Q4 2023 WK Kellogg Co Earnings Call

Operator: Good day and welcome to the Q4WK Kellogg Co-Earnings Conference Call. Today's call is scheduled to last one hour, including remarks by management and then a question and answer session. All lines have been placed on mute to prevent any background noise.

Good day and welcome to the Q4 W. K Kellogg co earnings conference call.

Cool is scheduled to last one hour, including remarks by management and then a question and answer session.

All lines have been placed Amit to prevent any background noise.

Operator: If you'd like to ask a question during this time, simply press the star-marked by 1 on your telephone keypad. If you'd like to withdraw your question, please press star followed by 2. Thank you. I'd now like to turn the call over to Karen Duke, Vice President, Planning and Investor Relations. Please go ahead.

If you'd like to ask a question. During this time that seem pretty press star one on your telephone keypad.

If you'd like to withdraw your question. Please press star two.

Thank you.

And I'd like to turn the call over to Karen Duke Vice President of planning and Investor Relations. Please go ahead.

Karen Duke: Thank you, Operator. Good morning, and thank you for joining us today for a review of our fourth quarter results. I'm joined this morning by Gary Pilnick, our Chairman and Chief Executive Officer, and Dave McKinstry, our Chief Financial Officer. Slide number two shows our forward-looking statement disclaimer. As you are aware, certain statements made today, such as projections for the company's future performance, are forward-looking statements, and actual results could be materially different from those projected.

Thank you operator, good morning, and thank you for joining us today for a review of our fourth quarter results I'm joined this morning by Gerry Pilnak, our chairman and Chief Executive Officer.

And Dave Mckinstry, our Chief Financial Officer Slide number two shows our forward looking statement disclaimer as you are aware certain statements made today such as projections for the company's 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 factors listed on the disclaimer slide as well as those in our SEC filings, including the risk factors section.

Karen Duke: For further information concerning factors that could cause these results to differ, please refer to the factors listed on the disclaimer slide as well as those in our SEC filings, including the risk factors section. As we discuss our results today, unless noted as reported, we'll be referencing the respective non-GAAP financial measure, which adjusts for certain items included in our GAAP results, and for periods prior to the spinoff, they are also presented on a standalone basis. You can find definitions of each non-GAAP measure and a GAAP to non-GAAP reconciliation in our earnings release and in the appendix to the slide presentation. I will now turn the call over to Gary. Thanks, Karen. And good morning, everyone.

As we discuss our results today unless noted as reported we'll be referencing the respective non-GAAP financial measure, which adjusts for certain items included in our GAAP results and for periods. Prior to the spin off are also presented on a standalone basis, you can find definitions.

Of each non-GAAP measure and GAAP to non-GAAP reconciliation within our earnings release and in the appendix to the slide presentation I will now turn the call over to Gary Thanks, Karen and good morning, everyone. Thank you for joining us today to review, our fourth quarter and full year 2023 results for today's call.

Gary H. Pilnick: Thank you for joining us today to review our fourth quarter and full year 2023 results. During today's call, I will provide a summary of our 2023 results, market performance, 2024 guidance, and discuss the progress we're making on our overall strategy and strategic priorities. Across each topic, you will hear about the benefits we're already seeing from a more focused and integrated team. I will then turn the call over to our Chief Financial Officer, Dave McKinstry, who will provide additional detail on our performance and guidance. We will close out the call with time for Q&A.

Now I will provide a summary of our 2023 results market performance 2020 for guidance and discuss the progress we're making on our overall strategy and strategic priorities across each topic, you will hear about the benefits we're already seeing for a more focused and integrated team I will then turn the call over to our chief financial.

Sure, Dave Mckinstry, who will provide additional detail on our performance and guidance, we will close out the call with time for Q&A.

Gary H. Pilnick: Turning to slide four, these are our key messages for the day. Our commitment to fulfilling promises, our focus on execution, and the impact of our engaged... We introduced ourselves in August at Investor Day before we were a stand-alone public company. At that time, we provided our outlook for 2023 and 2024. In November, we provided 2023 guidance ahead of our August outlook, and today I'm pleased to report we've delivered net sales at the high end of our guidance range and EBITDA margin above our guidance. The team has visibility to effectively plan our business. They are executing that plan, and we are on solid footing as we look forward. At Investor Day, we also reviewed in detail each of our strategic priorities.

