Q4 2023 Kellanova Co Earnings Call

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Speaker Change: Good morning, welcome to <unk> fourth quarter 2023 earnings call.

Speaker Change: Lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session with publishing analysts. At this time, I'll turn the call over to John Renwick, Vice President of Investor Relations and Corporate Planning for Kellanova. Mr. Renwick, you may begin your conference call. Thank you, operator.

Speaker Change: After the Speakers' remarks, there'll be a question and answer session with publishing analysts.

At this time I will turn the call over to John Renwick, Vice President of Investor Relations and corporate planning for Keller Nova.

John Renwick: Is there any way you may begin your conference call.

John Renwick: Thank you operator, good morning, and thank you for joining us today for a review of our fourth quarter results and a discussion of our outlook for 2024 I'm joined this morning by Steve <unk>, Our chairman, President and Chief Executive Officer, and Amit Banotti, Our Vice Chairman and Chief Financial Officer.

John Renwick: Good morning, and thank you for joining us today for a review of our fourth-quarter results and a discussion of our outlook for 2024. I'm joined this morning by Steve Cahillane, our Chairman, President, and Chief Executive Officer, and Amit Banati, our Vice Chairman and Chief Financial Officer. Slide number three shows our forward-looking statements disclaimer. As you are aware, certain statements made today, such as projections for Kellanova's future performance, are forward-looking statements. However, actual results could be materially different from those projected.

John Renwick: Slide number three shows our forward looking statements disclaimer as you are aware certain statements made today such as projections for <unk> future performance are forward looking statements actual results could be materially different from those projected for further information concerning factors that could cause these results to differ please refer to the third slide of this presentation as.

John Renwick: For further information concerning factors that could cause these results to differ, please refer to the third slide of this presentation, as well as to our public SEC filings. A recording of today's webcast and supporting documents will be archived for at least 90 days on the investor page of www.kellanova.com. As always, when referring to our results in Outlook, unless otherwise noted, we will be referring to them on an organic basis for net sales and on a currency-neutral adjusted basis for operating profit and earnings per share. Included in our press release are financial results for the fourth quarter of 2023, as well as the first three quarters and full years of 2023 and 2022, recasting WK Kellogg Co. in those periods as discontinued operations in accordance with applicable accounting guidelines.

Well as to our public SEC filings.

John Renwick: A recording of today's webcast and supporting documents will be archived for at least 90 days on the investor page of Www Dot <unk> Dot com.

John Renwick: As always when referring to our results and outlook unless otherwise noted we will be referring to them on an organic basis for net sales and on a currency neutral adjusted basis for operating profit and earnings per share.

John Renwick: Included in our press release, our financial results for the fourth quarter 2023, as well as the first three quarters and full years of 2023, and 2020 to recasting W. K Kellogg co in those periods as discontinued operations in accordance with applicable accounting guidelines. These.

John Renwick: These recast financials will be the basis of comparison used in the year-on-year growth rates we provide today for all items except free cash flow, which was not recast. Keep in mind that the accounting guidelines for discontinued operations are such that the recast financials for the periods prior to the spinoff include expenses related to providing transition services to WKKC, such as warehousing and IT-related expenses, but they do not include the reimbursement for those expenses, which Kellanova is receiving from WKKC under a transition services agreement. For periods after the spinoff, that is, from Q4 2023 onwards, both the expenses and the reimbursements will be included, which will impact year-on-year comparisons. This also creates a difference from the carve-out financials that you would have seen from WKKC as different accounting guidelines apply to carve-out financials. And now, we'll turn it over to Steve.

John Renwick: These recast financials will be the basis of comparison used in the year on year growth rates, we provide today for all items, except free cash flow, which was not recast.

John Renwick: Keep in mind that the accounting guidelines for discontinued operations are such that the recast financials for the periods. Prior to the spinoff include expenses related to providing transition services to WK Casey such as warehousing and it related expenses, but they do not include the reimbursement for those expenses.

John Renwick: <unk> <unk> is receiving from W. K Casey under a transition services agreement for periods. After the spinoff that is from Q4 2023 on both the expenses and the reimbursements will be included which will impact year on year comparisons.

John Renwick: This also creates a difference from the carve out financials that you would've seen from WK Casey as different accounting guidelines apply to carve out financials.

John Renwick: And now I'll turn it over to Steve Thanks, John and good morning, everyone. It's a real pleasure to be able to present to you. The results for <unk> for the first time allow me first to point you to slide number five and remind everyone of <unk> was more focused more growth oriented portfolio.

Steven A. Cahillane: Thanks, John, and good morning, everyone. It's a real pleasure to be able to present the results for Kellanova to you for the first time. Allow me first to point to slide number five and remind everyone of Kellanova's more focused, more growth-oriented portfolio. And let me also remind you of our updated and sharpened strategy. This strategy, appropriately called Differentiate, Drive, and Deliver, is shown on slide number six. This strengthened portfolio and sharpened strategy were in full force during our initial quarter as Kellanova. We delivered another quarter of solid results, as summarized on slide number 7. We began the quarter with our transformational spinoff, which we executed successfully from a transactional, financial, and operational perspective. We did not let this transformational transaction distract us from the task at hand, delivering results.

Steve: And let me also remind you of our updated and sharpen strategy. This strategy appropriately called differentiate drive and deliver as shown on slide number six this strength in portfolio and sharpen strategy. We're in full force during our initial quarter as Kelvin <unk>.

Steve: We delivered another quarter of solid results as summarized on slide number seven we began the quarter with our transformational spin off which we executed successfully from a transactional financial and operational perspective.

Steve: We did not let this transformational transaction distract us from the task at hand, delivering results in the quarter. We delivered results for net sales operating profit and EPS that all were better than the guidance ranges we provided back in November.

Steven A. Cahillane: In the quarter, we delivered results for net sales, operating profit, and EPS that were all better than the guidance ranges we provided back in November. Our organic net sales growth remained at a rate that is above our long-term algorithm, even in spite of challenging industry conditions marked by rising elasticities in our categories around the world. Importantly, the strength of our diverse emerging markets was again evident.

Steve: Our organic net sales growth remained at a rate that is above our long term algorithm. Even in spite of challenging industry conditions marked by rising elasticities in our categories around the world.

Steve: Importantly, the strength of our diverse emerging markets was again evident.

Steven A. Cahillane: We continue to restore profit margins that had been pressured by last year's soaring input costs and rampant supply impediments. This led to operating profit growing at a rate that exceeded our long-term algorithm as well. At the same time, we delivered more free cash flow than we had anticipated, further strengthening our balance sheet and financial flexibility, which was used to opportunistically accelerate share repurchases. Importantly, we have shifted our focus back toward demand generation after a few years of having to focus more on supply, and we solidified our plans and assumptions for 2024 accordingly, as outlined on slide number eight. We are affirming the 2024 guidance we gave back in August at our Day at Kay Investor event, underscoring the dependability we intend to continue to exhibit as Kellanova.

Steve: We continued to restore profit margins that had been pressured by last year's soaring input costs and ramping supply impediments.

Steve: And this led to operating profit growing at a rate that exceeded our long term algorithm as well means.

Steve: Meantime, we delivered more free cash flow than we had anticipated further strengthening our balance sheet and financial flexibility, which was used to opportunistically accelerate share repurchases.

Steve: Importantly, we have shifted our focus back toward demand generation. After a few years of having to focus more on supply.

Steve: And we solidified our plans and assumptions for 'twenty 'twenty four accordingly, as outlined on slide number eight.

Steve: We are affirming the 2024 guidance, we gave back in August at our day at K Investor event underscoring the dependability, we intend to continue to exhibit as telenovela while it could take a couple of quarters before these negative industry trends abate. We are confident that a return to a full commercial plan will gradually stabilize and improve our volume as the year progresses.

Steven A. Cahillane: While it could take a couple of quarters before these negative industry trends abate, we are confident that our return to a full commercial plan will gradually stabilize and improve our volume as the year progresses. Our innovation is bigger and better than last year's supply-related pullback. Our highly differentiated brands are fully supported with A&P investment, and we are back to normal levels of merchandising.

Steve: Our innovation is bigger and better than last year's supply related pullback our highly differentiated brands are fully supported with A&P investment and we are back to normal levels of merchandising. We are also confident our sustained momentum in emerging markets. Another point of differentiation for telenovela mean.

Steven A. Cahillane: We are also confident in our sustained momentum in emerging markets, another point of differentiation for Kellanova. At the same time, we also expect margin expansion in all four regions in 2024. The result is an outlook for on-algorithm net sales and operating profit growth and free cash flow generation that is strong enough to incrementally invest in future growth and future margin expansion. This investment in future growth includes incremental capital expenditures for adding much-needed capacity for Pringles in our emerging markets, as we have discussed previously. But we're also investing in margin expansion, as shown on slide number nine. Consistent with our long-term plans to optimize our global supply chain network, we have commenced two optimizations of production facilities, one in our North America frozen foods business and one in our European cereal business. These are high-return projects that require very little cash up front and will start delivering savings by late this year. All of this is contemplated in our guidance.

John Renwick: Meantime, we also expect margin expansion in all four regions in 2024.

John Renwick: The result is an outlook for an on algorithm net sales and operating profit growth and free cash flow generation that is strong enough to incrementally invest in future growth and future margin expansion.

John Renwick: This investment in future growth includes incremental capital expenditures for adding much needed capacity for pringles in our emerging markets as we've discussed previously but.

John Renwick: But we're also investing in margin expansion as shown on slide number nine consistent with our long term plans to optimize our global supply chain network. We have commenced to optimization of production facilities. One in our North America frozen foods business and one in our European cereal business.

John Renwick: These are high return projects that require very little cash upfront and we'll start delivering savings by late this year. All of this is contemplated in our guidance and.

Amit Banati: And even after deploying some of the savings into growth-oriented investments, particularly in snacks and emerging markets, these actions enable us to get to our medium-term operating profit margin of 15% by 2026, a little earlier than we had previously indicated, while also progressing on our strategy's ambition to deliver best-in-class service through agile, flexible supply chains. Our focus is also on growing the right way. And slide number 10 shows some of the ways our Better Days Promise Program manifested itself during the fourth quarter. We unveiled new, more ambitious targets for Kellanova, sustained our legacy of helping our communities, and linked these activities to our commercial endeavors. And we continue to be recognized for our efforts. So now, I turn it over to Amit, who will walk you through our financials before I come back and discuss each of our businesses in more detail. Thanks, Steve. Good morning, everyone.

John Renwick: And even after deploying some of the savings into growth oriented investments, particularly behind snacks in emerging markets. These actions enabled us to get to our medium term operating profit margin of 15% by 2026, a little earlier than we had previously indicated while also progressing on our strategy and ambition to deliver.

John Renwick: And in class service through agile flexible supply chain.

John Renwick: Our focus is also on growing the right way and slide number 10 shows some of the ways our better days promise program manifested itself during the fourth quarter, we unveiled new more ambitious targets for curling over sustained our legacy of helping our communities and linked these activities through our commercial endeavors and we continued to be recognized.

John Renwick: <unk> for our efforts. So now let me turn it over to Amit, who will walk you through our financials before I come back and discuss each of our businesses in more detail.

Amit Banati: Thanks, Steve Good morning, everyone.

Amit Banati: Slide number 12 summarizes our results for the fourth quarter and full year for Kellanova. As John indicated, the year-on-year growth rates are based on recast results for the four quarters of 2022 and the first three quarters of 2023. As you can see, our results for the quarter came in above the guidance we had provided, and they complete a full year in which we maintained our focus on delivering consistent on-algorithm results even amidst the incremental work of executing the spinoff. Net sales increased by about 7% on an organic and recast basis in Q4, featuring decelerating volume declines and price mix growth that is moderating as we lapped significant revenue growth management For the full year, Kellanova's organic net sales growth was about 8%, well above our long-term growth target.

