'll see that with Cheez It in the back half of the year as well as Rice Krispies Treats, Pop Tarts and Eggo.

So we would expect the measured channels start to catch up to some of the non measured channels as we get into the second half of the year and exit the year.

Our next question comes from Michael Lavery with Piper Sandler. Your line is open. Please go ahead.

Thank you. Good morning. Good morning, guys. Just wanted to touch on Nigeria. Yes, thanks.

Just wanted to touch on Nigeria and obviously with the pricing, you've got a big lift, but of course the currency and volumes are a big offset. I know you called out the volume momentum excluding that, but what are you seeing there? Maybe sequentially, when could that improve? Have you seen any kind of digestion of the pricing that the consumers are adjusting and maybe the elasticities are starting to mitigate? Just trying to understand, obviously, that's part of your emerging market footprint you call out as growth drivers that ordinarily wouldn't be kind of a point of stress?

When can that turn and really be a proper volume growth driver again?

Yes. Thanks for the question. The tolerant JV collectively recorded a volume decline in the high teens against the price mix gain of more than 40% year on year. So that's obviously hugely substantive. And we've been talking about the elasticities and the fact that elasticities would have to start to show up and we're seeing that.

We also talked about it being in our forecast for the back half of the year. We're being very prudent about that. We actually think there might be some upside to that, as the price lands has landed in Africa. But we'll just have to wait and see. The team is executing very well on the ground, but the consumer in Nigeria is under a tremendous amount of strain.

You can see that in the headlines. It's in our forecast and perhaps there may be some upside in that forecast. I don't know, Amit, do you want to add anything?

the only thing I'd add is that elasticities came in better than expected. So while the volume declines were in the teens, it was definitely better than what we had expected in the quarter. I think we need to continue to take some more pricing in some of our other categories. And so I think we've assumed that elasticity would be there in the second half. And we'll see we're encouraged by what we saw in the second quarter, but we're being prudent about the rest of the year.

Kellanova Q2 2024 Earnings Call Transcript

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