Kellogg Company
CEO : Mr. Steven A. Cahillane
Quarterly earnings growth(YoY,%)
| Period | Revenue | Operating Income | EPS | Release Date |
|---|---|---|---|---|
| 2022 Q4 | 12.1% YoY | 1.8% | -122.8% | 2023-02-09 |
Amit Banati says,
Net Sales Growth
- Net sales led the way accelerating to 16% organic growth in Q4 and resulting in 12% organic growth for the year, which was higher than expected.
- Double digit organic growth and net sales in 2022 was driven by price mix which accelerated in the second half as we continued to execute revenue growth management actions around the world to cover accelerated input cost inflation.
- Volume grew slightly in the quarter due to continued recovery in North America Cereal and declined only modestly for the full year, reflecting both price elasticity that has not moved up as much or as soon as we had expected, as well as our replenishment of trade inventories during the year as our supply improved.
Gross Profit and Margin
- Supply disruptions created incremental costs and inefficiencies throughout the year and input cost inflation accelerated across the year. Yet, because of productivity efforts and effective revenue growth management actions around the world, we were able to largely offset the dollar impact of those higher input costs and we grew our overall gross profit dollars this year.
- From a percentage margin perspective, though, there is a mechanical impact of matching input cost inflation which price realization. And because we could not cover the unpredictable inefficiencies from economy-wide bottlenecks and shortages, we did see year-on-year increase in gross profit margin in quarter four as we lapped the first of two quarters impacted by the fire and strike, and we finished the full year in line with expectations we had communicated.
- In 2023 we expect to continue to grow gross profit dollars while our margin stabilizes and improves slightly during the year. This improved margin performance will be driven by price realization catching up to input cost inflation that is expected to moderate in the back half of the year.
Operating Profit
- Operating profit in Q4 was up 16% year-on-year, including a negative currency translation impact of almost 4 percentage points. While it was lapping a year earlier decline due to last year’s fire and strike, this year’s Q4 profits were above that of two years ago.
- For the full year, our operating profit increased by 4% after a negative 3% impact for currency translation.
- In 2023, we expect to generate above algorithm growth for operating profit as well.
Non-Operating Items
- Interest expense was up sharply year-on-year in Q4 as rising interest rates affected the roughly one fifth of our debt that is floating. The quarterly run rate for 2023 interest expense will likely be a bit higher than this Q4 level.
- Other income decreased in Q4 and the full year. Most of this was related to the media remeasurement of certain U.S. benefit plans, though in Q4 it was partially offset by better than expected FOREX gains and interest income that we do not expect to repeat.
- Pension income will drop sharply owing to lower asset values entering the year and to a higher interest charge reflecting the rise in interest rates. The pending spinoff of North America Cereal Co is still targeted to be executed towards the end of the year. For simplicity reasons only our guidance assumes it remains in our results for the full year.
Guidance for 2023
- Organic growth in net sales is forecast to be in the 5% to 7% range, another strong year.
- On an adjusted basis and excluding currency, we expect operating profit to grow in the 7% to 9% range.
- Cash flow is expected to come in somewhere between $1 billion and $1.1 billion.
Steven Cahillane says,
Strong Financial Delivery
- Double-digit net sales growth across all regions led by strong end market performance in snacks portfolio
- Sustained exceptional growth in emerging markets, posting strong growth in snacks, cereal across EMEA and Latin America
- Mitigated profit impact of unusually high input costs by leaning into productivity and revenue growth management actions
- Strong financial delivery that exceeded expectations throughout the year, prompting the company to raise guidance more than once for net sales, operating profit, and EPS
- Strong fourth quarter financial delivery
Separation of the Company
- Significant progress towards separation of the company to improve performance of North America Cereal Co. and provide clearer visibility into the strength of snacks-oriented parent company
- Planned and announced separation of the company
- Carved out financials, designed new organizations, and separated key systems and processes
- Spinoff of North American Cereal Company scheduled for late this year
Commitment to Sustainability
- Remain committed to better days strategy towards environmental, social, and governance practices
- Tangible actions taken and recognitions received during Q4 2022 alone illustrating continued commitment
Forecasting Growth
- Expect sustained momentum in snacks business, led by world-class brands
- Expect to continue to drive growth and manage through macroeconomic conditions in strong emerging markets businesses
- Input cost inflation remains high, will focus on realizing productivity and cost savings supplemented by utilizing all levers of database revenue growth management disciplines around the world
- Forecast growth in net sales and operating profit above long-term targets despite investing in capabilities, service levels, and strength of brands
Retaining Plant-Based Food Business
- Exploring strategic options for plant-based food business which represents about 2% of company’s net sales
- Decided to retain plant-based food business as part of global snacking company due to current market conditions and confidence in business as a long-term growth vehicle
Q & A sessions,
Kellogg North America
- Snacks segment led the way in 2022 with double-digit growth
- North America cereal business showed strong net sales growth and sustained momentum
- North America frozen foods experienced significant production issues, but supply constraints are getting past
- Expect to sustain momentum in snacks and cereal in 2023, leading to margin improvement
Kellogg Europe
- Snacks now represent more than half of Europe region’s net sales and delivered strong double-digit net sales growth all year
- Kellogg Europe had another good year, posting fifth straight year of growth in both organic net sales and operating profit despite cost inflation and brand investment pressure
- Strong brand plans in cereal, including renovation and innovation and celebrating our 25th year of our Better Days social program in the UK
- Agreement to divest Russia business, which represents a little more than 5% of Kellogg Europe’s total sales, but the impact of this divestiture should not be meaningful to adjusted basis results
Kellogg Latin America
- Latin America region posted strong and accelerating organic net sales growth all year attributed to its brands, commercial execution, expansion of route-to-market capabilities, revenue growth management actions, and agility in managing through supply challenges
- Snacks business in Latin America has grown consistently over the years and led the organic net sales growth for the region with year-on-year growth of more than 20% in both the fourth quarter and the full year
- Kellogg Latin America’s cereal business also grew net sales organically in the fourth quarter and full year, with robust consumption growth across the region
- Expect to sustain momentum in snacks, led by Pringles, and continue to grow in cereal in 2023, with an aim to improve profit margins and complete the carving out of Caribbean cereal business into North American Cereal Company spin-off
Kellogg EMEA
- EMEA region continues to deliver exceptional top line and bottom line growth, with net sales growing organically in high teens or better all year long
- Snacks in EMEA posted outstanding organic net sales growth all year, led by emerging markets ranging from Asia, Africa to the Middle East and led by Pringles, which sustained strong consumption and share growth across key markets
- Kellogg EMEA’s cereal business also posted strong organic net sales growth all year, with growth across all sub regions and consumption and share growth in measured markets, including Australia and India
- Expect another year of strong top and bottom line growth for EMEA in 2023, with sustainable momentum in noodles and other, growth in cereal led by markets in Asia, plenty of runway for Pringles, and an aim to improve profit margins
No bad stock 