Amit: Slide number 12 summarizes our results for the fourth quarter and full year for <unk>.

Amit: As John indicated the year on year growth rates are based on record results for the four quarters of 2022 and the first three quarters of 2023.

Amit: As you can see our results for the quarter came in above the guidance, we had provided and.

Amit Banotti: And a complete our folio in which we maintained our focus on delivering consistent on algorithm results, even amidst the incremental work of executing the spinoff.

Amit Banotti: Net sales increased by about 7% on an organic and recalls basis in quarter, four featuring decelerating volume declines and price mix growth that is moderating as we lap significant revenue growth management actions in the prior year.

Amit Banotti: The folio Delano was organic net sales growth was about 8% well above our long term growth target.

Amit Banati: Operating profit in Q4 increased by 30% on an adjusted and currency-neutral basis and compared against a recast 2022. This was driven by solid top-line growth as well as by a restoration of our underlying gross profit margin and reimbursement for expenses related to transition services we are providing to WK Kellogg Company. For the full year, Kellanova's operating profit increased by 18% on the same recast basis.

Amit Banotti: Operating profit in quarter, four increased by 30% on an adjusted and currency neutral basis and comparing against a record 2022.

Amit Banotti: This was driven by the solid topline growth as well as by a restoration of our underlying gross profit margin and reimbursement for expenses related to transition services. We are providing two W. K Kellogg company.

Amit Banotti: For the folio <unk> operating profit increased by 18% on the same rig cost basis.

Amit Banati: Even taking into account the year-over-year impact of expense reimbursement for transition services provided to WKKC in Q4-23, which did not exist in the year-earlier quarter, our year-on-year growth in operating profit was still in double digits for the quarter and the year, well ahead of our long-term target. Earnings per share on an adjusted and currency-neutral basis increased by about 19% year-on-year in Q4 and by 7% year-to-date as strong operating profit performance more than covered significant headwinds from macroeconomic factors that drove up interest expense and pulled down pension income. Finally, free cash flow came in higher than we had expected in quarter four, finishing the year at $968 million.

Amit Banotti: Even taking into account the year over year impact of expense reimbursement for transition services provided to <unk> in quarter, 423, which did not exist in the year earlier quarter.

Amit Banotti: Year on year growth in operating profit, what's still in double digits for the quarter and the Yo well ahead of our long term target.

Amit Banotti: Earnings per share on an adjusted and currency neutral basis increased by about 19% year on year and quarter, four and by 7% year to date as strong operating profit performance more than doubled significant headwinds from macroeconomic factors that drove up interest expense and pull down pension income.

Amit Banotti: Finally free cash flow came in higher than we had expected in quarter four finishing the year at $968 million.

Amit Banati: Free cash flow is not recast for discontinued operations, so the decrease from last year is solely related to one-time outlays related to the spinoff and the absence of North America serials cash flow in the fourth quarter. Now let's take a look at each metric in closer detail, starting with our net sales growth on slide 13. As expected, price elasticities continued to rise around the world in Q4, putting pressure on volume, though this volume again came in better than projected due to better performance in our emerging markets. Prizemix continued to moderate sequentially from recent quarters as expected as we lapped some of our largest revenue growth management actions last year.

Amit Banotti: Free cash flow is not recourse for discontinued operations. So the decrease from last year is solely related to onetime outlays related to the spinoff and the absence of North America cereals cash flow in the fourth quarter.

Amit Banotti: Now, let's take a look at each metric in closer detail starting with our net sales growth on slide number 13.

Amit Banotti: As expected price elasticities continued to rise around the world and colorful putting pressure on volume, though this volume again came in better than projected due to a better performance in our emerging markets.

Amit Banotti: Price mix continued to moderate sequentially from recent quarters as expected as we lap some of our largest revenue growth management actions last deal.

Amit Banati: The result was another quarter of elevated organic net sales growth, though to be clear, about half of that came from our Africa joint ventures where substantial pricing is needed to cover a devaluing currency and shipments were unusually strong. That said, even excluding that business, we sustained organic growth that was in line with our long-term target. Moving across to the non-organic drivers of net sales, the divestiture of our Russia business, which occurred in July, clipped about a percentage point from our overall net sales growth in Q4, just as it did in Q3. Foreign Currency Translation was a headwind of about negative 6 percentage points in Q4 and about negative 4 percentage points for the full year. This reflected primarily the Nigerian Lira, which continued to devalue during the fourth quarter and was only partially offset by strength in the Euro, Pound Sterling, and Mexican Peso.

Amit Banotti: The result was another quarter of elevated organic net sales growth no to be clear about half of that came from our Africa joint ventures, where substantial pricing as needed to cover a devaluing currency and shipments was unusually strong.

Amit Banotti: That said, even excluding that business, we sustained organic growth that was in line with our long term target.

Amit Banotti: Moving across to the Nonorganic drivers of net sales the divestiture of our Russia business, which occurred in July clipped about a percentage point from our overall net sales growth in quarter four just added as it did in quarter three.

Amit Banotti: Foreign currency translation was a headwind of about negative six percentage points in quarter, four and about negative four percentage points for the folio.

Amit Banotti: This reflected primarily the Nigerian naira, which continue to devalue during the fourth quarter and was only partially offset by strength in the euro pound Sterling and Mexican peso.

Amit Banati: While we don't provide guidance on foreign exchange rates, if today's rates held for the year, we would likely experience an impact on net sales that is similar to the impact that we saw in quarter four. Now let's discuss our profit margin recovery, starting with gross profit on slide 14. In quarter four, we continued to grow gross profit and restore gross profit margins. As in the previous quarters, this restoration of margins was aided by revenue growth management, productivity, and improved supply and service levels. In addition, the other half of the quarter's margin expansion was driven by reimbursement of expenses related to transition services provided to WKKC, which did not exist in the year-ago quarter.

Amit Banotti: While we don't provide guidance on foreign exchange rates, if today's rates held for the Euro we would likely experience an impact on net sales that is similar to the impact that we saw in quarter four.

Amit Banotti: Now, let's discuss our profit margins recovery, starting with gross profit on slide number 14 in quarter four we continue to grow gross profit and restore gross profit margins.

Amit Banotti: As in the previous quarters. This restoration of margins was aided by revenue growth management productivity and improved supply and service levels in.

Amit Banotti: In addition, the other half of the quarter's margin expansion was driven by reimbursement of expenses related to transition services provided to <unk>, which did not exist in the year ago quarter.

Amit Banati: You'll notice that at 34% in Q4, Kellanova's growth margin is structurally higher than Kellogg Company's growth margin, and it continued to come in higher than we had anticipated. We expect to continue to improve its growth margin in 2024. Turning to slide number 15, we see that in quarter 4 and the full year, we also grew operating profit driven by growth in net sales and a higher gross profit margin. At the same time, operating profit margin improved year-on-year in Q4 and the full year. Remember, the 12.3 margin you see for 2023 is recast for discontinued operations, so it does not include reimbursement for transition service expenses during the first three quarters.

Amit Banotti: You'll notice that at 34% in quarter four <unk> gross margin is structurally higher than Kellogg company's margin and it continued to come in higher than we had anticipated.

Amit Banotti: We expect to continue to improve gross margin in 2024.

Amit Banotti: Turning to slide number 15, we see that in quarter four and the folio. We also grew operating profit driven by growth in net sales and the higher gross profit margin.

Amit Banotti: Meantime, operating profit margin improved year on year and quarter four and the folio.

Amit Banotti: Remember the $12 three margin, you'll see for 2023 as recast for discontinued operations. So it does not include the reimbursement for transition service expenses during the first three quarters.

Amit Banati: We expect our operating profit margin to reach 14% in 2024. Moving down the income statement, slide number 16 shows how our adjusted basis earnings per share growth in 2023, even on a recast basis, felt the year-on-year effects of macro-related headwinds within our non-operating below-the-line items. These below-the-line pressures were expected and were experienced year-on-year in Q4 and the full year, even compared to a recast 2022, and for all the reasons we have discussed previously.

Amit Banotti: We expect our operating profit margin to reach 14% in 2024.

Amit Banotti: Moving down the income statement slide number 16 shows how our adjusted basis earnings per share growth in 2023, even on a recast basis failed a year on year effects of macro related headwinds within our nonoperating below the line items.

Amit Banotti: These below the line pressures were expected and we experienced year on year and quarter four and the folio.

Amit Banotti: Even comparing to a record 2022.

Amit Banotti: And for all the reasons, we have discussed previously.

Amit Banati: Foreign currency translation was modestly positive to earnings per share in 2023, including quarter 4, as strengthened European and Mexican currencies more than offset what is a relatively small impact from Nigeria and the Naira at the EPS level. Recall that due to our ownership structure, while the Naira had a large impact on net sales, its impact on operating profit and EPS is much smaller. Turning to slide number 17, we are pleased with our cash flow generation and balance sheet. Noting that we have not recast free cash flow for discontinued items, we finish 2023 only modestly below 2022, despite the absence of the spun-off North America serial cash flows for a quarter, and despite one-time cash outlays related to the spin-off. In fact, the combination of these spin-off factors amounted to about $300 million in negative impact.

Amit Banotti: Foreign currency translation was modestly positive to earnings per share in 2023, including waterfall as strengthened European and Mexican currencies more than offset what is a relatively small impact from Nigerian naira at the EPS level.

Amit Banotti: Recall that due to our ownership without Joe while the naira had a large impact on net sales and its impact on operating profit and EPS is much smaller.

Amit Banotti: Turning to slide number 17, we are pleased with our cash flow generation and balance sheet.

Amit Banotti: Noting that we have not re cost free cash flow for discontinued items. We finished 2023 only modestly below 2022. Despite the absence of the spun off North America cereal cash flows for a quarter and despite one time cash outlays related to the spinoff.

Amit Banotti: In fact, the combination of the spinoff factors amounted to about $300 million of negative impact.

Amit Banati: If you added that back, you can see that our free cash flow would have come in above 2022 levels. Our balance sheet after the transfer of net debt to WKKC remains solid, with debt leverage remaining well below our targeted ratio of net debt to trailing EBITDA of three times. Now let's discuss our 2024 guidance shown on slide 18. The 2023 base is recast for discontinued operations, and because these figures may differ from WKKC carve-out figures and our internal management figures, we've chosen to continue to provide you with absolute dollar guidance for operating profit and earnings per share in 2024. After all, 24 is what is really important, as it is the first full year in our current P&L structure. Let's go through each metric.

Amit Banotti: If you added that back you can see that our free cash flow would have come in above 2022 levels.

Amit Banotti: Our balance sheet after the transfer of net debt to WK KFC remains solid with debt leverage remaining well below our targeted ratio of net debt to trailing EBITDA of three times.

Amit Banotti: Now, let's discuss our 2020 guidance shown on slide number 18.

Amit Banotti: The 'twenty to 'twenty three based as recast for discontinued operations and because these figures may default from <unk> figures and our internal management figures. We've chosen to continue to provide you with absolute dollar guidance for operating profit and earnings per share in 2024.

Amit Banotti: After all 24 is what is really important as it is the first full year in our current P&L structure.

Amit Banotti: Let's go through each metric for.

Amit Banati: For net sales, we affirm our guidance for growth within our long-term targeted range, specifically calling for 3% growth or better in 2024. Across most of our businesses, price mix growth will moderate as we continue to lap prior actions, and industry-wide elasticities will fade gradually during the year. The exception is Nigeria, where currency-influenced pricing actions will likely continue, which we assume produce meaningful elasticity impact on volume.

Amit Banotti: For net sales, we affirmed our guidance for growth within our long term targeted range.

Amit Banotti: Pacific Li calling for 3% growth or better in 2020 full.

Amit Banotti: Across most of our businesses price mix growth will moderate as we continue to lap prior actions and industrywide elasticities will fade gradually during deal.

