deploy for growth -...

Kellogg Company February 21, 2018

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Deploy For Growth

Boca RatonFebruary 21, 2018

CAGNY 2018 I DEPLOY FOR GROWTH

Forward-Looking Statements

This presentation contains, or incorporates by reference, “forward-looking statements” with projections concerning, among other things, the Company’s global growth and efficiency program (Project K), the integration of acquired businesses, the Company’s strategy, zero-based budgeting, 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 future results could also be affected by a variety of factors, including the ability to implement Project K (including the exit from its Direct Story Delivery system) as planned, whether the expected amount of costs associated with Project K will differ from forecasts, whether the Company will be able to realize the anticipated benefits from Project K in the amounts and times expected, the ability to realize the benefits from our implementation of a more formal Revenue Growth Management discipline, the ability to realize the anticipated benefits and synergies from the 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; 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.

This presentation includes non‐GAAP financial measures. Please refer to the Appendices for a reconciliation of these non‐GAAP financial measures to the most directly comparable GAAP financial measures. Management believes 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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Reasons to Believe

Special Food, Brands,

& Culture

Sound Financial Footing

Commitment and Ideas for Growth

• Health & Wellness heritage

• In most households

• Taste, convenience, nutrition, affordability

• Weighted toward snacking

• Will to win

• Reduced cost structure

• Improving top-line performance

• Durable cash flow

• Better commercial plans

• Increased investment

• New growth platforms

CAGNY 2018 I DEPLOY FOR GROWTH 3

Agenda

• Foundation for Growth

• Current Trajectory for Growth

• Deploy for More Growth

• A Realistic Algorithm for Growth



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Big, Strong, Relevant Brands2017 Net Sales, $ in Billions, Global >$1 billion

$0.5-1.0 billion

$0.3-0.5 billion


A Health & Wellness Company



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A Snacking CompanyComposition of Net Sales, Total Company


A Global CompanyComposition of Kilos, Total Company

CAGNY 2018 I DEPLOY FOR GROWTH 8* Shaded area represents percentage of volume associated with Joint Ventures, if we were to include our share of their kilos.


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Increasing Emerging Markets Scale & PortfolioKellogg Emerging Markets, Volume in Kilos

6.8%CAGR

2013-2017x-JVs

Joint Ventures


Snacks:19% of Volume

Snacks:43% of Volume

x-JVs

9

Agenda



• Deploy for Growth




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Assessing Growth – Portfolio Segments

Developed Markets –

Snacks

Developed Markets –

Cereal

Emerging Markets

Developed Markets – Frozen

Stabilizing

Returning to growth

Already growing

Growing, larger scale


* Excludes joint ventures

*

Net Sales, 2017

Developed Markets Cereal

• Stabilized Canada, U.K., Australia

• Stabilizing Special K• Expanding granola

• Expanding occasions• Influencing food beliefs• New pack formats• Executing playbook• Channels expansion

Recent Past Current Progress Path Forward

• Consumers to protein • Special K decline



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Developed Markets Snacks

• Pringles global growth• Transition from DSD• Rationalizing tail SKUs

• Increased Brand Building • New pack formats• RXBAR growth platform


• Special K decline• DSD declining ROI


Developed Markets Frozen


• Portfolio trimmed for focus

• Strong growth • Innovation/renovation

• On-trend categories• Focus on core



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Emerging Markets


* Excludes joint ventures

• Lacked scale• Limited portfolio• Challenging macro

environment

• Organic growth• Pringles expansion• Brazil & Egypt acquisitions• Joint Ventures growth

• Pringles expansion• Granola & wholesome snacks• New pack formats• M&A

*


Path to Low Single-Digit Sales Growth

Current Trajectory ~+1%

“DeployFor

Growth”+1-3%


Net Sales Growth, Currency-Neutral

16

Stable+MSD

+LSD

+LSD


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Agenda






Deploy For Growth



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Getting the Food Right

• Removing “negatives”

• Adding “positives”

• Taste is still king


Win Through Occasions

Getting the Packaging Right

7.2%

12.4%

Single-Serve, Share of Category, Across All Kellogg U.S. Categories

Source: Nielsen AOD – xAOC + Convenience – Calendar Years

2016 20162017 2017




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Building a Stronger Innovation Pipeline



