The operator introduces the Kellanova Second Quarter 2024 Earnings Call, and John Renwick, Vice President of Investor Relations and Corporate Planning, begins the conference call. He is joined by Steve Cahillane, Chairman, President, and CEO, and Amit Banati, Vice Chairman and CFO. The presentation includes a forward-looking statements disclaimer and a reminder to refer to their SEC filings for more information. The 2023 results have been recast due to the spin-off of W.K. Kellogg Co. in accordance with accounting guidelines. Steve Cahillane expresses his pleasure with the strong quarterly results, which demonstrate the company's growth-oriented and profitable portfolio following the spin-off.

The company's net sales and operating profit growth are on track, with a focus on delighting consumers and executing their strategy. Their global footprint and diversification have contributed to sequential improvement in volume in most regions. Excluding joint ventures in Africa, there has been four consecutive quarters of volume improvement. Innovation is also a key driver, with a return to a full launch calendar after pandemic-related disruptions.

The company has a lot of new and exciting innovations launching this year, including Pringles Mingles in North America and Cheez-It in Europe. They have also partnered with Taco Bell to launch new products and are confident that these innovations will generate buzz, trial, and incremental purchases. This heavy innovation calendar should bring them back to normal levels of net sales contribution. The company is also seeing positive results from their investments and activities, particularly with their biggest brand, Pringles. This has led to another quarter of strong organic net sales growth.

In the fourth paragraph, the speaker discusses how their company has outpaced their peers in terms of growth and profitability. They also mention their improved margins and how it allows them to invest in their brands and withstand unexpected shocks. They have raised their full year guidance and are on track for their second half outlook. The speaker also mentions their "better day promise program" and provides examples of it in action during the second quarter. The next speaker, Amit Banati, will discuss the financial results and outlook before the first speaker returns to discuss each of their businesses in more detail.

In the second quarter, our organic net sales grew by 4% and our adjusted operating profit increased by 16% on a currency-neutral basis. Despite a double-digit increase in brand building, our margins improved and our earnings per share grew by 14%. Free cash flow also increased year-on-year. Price/mix growth drove our net sales growth, while volume declined due to elasticity impacts, particularly in Nigeria. The impact of last year's divestiture of our Russia business is now behind us. Foreign currency translation had a negative impact on net sales growth. Our gross profit margin also improved in the second quarter.

In the second quarter of 2023, the discontinued operations accounting and currency devaluations had a positive impact on the company's gross margin, contributing to a year-on-year margin expansion. Excluding these factors, the gross margin still increased by 1%, showing a recovery aided by productivity and moderating input cost inflation. This has given the company confidence in its full-year outlook of more than 35% growth. The operating profit also saw growth, driven by improving gross profit margins and disciplined overhead, despite increased brand building investment. The company remains on track to reach its goal of a 14% operating profit margin in 2024 and 15% by 2026.

The company's earnings per share growth in quarter two was primarily driven by an increase in operating profit. Other factors such as interest expense and other income largely offset each other. The effective tax rate remained stable and joint venture earnings and minority interests had minimal impact. The company's free cash flow and net debt position improved in the first half of the year, and the company has increased its full year guidance due to strong performance.

The company has revised its guidance for net sales, organic growth, adjusted basis operating profit, and adjusted basis earnings per share based on their better than expected first half performance. They expect organic growth of 3.5%, a headwind of 7% from currency translation, and margin expansion for the year. The guidance for adjusted basis earnings per share has increased to a range of $3.65 to $3.75. The effective tax rate is expected to be in the mid-22% range.

The company has experienced some challenges in the second quarter, such as higher interest expenses and negative joint venture earnings. However, they are still expecting to see growth in free cash flow and remain in a strong financial position. The company's first and second quarter results were better than expected, allowing them to raise their guidance for the full year. They have solid plans in place to improve volume performance and their profit margins continue to improve. The focus now is on the company's performance in North America, where they saw a slight increase in organic net sales and a positive turn in volume growth.

Despite industry-wide challenges, our return to full commercial activity and launch of new products led to volume growth in our US retail business. Our away from home and Canadian businesses also saw strong growth. North America's operating profit increased significantly, aided by productivity and increased investment in our brands. Our snacks business showed organic net sales growth, while our frozen foods business saw a slight decline. We expect to sustain this volume improvement in the second half of the year, thanks to increased brand building, merchandising, and innovation. Overall, our financial results are strong and on track for the year.

The company's margins are recovering faster than expected and they expect continued progress in the second half. In Europe, organic net sales declined slightly but operating profit and profit margins increased. Snacks performed well, particularly Pringles, and the launch of Cheez-It in the U.K. is anticipated to further expand their snacking portfolio. In cereal, net sales declined due to category elasticity, but the company remains on track to deliver organic net sales growth for the seventh consecutive year in Europe. Innovations and promotions are in place to help manage through category-wide headwinds.

The company is making progress on optimizing its cereal portfolio and manufacturing network. In Latin America, net sales increased by 4% organically in the second quarter, with growth in both snacks and cereal categories. Price/mix growth is moderating as expected, and volume returned to growth in the quarter. Operating profit also increased in the second quarter. The company expects a seventh straight year of organic net sales growth in Latin America, driven by both snacks and cereal. In the EMEA region, currency and price increases in Nigeria drove a 16% organic net sales growth in the quarter.

The company's business in Nigeria is performing well despite challenges with currency rates and volume declines. In other parts of EMEA, organic net sales increased and operating profit grew by 9%. Noodles and snacks were the top-performing categories, while cereal also saw growth. The company expects continued growth in the region for the rest of the year, particularly in the noodle business.