Amit Banotti: The exception is Nigeria, where currency influence pricing actions will likely continue which we assumed produce meaningful elasticity impact on volume.

Amit Banati: Organic growth, of course, excludes currency translation, which, based on today's exchange rates, would be a headwind of 5-6%. For adjusted basis operating profit, we continue to provide absolute dollar guidance because year-on-year growth rates can be impacted by discontinued operations accounting. We are firming the range of 1.85 to 1.9 billion dollars. This incorporates a negative impact from currency translation, which based on today's exchange rates would be approximately 2% versus RICAS 2023 figures.

Amit Banotti: Organic growth of course excludes currency translation, which based on today's exchange rates would be a headwind of 5% to 6%.

Amit Banotti: For adjusted basis operating profit, we continue to provide absolute dollar guidance because year on year growth rate can be impacted by discontinued operations accounting.

Amit Banotti: We are affirming the range of 1.85 to $1 $9 billion. This incorporates a negative impact from currency translation, which based on today's exchange rates would be approximately 2%.

Amit Banotti: Wassa is recourse granted 23 figures this implies growth in operating profit in the mid teens.

Amit Banati: This implies growth in operating profit in the mid-teens. After taking into account the year-over-year impact of expense reimbursement for transition services provided to WKKC for four quarters in 2024 versus only in the fourth quarter in 2023, this year-on-year growth is still, in the mid-single digits, solidly on our long-term target. Our guidance implies continued margin expansion as an improving gross profit margin more than offsets a strong increase in brand investment. We expect to reach a 14% operating margin in 2024. Adjusted basis earnings per share is still expected to be in the range of $3.55 to $3.65.

Amit Banotti: After taking into account the year over year impact of expense reimbursement for transition services provided to W. J Casey for four quarters in 2024, what is only in the fourth quarter. In 2023. This year on year growth is still in the mid single digits solidly on our long term target.

Amit Banotti: Our guidance implies continued margin expansion as an improving gross profit margin more than offset a strong increase in brand investment.

Amit Banotti: We expect to reach a 14% operating margin in 2024.

Amit Banotti: Adjusted basis earnings per share is still expected to be in the range of $3 55 to $3 65.

Amit Banati: We make no change to our previously communicated expectation for an increase in our effective tax rate to 23%. Our outlook for interest expense is about $310 million, and we expect other income to be around $50 million. And we are forming Outlook for free cash flow of approximately $1 billion, with year-on-year growth driven by operating profit, partially offset by capital expenditure, temporarily elevated due to expanded Pringles capacity in emerging markets and modest cash outlays related to our two network optimization projects. These network optimization projects are addressed on slide 19.

Amit Banotti: We make no change to our previously communicated expectation for an increase in our effective tax rate to 23% our outlook for interest expense is about $310 million and we expect other income to be around $50 million.

Amit Banotti: And we are affirming our outlook for free cash flow of approximately $1 billion with year on year growth driven by operating profit, partially offset by capital expenditure temporarily elevated for expanded pringles capacity in emerging markets and modest cash outlays related to auto network opt.

Amit Banotti: Amortization projects.

Amit Banotti: These network optimization projects are addressed on slide number 19.

Amit Banati: At our Day at K Investor event in August, we cited network optimization as one of the drivers of our margin expansion, and we are now ready to discuss specific initiatives. The two projects we are announcing today are both high-return projects. Only about half of the project's upfront costs are cash, even before asset sales, and the projects collectively become cash neutral by 2025.

Amit Banotti: At our day at K Investor event in August we sided network optimization as one of the drivers of our margin expansion and we are now ready to discuss specific initiatives.

Amit Banotti: The two projects we are announcing today are both high return projects.

Amit Banotti: Only about half of the projects upfront costs our cash.

Amit Banotti: Even before asset sales.

Amit Banotti: And the projects collectively become cash neutral by 2025.

Amit Banati: In 2024 specifically, upfront costs will amount to about $160 million, with less than $40 million of that in cash, and this has been incorporated into our cash flow guidance. Savings for the project start very quickly, with a small portion of the overall $75 million coming as soon as the second half of 2024, and this too has been incorporated into our guidance. In fact, this is a contributor to our operating profit margin expanding to 14% this year, as implied by our operating profit guidance. Importantly, with this announcement, we can also now be more specific about the timing of our medium-term goal of a 15% operating margin. We expect to reach that margin by 2026.

Amit Banotti: In 2024, specifically upfront costs will amount to about $160 million with less than $40 million of that in cash and this has been incorporated into our cash flow guidance.

Amit Banotti: Savings for the project start very quickly with a small portion of the overall $75 million.

Amit Banotti: Coming as soon as the second half of 'twenty 'twenty four and this too is incorporated into our guidance. In fact this is a contributor to our operating profit margin expanding to 14% this year as implied by our operating profit guidance.

Amit Banotti: Importantly, with this announcement, we can also now be more specific about the timing of our medium term goal of a 15% operating margin.

Amit Banotti: We expect to reach that margin in 2020 six.

Amit Banati: So let's summarize our financial condition on slide number 20. In what was our debut quarter as Kellanova, our fourth quarter results came in as guided, from net sales to earnings per share. The business remains in good shape, with margin restoration proceeding ahead of pace and volume performance on a path of gradual improvement. Consequently, we have affirmed our guidance for 2024, even amidst challenging industry and macroeconomic conditions. Our medium-term goal of attaining a 15% operating profit margin has been accelerated to 2026 as ongoing margin expansion drivers are now augmented by network optimization initiatives which will get started this year, subject to consultation. And we continue to generate strong free cash flow that, along with our deleveraged balance sheet, gives us financial flexibility.

Amit Banotti: So, let's summarize our financial conditional on slide number 20.

Amit Banotti: And what was our debut quarter as Gayla NOLA.

Amit Banotti: Fourth quarter results came in as guided from net sales to earnings per share.

Amit Banotti: The business remains in good shape with margin restoration proceeding ahead of pace and volume performance on a path of gradual improvement.

Amit Banotti: Consequently, we have affirmed our guidance for 'twenty 'twenty, four even amidst challenging industry and macroeconomic conditions.

Amit Banotti: Our medium term goal of attaining a 15% operating profit margin has been accelerated through 2026.

Amit Banotti: The ongoing margin expansion drivers on our augmented by network optimization initiatives, which get started the seal subject to consultation.

Amit Banotti: And we continue to generate strong free cash flow that along with a deleveraged balance sheet gives us financial flexibility.

Steven A. Cahillane: This flexibility has been on display in the form of opportunistic share buybacks during Quarter 4 and in our decision to increase capital investment to expand capacity for our rapidly growing Pringles business. So we enter 2024 in a strong financial condition. Let me now turn it back to Steve for a run-through of our businesses around the world. Thanks, Amit.

Amit Banotti: This flexibility has been on display in the form of opportunistic share buybacks during quarter four and in our decision to elevate capital investment to expand capacity for our rapidly growing pringles business.

Amit Banotti: So we enter 2024 and our strong financial condition.

Amit Banotti: Let me now turn it back to Steve for a run through of our businesses around the world. Thanks.

Steve: Thanks, Amit.

Steven A. Cahillane: Slide number 22 splits our portfolio into category groups to help remind you of their relative sizes and growth rates. This view shows you how much each category group contributed to our strong organic net sales growth in the quarter and for the full year. Now we'll review each of our regions, which are our reporting segments. We'll start with Kellanova North America on slide number 23.

Amit Banotti: Slide number 22 splits our portfolio into category groups to help remind you of their relative sizes in growth rates. This view shows you how much each category group contributed to our strong organic net sales growth in the quarter and for the full year now let's review each of our regions, which are our reporting segments, we'll start with <unk> in north.

Amit Banotti: <unk> and slide number 23.

Steven A. Cahillane: North America's fourth quarter results continue to show the impact of rising elasticities across all of our categories. Recall that we entered 2023 with low service levels due to economy-wide bottlenecks and shortages, and therefore, we elected to launch less innovation and to return to merchandising only after we were strongly confident that service levels had returned to normal levels. This, in conjunction with category elasticities suddenly and rapidly rising, negatively impacted our volumes, particularly in the second half.

Amit Banotti: North America's fourth quarter results continued to show the impact of rising elasticities across all of our categories recall that we entered 2023 with low service levels due to economy wide bottlenecks and shortages and therefore, we elected to launch less innovation and to return to merchandising only after we were strongly confident that service.

Amit Banotti: Levels had returned to normal levels.

Amit Banotti: This in conjunction with category elasticities suddenly and rapidly rising negatively impacted our volumes, particularly in the second half.

Steven A. Cahillane: Despite lapping an unusually strong year-earlier period, North America's operating profit grew strongly year-on-year in the fourth quarter. Even accounting for the reimbursement of expenses related to transition services provided to WKKC in this year's quarter four, North America's operating profit grew in the mid-single digits year-on-year, continuing to restore underlying gross profit margin and operating profit margin by more than projected. So, in spite of slowing categories and amidst the organization undergoing significant change related to the spinoff, North America again delivered financially. However, within its key category groups, we can see the deceleration and top-line growth caused by rising elasticities. Slide number 24 shows our North America snacks business, which experienced slowing category growth rates during the year.

Amit Banotti: Despite lapping an unusually strong year earlier period, North America's operating profit grew strongly year on year in the fourth quarter, even accounting for the reimbursement of expenses related to transition services provided to W. K Casey in this year's quarter for North America's operating profit grew in the mid single digits.

Amit Banotti: Year on year, continuing to restore underlying gross profit margin and operating profit margin by more than projected.

Amit Banotti: So in spite of slowing categories and amidst the organization undergoing significant change related to the spinoff North America again delivered financially.

Amit Banotti: Within its key category groups, we can see the deceleration in top line growth caused by the rising elasticities.

Amit Banotti: Slide number 24 shows our North America, snacks business, which experienced slowing category growth rates during the year volume growth rates in our categories did not worsen in the fourth quarter, though elasticities continued to edge higher.

Steven A. Cahillane: Volume growth rates in our categories did not worsen in the fourth quarter, though elasticities continued to edge higher. We continue to feel the impact of less innovation year on year, particularly in crackers, and this will be addressed in 2024 when we return to a full innovation launch calendar. And we did see year-on-year increases in display activity, and our return to merchandising and improving the quality of displays will continue to gain traction as we head into the new year. It was a similar story in frozen foods, shown on slide number 25. Along with the frozen breakfast category, Eggo's consumption turned to a decline in the fourth quarter on rising elasticities.

Amit Banotti: We continued to feel the impact of less innovation year on year, particularly in crackers and this will be addressed in 2024, when we return to a full innovation launch calendar.

Amit Banotti: And we did see year on year increases in display activity and a return to merchandising and improving quality of displays we will continue to gain traction as we head into the new year.

Amit Banotti: It was a similar story in frozen foods shown on slide number 25.

Amit Banotti: Along with the frozen breakfast category. It goes consumption turned to a decline in the fourth quarter on rising elasticities.

Steven A. Cahillane: Morningstar Farms continued to gain share, but in a declining veg-vegan category. We believe these conditions are transitory for both categories and expect better performance in 2024. So let's talk about what to expect from North America in 2024, as indicated on slide number 26. First, with supply impediments well behind us, we are returning to full commercial activity in 2024. This starts with a full slate of innovation launches, and it includes a full year of robust merchandising and display activity.

Amit Banotti: Star farms continued to gain share, but in a declining veg begin category. We believe these conditions are transitory for both categories and expect better performance in 2024.

Amit Banotti: So let's talk about what to expect from North America in 2024 indicated on slide number 26.

Amit Banotti: First with supply and pediments, well behind US we are returning to full commercial activity. In 2024. This starts with a full slate of innovation launches and it includes a full year of robust merchandising and display activity. We will also continue to support our focus brands with increased brand building investment the results should be improved in market.