Turning to slide four these are our key messages for the day, our commitment to fulfilling promises our focus on execution and the impact of our engage team. We introduced ourselves in August at Investor Day, before we were a standalone public company at that time, we provided our outlook for 2023 and <unk>.

2024 in November we provided 2023 guidance ahead of our August outlook and today I am pleased to report we delivered net sales at the high end of our guidance range and EBITDA margin above our guidance range. The team has visibility to effectively plan our business. They are executing that plan.

And we are on solid footing as we look forward at.

At Investor Day, we also reviewed in detail each of our strategic priorities as you would expect we've been executing on these priorities, making meaningful enhancements across each of our marketing sales and supply chain functions. During our early days, we are seeing the benefit of a more focused and integrated team. We are indeed drive.

Gary H. Pilnick: As you would expect, we've been executing on these priorities, making meaningful enhancements across each of our marketing, sales, and supply chain priorities. In these early days, we are seeing the benefit of a more focused and integrated team. We are indeed driving an integrated commercial plan to win as we launched our new marketing model and stood up our single category dedicated sales. We are also modernizing our supply chain and driving operations. Better yet, we are executing end-to-end with improved connectivity across the enterprise. Underpinning all of this is our effort to unleash an energized and winning culture, which is growing organically every day. Our people are engaged, focused, and eager to drive the business forward, and that engagement extends to our customers, communities, and other key stakeholders. This engagement is showing up in our results. This confirms what we know to be true.

And an integrated commercial plan to win as we launched our new marketing model and stood up our single category dedicated sales force. We are also modernizing our supply chain and driving operating efficiencies better yet we are executing end to end with improved connectivity across the enterprise underpinning.

All of this is our effort to unleash and energized and winning culture, which is growing organically every day. Our people are engaged focused and eager to drive the business forward and that engagement extends to our customers communities and other key stakeholders. This engagement is showing up in our performance this confirms that.

What we know to be true we have the right team the right strategy and the right model to deliver value for our stakeholders moving to slide five let's review our financial results, Dave will cover the full financials and guidance in more detail and I'll provide highlights here.

Gary H. Pilnick: We have the right team, the right strategy, and the right model to deliver value for our shareholders. Moving to slide five, let's review our financials... Dave will cover the full financials and guidance in more detail, and I'll provide highlights here. For the full year 2023, net sales increased 2.8%, leading to a gross margin improvement of more than 400 basis points, with 290 basis points flowing through to EBITDA. Our performance reflects the benefit of a positive price mix, our recovery from the fire and strike, and underlying business momentum. The year ended better than planned as we continued to improve our operational efficiency and maintain cost-efficiency. We exceeded the EBITDA guidance we provided in November and hit the high end of our sales guidance. Our guidance calls for net sales growth in the range of negative 1% to positive 1% and EBITDA growth in the range of 3 to 5%.

For the full year 2023, net sales increased two 8% leading to a gross margin improvement of more than 400 basis points with 290 basis points flowing through to EBITDA.

Our performance reflects the benefit of positive price mix, our recovery from the fire in strike and underlying business momentum the.

The year ended better than planned as we continue to improve our operational efficiency and maintain cost discipline.

We exceeded the EBITDA guidance, we provided in November and hit the high end of our sales guidance for 2024, our guidance calls for net sales growth in the range of negative 1% to positive, 1% and EBITDA growth in the range of 3% to 5%. This EBITDA forecast is ahead of what we said at Investor Day.

Gary H. Pilnick: This EBITDA forecast is ahead of what we said at Investor Day and during the Q3 earnings call. We continue to be on track with key separation milestones, on track with our strategic priorities, and we are on track to deliver our financial targets. Now let's take a look at the serial category on slide. Serial is a repertoire category with a fast purchase cycle, nearly 50 million purchase decisions each week. Consumers typically have multiple boxes in their pantries and are looking for cereal to satisfy a variety of consumer needs and occasions.

