Q4 2021 Kellogg Co Earnings Call

Speaker 1: businesses and we worked through those interruptions as well.

Through those interruptions as well.

Speaker 1: Secondly, it should be clear that we have strong business momentum. Our international businesses continue to deliver strong growth this year, even accelerating from strong growth last year. They grew in snacks and they grew in cereal.

Secondly, it should be clear that we have strong business momentum our international businesses continued to deliver strong growth. This year, even accelerating from strong growth last year. They grew in snacks and they grew in cereal.

Speaker 1: In North America, our largest business, Snax, delivered outstanding growth and category share performance all year long.

In North America, our largest business snacks delivered outstanding growth in category share performance all year long brands like Pringles Cheez, It pop tarts and rice Krispies treats have never been stronger and our frozen foods businesses. We continue to show growth momentum on a two year CAGR basis.

Speaker 1: Brands like Pringles, Cheez-It, Pop-Tarts and Rice Krispies Treats have never been stronger. And in our frozen foods businesses, we continue to show growth momentum on a two-year CAGR base.

Speaker 1: EGO's growth was strong enough to run up against capacity limitations, which we are resolving. In Morningstar Farms, plant-based foods growth came with increased household penetration.

<unk> growth was strong enough to run up against capacity limitations, which we are resolving and Morningstar farms plant based foods growth came with increased household penetration and finally, we enter the new year and good financial condition, our cash flow remains strong and we have de levered, our balance sheet, giving us good financial flexibility.

Speaker 1: And finally, we enter the new year in good financial condition.

Speaker 1: Our cash flow remains strong and we have de-levered our balance sheet, giving us good financial flexibility.

Speaker 1: The result of all this was yet another year of balanced financial delivery in 2021, which we expect to sustain reliably and independently in 2022.

The result of all this was yet another year of balanced financial delivery in 2021, which we expect to sustain reliably independently in 2022.

Speaker 1: And driving this dependable performance are the talents and determination of our world-class employees, who deserve tremendous credit for working through unprecedented challenges and keeping Kellogg on this path of profitable growth. And with that, we'd be happy to take any questions that you might have.

And driving this dependable performance are the talent and determination of our world class employees, who deserve tremendous credit for working through unprecedented challenges and keeping kellogg on this path of profitable growth and with that we'd be happy to take any questions that you might have.

Thank you very much.

Speaker 2: If you would like to register a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. And when preparing to ask your question, please ensure you are unmuted locally. So we will take our first question from Ken Goldman from JP Morgan. Ken, your line is open. Please go ahead. Hi, thanks and good morning, everybody.

Okay.

Thank you I would like to register a question. Please press star followed by one on your telephone keypad if.

If you would like to withdraw your question. Please press star followed by Jay and when comparing to ask your question. Please ensure you Amit lately.

So we will take our first question from Ken Goldman from JP.

J P. Morgan Ken Your line is open. Please go ahead.

Hi, Thanks, and good morning, everybody.

Good morning, guys.

Speaker 3: You understandably highlighted the strength of North America's snacks, which is doing phenomenally. I'm just curious, you know, the...

Understandably.

Delighted to strength in North America, snacks, which is which is doing phenomenally I'm just curious.

Speaker 3: did improve by 21% organically. That's a lot more than what's recently been posted. And I'm sure a lot of it is just ongoing strength in the business, but I'm just curious if we can sort of parse out what drove the spike, I guess, in this particular fourth quarter. Was it kids going back to school? Was it other factors? And then I'm also curious to what degree guidance may be considered what could be a little bit of a reversal there, if that's true, just on the top.

It improved by 21%.

Organically, that's a lot more than what's recently been posted and Im sure a lot of it is just ongoing strength in the business, but I'm just curious if we could sort of parse out what drove the spike I guess in this particular fourth quarter was it kids going back to school was it other factors and then I'm also curious to what degree guidance, maybe considered what could.

Be a little bit of a reversal there.

That is true on the tougher comparison.

Speaker 1: Yeah, thanks Ken. I'd say, you know, the snacks business, there's not one thing that you would point to. It's really overall broad-based execution, innovation, new pack format.

Yes, Thanks, Ken I would say the snacks business Theres not one thing that you would point to it's really overall broad based execution innovation new pack formats. That's.

Speaker 1: that's driving the underlying momentum of the business. It's across brands. It's Pringles. It's Cheez-It. It's Rice Krispies Treats. It's broadly across customers. Some of it is a return to you know on the go clearly which is benefiting, but it's you know it's broad-based. It's very good price mix performance on top of that. The innovations that you know I already mentioned Scorchin doing extremely well.

Thats driving the underlying momentum of the business it's across brands, it's pringles cheez. It rice krispies treats its broadly across customers. Some of it is a return to on the go clearly which is benefiting but it's it's.

Broad based its very good price mix performance on top of that the innovations that I already mentioned scorching.

Doing it extremely well so.

Speaker 1: You know, it's nice to see a number that's, you know, high double digits for sure. And to your question around what's in guidance, you know, we're not forecasting a continued 20% growth to be sure. And you know, we'll have to lap that next year, but it's a great position to be in. Strong brands, differentiated brands.

It's nice to see a number thats high.