Steven A. Cahillane: We will also continue to support our focus brands with increased brand building investment. The results should be improved market performance and a gradual return to volume growth. And if you've been watching, the Pop-Tarts Bowl and Cheez-It Bowl, as well as the upcoming Pringles activation for Sunday's big game, are good examples of how we plan to show up in 2024. Now, let's turn to Kellanova, Europe, and slide number 27.

Amit Banotti: Performance and a gradual return to volume growth.

Amit Banotti: And if you've been watching the pop Tarts Bowl and Cheez It bowl as well as the upcoming Pringles activation for Sundays Big game are good examples of how we plan to show up in 2024.

Amit Banotti: Now, let's turn to Kevin over Europe in slide number 27.

Steven A. Cahillane: Here we finished the year with another strong quarter, yet again delivering organic net sales growth on top of prior year growth. In a market that is extremely price sensitive, we were again able to realize double-digit price mix growth through effective revenue growth management actions, though elasticities did rise, impacting volume. Our organic net sales growth was 10% in the quarter and 9% for the full year. Europe delivered strong operating profit growth in the fourth quarter and full year.

Kevin: Here, we finished the year with another strong quarter, yet again, delivering organic net sales growth on top of prior year growth in a market that is extremely price sensitive we were again able to realize double digit price mix growth through effective revenue growth management actions, though elasticity did rise impacting volume.

Amit Banotti: Our organic net sales growth was 10% in the quarter and 9% for the full year.

Amit Banotti: Europe delivered strong operating profit growth in the fourth quarter and full year granted this was lapping a sharp year ago decline, but it did feature a strong topline growth and better margin recovery than expected getting its operating profit margin back to flat for the full year.

Steven A. Cahillane: Granted, this was lapping a sharp year-ago decline, but it did feature strong top-line growth and better margin recovery than expected, getting its operating profit margin back to flat for the full year. On slide 28, you can see that snacks, which represent over half of our sales in Kellanova Europe, continue to lead our growth in this region. Our double-digit organic growth and net sales, both in the quarter and for the full year, were across all of our major sub-regions. Revenue growth management actions drove the growth, while volume declines remained relatively modest. The Salty Snacks category has slowed but remained in high single-digit growth across key markets, and Pringles in the fourth quarter was tracking the gained share, led by the UK and Spain.

Amit Banotti: On slide number 28, you can see that snacks, which represent over half of our sales and kellan over Europe continued to lead our growth in this region, our double digit organic growth in net sales both in the quarter and for the full year was across all of our major sub regions revenue growth management actions drove the growth while volume declines remained.

Amit Banotti: Relatively modest the salty snack category has slowed but remained in high single digit growth across key markets and pringles in the fourth quarter was tracking the gain share led by the U K and Spain and portable wholesome snacks, we have managed to outpace the category in the U K and Italy.

Steven A. Cahillane: In Portable Wholesome Snacks, we have managed to outpace the category in the UK and Italy. In the figures shown on slide number 29, you can see that we grew net sales organically in the quarter. This, too, was led by revenue growth management actions, while elasticities have been running higher in this category than in our snack categories. We finished 2023 with organic net sales growth of about one percent. Slide number 30 points to some elements to watch for in Europe in 2024.

Amit Banotti: In cereal as shown on slide number 29, you can see that we grew net sales organically in the quarter. This too was led by revenue growth management actions, while elasticities have been running higher in this category than in our snacks categories. We finished 2023 with organic net sales growth of about 1%.

Amit Banotti: Slide number 30 points to some elements to watch for in Europe. In 2024, we expect to deliver a seventh consecutive year of organic growth. The growth will be led by snacks with pringles continuing to be supported with innovation and brand building and portable wholesome snacks in key markets, notably pop tarts and rice krispies.

Steven A. Cahillane: We expect to deliver a seventh consecutive year of organic growth. The growth will be led by snacks, with Pringles continuing to be supported by innovation and brand building, and portable wholesome snacks in key markets, notably Pop-Tarts and Rice Krispies Squares. We're also excited about launching Cheez-It in key European markets in the second half. In serial, our focus will be on optimizing our serial portfolio in conjunction with the manufacturing network optimization that we're commencing this year. Now let's look at our emerging markets regions, starting with Latin America on slide number 31. In the fourth quarter, Latin America's net sales grew 5% on an organic and recast basis, with volume declines moderating even in spite of the sizable impact from our SKU rationalization and price pack architecture initiatives. The region finished the year with strong 8% organic net sales growth. However, operating profit declined in the fourth quarter against a substantial year-earlier gain.

Amit Banotti: Squares. We're also excited about launching cheez it in key European markets in the second half in cereal, our focus will be on optimizing our cereal portfolio in conjunction with the manufacturing network optimization. They were commencing this year.

Amit Banotti: Now, let's look at our emerging markets region, starting with Latin America on slide number 31.

Amit Banotti: In the fourth quarter Latin America's net sales grew 5% on an organic and recast basis with volume declines moderating even in spite of sizable impact from our SKU rationalization and price pack architecture initiatives.

Amit Banotti: The region finished the year with strong 8% organic net sales growth operating profit declined in the fourth quarter against a substantial year earlier again.

Steven A. Cahillane: But despite some incremental investments and transitory cost pressures, it finished the full year with 8% growth on an adjusted and currency-neutral basis. Slide number 32 shows that our snack sales were flat on an organic basis in the fourth quarter when compared against a notably strong year earlier period. Pringles continued to perform well. In-market data show sustained double-digit category growth for our major salty snacks markets, with Pringles gaining share in Brazil and holding share in Mexico. And we continue to outpace the portable wholesome snacks category in Mexico, though we did see rising elasticities in cookies in Brazil. Our Latin America Snacks business finished the full year with 7% organic net sales growth. In Latin America cereals, shown on slide number 33, our organic net sales growth was strong in the quarter and for the full year. Specifically, sales grew 10% in the quarter and finished the full year with 9% growth. Cereal category consumption growth has held up in the mid to high single digits across much of the region, and we gained share in Mexico. As we look to 2024, a few things to watch for in Latin America are shown on slide 34.

Amit Banotti: But despite some incremental investments in transitory cost pressures. It finished the full year with 8% growth on an adjusted and currency neutral basis.

Amit Banotti: Slide number 32 shows that our snack sales were flat on an organic basis in the fourth quarter comparing against a notably strong year earlier period.

Amit Banotti: Pringles continued to perform well in market data shows sustained double digit category growth for our major salty snacks markets with pringles, gaining share in Brazil, and holding share in Mexico.

Amit Banotti: And we continue to outpace the portable wholesome snacks category in Mexico, though we did see rising elasticities in cookies in Brazil.

Amit Banotti: Our Latin America snacks business finished the full year with 7% organic net sales growth.

Amit Banotti: In Latin America cereal as shown on slide number 33, our organic net sales growth was strong in the quarter and for the full year Spa.

Amit Banotti: Specifically sales grew 10% in the quarter and finished the full year with 9% growth.

Amit Banotti: Cereal category consumption growth has held up in the mid to high single digits across much of the region and we gained share in Mexico.

Amit Banotti: As we look to 2024, a few things to watch for in Latin America are shown on slide number 34, we expect a seventh straight year of organic net sales growth the growth should be led by snacks, particularly behind Pringles innovation and distribution expansion and we also expect good growth in cereal.

Steven A. Cahillane: We expect a seventh straight year of organic net sales growth. The growth should be led by SNAC, particularly behind Pringles Innovation and Distribution Expansion. And we also expect good growth in cereals. Margins should improve, reflecting price pack architecture and other RGM initiatives and operating efficiencies, as well as moderating input cost pressures. Slide number 35 shows the financial performance of our EMEA region. This region sustained its strong momentum in the fourth quarter when organic net sales growth reaccelerated to 22% on a combination of price mixed growth and volume growth led by Africa. For the full year, our organic net sales growth was 17%.

Amit Banotti: Margins should improve reflecting price pack architecture, and other <unk> initiatives and operating efficiencies as well as moderating input cost pressures.

Amit Banotti: Slide number 35 shows the financial performance of our EMEA region. This region sustained its strong momentum in the fourth quarter when organic net sales growth reaccelerate that 22% on a combination of price mix growth and volume growth led by Africa for the full year, our organic net sales growth was 17 <unk>.

Amit Banotti: <unk>.

Steven A. Cahillane: Now obviously, a large portion of this currency-neutral growth came from Nigeria, where currency devaluation necessitated significant pricing actions. Nevertheless, the rest of EMEA posted solid growth in the quarter as well. Margins continued to recover year on year, and operating profit grew 25% in the quarter on an adjusted and currency-neutral basis in spite of substantially higher brand investment and despite lapping strong prior year growth. Its operating profit increased by 20% for the full year.

Amit Banotti: Now obviously, a large portion of this currency neutral growth came from Nigeria, where currency devaluation necessitated significant pricing actions. Nevertheless, the rest of EMEA posted solid growth in the quarter as well.

Amit Banotti: Margins continue to recover year on year and operating profit grew 25% in the quarter on an adjusted and currency neutral basis in spite of substantially higher brand investment and despite lapping a strong prior year growth its operating profit increased by 20% for the full year.

Steven A. Cahillane: Within EMEA, we see on slide 36 that snacks grew organically at a double-digit pace in the fourth quarter and for the full year. This growth was led by Pringles in emerging markets across Asia, Africa, and the Middle East, as well as in more developed markets like Australia, Korea, and Japan. Pringles continued to gain share overall principally due to outperformance in Thailand, Australia, and Japan. As shown on slide number 37, we sustained organic growth, posting 4% growth in the fourth quarter and 6% growth for the full year. This is led by emerging markets in Africa, the Middle East, and Asia.

Amit Banotti: Within EMEA, we see on slide number 36 that snacks grew organically at a double digit pace in the fourth quarter and for the full year.

Amit Banotti: This growth was led by Pringles and emerging markets across Asia Africa, and the middle East as well as in more developed markets like Australia, Korea, and Japan Pringle.

Amit Banotti: Pringles continued to gain share overall, principally due to outperformance in Thailand, Australia and Japan.

In cereal as shown on slide number 37, we sustained organic growth posted 4% growth in the fourth quarter and 6% growth for the full year. This was led by emerging markets in Africa, the Middle East and Asia.

Steven A. Cahillane: And we finish with noodles and other items shown on slide number 38. Revenue growth management actions continue to be taken in Nigeria as we try to keep up with weakened currencies, but volume also grew in the double digits in the fourth quarter, reflecting the strength of our brands and our execution as well as timing of shipments. Meanwhile, we also continue to expand our Kellogg's noodles business outside of Nigeria, and this also contributed to our volume growth in the quarter. We expect EMEA to sustain momentum into 2024, as discussed on slide 39. To deliver the region's 17th straight year of organic net sales growth, we expect to see strong growth, if moderating from 2023 rates, in noodles and other. We expect to see sustained momentum in snacks, led by Pringles.

Amit Banotti: And we finish with noodles and other shown on slide number 38 rare.

Amit Banotti: Revenue growth management actions continued to be taken in Nigeria, as we try to keep up with weakened currencies, but volume also grew in the double digits in the fourth quarter, reflecting the strength of our brands and our execution as well as timing of shipments mean.

Amit Banotti: Meanwhile, we also continue to expand our Kellogg's noodles business outside of Nigeria, and this also contributed to our volume growth in the quarter.

Steven A. Cahillane: We expect EMEA to sustained momentum into 2024 as discussed on slide number 39 to deliver the regions 17th straight year of organic net sales growth. We expect to see strong growth is moderating from 'twenty to 'twenty three rates and noodles and other we expect to see sustained momentum in snacks led by <unk>.

Amit Banotti: <unk> and we expect sustained growth in cereal led by emerging markets.