And during the Q3 earnings call.

We continue to be on track with key separation milestones on track with our strategic priorities and we are on track to deliver our financial outlook.

Now, let's take a look at the cereal category on slide six cereal as a repertoire category with a fast purchase cycle nearly $15 million purchase decisions. Each week consumers typically have multiple boxes in their pantries and theyre looking for cereal to satisfy a variety of consumer needs and occasions. It's also around <unk>.

Gary H. Pilnick: It's also a remarkably affordable category and delivers the type of value consumers are looking for, as cereal, milk, and fruit cost less than a dollar per bowl. Even with consumers under pressure and exhibiting value-seeking behavior, it's notable that the premium segment performed very well in 2023. Cereal is a dynamic category serving many consumer preferences and delivers on taste, convenience, nutrition, and affordability.

<unk> affordable category and delivers the type of value consumers are looking for as serial milk and fruit is less than a dollar per bowl.

Even with consumers under pressure and exhibiting value seeking behavior. It's notable that the premium segment performed very well in 2023.

Cereal is a dynamic category, serving many consumer preferences and delivers on taste convenience nutrition and affordability in the U S. The category grew 5% in 2023, mainly through a positive price mix demonstrating the durable nature of the category.

Gary H. Pilnick: In the U.S., the category grew 5% in 2023, mainly due to positive price mix, demonstrating the durable nature of the category. These are just a few of the many reasons we are so very excited about the serial category. Now, let's look at how our business is performing on slide 7. For the year, we grew U.S. retail dollars by 6.3%, leading to market share growth of 40 basis points. Full-year share was 27.8%, which represents a nearly 260 point improvement from our low point in 2022. Our performance for the year was broad-based across our portfolio and builds on our recovery from the fire and strike as we regained share on our core six brands while executing the spending plan. In Canada, we are the market leader at 37.9% and improved our position by 160 basis points in 2023, highlighted by our performance in December when we achieved a 40% share.

These are a few of the many reasons. We are so very excited about the cereal category now, let's look at how our business is performing on slide seven for the year. We grew U S retail dollars at six 3% leading to market share growth of 40 basis points full year share was 27, 8%, which.

Presents a nearly 260 point improvement from our low point in 2022.

Our performance for the year was broad based across our portfolio and builds on our recovery from the fire and strike as we regained share on our core six brands, while executing the spin.

In Canada, we're the market leader at 37, 9% and improved our position 160 basis points in 2023 highlighted by our performance in December when we achieved a 40% share. This is testament to the relevance of our brands and our team's ability to execute an exciting commercial plan.

Gary H. Pilnick: This is testament to the relevance of our brands and our team's ability to execute an exciting commercial. We're pleased with our recovery to date and have further opportunities ahead of us. Now, let's look at how the execution of our strategy is under way. On page 8, let me first remind you of our strategic priorities. Our integrated commercial plan to win brings together our demand-creating infrastructure with our in-store activation. This priority allows us to operate more seamlessly, end-to-end, with greater agility.

We're pleased with our recovery to date and have further opportunity ahead of US now, let's look at how the execution of our strategy is underway.

On page eight let me first remind you of our strategic priorities our integrated commercial plan to win brings together our demand creating infrastructure with our in store activation.

This priority allows us to operate more seamlessly and to end with greater agility next we'll update you on our second strategic pillar modernizing our supply chain I'll talk about how we're working with key stakeholders to improve plant productivity and economics as well as taking action to improve our operating efficiencies through new.

Gary H. Pilnick: Next, we'll update you on our second strategic pillar, modernizing our supply chain. I will talk about how we're working with key stakeholders to improve plant productivity and economics, as well as taking action to improve our operating efficiencies through new ways of working. Our third strategic pillar is to unleash an energized and winning culture. Our people are our most valuable asset, and I could not be more proud of how they're showing up and driving meaningful change.

New ways of working.