High double digits for sure and to your question around what's in guidance, we're not forecasting a continued 20% growth to be sure and we will have to lap that next year, but it's a great position to be in strong brands differentiated brands.

Speaker 1: good brand building against those. You know we kicked off the Pringles.

Good brand building against those we kicked off the Pringles Super Bowl campaign on CBS Primetime will be on the big game again. This year. So we expect to get off to a very strong start next year in our snacks business as well.

Speaker 1: Super Bowl campaign on CBS , Prime Time will be on the big game again this year. So we expect to get off to a very strong start next year in our snacks business as well.

Speaker 3: Great, thank you for that. And then a quick follow up. And Steve, I realize that crystal balls are cloudy right now. But when do you think we should start expecting to see an inflection?

Great. Thank you for that and then a quick follow up Steve I realize that.

Crystal balls are cloudy right now, but when do you think we should start.

<unk> to see an inflection in scanner trends for U S cereal.

Speaker 3: in scanner trends for US cereal. You know, with the understanding that there's still a lot of challenges in the first quarter, but just trying to get a sense for when we could wake up one day and say, hey, you know what, cereal's bottomed and it may not be growing yet, but it's certainly, you know, it's certainly the growth is at least accelerating off the bottom. Is that still a month, maybe two months away? I just wanted to get a rough idea of how you're seeing.

With the understanding that there's still a lot of challenges in the first quarter, but just trying to get a sense for when we could wake up one day and say Hey, you know what cereals bottomed and it may not be growing yet, but it's certainly.

It's certainly the growth is at least accelerating off the bottom and Thats still a month, maybe two months away just I just wanted to get a rough idea of how youre seeing that.

Yes, so where we are right now obviously, we had a strike that lasted almost the entirety of the fourth quarter and so what you see there is a depletion of our inventory and our customers' inventory and it takes a little while to rebuild the plants are fully back in business right. Now we are delighted that our folks are back, but it's going to take the <unk>.

Speaker 1: Yeah, so where we are right now, obviously we had a strike that lasted almost the entirety of the fourth quarter. And so what you see there is a depletion of our inventory and our customers' inventory. That takes a little while to rebuild. You know, the plants are fully back in business right now. We're delighted that our folks are back.

Speaker 1: But it's going to take the first quarter to build inventory, it's going to take into the second quarter to rebuild commercial activity. So think about it as two halves. The first half of the year, we'll see the continued pressure in US cereal. In the second half, you should see some nice growth in our US cereal business. And so that's really, I would think about it as a tale of two halves. The first half is the reparations necessary. And the second half is the rebuilding of commercial activation, customer programs, commercial activity that will see us getting back to growth.

First quarter to build inventory, it's going to take into the second quarter to rebuild commercial activity. So think about it as two halves. The first half of the year, we will see the continued pressure in U S cereal and the second half you should see some nice growth in our U S cereal business and so that's really I would think about it as a tale of two halves. The first half is the reparations necessary.

In the second half is that rebuilding of commercial activation customer programs commercial activity that will see us getting back to growth.

Great. Thanks, so much.

Okay.

Thank you very much.

Speaker 2: Thank you very much. Our next question is from David Palmer from Evercore. David your line is open please go ahead.

Next question is from David Palmer from Evercore, David Your line is open. Please go ahead.

Thanks, Good morning.

Speaker 3: If you had adequate inventory and normalized advertising and promotion levels for cereal, how much higher do you think your organic revenue growth estimate would have been for 2022? Just trying to isolate how you're thinking.

You had adequate inventory and normalized advertising and promotion levels for cereal how much higher do you think your organic revenue growth estimate would have been for 2022 just trying to.

Isolate how youre thinking about that as a drag.

Speaker 1: David, difficult question to answer, you know, it's obviously a hypothetical, but you can see what's happened to our US serial performance. We wouldn't have been down 24%, right? And so I think you'd look at it and say we'd be down or up, you know, in a plus one, minus one type of range. We're going to lap that in the second half of next year, as I was just saying, we're going to rebuild in the first half and grow in the second half.

David difficult question to answer.

Obviously, a hypothetical but you can see what's happened to our U S. Cereal performance, we wouldn't have been down 24% right and so I think you would look at it and say we'd be down or up.

Plus one minus one type of range, we're going to lap that in the second half of next year as I was just saying we're going to rebuild in the first half and grow in the second half, but clearly it affected our results in the fourth quarter without a doubt and Thats why were so pleased to be able to post the type of performance. Despite.

Speaker 1: But clearly it affected our results in the fourth quarter without a doubt.

Speaker 1: And that's why we're so pleased to be able to post the type of performance despite

Speaker 1: Again, the entirety of the fourth quarter we had a labor strike. The rest of the portfolio stepped up in such a meaningful way to be able to deliver against our guidance despite this unexpected circumstance I think really shows two things. It shows the incredible strength of the portfolio and it's a reminder to all of us that when you hear Kellogg you think cereal, right? But we're so much more than a cereal company. It's business.

Again, the entirety of the fourth quarter, we had a labor strike the rest of the portfolio has stepped up in such a meaningful way to be able to deliver against our guidance. Despite this unexpected circumstance I think really shows two things. It shows the incredible strength of the portfolio and it's a reminder to all of us that when you here.