Steven A. Cahillane: And we expect to sustain growth in cereals, led by emerging markets. Margin expansion should continue, led by our businesses outside of Nigeria. In those markets, input cost pressures are finally moderating, and productivity and operating leverage continue to contribute positively. So, let me summarize with slide number 41. Simply put, the Kellanova era is off to a good start.

Steven A. Cahillane: Margin expansion should continue led by our businesses outside of Nigeria, and those markets input cost pressures are finally, moderating and productivity and operating leverage continued to contribute positively.

Amit Banotti: So let me summarize with slide number 41.

Steven A. Cahillane: Simply put the killing of the Euro is off to a good start we've executed well the spinoff and the post spinoff operations, including transition services and we delivered our initial quarter ahead of our expectations. We're now shifting back to a focus on demand generation. After a few years of supply focus where <unk>.

Steven A. Cahillane: We've executed well the spin-off and the post-spin-off operations, including transition services, and we delivered our initial quarter ahead of our expectations. We're now shifting back to a focus on demand generation after a few years of supply focus. We're very excited about our 2024 commercial plans, which feature a return to a full complement of innovation, brand building, and merchandising, as well as sustaining momentum and scale building in our emerging markets. We're also pleased with our progress and plans for restoring and expanding profit margins, which have proceeded faster than we had anticipated. Our outlook for 2024, first shared with you as far back as last August, remains intact, calling for another year of on-algorithm sales and profit growth. And we're not sitting still. We're already creating the future. For instance, we are adding much-needed capacity for Pringles in emerging markets. The international expansion of Cheez-It continues with launches coming in Europe.

Steven A. Cahillane: Very excited about our 2024 commercial plans, which feature a return to a full complement of innovation brand building merchandising as well as sustaining momentum in scale building in our emerging markets.

Steven A. Cahillane: We're also pleased with our progress and plans for restoring and expanding profit margins, which has proceeded faster than we had anticipated our outlook for 2024 first shared with you as far back as last August remains intact, calling for another year of on algorithms sales and profit growth and we're not sitting still.

Amit Banotti: We're already creating the future for instance, we are adding much needed capacity for pringles and emerging markets.

Steven A. Cahillane: The international expansion of Cheez, It continues with launches coming in Europe and.

Steven A. Cahillane: And we are commencing network optimization initiatives that will both expand margins and fuel growth investments. In sum, we are on track and ready to deliver as Kellanova, and the future is certainly bright. Of course, none of this would be possible without the grit and skill of our supremely talented Kellanova employees, all of whom are as determined as ever to differentiate, drive, and deliver.

Steven A. Cahillane: And we are commencing network optimization initiatives that will both expand margins and fuel growth investments.

In sum, we are on track and ready to deliver as Kelly Nova in the future certainly is bright.

Steven A. Cahillane: Of course, none of this would be possible without the grit and skill of our Supreme Lee talented <unk> employees, all of whom are as determined as ever to differentiate drive and deliver and now we'd be happy to take your questions.

Operator: And now, we'd be happy to take your questions. Thank you. We will now begin the question and answer session with publishing analysts. Analysts may enter the queue by pressing the star key and the number 1 on your telephone keypad.

Speaker Change: Thank you we will now.

Speaker Change: We begin the question and answer session with publishing analysts.

Operator: Lastly in the queue by pressing the star key and the number one on your testing keypad.

Operator: As a courtesy to your colleagues, please limit yourself to one question. Thank you. Our first question for today comes from Peter Galbo of Bank of America. Peter, your line is now open. Please go ahead.

Operator: <unk> CTO colleagues, please limit yourself to one question.

Operator: Okay.

Operator: Yeah.

Operator: Our first question, let's say comes from Peter Galbo of Bank of America.

Speaker Change: Pizza. Your line is now open. Please go ahead.

Steven A. Cahillane: Hey guys, good morning. Thanks for taking the question. Maybe just first, a comment. Hopefully, the edible Pop-Tart is going to make its way down to Cagney. I think a lot of people would enjoy that. Peter, he didn't survive the bowl game, in case you weren't watching.

Peter Thomas Galbo: Hey, guys. Good morning, Thanks for taking the question.

Steven A. Cahillane: Maybe just first to comment hopefully the.

Steven A. Cahillane: Hopefully the edible pop tarts is going to make its way down to Cagny I think I think a lot of people would enjoy that.

Steven A. Cahillane: Yes.

Steven A. Cahillane: Peter.

Steven A. Cahillane: To provide the ballgame in case you weren't watching.

Amit Banati: We'll have to find another way, Steve. Amit, just to clarify your comments on the guidance, understanding organic sales, the plus three, and I think you said at current rates a headwind of five. Ramey, Michael Lavery, Robert Moskow, Steven Spillane, Robert Moskow, Jonathan Feeney, Peter Yeah, that does include the operating profit does include the currency headwind, so just confirming that, like I mentioned, it's approximately around 2% at today's rates, so that 2% is built into the dollar numbers that we've given. Great, and that's the same on EPS as well, the 2%? Mueller.

Steven A. Cahillane: We will have to find another Steve.

Amit Banati: [laughter], Amit just just to clarify your comments on the guidance understanding.

Amit Banati: Organic sales.

Amit Banati: Plus three and I think you said at current rates, a headwind of 5% to 6% on top line from FX.

Amit Banati: The operating profit range, though the dollar range did I hear you correctly that that included a two point hit or is that in addition, so we should be taking that into consideration on the dollar range. Thanks very much.

Amit Banati: Peter Yes that does include the operating profit does include the currency headwind, so just confirming that like.

Amit Banati: Like I mentioned, it's approximately around 2% at today's rates. So that 2% is built into the numbers that we've given.

Amit Banati: Great and that's the same on EPS as well the 2%.

Amit Banati: Yes.

Amit Banati: Thanks, very much slightly lesser yes.

Operator: Perfect. Thank you. Thank you. Our next question comes from Robert Moskow of TD Cohen. Your line is now open, please go ahead.

Speaker Change: Perfect. Thank you.

Robert Moskow: Thank you.

Operator: Our next question comes from Robert Moskow of TD Cohen.

Robert Moskow: Please go ahead.

Steven A. Cahillane: Hey, thank you for the question. As Steve called out, you know, a return to stronger innovation in North America and normal retail activity. Can you give us a sense of the phasing throughout the year?

Robert Moskow: Hey, Thank you for the question.

Operator: Steve you called out a return to stronger innovation in North America and normal merchandising activity.

Robert Moskow: Can you give us a sense of the phasing throughout the year like the retail tracking data looks looks very very weak in the U S.

Steven A. Cahillane: Like, the retail tracking data, you know, looks very, very weak in the US. Is that due to a comparison to previous years, or is it just going to take a while for your innovation and merchandising to get you back to your normal growth? Yeah, it's going to, Rob, thanks for the question. It's going to be throughout the year. Really, you know, we started with displays coming back to prior years, better than prior years in the fourth quarter. In the first quarter, we're going to see the quality of those displays improve, and that will continue into the second quarter as well.

Rob: Is that due to a comparison to the prior year.

Rob: Or does it just kind of take a while for for your innovation and and merchandising to get you back to your normal growth rate.

Speaker Change: Yes, it's Rob Thanks for the question, it's going to be throughout the year really we started with displays coming back to prior years better than prior year in the fourth quarter in the first quarter I'm going to see the quality of those displays improving that will continue into the second quarter as well and just.

Steven A. Cahillane: And just to remind you, you know, 2023 was a year of pullback on innovation, culling of SKUs, and clearly focused on supply and making sure that we could, you know, we could have that supply in the market. In the U.S., though, for example, we've got Pringles Harvest Blends, which we brought in the second half of 2023. We've got Cheez-It Innovations, Cheez-It Crunchy, which is hitting now. We've got Pop-Tarts, Crunchy Poppers. We've got innovations around Nutri-Grain. We've got Rice Krispies Treats with peanut butter.

Steven A. Cahillane: To remind you 2023 was a year of pullback on innovation culling invest skus.

Steven A. Cahillane: Nearly focused on supply and making sure that we could we could have that supply in the market in the U S. So for example, we've got Pringles harvest blends, which we brought in the second half of 2023, we've got Cheez. It innovations cheez. It crunchy, which is hitting now we've got pop tarts crunchy poppers, we've gotten innovations around neutral grain, we've got it rice krispies treats.

Steven A. Cahillane: Peanut butter.

Steven A. Cahillane: You know, we've got many more innovations than we've had in prior years, and that will roll throughout the year. We've also got distribution growing where it had been declining. So you should see momentum growing, you know, really starting now and picking up all through the year. And that gives us, you know, really good confidence in the top-line guide that we gave.

Steven A. Cahillane: Just got many more innovation than we've had in prior years and that will roll throughout the year. We've also got distribution growing where it had been declining. So you should see momentum growing really starting now and picking up all through the year and that gives us really good confidence in the topline guide that we gave.

Steven A. Cahillane: The other thing I had, Rob, was a higher brand building investment as well, which, you know, we phased into the first half of this year as well, to really drive that quality of display, that quality of merchandising. So when do you think we'll see the top line growth really show up in the retail tracking? Is it going to be, like, you know, a third quarter kind of thing, or could it happen as early as two? You know, there's not really an inflection point per se.

Speaker Change: The other thing.

Steven A. Cahillane: Higher brand building investment as well.

Steven A. Cahillane: We phased into the first half of this year as well to really drive that quality of the display that quality merchandising.

Steven A. Cahillane: So when do you think we'll see like the topline growth really show up in the retail tracking is it kind of be like third quarter kind of thing or could it happen as early as <unk>.

Steven A. Cahillane: There's not really an inflection point per se I think you're going to see a cumulative improvement with probably the third quarter being.

Steven A. Cahillane: I think you're going to see a cumulative improvement, with probably the third quarter being, you know, the one where we can be most notable, and then we'll exit the year with lots of momentum. So it'll be cumulative throughout the year and growing from the second to the third quarter. Okay, thank you. Thank you. Our next question comes from Chris Currie of Wales Fargo. Chris, your line is now open. Please go ahead. Hi, good morning.

Chris Currie: The one where the.

Chris Currie: Most notable and then we'll exit the year with lots of momentum so it would be accumulative throughout the year.

Chris Currie: And and growing from the second into the third quarter.

Chris Currie: Okay. Thank you.

Chris Currie: Thank you.

Steven A. Cahillane: Our next question comes from Chris Terry of Wells Fargo.

Chris Currie: Your line is now open. Please go ahead.

Chris Currie: Hi, Good morning. Thank you for the question. So I just wanted to touch.

Steven A. Cahillane: Thanks for the question. So I just wanted to touch on this innovation and retailing comment again and just try to contextualize 2023. Can you maybe just help understand your 2023 market share performance? between, say, some of your branding or some of your extensions, innovations, say, your base business relative to innovations that you had done through the year that perhaps received less support or less merchandising, really just trying to understand is it the core where you started to see some of the share erosion or was it some of the newer products that you had launched in 2023 that perhaps didn't get as much Yeah, thanks, Chris.

Steven A. Cahillane: Touch on this.

Steven A. Cahillane: Innovation in merchandising comment again, just try to contextualize the 2023.

Steven A. Cahillane: Can you maybe just help understand 2023 market share performance.

Steven A. Cahillane: We say some of your brands or some of your extension innovation.

Steven A. Cahillane: You bet your base business relative to innovations that you had done through the year that perhaps received supporter or less merchandising really just trying to understand as it is at the core where where you're starting to see some of the share erosion or was it some of the <unk>.

Steven A. Cahillane: Your products that you had launched in 2023 that perhaps didn't get as much support and growing inventory of 34 those are really the the.

Steven A. Cahillane: The opportunities for you to kind of recapture some of the relative share momentum.