Our third strategic pillar is to unleash and energized and winning culture. Our people are the most valuable asset and I could not be more proud of how they're showing up and driving meaningful change.

Gary H. Pilnick: Now let's take a look in more detail at how our integrated commercial plan to win is coming to life. On slide nine, let's start with the first half 2024 innovation. We all know innovations are critical to the serial category. They deliver consumer excitement, grow the basket, and drive points of distribution. We have a strong record of serial innovation, including the introduction of three top innovation items last year. The same team is now part of WK.

Now, let's take a look in more detail at how our integrated commercial plan to win is coming to life.

On slide nine let's start with the first half 2020 for innovation.

We all know innovation is critical to the cereal category. It delivers consumer excitement grows the basket and drive points of distribution.

We have a strong record of serial innovation, including the introduction of three top innovation items last year that same team is now part of W. K. They continue to lead our commercial organization and developed another strong innovation plan for 2020 for what's different about this year's innovation is that it includes the launch of two new.

Gary H. Pilnick: They continue to lead our commercial organization and have developed another strong innovation plan for 2025. What's different about this year's innovation is that it includes the launch of two new premium brands, Mouthoff and Mouth Off, which delivers against current food trends with 22 grams of protein and zero sugar.

Premium brands mouth off an extra now it's off deliveries against current food trends with 22 grams of protein and zero sugar Xtra is a taste led granola. These brands had been launched in an agile way leveraging social media to drive awareness.

Gary H. Pilnick: Extra is a taste-led granola. These brands have been launched in an agile way, leveraging social media to drive awareness. As we have discussed, the premium segment is growing, and we have been participating with Special K Zero and Special K High Protein. We're excited to add Mouth Off and Extra to our premium offerings this year. The next element of our innovation is expanding the appeal of our existing brands across cohorts. As we reignite Kashi, we launch Smoothie Loops, a cereal with all-family appeal.

As we have discussed the premium segment is growing and we have been participating with special K zero and special K high protein, we're excited to add mouth off an extra to our premium offerings. This year.

The next element of our innovation is expanding appeal of our existing brands across cohorts as we reignite Kashi, we launched smoothie loops, a cereal with all family appeal, our innovation, our brand and special K drives excitement and focuses on the nutrition seeking consumer and finally, we continue to <unk>.

Gary H. Pilnick: Our innovation on brand and Special K drives excitement and focuses on the nutrition-seeking consumer. And finally, we continue to expand in occasions, introducing mini-snacks. We know cereal is consumed during a variety of occasions, having discussed our recent Cereal for Dinner campaign and that growing occasion. Snacking is yet another moment where cereal hits the mark, and these innovations drive right at it with our brands and unique products.

Expanding occasions, introducing many snacks, we know cereal is consumed during a variety of occasions, having discussed our recent cereal for dinner campaign and that growing occasion snacking is yet another moment, where cereal hits the mark in these innovations drive right at it with our brands and unique food.

This is just the beginning we have more innovation coming later this year that will tap into seasonal excitement and cultural relevance. It's worth noting that all of this was achieved while preparing for the spin throughout 2023, a good example of the focus and agility of the team.

Gary H. Pilnick: This is just the beginning; we have more innovation coming later this year that will tap into seasonal excitement and cultural relevance. It's worth noting that all of this was achieved while preparing for the spin throughout 2023, a good example of the focus and agility of the team. Another example of agility to quickly activate end-to-end is on slide 10, and that was the recent collab with the University of Michigan to celebrate the College Football National Championship. In just three days, we went from idea to product, and at midnight, immediately following the Wolverines' victory in the game, we launched a Fruit Loops National Championship box, which sold out in a matter of hours, and we had to produce even more. This was a chance for us to connect with our Michigan community, and importantly, we generated significant media value from the coverage, garnering close to 100 million impressions. In fact, you could see that Toucan Sam was invited to the Championship Parade in Ann Arbor and received a victor's welcome from fans chanting his name along the parade route.

Another example of agility to quickly activate end to end is on slide 10, and that was the recent collab with the University of Michigan to celebrate the college football National Championship. In just three days, we went from idea to product and at midnight immediately following the Wolverines victory in the game we.