Do you think cereal right, but we're so much more than a cereal company. This business U S cereal in North American cereal is less than 20% of our business and what you saw is the greater than 20% of the emerging markets business performing the snacks business I was just talking about performing all of our international business is performing very well to overcome what was what was it.

Speaker 1: US cereal, North American cereal is less than 20% of our business and what you saw is the greater than 20% of the emerging markets business performing, the snacks business I was just talking about performing, all of our international businesses performing very well to overcome what could have been a debilitating strike but wasn't.

<unk> had been a debilitating strike, but it wasn't.

Speaker 3: No, I think that point taken and I think of course this is going to be

I think that point.

<unk> taken and I think of course this is going to be.

God willing easy comparisons for 2023 for that business.

Speaker 3: for that business. I want to ask you on gross margins, just looking back to 2021...

I wanted to ask you one on gross margins just looking back to 2019.

Speaker 3: What do you think is a normalized gross margin for this company after you get past?

What do you think is a normalized gross margin for this company. After you get past some of these more acute COVID-19 related supply chain costs striking fire impact ends and pricing catches up.

Speaker 3: more acute COVID related supply chain costs, the strike and fire, impact ends and pricing catches up.

As 2019 levels.

33, 5% to 34 is that type of level that this company should operate in longer term.

Speaker 4: 33 and a half to 34. Is that the type of level that this company should operate in longer term?

Speaker 5: Yeah, absolutely. I think in a longer term that would, we'd want to get back to the pre-pandemic levels of gross margin. I think you saw in quarter four a further deterioration in our gross margin from quarter three. I think a lot of the factors of quarter three was still at play in quarter four in terms of commodity inflation, in terms of supply bottlenecks and shortages and of course,

Yes, absolutely I think longer term that would we'd want to get back to the pre pandemic levels of gross margin I.

I think you saw in quarter four.

The deterioration in our gross margin from quarter, three I think a lot of the factors of quarter three was still at play in quarter four in terms of commodity inflation in terms of supply bottlenecks and shortages and of course.

Speaker 5: the strike had a significant impact on our margins in quarter four. And so, you know, the deterioration between quarter three and quarter four was largely due to the strike.

The strike had a significant impact on our margins in quarter, four and so the deterioration between quarter three and quarter four was largely due to the strike.

Speaker 5: I think you're going to continue to see that persist, particularly in Quarter 1, but into Quarter 2 as we rebuild inventory. There are carry-over costs of the strike that will flow through into Quarter 1 as well.

I think youre going to continue to see that persist.

And particularly in quarter, one but into quarter two.

We rebuilt inventory.

Carryover costs of the strike that flowed through into quarter, one as well.

Speaker 5: And so I think from a 22 standpoint, again, I think similar to what Steve mentioned on cereal, even on gross margins.

And so I think from a 22 standpoint again I think similar to what Steve mentioned on cereal even on gross margins.

Speaker 5: It'll be kind of a tale of two halves. I think the first half we'll continue to see the pressure that we saw in the second half of 2021. So you'll see a similar trend in...

It would be kind of a tale of two hubs I think another first half we've continued to see the <unk> that we saw in the second half of 2021, So youll see a similar trend in.

Speaker 5: in 2022 first half and then in the second half we should see our margins start to improve particularly in quarter four as we lap the impact of the fire and the strike.

In 2022 first half and then in the second half, we should see our margins start to improve particularly in quarter four as we lap the impact of the fire and the strike.

Speaker 5: I think where we'll end up on 2022, overall, hard to predict. I think it will depend a little bit on the supply chain environment.

I think it will where we will end up for 2022 overall hard to predict I think it will depend a little bit on the supply chain environment.

Speaker 5: But once you go past 2022, I think from a strategic standpoint, we absolutely want to get back to pre-pandemic levels of margins. And that's the focus of all the teams around the world.

Once you go past 2022, I think from a strategic standpoint.

Absolutely want to get back to pre pandemic levels of margins and that's the focus of all the teams around the world.

Thank you.

Yes.

Thank you. Our next question comes from Andrew Lazar from Barclays. Your line is open. Please go ahead.

Speaker 2: Thank you. Our next question comes from Andrew Lazar from Barclays. Your line is open, please go ahead.

Great. Thanks very much.

Speaker 6: Great, thanks very much. I guess, Steven Ahmed, I'm trying to get a sense of how you see the balance between gross margin and SG&A sort of playing out for the year. I guess more specifically, would you anticipate somewhat of a pullback on marketing spend really more just in light of sort of the current serial supply challenges? I'm trying to get a better sense of, I guess, how much the company is planning on sort of needing to lean into SG&A to hit full your targets this year, given where gross margins could come in.

I guess, Steven Amit I'm trying to get a sense of how you see the balance between gross margin and SG&A sort of playing out for the year I.

I guess more specifically would you anticipate somewhat of a pullback on marketing spend really more just in light of sort of the current cereal supply challenges I'm trying to get a better sense of I guess, how much. The company is planning on sort of needing to lean and cash G&A to hit full year targets for this year, given where gross margins could come in.