Speaker Change: Yeah. Thanks, Chris So it really is it's much less core than it is some of the innovations that we really didn't support with quality display merchandising and so if you look at cheez, it snapped and puffed and eager to look at the cases on display for those dramatically down as we focused on the core supply.

Steven A. Cahillane: So it really isn't, it's much less the core than some of the innovations that we really didn't support with quality display merchandising. And so, if you look at Cheez-It, you know, the Snapped and Puffed, and you were to look at, you know, the cases on display for those dramatically down, as we focused on, you know, the core supply, and we have owned it for years, we returned to merchandising later than our competitors, we were more conservative when it came to, you know, that merchandising, overly focused on making So that's, that's what you see in the share; we don't see any deterioration in our brand health. In fact, we see our brand health, really at very high watermarks across Cheez-It, Pringles, Pop-Tarts, and Rice Krispies treats.

Steven A. Cahillane: And we have owned it we returned to merchandising later than our competitors, we were more conservative when it came to that merchandising overly focused on making sure that we had high ninety's fill rates before we return to merchandising so.

Steven A. Cahillane: That's what you see in the share we don't see any deterioration in our brand health in fact, we see our brand health really at very high.

Steven A. Cahillane: Watermarks across Cheez, it Pringles pop tarts, rice krispies treats and so that gives us the confidence to talk about the quality merchandising returning and our share performance improving as we go throughout 2024 again, coupled with more brand investment in.

Steven A. Cahillane: And so that gives us the confidence to talk about the quality of merchandising returning and our share performance improving as we go throughout 2024. Again, coupled with more brand investment, in the first half of the year, when you look at our brand investment, we never didn't pull back in 2023. You know, we publish advertising only on a full year basis; you'll see advertising up in 2023, that's going to continue into 2024. Okay, so really, we should be looking at Ramey, Michael Lavery, Christopher Growe, David Palmer, Cody Rose, David Palmer, Robert, and then yeah, that's right.

Steven A. Cahillane: In the first half of the year when you look at our brand investment we never we didn't pull back in 2023.

Steven A. Cahillane: We publish advertising on a full year basis Youll see advertising up in 2023, that's going to continue into 2024.

Speaker Change: Okay. So so really we should be looking at.

Steven A. Cahillane: Strength of additional innovation, adding to market share performance with maybe the base business, but a little bit of an uplift as well.

Steven A. Cahillane: Because I mean, the comparisons are going to be against a year where we really didn't innovate, and now we're getting back to kind of pre-COVID levels of innovation. Right, right. Okay.

Steven A. Cahillane: Okay.

Speaker Change: That's right because it gives us the comparisons are going to be against a year, where we really didn't innovate and now we're getting back to kind of pre COVID-19 levels of innovation.

Steven A. Cahillane: Right right. Okay, and then just just from a competitive standpoint can you maybe just.

Steven A. Cahillane: And then, you know, just from a competitive standpoint, can you maybe just, you know, give any context for, you know, what you're seeing in the environment from a pricing and promotion standpoint? And then I think one of the categories where promotion or, excuse me, competitive activity is especially weighted has been the agro business. So maybe you can just provide some higher-level thoughts on competition and, and maybe, you know, just, you know, drill down on that. Bye. Yeah, so you're probably asking about the U.S.

Steven A. Cahillane: Give any give any context for what youre seeing in the environment from a pricing and promotion standpoint, and then I think one of the categories where.

Steven A. Cahillane: Promotion or excuse me competitive activity, especially weighted been on agribusiness.

Steven A. Cahillane: Maybe you can just provide a higher higher level thoughts on competition and maybe just.

Steven A. Cahillane: Just drill down on that specific business. Thanks.

Speaker Change: Yes, so you're probably asking about the U S. The frequency of promotions continues to return to pre pandemic levels. So 292019 levels.

Steven A. Cahillane: The frequency of promotions continues to return to pre-pandemic levels, so 2019 levels, you know, the depth of those promotions is really kind of back to approaching those levels off a higher base. And so I'd say the whole market is pretty benign and stable. You don't see, you know, I've heard some of the noise around because volumes are down, there's going to be high levels of discounting and, you know, increased frequency of promotion. But we're not really seeing that.

Steven A. Cahillane: The depth of those promotions is is really kind of back to approaching those levels off a higher base and so I would say.

Steven A. Cahillane: Market is pretty benign and stable you don't see I've heard some of the noise around because volumes are down is there going to be high levels of discounting and increased frequency of promotion, we're not really seeing that for us. We're getting we're trying to get back to the pre 2019 levels as I've mentioned a couple of times.

Steven A. Cahillane: You know, for us, we're getting, you know, we're trying to get back to the pre-2019 levels, as I've mentioned a couple of times now in terms of frequency to drive quality promotional displays, but not seeing anything other than that really. Okay, thank you. Thank you. Our next question comes from Tom Palmer of City. Tom, the line is now open, please go ahead.

Thomas Hinsdale Palmer: Now in terms of frequency to drive quality promotional displays.

Thomas Hinsdale Palmer: But not seeing anything other than that really.

Steven A. Cahillane: Yeah.

Thomas Hinsdale Palmer: Okay. Thank you.

Steven A. Cahillane: Yes.

Steven A. Cahillane: Our next question comes from Tom Palmer of Citi.

Thomas Hinsdale Palmer: Your line is now open. Please go ahead.

Operator: Good morning and thanks for the question. Maybe just start on operating profit. At the investor day, you'd laid out some dollar expectations by segment. Obviously, several months have passed, and some segments have maybe done better or are tracking better than you'd anticipated, and some maybe not quite so well. So maybe just an update there.

Thomas Hinsdale Palmer: Good morning, and thanks for the question.

Operator: Wanted to.

Operator: Maybe just kick off on an operating profit at the Investor Day, you laid out some dollar expectations by segment, obviously several months of fast in some segments or maybe better are tracking better than.

Operator: Made it in some maybe not quite so maybe just an update there are there any small changes I think as we think about kind of the operating profit distribution across the segments versus what you had laid out.

Steven A. Cahillane: Are there any more changes as we think about the operating profit distribution across those segments versus what you had laid out? Yeah, you know, at the Day at Kay, we had kind of given you the absolute dollar guidance, just to kind of help set up your models. I think, you know, we don't intend to provide regional guidance going forward on an ongoing basis. But that said, I would say that, you know, all the regions for 24, we'd expect them to be within their long-term algorithms, growth rates that we had shared at Day at Kay. Thank you. And then on the reorganization announcement today for the frozen and serial businesses, what drove the decision to make these changes? I mean, presumably neither is linked directly to the serial spinoff, but was the timing at all related to any kind of increased bandwidth now that the spin's been wrapped up?

Steven A. Cahillane: Yes.

Steven A. Cahillane: <unk> gave you had kind of given you the absolute dollar guidance just to kind of help set up your models I think we don't intend to provide regional guidance.

Speaker Change: Going forward on an ongoing basis.

Steven A. Cahillane: But that said I would say that all the regions were 24 <unk>.

Steven A. Cahillane: We would expect them to be within their long term algorithms.

Steven A. Cahillane: Growth rates that we have shed JFK.

Speaker Change: Okay. Thank you.

Steven A. Cahillane: And then on the reorganization announcement today for the frozen and cereal businesses what drove the decision to make these changes I mean, presumably neither linked directly to the serial spinoff, but was the timing at all related to kind of increase bandwidth now that the spin has been wrapped up.

Steven A. Cahillane: You know, there's a little bit of that, but really, it's more if you think about what we've been through as an industry, focused on supply, focused on getting through the pandemic, focused on bottlenecks and shortages. The ability to really dedicate resources towards effectiveness programs and efficiency programs like this was challenging. And so we're through that right now, and we see good opportunities in the frozen business, you know, so we, you know, we'll be closing a plant and moving production to our more efficient plants. In the UK, subject to consultation, you know, we've got our Manchester plant, which is a very large plant which is underutilized. We can move that production into two facilities. So straightforward, you know, programs in terms of the type of efficiencies they'll drive.

Steven A. Cahillane: There's a little bit of that but really it's more if you think about what we've been through as an industry focused on supply focused on getting through the pandemic focused on bottlenecks and shortages.

Steven A. Cahillane: Ability to really dedicate resources towards.

Steven A. Cahillane: Effectiveness programs and efficiency programs like this was challenging and so we're through that right now and we see good opportunities in the frozen business.

Steven A. Cahillane: We will be closing a plant and moving production to a more efficient plants.

Steven A. Cahillane: In the UK subject to consultation we've got our Manchester plan, which is very large plant, which is underutilized we can move that production into two facilities. So straightforward.

Steven A. Cahillane: No programs in terms of the type of efficiencies will drive we're confident that.

Steven A. Cahillane: We're confident that, you know, they're terrific programs, but it's really a matter of having the bandwidth pre or post pandemic, post bottlenecks and shortages that will allow us to look for programs like this on an ongoing basis to continue to drive effectiveness and efficiency. Thank you. Our next question comes from Rob Dickerson of Jeffreys. The line is now open. Please go ahead.

Rob Dickerson: Terrific programs, but it's really a matter of having the bandwidth pre or post pandemic post bottlenecks and shortages that will allow us to ongoing look for programs like this to continue to drive effectiveness and efficiency.

Steven A. Cahillane: Thanks.

Rob Dickerson: Thank you.

Rob Dickerson: Our next question comes from Robert <unk> of Jefferies.

Rob Dickerson: <unk> is now open. Please go ahead.

Operator: Great, thanks a lot. First question, I heard you mention increased global distribution with certain power brands, let's call them, some in Europe this year, maybe in some other cities in Asia. Could you just kind of, you know, briefly discuss, add some color to like, what could be the opportunity there with a brand like Cheez-It and kind of what the timing is for that non-US distribution? Yeah, Rob. We get asked a lot, why is Cheez-It primarily a U.S. brand?

Rob Dickerson: Great. Thanks, a lot.

Steven A. Cahillane: Okay.

Operator: First question.

Operator: I heard you mentioned.

Operator: The increase global distribution certain.

Operator: Power brands, let's call them.

Operator: Southern Europe, this year or maybe in some other cities.

Operator: In Asia.

Operator: Could you just kind of.

Operator: Briefly discuss some color it seems like.

Operator: What could be the opportunity there with the brands like Cheez, it and kind of what the timing is of that.

Operator: U S distribution.

Operator: Yes, Rob we get asked a lot why as Cheez it primarily a U S brand.

Steven A. Cahillane: You know, why not, you know, expand it 10 years ago? And I think it's a fair question. You know, the company was very busy expanding Pringles around the world. And you see, obviously, now it's a global brand growing all around the world, recognized everywhere. And that's the long-term ambition for something like Cheez-It, which is the next out of the gate. But you start with seeds.

Operator: Why not expanded 10 years ago, and I think it's a fair question. The company was very busy expanding pringles around the world and you see obviously you know it's a global brand growing all around the world recognized everywhere and Thats. The long term ambition for something like <unk>, which is the next out of the gate, but you start with seats and we launch.

Steven A. Cahillane: And, you know, we launched in Canada, we launched in Brazil and Mexico. And this year, in the back half of the year, we'll be launching in major markets in Europe. And so it's a long-term play. It's in our guidance. It's not really, you know, it's not going to be a material driver of the top line.

Steven A. Cahillane: In Canada, we launched in Brazil in Mexico, and this year the back half of the year, we will be launching in major markets in Europe, and so it's a long term play it's in our guidance, it's not really it's not going to be a material driver of top line, but five years from now it's going to be a much bigger brand internationally than it is today and that's that's really.

Steven A. Cahillane: But, you know, five years from now, it's going to be a much bigger brand internationally than it is today. And that's, you know, that's really the plan. We learned from the Canada launch. We applied those learnings to Mexico, to Brazil, then to Mexico.