Launched a froot loops National Championship box, which sold out in a matter of hours and we had to produce even more.

This is a chance for us to connect with our Michigan community and importantly, we generated significant media value from the coverage garnering close to 100 million impressions and in fact, you could see that too can Sam was invited to the championship parade in Ann Arbor and received the victors welcome from fans chanting his name along the parade route.

Gary H. Pilnick: This is a great example of the power and cultural relevance of Arbor Day. Next, on slide 11, we'll discuss how Revenue Growth Management is strategically designed to deliver on our financial commitment. Our 2024 RGM activities are focused on three main areas. Premiumization, which we discussed previously. Promo Effectiveness and Price Pack Architecture, or PPA. Promotional effectiveness is about designing and executing our promotional activities to drive better sales. The integration of our teams across marketing, sales, and supply chain gives us increased visibility, which allows us to more optimally design and plan.

This is a great example of the power and cultural relevance of our brands.

Next on Slide 11, we will discuss how revenue growth management is strategically designed to deliver on our financial commitments. Our 2024, our GM activities are focused on three main areas premium position, which we discussed previously.

Promo effectiveness and price pack architecture or PPA.

Promotional effectiveness is about designing and executing our promotional activities to drive better returns the.

The integration of our teams across marketing sales and supply chain gives us increased visibility, which allows us to more optimally design and plan.

Gary H. Pilnick: Through our dedicated sales force, we can also execute those promotions better, and our single category focus means we can drive better merchandising and amplify promotions in-store. Finally, PPA. We have launched new standardized pack sizes across multiple brands to address both customer and consumer preferences, ensuring we have the right pack at the right price in the right place. This also drives more standardization in our business, which creates efficiency within our supply chain and allows customers to offer the type of unique value their consumers are looking for. This was a huge undertaking, and a team is successfully executing this transition. In summary, we're moving fast to drive our financial performance through innovation, improving promotional effectiveness, and an RGM plan designed to create value.

Through our dedicated sales force, we can also execute those promotions better and our single category focus muesli could drive better merchandising and amplify promotions in store.

Finally, PPA, we have launched new standardized pack sizes across multiple brands to address both customer and consumer preferences, ensuring we have the right pack at the right price and the right place.

This also drives more standardization in our business, which creates efficiency within our supply chain and allow customers to offer the type of unique value. Their consumers are looking for this was a huge undertaking and the team is successfully executing this transition in summary, we are moving fast to drive our financial performance through <unk>.

Asian, improving promotional effectiveness and in our GM plan designed to create value.

Gary H. Pilnick: Now, turning to slide 12, let's discuss how we're advancing our priority of modernizing our supply chain and how we're improving plant economics through new ways of working. During the Q3 earnings call, we told you we're already working with key stakeholders in certain locations to improve plant productivity and economics. In Q4, we were excited to announce that, in partnership with our Battle Creek plant employees and their union, the City of Battle Creek, and the State of Michigan, we unlocked a solution where our business, our people, and our community. As a reminder, high-performing work systems result in a more agile, capable, and engaged workforce, a disciplined approach to problem-solving, and consistent governance, all of which drives improved performance. We all know this model works, as we see it every day where it's already being implemented effectively.

Now turning to slide 12, let's discuss how we are advancing our priority of modernizing our supply chain and how we're improving plant economics through new ways of working.

During the Q3 earnings call. We told you we're already working with key stakeholders in certain locations to improve plant productivity and economics. In Q4, we were excited to announce that in partnership with our Battle Creek plant employees and their union the city of Battle Creek, and the state of Michigan, We unlock this solution.

<unk> were our business our people and our community. When we are now working collaboratively with our people to begin implementing high performing work systems. The operating model utilized in our most efficient plants as a reminder, high performing work systems resulted in a more agile capable and engaged workforce.

Disciplined approach to problem solving and consistent governance, all of which drives improved performance. We all know this model works as we see it everyday where it's already implemented effectively.