Speaker 5: Yeah, I think Andrew, like I said on gross margins, you know, we'll see pressure in the first half. We'll see improvement in the second half.

Yes, I think Andrew like I said on gross margins.

We'll see pressure in the first half we will see improvement in the second half.

Speaker 5: And again, you know there's obviously a little bit of variability depending on how the environment pans out. On SG&A, right now our thinking, our planning stance is a modest increase in SG&A for 2022. And so A&P, we'd expect it to be broadly flattish.

And again, there is obviously a little bit of variability depending on how the environment pans out on SG&A.

Right now our thinking a planning stance as a modest increase in SG&A for 2022.

And so.

A&P wed expect it to be broadly flattish.

Speaker 5: as the restoration of support behind the branch that was supply disrupted is gradual. So as we rebuild inventory, as we rebuild service.

The restoration of support behind the brands that will supply disrupted is gradual.

As we rebuild inventory as we rebuild service.

Speaker 5: we will start rebuilding commercial activation in line with that. That will play through in the first half. Then I think from an overhead standpoint, there will be a slight increase. We are lapping an unusual 2021, where the pandemic basically persisted for the full year. We had reduced travel, we had reduced spend on meetings. There were a couple of one-time

We'll start rebuilding.

Commercial activation in line with that and so that will play through.

In the first half.

And then I think from an overhead standpoint, there will be a slight increase.

Lapping an unusual 2021, where the pandemic basically persisted for the folio and so we had reduced travel we had reduced spend on meetings. There were a couple of onetime items.

Speaker 5: So, overhead versus that base is, you'd expect a modest increase in overhead.

No.

Overhead versus that base as you would expect a modest increase in OLED.

Speaker 6: Thanks for that. And then just briefly, Steve, I seem to remember, I think it was the very beginning of 2020. Pre-pandemic when Kellogg gave guidance for the coming year. It was along the lines of obviously snacking and international, the trend line there even then was really very good.

Okay. Thanks for that and then just briefly Steve I seem to remember I think it was the very beginning of 2020.

Pre pandemic and Kelly I gave guidance for the coming year.

It was.

Along the lines of obviously snacking and international the trend line. There. Even then was really very good.

Speaker 6: And it's obviously only gotten better since then. And the thinking was, hey, 2020 is going to be the year we've got to really invest in this developed market serial business to sort of get it to a more, you know, sort of stable to maybe slightly growing kind of pace sustainably. And that was the year Kellogg was going to kind of do what was needed to sort of make that happen. And then, of course, all bets were off given the pandemic, you know, came out came about.

And it's obviously only gotten better since then.

The thinking was hey, 2000, twenty's going to be the year, we've got to really invest in this developed markets cereal business to sort of get it to a more.

Sort of stable.

Maybe slightly growing kind of paced sustainably and that was the year <unk> was going to kind of do what was needed just trying to make that happen and then of course, all bets were off given the pandemic came in we came about.

And then I realized near term job number one is let's get product back into the hands of retailers and consumers, let's get our shelf space back, but if we take sort of the strike and recent events sort of out.

Speaker 6: And then I realized near term job number one is let's get product, you know, back into the hands of retailers and consumers. Let's get our shelf space back. But if we take sort of the strike and recent events sort of out

Speaker 6: If we look back to where you thought that serial business was then and what it needed.

We look back to where you thought that cereal business was that and what it needed once you're back up to speed on inventory on the shelf I guess, where would you say that business is.

Speaker 6: Once you're back up to speed on inventory and on the shelf, I guess where would you say that business is in terms of...

Speaker 6: sort of taking some of this recent stuff out of the out of the picture? Is there still a necessary sort of level of investment beyond to sort of get it to the right place? Or do we not know because so much has happened in the last two years that you know, we really can't go back to what the sort of the commentary was then? If you get my if you get my question.

Sort of taking some of this recent stuff out of the out of the picture is there still unnecessary sort of level of investment beyond just sort of get it to the right place or do we not know because so much has happened in the last two years.

We really can't go back to what the sort of the commentary was that.

If you get my question.

Excuse me I do get your question I think we were on the road to really good recovery in cereal and if you look at the underlying health of the Big brands, you could see that and even today. If you look at the brands that we've been able to restore look at Froot loops. For example, it's performing very well relative.

Speaker 1: We were on the road to really good recovery in cereal and if you look at the underlying health of the big brands, you could see that. And even today, if you look at the brands that we've been able to restore, look at Fruit Loops for example, it's performing very well relative to the rest of the category. And we believe, as I said earlier, it's going to be a tale of two halves, but when we get to the second half, we feel good about our cereal and we feel good about our North American cereal's performance inside the portfolio.

To the rest of the category and we believe as I said earlier, it's going to be a tale of two halves, but when we get to the second half we feel good about our cereal and we feel good about our north American cereals performance inside the portfolio.

Speaker 1: And, you know, as we've said even before 2020, we don't need cereal to be a growth business. We need it to be stable. And we're very confident that we will get it into into stability. And if you think about the back half of

And as we've said even before 2020, we don't need cereal to be a growth business, we needed to be stable and we're very confident that we will get it into into stability and if you think about the back half of.

