KELLOGG COMPANYand future prospects, risks associated with the Company’s provision of transition...

Kellogg Company July 30, 2020

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KELLOGG COMPANY2020 Q2 EARNINGS

JULY 30, 2020

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KELLOGG COMPANY | Q2 2020 EARNINGS

Welcome, Agenda & DisclaimersJohn Renwick

VP Investor Relations & Corporate Planning

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KELLOGG COMPANY | Q2 2020 EARNINGS 3

Forward-Looking StatementsThis presentation contains, or incorporates by reference, “forward-looking statements”, with projections concerning, among other things, the Company’s restructuring programs, the integration of acquired businesses, 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, charges, rates of return, brand building, ROIC, working capital, growth, new products, innovation, cost reduction projects, workforce reductions, savings, 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 actual results or activities may differ materially from these predictions. The Company’s future results could be affected by a variety of other factors, including uncertainty of the magnitude, duration, geographic reach, impact on the global economy and current and potential travel restrictions of the COVID-19 outbreak, the current, and uncertain future, impact of the COVID-19 outbreak on our business, growth, reputation, prospects, financial condition, operating results (including components of our financial results), and cash flows and liquidity, the expected benefits and costs of the divestiture of selected cookies, fruit and fruit flavored-snacks, pie crusts, and ice-cream cones businesses of the Company, the risk that disruptions from the divestiture will divert management's focus or harm the Company’s business, risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures, revenues, expenses, earnings, synergies, indebtedness, financial condition, losses and future prospects, risks associated with the Company’s provision of transition services to the divested businesses post-closing, the ability to implement restructurings as planned, whether the expected amount of costs associated with restructurings will differ from forecasts, whether the Company will be able to realize the anticipated benefits from restructurings in the amounts and times expected, the ability to realize the anticipated benefits and synergies from business acquisitions 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, transportation costs, 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 risks and uncertainties.

Forward-looking statements speak only as of the date they were made, and the Company undertakes no obligation to update them publicly.

This presentation includes non‐GAAP financial measures. Please refer to the earnings press release, which is available on the Investor Relations page on the Company’s website, www.Kelloggcompany.com, for a reconciliation of these non‐GAAP financial measures to the most directly comparable GAAP financial measures. Managementbelieves that the use of such non-GAAP measures assists investors in understanding the underlying operating performance of the company and its segments.

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OverviewSteve Cahillane

Chairman & Chief Executive Officer

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http://www.kelloggcompany.com/


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Managing Well Through the Crisis

Keeping Employees Safe Supplying Food to the World Aiding Our Communities


A Very Strong Q2

Elevated at-home demand▪ Decelerated less than anticipated

▪ Partially offset by declines in away-from-home channels

Increased near-term profit▪ Operating leverage

▪ Deferred investment – brands, capabilities, productivity

▪ Partially offset by incremental costs

Good execution▪ Increasing household penetration

▪ Improving share performance

▪ Improving service levels


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Looking Ahead

Raising guidance for full year

▪ First-half over-delivery

Cautious on away-from-home channels and emerging markets

▪ COVID disruption

▪ Economic softness

Opportunity to reinvest in future

▪ Investment shifted from first half

▪ Plus, incremental investment in brands and capabilities

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Financial Results & OutlookAmit Banati

Chief Financial Officer

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Financial Approach During Crisis

1. Employee Safety – Top Priority; Investment, Processes

2. Food Supply – Plant Throughput, Investment in Logistics, Prioritized SKUs

3. Financial Flexibility – Liquidity, Working Capital, Net Debt Reduction, Interest Rate and Currency Hedges

4. Investment for Future – Rephase Commercial Plans to Second Half, Commence Incremental Investments


Q2 2020 – Summary of Financial Results

* Please refer to Q2 2020 earnings press release tables for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.

$ in Millions, % Change Versus Prior Year, Except Cash Flow

*

Divestiture:• Absence of divested businesses

Elevated At-Home Demand• Higher and longer than expected• Improved share performance• Decline in away-from-home and

slowing emerging markets

Below-OP Items:• Prioritizing deleveraging balance sheet• Favorable pension changes• Unfavorable tax items

Key Factors:

Operating leverage and delayed investment:• Operating leverage and price realization• Partially offset by direct COVID costs• A&P shifted to second half


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KELLOGG COMPANY | Q2 2020 EARNINGS11

Net Sales – Sustained Organic Growth Plus PandemicYear-over-year, % change

Net Sales Growth by Component*


• Organic growth in all four Regions

• Organic growth in cereal, snacks, frozen, and noodles

• Elevated at-home consumption during pandemic


Gross Profit Margin –Sequential Improvement Continues

* Please refer to the Q2 2020 earnings press release tables for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.