Gary H. Pilnick: Also important, the city and state provided meaningful financial support to help offset the cost of the investment in our Battle Creek plant. This is a good example of the way we're going to work with our people and our communities to drive business forward and improve productivity, efficiency, and engagement. Another step in modernizing our supply chain is to improve the ongoing efficiency and effectiveness of the network. On slide 13, you can see our customer service levels and the trajectory of our improvement, a key step in strengthening trust with customers. Customer service is about discipline, focus, and execution. That is a key to our success, and you can see the impact the WK team is making already.

Also important the city and state provided meaningful financial support to help offset the cost of the investment in our Battle Creek plant. This is a good example of the way we're going to work with our people and our communities to drive business forward and improve productivity efficiency and engagement.

Another step in modernizing our supply chain is to improve the ongoing efficiency and effectiveness of the network on slide 13, you can see our customer service levels and the trajectory of our improvement a key step in strengthening trust with customers.

Customer service is about disciplined focus and execution that is a key to our success and you could see the impact the WK team is making already.

Gary H. Pilnick: In Q4, we achieved our highest level of customer service since March of 2020, and we even saw meaningful improvement versus Q3 2023. We've been able to reach these levels by improving plant reliability and efficiency. Overall Equipment Effectiveness, or OEE, improved in Q4 across our plants, leading to a more reliable product.

In Q4, we achieved our highest level of customer service since March of 2020, and we even saw a meaningful improvement versus Q3 2023.

We've been able to reach these levels by improving plant reliability and efficiency overall equipment effectiveness or OA improved in Q4 across our plants, leading to a more reliable product supply.

Gary H. Pilnick: It's early days, and we're just getting started. These are the type of benefits we expect to drive into the future as we modernize our. Finally, on slide 14, let's see how it all comes together. We speak about how we'll focus, integrate, and invest. We're a focused company. Everything is in service of Syria.

It's early days and we're just getting started these are the type of benefits, we expect to drive into the future as we modernize our supply chain.

Finally on slide 14, let's see how it all comes together, we speak about how we'll focus integrate and invest where our focused company everything is in service of serial <unk>.

Gary H. Pilnick: That focus resulted in the right strategy, and we have the right team with the right capabilities and resources to execute our plan. We are an integrated company, driving greater visibility across the enterprise, which allows us to make quicker decisions and rapidly bring ideas to life. And that focus and integration informs how we invest in our infrastructure, capabilities, and, most importantly, our people. When you bring all of this together, our performance improves.

That focus resulted in the right strategy and we have the right team with the right capabilities and resources to execute our plan.

We are an integrated company driving greater visibility across the enterprise, which allows us to make quicker decisions and rapidly bring ideas to life.

That focus and integration informs how we invest in our infrastructure capabilities and most importantly, our people when you bring all of this together our performance improves we drive better business outcomes and we gained momentum now I'll hand, the call over to Dave to take you through our financial results and outlook.

Dave McKinstry: We drive better business outcomes, and we gain momentum. Now, I'll hand the call over to Dave to take you through our financial results and outlook. Thank you, Gary.

Gary today I'll focus my comments on our fourth quarter financial results and the related drivers by commentary will be on a standalone adjusted basis. As we believe that provides the best representation of our business going forward.

Dave McKinstry: Today, I will focus my comments on our fourth-quarter financial results and the related drivers. My commentary will be on a stand-alone, adjusted basis, as we believe that provides the best representation of our business going forward. Further detail of these measures and reconciliations has been provided in today's press release and in the appendix to this presentation.

Further details of these measures and reconciliations have been provided in today's press release and the appendix to this presentation.

Dave McKinstry: To begin, I'm pleased with how we executed our plan and delivered results ahead of expectations. Since relaunching the business in the second half of 2022, we've reshaped the timing of our brand investment. Those investments were diligently planned, week by week, and we saw the benefits through improved ROI throughout 2020. Now, looking at our results on slide 16, you will see that net sales for the fourth quarter were $651 million, a 2.7% decline versus the prior year period. This performance reflects positive price gains of 7.5 percent, offset by volume declines of 10.1 percent related to, among other things, rising price elasticities due to the timing of our price increases. We spoke about this dynamic on our third quarter call and said at the time that we expected it to continue into Q4 and early Q1. From a brand's perspective, Rice Krispies and Corn Flakes benefit from seasonal recipe execution, and our Canadian business continued its strong performance in the quarter behind brands like Frosted Flakes and Vector.