Steve discusses the company's strong performance in the second quarter and their focused, growth-oriented strategy. He highlights the gradual improvement in volume and profit margins and their commitment to creating the future through new investments and innovative products. He also thanks the Kellanova team for their contributions and opens the floor for questions from analysts. One analyst asks about the improvement in North America volumes, which Steve attributes to proactive price investment and a strong innovation slate for the back half of the year.

In the paragraph, Steve Cahillane, the CEO of Kellogg, discusses the factors driving volume improvement in North America, including increased distribution, full commercial innovation activation, and a return to pre-pandemic levels of pricing and promotion. He also mentions that Pringles has had strong momentum and expects other brands such as Cheez-It to catch up in the third and fourth quarter. The paragraph also briefly mentions that volume in Europe is under pressure due to decelerating pricing, but there is potential for improvement with upcoming innovation such as Cheez-It.

Steve Cahillane, CEO of Kellogg's, discusses the company's plans for growth in Europe. Despite a challenging environment, the company has confidence in its back half plans and expects to continue growing. They have seen success in snacks and are excited about the upcoming launch of Cheez-It in the UK. In North America, the company is seeing positive volume growth, but expects pricing to remain negative due to timing impacts with promotions and price activity.

In the Latin American market, Kellogg's had a strong quarter with growth in both cereal and snacks. Mexico had a record-breaking quarter with high cereal shares and Pringles performing well despite capacity constraints. Brazil was impacted by floods, but the overall business remains strong, especially for Pringles.

The Pringles brand is experiencing strong momentum in Brazil, but has been impacted by recent devastating floods. During a conference call, Steve Cahillane, CEO of Pringles' parent company, discussed the price sensitivity of the North American market, particularly for consumers with lower household incomes. He acknowledged that the current economic climate has heightened the importance of hitting the right price points for products. When asked about the impact of the upcoming launch of a new mix Pringles product, Cahillane did not provide specific details but acknowledged that it could be meaningful for the brand in the second half of the year.

In the paragraph, Steve Cahillane discusses the launch of Pringles Mingles, a new product that will be introduced outside of the traditional Pringles can. He explains that the product is in the shape of a bow tie and plays on the iconic Mr. Pringles image. The company believes the product will do well in the snacking market and will start to see results in the first quarter of next year. In response to a question about North America Snacks, Cahillane mentions that there was consumption growth in the second quarter, potentially due to growth in Canada or beyond the measured channels. He expects a return to low single-digit growth in the second half of the year, with improvement in areas such as merchandising and innovation for products like Cheez-It and Rice Krispies Treats.

The company is seeing good growth in Canada and away-from-home channels, leading to consumption growth in North America. Pringles is performing well in both measured and non-measured channels. The company expects to see improvement in measured channels in the second half of the year. In Nigeria, while pricing has led to a lift, currency and volumes are a big offset. The company is seeing volume momentum and expects to see improved volume growth in the future.

The company's JV recorded a significant decline in volume, but saw a gain in price mix. The team is executing well, but the consumer in Nigeria is under strain. The company is being prudent in their forecast but there may be some upside. Elasticities were better than expected in the second quarter. The guidance increase mainly reflects first step upside and unchanged second half expectations. Operating profit exceeded consensus estimates.

The company's gross margin progression is expected to moderate in the second half of the year due to lapping certain events from the previous year. Inflation is expected to have a neutral impact on the company's performance for the year. The company will continue to invest in brand building, but at a slower pace compared to the previous year.

The speaker discusses the company's expectation for neutral to slightly inflationary costs in the coming year, with the exception of inflation in Nigeria. They also address concerns about the balance between driving gross margins higher and being aware of customers' concerns about their own margins. The company plans to achieve higher margins through productivity, resolving bottlenecks, and increasing brand building investment, in order to grow faster than retailers' same-store sales.

The speaker discusses the company's increased focus on innovation, with a graph showing that they are back to pre-pandemic levels. They mention recent successful product launches, and hint at even more to come in the future. They also confirm that they will release guidance for 2025 at their next earnings report in February.

The company is optimistic about innovation and has a strong plan for next year. They will provide guidance and outlook for 2025 in February. The next question is about the balance of volume, price, and mix in North America, and the company expects each component to be positive in the back half. They are returning to a more balanced approach, with volume growth driving NSV growth. Excluding Nigeria, they expect volume growth in all regions in the second half.

During a recent discussion, the speaker acknowledges that the company has seen positive returns on their investments in activation and promotion. However, they are aware that many of their competitors have also increased their investments, and the speaker asks if this will affect their returns. The CEO responds by stating that they see the current competitive environment as rational and do not expect any major changes in returns. He emphasizes the importance of innovation, brand building, and quality merchandise in driving the category. He also mentions the impact of input cost inflation and the need to carefully consider price points and promotions. Overall, the CEO believes that investing in brands and meeting consumer needs will continue to be important, but they do not anticipate any major changes in the pricing environment.

Max Gumport asks why the company isn't following the trend of competitors and lowering prices, but Steve Cahillane points to the company's strong second quarter results and raised guidance as evidence that they don't need to make any changes. Another analyst, Andrew Lazar, notes that promotional activity is back to normal levels, but prices are still higher due to increased list pricing.

Steve Cahillane, CEO of Kellogg Company, was asked about the company's promotional activity and how it has been trending. He explained that at the beginning of the year and the end of last year, the lifts were not great due to price discovery, but as the higher list prices are starting to improve, the investments they are making are seeing a better return. This gives them confidence in the back half of the year and into next year. The operator then thanked everyone for their participation and the call ended.

This summary was generated with AI and may contain some inaccuracies.