Speaker 1: of the year we're in right now, you're going to see that. And that's in our guidance and we're confident about that. And then when you think about even as far forward as.

Of the year, we're in right now youre going to see that and Thats in our guidance and we're confident about that and then when you think about even as far forward as into.

Speaker 1: into 2023. In the beginning of 23, we're going to be lapping the first quarter of this year. So, you know, we see turning the corner at the half year as the beginning of...

Into 2023, and the beginning of 'twenty three we're going to be lapping the first quarter of this year. So we see turning the corner at the half year as the beginning of.

Speaker 1: a very, very robust, balanced growth for us. And we don't see cereal holding us back.

Very very robust balanced growth for us and we don't see serial holding us back.

Thanks very much.

Okay.

Thank you. Our next question comes from Steve Powers from Deutsche Bank. Your line is open. Please go ahead.

Speaker 2: Thank you. Our next question comes from Steve Powers from Deutsche Bank. Steve, your line is open. Please go ahead.

Hey, Thank you and good morning.

Speaker 3: Hey, thank you and good morning. Just building on that conversation a little bit further, it sounds like you think you can restore trade inventory by mid-year.

Just building on that conversation a little bit further.

It sounds like you think you can restore trade inventory.

Mid year.

But how long does it take to so you can fully restore market shares factoring and the need to perhaps earn back some shelf space.

Speaker 6: But how long does it take to fully restore market shares? Factoring in the need to perhaps earn back some shelf space that you've likely lost here entering calendar 22. Is that achievable by the end of the calendar year or does that also bleed into calendar three in terms of the market share restoration?

But you'd likely last year entering 'twenty calendar 'twenty. Two is that is that achievable by the end of the calendar year or is that does that also bleed into phase III in terms of the market share restoration.

Speaker 1: We will see market share restoration across, it'll be different across brands, right? We're focusing first on our biggest brands, and then obviously we have a number of smaller brands in the portfolio that will be not as high a priority in terms of rebuilding inventory and commercial activity. So you'll see us, you should see us regaining market share in the second half of the year as I said earlier, just as we regain momentum.

We will see market share restoration across and it will be different across brands right. We're focusing first on our biggest brands and then obviously we have a number of smaller brands in the portfolio that will be not as high a priority in terms of rebuilding inventory and commercial activity. So youll see us you should.

She is regaining market share in the second half of the year as I said earlier, just as we regain momentum.

Speaker 1: Hard to give a market share forecast of where we'll be at certain points.

Hard to give a.

Market share forecast of where we'll be at certain points, but we are bound and determined to restore this business restore tdp's restore all of our commercial activity and again in the second half of the year showed real momentum and exit the year with with very strong momentum across the entirety of our portfolio.

Speaker 1: but we are bound and determined to restore this business, restore our TDPs, restore all of our commercial activity, and again in the second half of the year show real momentum and exit the year with very strong momentum across the entirety of our portfolio including our North American cereal business.-

Portfolio, including our North American cereal business.

Speaker 7: Okay, very good. Thank you, Steve. And then Amit, if I could just maybe a little bit more, just diving into the...

Okay very good thank you, Steve and then Amit.

Just maybe a little bit more.

Going into the.

But the bulk of the outlook just any perspective you have.

Speaker 7: nuts and bolts of the outlook. Any perspective you have on coverage on current cost inflation, visibility as you enter the year, where you are in terms of...

Coverage on current cost inflation, just visibility as you enter the year, where you are.

In terms of price implementation.

Speaker 7: price implementation relative to that inflation? Is there a need for more pricing? How are you thinking about that?

But that inflation is there a need for more pricing, how you're thinking about that.

Speaker 7: And then if you could, just how that nets out, obviously the first half, second half commentary you gave makes it...

And then if you could just how about that so obviously the first half second half commentary you gave.

Speaker 7: clear intuitive sense, but can you help frame that a bit further maybe in terms of just rough estimation of the percentage of earnings you're expecting in the first half versus the second half just to give us order of magnitude? Thank you.

Clear intuitive sense, but can you help frame that a bit further maybe in terms of.

Rough estimation of the percentage of earnings you're expecting in the first half versus second half just to give us order of magnitude. Thank you.

Yes, so I think in terms of inflation I'll start there.

Speaker 5: Yeah, so I think in terms of inflation, I'll start there. It's continued to accelerate, and we've seen that through 21. So we are expecting double digit inflation in 2022.

Continue to accelerate.

We've seen that through 'twenty, one so we're expecting double digit inflation in 2022.

Speaker 5: And you know, bulk of it is market driven. So I think that's our planning stance. We're seeing inflation in ingredients and packaging. You know, oil, corn, wheat.

Bulk of it is market driven so I think that's a planning stance, we're seeing inflation in ingredients and packaging.

Oil corn wheat.

Speaker 5: and on the packaging side, cans, cartons. So we think broad-based inflation across our ingredients.

And on the packaging side.

<unk> gotten so we're seeing broad based inflation.

Across across our ingredients.

Speaker 5: We are about 70% hedged on our exchange traded commodities. So where we can hedge, we are at around a 70% hedge. So that's kind of typical of where we are at this time of the year.

We are about 70% hedged on our exchange traded commodities, so where we can hedge we are at around 70% hedged. So that's that's kind of typical of where we are at this time of the year.