To begin I am pleased with how we executed our plan and delivered results ahead of expectations.

Since relaunching the business in the second half of 2022, we've reshaped the timing of our brand investments those investments were diligently plant week by week and we saw the benefits through improved ROI throughout 2023 now.

Now looking at our results on Slide 16, you will see that net sales for the fourth quarter were $651 million or two 7% decline versus the prior year period. This performance reflects positive price of seven 5% offset by volume declines of 10, 1% related to among other thing.

Rising price elastase elasticities due to the timing of our price increases we spoke about this dynamic on our third quarter call and said at the time that we expect it to continue into Q4 and early Q1.

From a brands perspective, rice, krispies, and corn flakes benefit from seasonal recipe execution and our Canadian business continued its strong performance in the quarter behind brands like frosted flakes and vector.

Dave McKinstry: For the full year, we delivered net sales of $2.74 billion, which was at the high end of our guidance, a 2.8% increase versus a prior year which lagged our in-market growth of greater than 6% due to the impact of lapping a retailer inventory rebuild in the front half. EBITDA for the fourth quarter was $53 million, a 43.2% increase versus the prior year quarter, driven by the benefit of price mix, proven productivity, and optimize commercial investment. Our significant EBITDA growth is a result of our improved supply chain execution and focus on operational discipline that Gary. Full year EBITDA of $258 million is a 50% increase versus a prior year and reflects the benefit of lapping the fire and strike in the first half at a positive price. Again, our increased focus and improved execution allowed us to deliver EBITDA ahead of our guidance and creates a strong foundation to build from. Turning to slide 17, I will now focus on our operational highlights. Gross margin for the fourth quarter was 29.2 percent, a 300 basis point improvement versus the prior year.

For the full year, we delivered net sales of $2 74 billion, which was at the high end of our guidance of two 8% increase versus the prior year, which lagged our end market growth of greater than 6% due to the impact of lapping a retailer inventory rebuild in the front half of 2022.

EBITDA for the fourth quarter was $53 million or 43, 2% increase versus the prior year quarter, driven by the benefit of price mix improved productivity and optimize conversion commercial investment.

Our significant EBITDA growth as a result of our improved supply chain execution and focus on operational discipline that Gary outlined.

Full year EBITDA of $258 million as a 50% increase versus the prior year and reflects the benefit of lapping the fire and strike in the first half and positive price mix again, our increased focus and improved execution allowed us to deliver EBITDA ahead of our guidance and creates a strong foundation to build from.

In 2024.

Turning to slide 17, I will now focus on our operational highlights.

Gross margin for the fourth quarter was 29, 2%, a 300 basis point improvement versus the prior year.

Dave McKinstry: This improvement was the result of our balanced commercial approach and operational efficiencies within our supply chain. For the full year, gross margin improved 410 basis points to 28.9%. This improvement was primarily driven by a positive price mix and further recovery from fire and strike. As a reminder, our full-year gross margin also benefited from a one-time insurance recoupment of $16 million in Q2 of 2023, which was worth 60 basis points of gross margin for the year. Even the margin in Q4 was 8.2%, a 270 basis point improvement versus a prior year period, driven by the flow-through of gross margin improvements and the re-phasing of our brand building investment, quarters with higher levels of ROI earlier in the year, and the Impact of Incentive Compensation.

This improvement was a result of our balanced commercial approach and operational efficiencies within our supply chain.

For the full year gross margin improved 410 basis points to 28, 9%. This improvement was primarily driven by positive price mix further recovery from fire and strike.

As a reminder, our full year gross margin also benefited from a onetime insurance recruitment of $16 million in Q2 of 2023, which was worth 60 basis points of gross margin for the year.