Investing Where the Growth Is


Global Expansion 20+ Years of Growth

Accelerated Growth in ‘17

+DD Consumption

Growthin ‘17

+DD Consumption Growth in ‘17 +DD Consumption

Growth in ‘17 22

Shape a Growth Portfolio


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M&A For Growth & Scale

2017 Net Sales:+Triple Digits

2017 Net Sales:+Double Digits




Shape a Growth Portfolio

*

*

* Year-on-Year growth since acquisition, currency-neutral

Big Ideas, Big Events


Create World Class Marketing

Consumption +DD

Weeks before and after Super Bowl(U.S. Pringles)


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Customized Messaging


Consumption +10%

Latest 13 weeks(U.S. Rice Krispies Treats)


When you watch avideo about how to cook aturkeyWhen you watch videosabout the latest new

techgadgets

When you watch avideo about kid friendlycrafts When you watch a video about kid friendlymeals

Brand Experience & Conversation


Consumption +12%

in 2017(U.K. Corn Flakes)



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Cultural Relevance



• October 2017: Most-ever Eggosocial mentions in a single month

• Q4 2017: Eggoconsumption +14% year-on-year

Aiming for Perfect Service


Deliver Perfect Service & Store


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Aisle Reinvention


In Test;Strong Lift

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Early in Roll-Out;

Strong Lift

In-Store Theater


SpainAustralia



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E-Commerce



E-CommerceSales

approx. +40%in 2017

Talent, Tools, Technology

• Differentiating performance and rewards

• Realigning compensation to drive growth behaviors

• Focusing on leadership and commercial capabilities

• Leveraging new technologies


People Must Be Competitive Advantage


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Change Is Already Visible – Including in Q4 ‘17!

• Targeted areas of growth

• Increased Brand Building

• More differentiated Innovation

• Faster expansion in Emerging Markets

• M&A for scale or white-spaceNew cereal plant in Nigeria


Agenda







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Financial Approach – Balance

Financial Delivery: Capital Allocation:

Dividend

Bolt-On Acquisitions

Share Repurchases

Investment-Grade Debt


Sound Financial FootingAdjusted EPS Growth, Currency-Neutral Basis; Cash Flow in Billions

• Reduced cost structure• Stabilized price/mix• Restructuring-related cash outlays• Pringles capacity expansion

• Reduced cost structure• Stabilized price/mix• Restructuring-related cash outlays• Pringles capacity expansion

* Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.** Cash Flow defined as cash from operating activities, less capital expenditure. Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure.


2016 2017 2018

Adjusted EPS +23% +9% +9-11%

Cash FlowRestructuring Outlays:

$1.1 $1.1 $1.2-1.3

Guidance

$0.1 $0.2 $0.2

*

**

Cash Flow x-Restructuring Outlays: $1.2 $1.4 $1.4-1.5


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Margins – Continuous Focus on ProductivityOperating Profit Margin, Currency-Neutral Comparable Basis


Affirming 2018 Guidance & Plan

• Completing Project K initiatives

• Operating in post-DSD U.S. Snacks

• Increasing Brand Investment

• Integrating and growing acquired businesses

• Investing to grow joint ventures

• Incorporating U.S. Tax Reform

Adjusted EPS(b)

Currency-Neutral

Adjusted Operating Profit (b)Currency-Neutral

+4-6%

+9-11%

Cash Flow $1.2-$1.3B

Net Sales(a)

Currency Neutral

~ Flat

Growth vs. Recast 2017*

(a) 2018 guidance for Currency Neutral Net Sales growth excludes the impact of foreign currency translation.

(b) 2018 guidance for adjusted Operating Profit and Earnings Per Share excludes the impact of mark-to-market adjustments and costs related to Project K. Currency neutral also excludes the impact of foreign currency translation.

* Please refer to appendices for reconciliation of non-GAAP measures to the most directly comparable GAAP measure, as well as 2017 recast information for accounting-rules changes.

Delivering margin expansion and improving top-line performance.Delivering margin expansion and improving top-line performance.

Completing several critical strategic transitions.

Completing several critical strategic transitions.