Speaker 5: We will look to cover the growth margin impact of all the market related pricing inflation through our productivity initiatives, through our revenue growth management initiatives.

We will look to cover the gross margin impact of all the market related pricing inflation through our productivity initiatives through our revenue growth management initiatives.

Speaker 5: I think from a supply chain bottlenecks standpoint, I think we've talked a little bit of the carryover impact of the strike. So that's going to play out in Quarter 1 and moderate into Quarter 2. So that's going to impact the first half margins for sure.

I think from a supply chain bottleneck standpoint, I think it will be felt a little bit of the carryover impact of the strike so thats going to play out in quarter, one and moderate into quarter two.

So that's that's going to impact the first half margins for sure.

Speaker 5: Then the environment itself, that's hard to predict. But I think what we've assumed is that it'll continue to be a challenging supply chain environment into the first half, and then moderate into the second half.

And then the.

Environment itself Thats hard to predict but I think it will what we've assumed is that it will continue to be a challenging supply chain environment into the first half and then moderate into the second half.

Speaker 5: I think when you put all of those assumptions together, and kind of look at the first half, second half, it's obviously the earnings would be second half weighted compared to the first half. And then I think from a lab standpoint, obviously quarter four will be our easiest lap when we start lapping the impact of the fire and the strike. So that's broadly the shape of the yoke.

I think when you put all of those assumptions together right.

And then and kind of look at the first half second half.

Obviously, the earnings would be second half weighted.

Compared to the first half and then I think from a lapse standpoint, obviously quarter four will be our easiest lap when we start lapping the impact of the fire.

And the strike so that's broadly the shape of the yield.

Okay very good thank you.

Speaker 2: Thank you very much. Our next question is from Alexia Howard from Alliance Bernstein. Alexia, your line is open, please go ahead.

Thank you very much.

Next question is from Alexia Howard from the line of Bernstein Alexia. Your line is open. Please go ahead.

Good morning, everyone.

Good morning, good morning.

Speaker 8: Good morning, Alexis. Good morning. Thank you. So a couple of questions. I noticed that the price mix growth in EMEA is still incredibly high. I think it was 18% or so this quarter on top of, I think, 10% or so last year. The volumes are obviously down, but not down too much.

Thank you for a couple of questions.

I noticed that the price mix growth in EMEA is still incredibly high I think it was 18% this quarter.

On top of I think had.

10 potential side last year, the volumes are obviously down but not down too much maybe down.

Speaker 8: maybe down double digits over a two-year period. I'm just wondering what's going on in the region. Is it cutting out very low-priced products to get that price mix growth so it's more of a mix effect, or is there something else happening there? And then I have a follow-up.

Double digits over a two year period I'm, just wondering what's going on in the region is cutting out very low.

Price products to get that price mix. So it's more of a mix effect or is there something else happening there and then I have a follow up.

Yes, I think Alex the driver for that is really I mean, we're seeing commodity inflation, we think currency inflation. So I think a lot of that is driven by pricing and if you look at markets multiple is a good example.

Speaker 5: I think the driver for that is really we are seeing commodity inflation, we are seeing currency inflation.

Speaker 5: So I think a lot of that is driven by pricing. And if you look at markets, you know, MultiPro is a good example, where we're taking significant pricing, double digit pricing, multiple rounds of that, to cover the currency and the commodity. I'd say elasticity has been better than expected. So, you know, the elasticity has held up and volumes have held up.

Where we were taking.

<unk> pricing double digit pricing multiple rounds of that to cover the currency.

Andy.

And the commodity.

I'd say elasticity has been better than expected.

So.

The elasticity as headed up and volumes have held up.

Speaker 5: What you're seeing in some of the volume declines is also the impact of supply constraints.

What are you seeing in some of the volume declines is also the impact of supply constraints.

Speaker 5: I think that region in particular has been impacted by shortage of containers. We do ship a lot of products. Pringle is a good example. We manufacture that in Malaysia and ship it across the region.

I think that region in particular has been impacted by shortage of containers. We do ship a lot of product Pringles is a good example, we manufacture that in Malaysia and ship it across the region and certainly the shortage of <unk>.

Speaker 5: And certainly the shortage of ocean containers has impacted our ability to supply.

Ocean containers has impacted our ability to supply.

Speaker 5: And likewise, I think there have been just restrictions, lockdown restrictions on some of our facilities that have impacted supply and service. So that's been a dynamic indeed from a volume standpoint. But overall, I'd say over a two-year period, terrific price mix performance by the region and broadly volumes have held up.

And likewise I think.

There have been just restrictions lockdown restrictions on some level of facilities that have impacted supply and service. So that's been a dynamic in the.

From a volume standpoint, but overall.

Say over a two year period terrific up.

Price mix performance by the region and broadly volumes have ended up.

Speaker 8: Very helpful, thank you. And then a quick follow up. I noticed on the Morningstar Farms graph that the category and the brand have slowed down fairly meaningfully in the fourth quarter. Could you describe, you know, what's happening there and what that means for the incognito part of the brand?

Very helpful. Thank you and then a quick follow up.

Just on the Morningstar farms graph.