Steven A. Cahillane: The plan, we learned from the Canada launch, we apply those learnings to Mexico to Brazil than to Mexico, and we've got a terrific plan for the back half of the year in Europe and so it's a long term play and then you look at the rest of our portfolio Rice Krispies treats.

Steven A. Cahillane: And we've got a terrific plan for the back half of the year in Europe, and so it's a long-term play. Then you look at the rest of our portfolio, Rice Krispies Treats, which is already a multi-country brand growing nicely in Europe, growing nicely in Australia and New Zealand.

Steven A. Cahillane: It was already a multi country brands growing nicely in Europe growing nicely in Australia, and New Zealand you look at pop Tarts Theres potentially.

Steven A. Cahillane: You look at Pop-Tarts; there's potentially room for that to be an international brand down the road. So we look at our portfolio, we like what we see in terms of international expansion, but we're going to do it in a very prudent and pragmatic and practical way to drive long-term growth. All right, great. And maybe just a very simple, quick follow-up.

Steven A. Cahillane: Room for that to be an international brand down the road. So we look at our portfolio, we like what we see in terms of international expansion, but we're going to do it in a very prudent and pragmatic and practical way to drive long term growth.

Speaker Change: Alright Super and then maybe just a very quick follow up.

Steven A. Cahillane: You know, I heard you say you expect gross margin to improve for the year. Could you just maybe provide us with kind of, you know, how you're viewing your cost side of the equation? COGS inputs. Is that deflationary? And then, you know, kind of given some of the commentary around, you know, maybe a more positive volume in the back half, should we also be expecting maybe a little bit better gross margin in the back half year over year relative to purchase? Thanks.

Steven A. Cahillane: I heard you say you expect gross margin to improve for the year.

Steven A. Cahillane: Could you just.

Steven A. Cahillane: Provide us with.

Steven A. Cahillane: How are you viewing here.

Steven A. Cahillane: The cost side of the equation.

Steven A. Cahillane: This cogs inputs is that deflationary and then kind of given some of the commentary around maybe more positive volumes in the back half you're actually expecting also maybe a little bit better gross margin back half year over year.

Steven A. Cahillane: Yeah, you know, gross margins have come in better than expected. And so I think the supply chain is performing well; we're seeing costs come out of the supply chain that have gone in over the last couple of years. You know, in quarter four, the first quarter of Kellanova, our gross margin came in at 34%, and we'd expect that in 2024, we'd be approaching 35%. So, you know, that's kind of the outlook for the year. I am so pleased with the progress that we are making.

Steven A. Cahillane: Okay.

Steven A. Cahillane: Gross margins have come in better than expected.

Steven A. Cahillane: So I think about the supply chain is performing well and we're seeing costs come out of the supply chain that have gone in in the last couple of years.

Steven A. Cahillane: And quarter for first quarter of Lenovo.

Steven A. Cahillane: Margin came in at 34%.

Steven A. Cahillane: And we'd expect that in 2024, we'd be approaching 35% so.

Steven A. Cahillane: That's kind of the outlook for the year. So pleased with the follow up with the progress that we're making and certainly the progress that we're making on our gross margins is ahead of what we had shared.

Steven A. Cahillane: And, you know, certainly the progress that we're making in gross margins is ahead of what we had shared at day at K. That's allowed us to continue to be on our guidance on an operating profit basis. I think in terms of the drivers, you'll obviously have the benefit of wraparound pricing and some continued revenue growth management into this year. The input costs, I would say, deflationary on commodities; a couple of commodities continue to be inflationary, net net, slightly deflationary. You know, you look at labor and other parts of our supply chain, where there is inflation overall, I'd say costs are broadly neutral. So, you know, that combination should drive Ramey, Michael Lavery, Christopher Growe, David Palmer, Cody Ramey, Steven Spillane, And I think, you know, it'll be fairly balanced across the quarters.

Steven A. Cahillane: <unk>.

Steven A. Cahillane: That's allowed us.

Steven A. Cahillane: Two two.

Steven A. Cahillane: To continue to be on our guidance on an operating profit basis I think in terms of the drivers you obviously have the benefit of wrap around pricing.

Steven A. Cahillane: And some continued revenue growth management into into the ACO.

Steven A. Cahillane: The input costs I would say deflationary on commodities a couple of commodities continue to be inflationary on net net slightly deflationary.

Steven A. Cahillane: You look at labor and other parts of our supply chain, where there is inflation overall I'd say costs are broadly neutral.

Steven A. Cahillane: So that combination.

Steven A. Cahillane: Should drive.

Steven A. Cahillane: Continued progress on gross margin.

Steven A. Cahillane: And I think it'll be fairly balanced across the quarters.

Steven A. Cahillane: You know, we'd expect our... Our ANP is to be more front-loaded as we get back to full innovation, but the gross margin progress should be fairly balanced across the quarters. Sorry, that's great. Thanks so much.

Steven A. Cahillane: We would expect our.

Steven A. Cahillane: Sure.

Steven A. Cahillane: A&P or to be more frontloaded as we get back to full innovation.

Steven A. Cahillane: The gross margin progress should be fairly balanced across the quarters.

Speaker Change: Alright Super that's great. Thanks, so much.

Operator: Thank you. Our next question comes from Max Gunport of PNP Barabar. Your line is now open, please go ahead.

Max Gunport: Thank you.

Max Gunport: Question comes from Max <unk> of <unk>. Your line is now open. Please go ahead.

Amit Banati: Hey, thanks for the question. With regard to the comment about all regions being within their long-term algo in 2024, was that just on operating profit, or does that apply to organic net sales?

Operator: Yeah.

Max Gunport: Hey, Thanks for the question with regard to the.

Amit Banati: Comment about all regions being within their long term algo in 2024 was that just on operating profit or does that apply to organic net sales.

Amit Banati: I think to organic net sales as well. Okay, and then as a follow-up, so for North America, that would be lowest single digits to mid single digits. Can you just walk through the drivers of what's getting North America?

Amit Banati: I think to do organic net sales as well.

Amit Banati: Okay, and then as a follow up so for North America that would be low single digits mid single digits can you just walk through the drivers of what's getting North America.

Amit Banati: , Alexia Howard, Kevin Ramey, Steve Powers, Robert Moskow, Jonathan Feeney, Ken Zaslow, Kevin Rennie, Dara Mohammad, Jeff Goss, Amit Bhanggarani, Ken Zaslow, Robert Moskow, Brian Spillane, Amit Bhanggarani, John Wallenberg, John Rennie, John Rennie, J.P. Ramey, N.J.P. Rame So probably more low single digits, but you know, as Steve elaborated, you know, it's a return to merchandising, innovation, all of that should, should, should result in low single digit growth in North America. I got it. And the last one for me, the shipment timing in EMEA that you called out, should we expect that to reverse at all? And in one Q&A, can you just go over what happened there exactly in terms of the African noodles shipment benefit? So a couple of things are driving the strong volume growth in EMEA, and it was all in the Africa JVs. One is that we are expanding our noodles business across the continent in South Africa as well as in Egypt.

Amit Banati: Organic sales growth in 'twenty corporate particularly given.

Amit Banati: Decline, we just saw in <unk>.

Amit Banati: Weakness that was addressed.

Amit Banati: Scanner trends that we're seeing.

Amit Banati: Yes, North America, North America will probably be towards the low end of that range, so probably more low single digit but Steve elaborated.

Amit Banati: It's a rich return to merchandising innovation.

Amit Banati: All of that should should result in low single digit growth.

Amit Banati: In North America.

Amit Banati: Got it and then last one from me the shipment timing in EMEA that you called out should we expect that to reverse at all.

Amit Banati: Kieran can you just go over what happened very carefully in terms of that the African shipment benefit.

Amit Banati: Yes, so a couple of things driving the strong volume growth in EMEA and it was all in Africa JV one is.

Amit Banati: We're expanding our <unk> business across the continent.

Amit Banati: South Africa as well as in Egypt.

Amit Banati: So we're seeing strong volume growth, and that expansion is seeing good traction in terms of share and leading share positions in South Africa as well as in Egypt. So that's the source of volume growth, and that will continue in 2024. I think in Nigeria specifically, you know, we've had to take a lot of pricing given what happened with the currency and... The elasticities have been pretty good and better than expected.

Amit Banati: We're seeing strong volume growth and that expansion is seeing good traction.

Amit Banati: In terms of share and leading share.

Amit Banati: Physicians in South Africa, as well as in.

Amit Banati: As well as in Egypt. So that's the source of volume growth and that will continue in 2024.

Amit Banati: I think in Nigeria, specifically.

Amit Banati: <unk> had to take a lot of pricing given what's happened with the currency.

Amit Banati: <unk>.

Amit Banati: The elasticity.

Amit Banati: These have been pretty pretty good.

Amit Banati: And better than expected.

Amit Banati: There has been some ordering by our customers at older prices, so you are seeing acceleration of orders to take advantage of the old pricing, and in an environment where you are taking successive price increases, you kind of see that timing of shipments play out. It's hard to kind of predict when that would unwind because, as you know, the currency is devalued further in January, and we'd be taking further pricing, but we'd expect that to adjust during the course of 2020. Great, thanks very much.

Amit Banati: There has been some ordering by our customers at oil prices. So you are seeing acceleration of the orders.

Speaker Change: Got it.

Amit Banati: The benefit of the of the oil pricing.

Amit Banati: And in an environment, where youre, taking successive price increases you kind of see that timing of shipments play through Hart.

Amit Banati: Hard to predict when that would unwind because as you know the currency has devalued further in January we'd be taking further pricing.

Amit Banati: We would expect that to do.

Amit Banati: To adjust during the course of 2024.

Speaker Change: Great. Thanks very much.

Operator: Thank you. Our next question comes from Michael Lavery of Piper Sadler. The line is now open, please go ahead. Thank you. Good morning.

Michael S. Lavery: Thank you.

Operator: Our next question comes from Michael Lavery of Piper Sandler. Your line is now open. Please go ahead.

Operator: Okay.

Michael S. Lavery: Thank you and good morning.

Amit Banati: I wanted to get started on margins. On slide 15, you show the progression to the 15%, but the starting point for 2023 you have is 12. That similar slide at Investor Day was at 13. I guess just first, did that just restrain the talk from the recast? W.K.

Michael S. Lavery: Good morning.

Michael S. Lavery: On the margin.

Speaker Change: On Slide 13, you show the progression to the 15% but.

Amit Banati: The starting point for 2023, you'll have is 12.

Amit Banati: Similar slide at Investor Day was at 13.

Speaker Change: First it was.

Amit Banati: Is that just stranded costs from the recast because I think W. K Kellogg margins would've been lower so.

Amit Banati: Kellogg's margins would have been lower, so is it strain and cost that drive that, or is there something else that pushed the starting point down? And then conversely, with OBSU being... Ramey, Michael Ramey, David Palmer, Cody Ross, Bryan Spillane, Andrew Lazar, John Baumgartner, Yeah, so just on the 12 versus the 13 at Day 8K, they are on different bases. So the 12 that you see right now is on the discontinued operations basis, which is, you know, we've now done that work, and that's what we The 13 which we had given at Day at Kay was an internal management estimate, and really, the difference is that the 12 does not include reimbursement for, you know, for the first nine months, the TSA reimbursements for services that we're providing to WKKC. That's the way the discontinued operations accounting works. So that's really the difference between the 12 and the 13.

Amit Banati: Is it certain costs that drive that or is there something else.

Amit Banati: The starting point is down.

Amit Banati: And then Conversely, with obviously you've been.

Amit Banati: Just as confident or more and getting to the 15 and maybe sooner.

Amit Banati: The network optimization, the key piece of that or are there other puts and takes we should keep in mind as well.

Speaker Change: Yes, so just on the 12 versus Athena dedicated they are in different basis. So the 12 that youll see right now is on the discontinued operations basis.