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Targeting Long-Term Sustainable Growth

Net Sales

Adjusted Operating Profit

Adjusted EPS

1-3%

4-6%

6-8%

Dependable growth, augmented by M&A, complemented by dividend yield.Dependable growth, augmented by M&A, complemented by dividend yield.


Dividend Yield 2-3%

Total Shareowner Return 8-11%

*

*

* Independent of changes in valuation multiple and market fluctuations 39

All Growth Rates are Currency-Neutral

Values



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In Summary…

• Strong foundation for growth

• Visible progress

• Deploying for growth

• Seeking balanced financial delivery


APPENDIX



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EPS – Reconciliation to non-GAAP Measure

Note: These figures are not yet recast for the accounting-standards changes effective in 2018.

2017 2016Growth

Rate 2016 2015Growth

RateReported EPS 3.62$ 1.96$ 1.96$ 1.72$

Mark-to-market (pre-tax) 0.13 (0.74) (0.74) (1.25) Project K and cost reduction activities (pre-tax) (0.75) (0.92) (0.92) (0.91) Debt redemption (pre-tax) - (0.43) (0.43) - VIE deconsolidation (pre-tax) - - - 0.13 Venezuela deconsolidation (pre-tax) - (0.20) (0.20) - Venezuela remeasurement (pre-tax) - (0.03) (0.03) (0.47) Income tax impact applicable to adjustments, net 0.22 0.56 0.56 0.74 U.S. Tax Reform adoption impact (0.01) - - - Foreign currency impact (0.01) - (0.57) -

Currency-neutral Adjusted EPS 4.04$ 3.72$ 8.6% 4.29$ 3.48$ 23.3%

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Cash Flow – Reconciliation to non-GAAP MeasureKellogg Company and Subsidiaries

Years ended 2015-2017 Exhibit 2

2015 2016 2017Operating ActivitiesNet Income 614$ 695$ 1,269$ Adjustments to reconcile net income to operating cash flows:

Depreciation and amortization 534 517 481 Postretirement benefit plan expense 320 198 (427) Deferred income taxes (169) (26) (56) Stock compensation 51 63 66 Venezuela deconsolidation 72 Venezuela remeasurement 169 11 VIE deconsolidation (49) Non current income taxes payable (21) (12) 144 Other 8 (62) 27

Postretirement benefit plan contributions (33) (33) (44) Changes in operating assets and liabilities, net of acquisitions 267 205 186 Net cash provided by (used in) operating activities 1,691 1,628 1,646 Less:Additions to properties (553) (507) (501) Cash flow (operating cash flow less property additions) (a) 1,138$ 1,121$ 1,145$

(a) Cash flow is defined as net cash provided by operating activities less capital expenditures. We use this non-GAAP financial measure to focus management and investors on the amount of cash available for debt repayment, dividend distributions, acquisition opportunities and share repurchase.

Reconciliation of Non-GAAP amounts - Reported Cash Flow to Kellogg-Defined Cash Flow

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Financial Guidance – Reconciliation to non-GAAP Measures

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Kellogg Company and SubsidiariesReconciliation of Non-GAAP amounts - 2018 Full Year Guidance*

Exhibit 3

Impact of certain items excluded from non-GAAP guidance: Net SalesOperating

ProfitEffective Tax Rate

Earnings Per Share

Project K and cost restructuring activities $90-110M $0.27-0.32Income Tax benefit applicable to adjustments, net** $0.05-0.06Adjusted, currency-neutral guidance Flat 4-6% 20-21% 9-11%

Reconciliation of Non-GAAP amounts - Cash Flow Guidance(billions)

ApproximateFull Year 2018

Net cash provided by (used in) operating activities $1.7 - $1.8Additions to properties ~($.5)Cash Flow $1.2 - $1.3

* 2018 full year guidance for net sales, operating profit, and earnings per share are provided on a non-GAAP basis only because certain information necessary to calculate such measures on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted without unreasonable efforts by the Company. The Company is providing quantification of known adjustment items where available.

** Represents the estimated income tax effect on the reconciling items, using weighted-average statutory tax rates, depending upon the applicable jurisdiction.

2017 Recast Items – Accounting Standard Change

Reported Basis

Comparable Basis

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2017 Recast Items – Product Transfers

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