The category and the brand.

Slow down fairly meaningfully in the fourth quarter.

Could you describe.

What's happening there and what that means that the ink Inc.

Nito.

Part of the brand.

Yes, Alexia what I'd say is it is helpful to look at the whole category on a two year basis as well because what we're seeing is obviously a huge influx of new distribution and new entrants, which drove outsized demand in outside sales in certain certain areas and theres a big difference between.

Speaker 1: Yeah, Lexi, what I'd say is, you know, it's helpful to look at the whole category on a two year basis as well, because what we're seeing is obviously a huge influx of new distribution and new entrance, which drove, you know, outside demand and outside sales in certain areas. And there's a big difference between refrigerated and frozen as well. And what you're seeing is the refrigerated segment has decelerated on a two year kegger basis, and it's because of, you know, all these, as I said, new entrance, new trial and so forth, shaking out in the frozen side of the business.

Rated and frozen as well and what Youre seeing is the refrigerated segment has decelerated on a two year CAGR basis, and it's because of all of these as I said, new entrants new trial, and so forth shaking out in the frozen side of the business.

Speaker 1: You know, we're still very pleased about the way Morningstar Farms is performing. And, you know, we see what's happening in refrigerated as a lot of shakeout. You know, you typically see this in new categories with lots of new entrance, lots of trial, not always the highest quality items making their way on shelf. And so I think you'll see that shakeout. We do think that over time, you know, refrigerated has an opportunity to be successful, but we're much more pleased about how we're doing in the frozen.

We're still very pleased about the way Morningstar farms is performing and we see what's happening in refrigerated as a lot of shakeout.

<unk> see this.

New categories with lots of new entrants lots of trial, not always the highest quality items, making their way on shelf and so I think youll see that shake out and we do think that over time.

Refrigerated has an opportunity to be successful, but were much more pleased about how we're doing in the frozen segment.

Great. Thank you very much I'll pass it on.

Speaker 8: Great, thank you very much. I'll pass it on.

Okay.

Speaker 2: Thank you. Our next question is from Michael Lavery from Piper Sandler. Michael, your line is open. Please go ahead.

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

Good morning, Thank you.

Just want to Im curious.

Speaker 9: Just want to include. I'm curious if you just, yeah, good morning. You touched on some of the elastificities you're seeing now and just curious if you could give a sense of what some of your planning assumptions are. Do you expect that, you know, they've been relatively good. Do you expect that to hold? What's in your forecast for how that plays out?

Yes, good morning.

You touched on some of the elasticity as Youre seeing now.

Just curious if you could give a sense of what some of your planning assumptions are do you expect.

<unk> been relatively good do you expect that to hold.

What's in your forecast for how that plays out.

Speaker 1: Yeah Michael, so what we've seen so far is much better than historical elasticity performance. So much more inelastic. We don't forecast for that to continue. Obviously inflation continues to rage on. We are very pleased with the price mix that we've seen, but we are forecasting a more return to normal elasticities as the year progresses. I know, Ahmed, if you want to... Yeah, yeah I think it's very easy to weather exactly what we are seeing. Also the overbuilt for

Yes, Michael so what we've seen so far is much better than historical elasticity performance is so much more in elastic we don't forecast for that to continue obviously inflation continues to rage on.

We are very pleased with the price mix that we've seen but we are forecasting a more return to normal elasticities as the year progresses I don't know.

And if you want to sell and I think yes.

Speaker 9: That's really helpful and quick follow up. You mentioned in your early in your release and several times on the call the the balance sheet and financial flexibility you have and dry powder. What are your priorities as you think about M&A either geographically or by category? Is it as kind of high priority as that sounds? Can you just give some thoughts on how you're thinking about that?

That's really helpful and a quick follow up you mentioned in your early in your release and several times on the call the the balance sheet and financial flexibility you have in dry powder.

What are your priorities as you think about.

M&A, either geographically or by category.

Is it is kind of a higher priority of that sounds well can you just give us some thoughts on how youre thinking about that.

Yes.

Speaker 1: Yeah, definitely Michael. So we're very pleased with the strength of the balance sheet and the deleveraging that's happened over the course of the last couple of years and it does give us opportunities and optionality. And I think if you look at our portfolio and what's working in the portfolio, you could see us, you know, that would be good hunting grounds. So think snacking, think wellness, think emerging markets. And if we found an opportunity to add shareholder value, we would certainly take a good hard look at it. Always though being very disciplined on price. Okay, great. Thanks so much.

Definitely Michael So we're very pleased with the strength of the balance sheet and the deleveraging that's happened over the course of the last couple of years and it does give us opportunities in Optionality and I think if you look at our portfolio and what's working in the portfolio you could see us that would be good hunting ground. So think snacking think wellness think emerging markets and.

If we found an opportunity to add shareholder value.

We would certainly take a good hard look at it always though being very disciplined on price.

Okay, great. Thanks, so much.

Operator, we might have time for one more question.

Of course, thank you we will take our last question from Rob Dickerson from Jefferies. Your line is open. Please go ahead.

Speaker 2: Of course, thank you. We will take our last question from Rob Dickerson from Jefferies. Rob, your line is open, please go ahead.

Yeah.