Amit Banati: Which is we've now done that work and Thats, what we would be reporting against.

Amit Banati: Although 13, which we had given a decade wasn't internally.

Amit Banati: Estimate and really the difference is that while it does not include.

Speaker Change: Reimbursement for <unk>.

Speaker Change: For the first nine months.

Speaker Change: DSA reimbursements with services that we're providing to <unk>, that's the way the discontinued op.

Amit Banati: Operations accounting works. So that's really the difference between the 12 and 13.

Amit Banati: And I think, you know, like I said, we expect in 2024 to be at a 14 margin. So, you know, very pleased with that, obviously, and I think, you know, that's structurally higher than where we were as Kellogg's, and I think it's just a proof point of a higher growth and higher profit portfolio that we have in Kellanova. And then I think, you know, to our confidence in getting to the 15% margin by 2026, yes, the network optimization projects are a contributing factor, and, you know, we'll continue to look at further opportunities, but, you know, all the other drivers, you know, advantage brands, you know, our top five brands have higher margins, they're 50% of our sales, we'd expect them to grow faster, you know, scale in emerging markets And you mentioned the transport services agreement as a Ramey, Michael Lavery, Christopher Growe, David Palmer, Cody Ross, Bryan Spillane Yeah, so it's about 40 to 50 million a quarter, right? So, you know, it'll flow through all of 2024.

Speaker Change: And I think like I said.

Amit Banati: We expect.

Amit Banati: In 2024 to be at 14 margin.

Amit Banati: So.

Amit Banati: Paul.

Amit Banati: Are you pleased with that obviously and I think that structurally higher than.

Amit Banati: Where we were.

Amit Banati: <unk> and I think it's just a proof point of or.

Amit Banati: A higher growth and.

Amit Banati: Higher profit portfolio that we have in <unk>.

Amit Banati: And then taking out too.

Amit Banati: Our confidence in getting to two.

Amit Banati: 15 margin by 2026, yes, the network optimization projects are a contributing factor.

Amit Banati: We'll continue to look at further opportunities but.

Amit Banati: All the other drivers advantage brands and our top five brands have higher margins that 50% of our sales we would expect them to grow faster scale in emerging markets.

Amit Banati: Getting back to a full productivity program in our supply chain.

Amit Banati: Some continued revenue growth management all of those would also be contributing factors to get to that 15%.

Amit Banati: Okay, Great and you mentioned the mix of our services agreement.

Amit Banati: The key pieces of how to think about 2024.

Amit Banati: EBIT can you give us a sense of how much that's gone.

Amit Banati: Our fixed component versus variable or just a little bit of how that might be structured.

Amit Banati: Yes, so it's about $40 million to $50 million a quarter right. So you sold through all of 2024.

Amit Banati: I think, you know, as we stop providing those services to WKKC and as WKKC contracts for those, you know, for those services directly, those costs will drop off from Kellanova, and the reimbursement will drop off as well. So, the vast majority, as this thing kind of concludes, right, as we step down from the TSAs, we'd expect the costs to stop and the reimbursement to stop. I mean, you know, I think a good example of that is warehousing.

Amit Banati: I think it'll as we stopped providing those services to WP CNS WK Casey.

Amit Banati: Contracts for those.

Amit Banati: The services directly those costs will drop off from Keller NOLA and reimbursements were dropped off as well.

Amit Banati: So the what's majority as distinct kind of.

Amit Banati: Concludes right.

Amit Banati: As we stepped down from the from the TSA is we'd expect the cost to.

Amit Banati: To stop and the reimbursement to stop.

Amit Banati: I think a good example.

Amit Banati: All of that is warehousing right now the warehousing.

Amit Banati: Right now, you know, the warehouse, we are providing the warehouse. So, we are incurring the costs, and then WKKC is reimbursed that to us. Once the TSA is done, they'll have their own warehousing, and they'll pay for the warehousing costs directly. So, you know, the cost will stop, and the reimbursement will stop. Is it 100% one-to-one?

Amit Banati: We are providing the warehousing.

Amit Banati: So we are incurring the cost and then W. K Casey is reimbursing that to us.

Amit Banati: Once the TSA has done they'll have their own warehousing and they'll pay for the warehousing costs directly.

Amit Banati: So the cost will stop the reimbursement of install.

Amit Banati: Is it a is it a 100% in one to one no.

Amit Banati: No. But I think, you know, the vast majority of that is variable. There is a small fixed element, and I think, you know, we've got plans to address that, and that's included in the 15% by 15% target. That's really helpful, Culler. I just want to make sure I understand it.

Amit Banati: But I think in all the work the majority of that is variable there.

Amit Banati: There is a small fixed element.

Amit Banati: And all we've got plans to address that.

Amit Banati: And Thats included in the 15%.

Amit Banati: Right.

Amit Banati: Our target.

Amit Banati: That's really helpful color.

Culler: Sure I understand it when you were talking about the 18 50 to 1900 EBIT guide.

Amit Banati: When you were talking about the 1850 to 1900 EBIT guide and the comparisons that would fall within that, it sounds like some of the TSA drove, I think you said about a mid-teens growth rate, where without that it'd be about mid-single digit. So is that 40 to 50? Is there a margin on that, or how does it hit, how does it contribute to, even if it's just a

Amit Banati: The comparisons.

Amit Banati: Would fall within that it sounds like some of the TSA drove.

Amit Banati: Centered around a mid teens growth rate.

Amit Banati: Without that it would be about mid single digit so is that 40 to 50.

Amit Banati: The margin on that or how does it how does it contribute to EBIT or if it's just the reimbursement.

Amit Banati: I think it's just timing, because you know the growth rate. So when you look at 2024, right, we are getting reimbursement for all four quarters. In 2023, we got reimbursement only in quarter four because that was when the spin happened. So the reason why it's in the team's growth rate is because, in 24, you've got four quarters; in 23, you've got one quarter. So it's purely because of the way, you know, the timing of the spin and the difference coming from there.

Amit Banati: I think it is just timing because the growth rate. So when you look at 2024 right.

Amit Banati: We are getting reimbursement for all four quarters in 2023, we got reimbursement only in quarter four because that was when the spin happened. So the reason why it's in the teens growth rate is in 'twenty four <unk> got four quarters in 'twenty three you've got one quarter. So it's purely because of the way the timing of the spin.

Amit Banati: And the difference coming from there.

Speaker Change: And then a portion of the comparison in the recast numbers not having okay. That's perfect. Thank you so much.

Amit Banati: And a function of the comparison in the recast number is not evident. Okay, that's perfect. Thank you so much. Yeah. Ponke. Our next question comes from Ken Goldman of J.P. Morgan. The line is now open, please go ahead.

Ken Goldman: Thank you.

Amit Banati: Question comes from Ken Goldman of Jpmorgan.

Ken Goldman: Your line is now open. Please go ahead.

Amit Banati: I just wanted to make sure 100% because I think I'm still getting some questions about. You mentioned, Amit, that the operating profit number, the 1850-1900, does include a headwind of 2% from FX. In the press release, it does say though that these impacts, and you're talking about mark-to-market adjustments and foreign currency translation, are not in control in the guidance provided. Am I just misinterpreting one of those, or they seem to be in conflict with each other, but I'm sure I'm just missing, Yeah, Ken, sorry, it's just that our guidance is typically on growth rates, which are currency neutral. So the table just has that always, but we've elected to go with absolute dollars just to help you model. So you should ignore the labeling.

Ken Goldman: Hi, Thank you.

Ken Goldman: I just wanted to make sure 100% because I think I'm still getting some questions about this.

Amit Banati: You mentioned Amit that the.

Amit Banati: The operating profit number one.

Amit Banati: The $18 50 to 1900 does include the headwind of 2% from FX.

Amit Banati: In the press release, it does say, though that these impacts and youre talking about.

Amit Banati: Mark to market adjustments and foreign currency translation are not included in the guidance provided.

Amit Banati: Am I, just misinterpreting one of those or they seem to be in concert with each other but I'm sure I'm just missing something.

Speaker Change: Yes, Ken.

Speaker Change: Sorry, it's just that.

Speaker Change: Our guidance is typically on growth rates.

Amit Banati: Our currency neutral so the table just has that always but we've elected to go with absolute dollars just to help you model.

Amit Banati: Ignore the labeling there is a little bit of that currency impact that I talked about in those absolute figures.

Amit Banati: There is a little bit of that currency impact that Amit talked about in those absolute figures. Thank you for that clarification. And then not to harp too much on the reimbursements, but is it, and I know you're not going to talk explicitly about 2025 yet, but it would seem that if you're getting a, I don't know, roughly $140 million benefit, Inte, John Dixon, Conan McKenzie, Yeah, I think, you know, there are costs which we are getting reimbursed. So I wouldn't characterize it as We're incurring the costs on behalf of WKKC as part of the services we are providing them, and they are reimbursing us for those expenses that we are incurring. We would expect those expenses to drop off, and and and you know there's no markup on the service. So we would expect those expenses to drop off, and then the reimbursement to drop off, too. Now is it a one-to-one relationship? Not completely, but you know, I'd say the vast majority of those.

Amit Banati: Perfect. Thank you for that clarification, and then not to harp too much on the reimbursements, but.

Amit Banati: Is it and I know youre not going to talk explicitly about 2025, yet, but it would seem that if youre getting a I don't know roughly $140 million.

Amit Banati: The benefit in 2020.

Amit Banati: For that.

Amit Banati: Some of that kind of goes away because you didn't have and again, it's not exactly maybe that much because it depends on the timing of everything but is it fair to say youll have some kind of headwind in 'twenty five as those roll off again with the caveat that it's too early to really discuss specifics.

Amit Banati: Yes, I think there are costs, which were getting reimbursed so I wouldn't characterize it as a benefit.

Amit Banati: We're incurring the costs on behalf of W. K Casey as part of the services, we are providing them and they are reimbursing us for those expenses that we're incurring.

Amit Banati: We would expect those expenses to drop off.

Amit Banati: And and.

Amit Banati: And.

Amit Banati: And there is no mark up on the service.

Amit Banati: So we would expect those expenses to drop off and then the reimbursement or drop off now is it a one to one.

Amit Banati: Not completely but I.

Amit Banati: I'd say the last majority of those and I think like I mentioned in the warehouse example.

Amit Banati: And I think, you know, like I mentioned in the warehouse example, that warehouse right now, we're paying for it, and we get reimbursement. Once they drop off, they'll pay for it directly. No, I get that, I think, and I'll ask this offline. I think I'm more asking about the growth percentage. I'll ask it offline, though, and I'll just have clarification later. Thank you. The growth percentage is related to timing.

Amit Banati: That warehouses right now we are paying for it and we get reimbursement once they drop off there to pay for a directly.

Amit Banati: No I get that I think I'll ask this offline I think I'm more asking about the growth percentage I'll ask it offline I'd want you to have a clarification letter growth percentages related to the timing.

Amit Banati: Yep, no, I understand it. I'll ask later. It's not worth holding up the call for it. Thank you. Thank you. I will now pass back to John Renwick for any concluding remarks. Okay, well, that is up at 10.30. If you do have follow-up questions, please do not hesitate to call us, and thank you everyone for your interest. Thank you for joining today's call. You may now disconnect your line. If you do have follow-up questions, please...

Amit Banati: Yes no.

John Renwick: I'll ask Peter it's not worth holding it up the call for it. Thank you.

John Renwick: Thank you.

Amit Banati: I will now pass it back to John Renwick for any concluding remarks.

Amit Banati: Yeah.

John Renwick: Okay, well that is up to $10 30, if you do have follow up questions. Please do not hesitate to call us and thank you. Thank you everyone for your interest.

John Renwick: Thank you for joining stays cool you may now disconnect your lines.

Amit Banati: Okay.

John Renwick: 30, if you do have follow up questions. Please.