Year-On-Year Change in Gross Profit Margin, Currency-Neutral Adjusted Basis, in Percentage Points *

+220 basis pointsyear on year


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Enhancing Financial Flexibility

• Strong cash flow

• Reduced net debt

• Access to liquidity

Cash Flow$ in Millions

Net Debt$ in Billions

* Cash flow: Defined as net cash provided by operating activities reduced by expenditures for property additions.

*

**

** Net Debt: Defined as the sum of long-term debt, current maturities of long-term debt, and notes payable, less cash, marketable securities and other cash equivalents.

* Please refer to the Q2 2020 earnings press release tables for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.


Pandemic – 2H Financial Assumptions & Variables

• Developed Markets: At-home consumption decelerates through Q3, normalizes in Q4

• Away From Home Channels:Declines moderate, taking longer to recover

• Emerging Markets: COVID disruption continues in Q3, recession restrains growth in Q4

Net Sales: Gross Margin:

• Assuming no significant disruption: Plants continue to run as planned

• Incremental Costs: Continued investment in safety, cleaning, temporary labor, especially in Q3

• Less operating leverage: Lower volume growth, resumption of production of certain SKUs, delayed productivity programs

Investment:

• A&P shifted from 1H: Event- and innovation-related investment

• Incremental A&P: Revitalize more brands, build on reappraisal

• Incremental investment in capabilities: E-commerce, packaging


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2020 Outlook – 1H Over-Delivery, 2H Reinvestment


(a) Guidance for organic Net Sales growth excludes the impact of foreign currency translation, acquisitions, divestitures, and changes in shipping days.

(b) Guidance for adjusted Operating Profit and adjusted Earnings Per Share excludes the impact of mark-to-market adjustments, restructuring programs, and other gains/costs impacting comparability. Currency neutral also excludes the impact of foreign currency translation.

(c) Divestiture impact reflects the absence of net sales and profit of the divested businesses. On Earnings Per Share, it also includes the benefit to interest expense of using the divestiture proceeds to pay down debt.

Growth vs. Prior Year, except Cash Flow*

(c)

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Business UpdatesSteve Cahillane


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North America – At-Home Demand Remained High

* Please refer to the Q2 2020 earnings press release for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.

• Elevated at-home demand more than offset declining away-from-home sales

• Retailer inventory replenishment

• Operating leverage more than offset incremental costs

• Investment delayed to 2H

Q2 Highlights:

Currency-Neutral, unless otherwise noted

Note: Divested selected cookies, fruit snacks, pie crusts, and ice cream cones at end of July, 2019


North America Snacks – Sustained Growth



• Elevated consumption growth

• Led by at-home occasions

• Divestiture impact


Q2 Highlights:


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North America Cereal – Increasing Penetration & ShareCurrency-Neutral, unless otherwise noted

• Elevated at-home demand

• Recovering share

• Increased household penetration

Q2 Highlights:


North America Frozen Foods – Acceleration



• Elevated at-home demand

• Share gains by Eggo in waffles, pancakes, and french toast

• Continued double-digit consumption growth for MorningStar Farms

Q2 Highlights:


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Europe – Elevated Cereal Consumption


• Elevated at-home consumption lifted cereal sales

• Cereal consumption and share growth in key markets, led by U.K.

• Pringles sales stable, despite having to re-plan summer promotion

• Operating leverage more than offset incremental costs

Q2 Highlights:



Latin America – Better Than Expected


• Elevated consumption for cereal in modern-trade channels

• Mexico retailers’ summer promotions executed as normal, despite COVID limitations

• Operating leverage more than offset direct costs and transactional FX

Q2 Highlights:




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AMEA – Growth Led By Africa and Cereal


• Elevated cereal consumption in developed markets

• Africa growth slowed by COVID and economic conditions

• Shifted investment to 2H

Q2 Highlights:


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SummarySteve Cahillane


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• Strong execution amidst crisis, delivering better-than-expected first half results

• Raising full-year outlook, while increasing investment in second half

• Enhancing financial flexibility

• Committed to balanced growth in sales, profit, and cash flow

In Summary

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Q&A

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KELLOGG COMPANYand future prospects, risks associated with the Company’s provision of transition...

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