Speaker 6: Great thanks for putting me in 2 quick questions. I guess just to touch on the bars category. Obviously, it's been pressured through the pandemic to some extent. Um, I don't know Steve, just kind of any quick thoughts, you know, in terms of.

Great. Thanks for putting me in.

Two quick questions I guess just to touch on the bars category, obviously, it's been pressured during the pandemic to some extent.

I don't know, Steve just kind of any quick thoughts in terms of.

Speaker 10: potential growth recovery as mobility increases and kind of how you're thinking about that through 22. I've been quick follow up.

Perpetual growth recovery as mobility increases and kind of how youre thinking that thinking about that through 'twenty two quick.

A quick follow up.

Speaker 1: Yeah Rob, so when you look at the bars category, you can see it is really highly correlated to occasion

Yeah, Rob So when you look at the bars category you can see it is really highly co related to occasions, and so I don't think this was your question, but if you look at rice Krispies treats which are bars doing incredibly well you look at neutral grain doing very well you look at Rx, it's back to growth, but not the type of growth that we had seen in the <unk>.

Speaker 1: And so I don't think this was your question, but if you look at Rice Krispies Treats, which are bars, doing incredibly well. You look at Nutri Grain, you know, doing very well. You look at RX, it's back to growth, but not the type of growth that, you know, we had seen in the past.

And thats due to occasions, I mean, I think I just saw something the other day, where Jim traffic is still down 40% from 2019 pre pandemic and Thats, a big occasion for Rx right throw a bunch of bars in the gym bag and off you go so we're seeing growth, but I think a lot of.

Speaker 1: And that's due to occasions. I mean, I think I just saw something the other day where gym traffic is still down 40% from.

Speaker 1: 2019 pre-pandemic and that's a big occasion for RX, right? Throw a bunch of bars in the gym bag and off you go. So, you know, we're seeing growth, but I think a lot of...

Speaker 1: Higher growth will depend on those types of occasions returning. And we are seeing, you know, the trend line is positive. We're seeing mobility start to increase. You know, Omicron obviously set it back, but now we're seeing it, you know, potentially recover. And we'll see what happens in the spring. You know, it's hard. Somebody mentioned the cloudy crystal ball.

Higher growth will depend on those types of occasions, returning and we are seeing the trend line is positive we're seeing mobility start to increase omicron, obviously set it back but now we're seeing it potentially recover and we'll see what happens in the spring.

Somebody mentioned, the cloudy crystal ball, certainly cloudy to understand what's going to happen in the spring, but as those occasions return, we think Rx and our other portfolio is well placed.

Speaker 1: certainly cloudy to understand what's going to happen in the spring, but as those occasions turn, we think our RX and our other portfolios is well placed.

Okay fair enough.

Speaker 10: And then just on the organic sales growth guide, I know you don't always break out price volume, but just wondering if there's any incremental clarity as to kind of, you know, for thinking.

And then just.

On the organic sales growth guide.

I know you don't always break out price volume.

Right.

I'm wondering if there's any incremental clarity.

Out of.

We're thinking.

Speaker 10: You know, should pricing that we sell in Q4, let's say, which was price mix at least.

Should pricing that we saw in Q4, let's say, which was price mix at least.

Speaker 10: They're kind of close to 9% as we get through the year, then we may be factoring some increase, increase promotional activity in the back app. Should the market be expecting kind of a similar. Level of pricing, let's say, at least in the 1st, half of the year, or were there some kind of 1 off some Q4 that might cause that to this? All right. That's all. Thanks.

We're kind of close to 9%.

As we get through the year, then maybe factor in some increased increased.

Increased promotional activity in the back half.

It should.

If you would be expecting kind of a similar level of pricing, let's say at least in the first half of the year or were there some kind of one offs in Q4 that might.

What caused that to decelerate that's all thanks.

Yes, I think.

Speaker 5: Yeah, I think most of our, if not all of our, net sales growth for 2022 would be driven by price mix. So I think as I mentioned, right, we're seeing double digit inflation into 2022. And so I think we're working through plans for productivity as well as revenue growth management.

Most of our if not all of our net sales growth for 'twenty, two would be driven by price mix.

I think as I mentioned right, we're seeing double digit inflation.

Into 'twenty two.

So I think we're working through plans, both productivity as well as revenue growth management.

Speaker 5: to counter that and to hold margins. So you will see most of the sales being driven by Prismix and RGM activity will continue to be a focus into 2022.

Due to the calendar that Andrew and to.

Hold margins. So you will see most of the sales being driven by price mix.

And.

And then.

<unk> activity will continue to be a focus into 'twenty two.

Okay.

Alright, alright, thank you alright.

Operator, I think we've we've hit our time limit thanks, everybody for your interest and if you have any follow up questions. Please do not hesitate to give us a call. Thank you.

Speaker 11: Operator, I think we've hit our time limit. Thanks everybody for your interest and if you have any follow-up questions, please do not hesitate to give us a call. Thank you.

Okay.

Speaker 2: Thank you everyone for joining today's call. You may now disconnect your lines and have a lovely day.

Thank you everyone for joining today's call you may now disconnect your lines and have a lovely day.

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Speaker 12: That have.

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