EBIT margin in Q4 was eight 2% a 270 basis point improvement versus the prior year period, driven by the flow through of gross margin improvements and the re phasing of our brand building investments to quarters with higher levels of ROI earlier in the year.

And the impact of incentive compensation.

Dave McKinstry: For the full year, we delivered an EBITDA margin above the high end of our guidance range at 9.4%, a 290 basis point improvement. This improvement reflects the drivers I mentioned earlier in gross margin and in. Looking forward, we expect Gross Margin to continue to be the primary driver of our EBITDA. Looking at our below-the-line items, interest expense in Q4 was $10 million, and other income was $9 million. Our adjusted effective tax rate for full year 2023 was 24.9%. For 2024, we expect our full-year effective tax rate to be in the range of $24 to $25 percent.

For the full year, we delivered EBITDA margin above the high end of our guidance range at nine 4%.

290 basis point improvement this improvement reflects the drivers I mentioned earlier and gross margin and EBITDA.

Looking forward, we expect gross margin to continue to be the primary driver of our EBITDA improvement.

Looking at our below the line items interest expense in Q4 was $10 million and other income was $9 million.

Our adjusted effective tax rate for full year 2023 was 24, 9%.

For 2024, we expect our full year effective tax to be in the range of 24% to 25%.

Dave McKinstry: Turning now to slide 18, for the year, our business has performed as we've expected, and we continue to show steady improvement. We showed this slide on the Q3 call and have updated it to show our trailing 12-month performance through the end of Q4. We're pleased to see the continued trajectory. Looking at the slide, you can see that we are consistently delivering net sales and $2.7 billion. Our stable top-line performance has been a catalyst for our margin improvement and has been enabled by improving supply reliability. Next, you'll see that since Q1, we've seen a meaningful increase in gross margin. We gained 210 basis points and, in Q4, achieved the highest level of gross margin of the last 12 quarters. This improvement is primarily related to driving operational efficiencies within our supply chain and from positive price mix from our revenue growth management. Finally, looking at EBITDA margin, you can see that our gross margin improvement is largely flowing through, and profitability has significantly improved, moving from 7.8% to 9.4%, or 160.5%.

Turning now to slide 18 for the year, our business has performed as we expected and we continue to show steady improvement. We showed this slide into Q3 call and have updated to show our trailing 12 month performance through the end of Q4, we're pleased to see the continued trajectory improvement.

Looking at the slide you can see our we are consistently delivering net sales in the $2 $7 billion range.

Our stable topline performance has been a catalyst for our margin improvement and has been enabled by our improving supply reliability.

Next you'll see that since Q1, we've seen meaningful increase in gross margin.

We gained 210 basis points and in Q4 achieved the highest level of gross margin of the last 12 quarters.

This improvement is primarily related to driving operational efficiencies within our supply chain and from positive price mix from our revenue growth management initiatives.

Finally, looking at EBITA margin you can see that our gross margin improvement is largely flowing through and profitability has significantly improved moving from seven 8% to nine 4% a 160 point increase.

Dave McKinstry: This is the type of improvement we expect as we finish 2023. Next, I'll discuss our debt position on slide 19. We ended the year with $499 million of debt and cash in equivalents of $89 million, resulting in a net debt of $410 million. As we said on our Q3 call, at the completion of this spin, we drew $500 million on our term loan A and $164 million on our revolver to fund the dividend back to Calinova. These debt levels were temporarily elevated as core working capital had not yet reached run rate levels at the time of the spend.

This is the type of improvement we expect as we finished 2023.

Next I'll discuss our debt position on slide 19, we.

We ended the year with $499 million of debt and cash and equivalents of $89 million, resulting in net debt of $410 million as we said on our Q3 call at the completion of the spin we drew $500 million on our term loan a and $164 million on our revolver to fund the dividend back to <unk>.

<unk>. These debt levels were temporarily elevated as core working capital had not yet reached run rate levels at the time of the spin.

Dave McKinstry: Working capital largely normalized throughout Q4, and as a result, we exited Q4 at target debt levels and with a zero balance on our revolving credit facility. We ended 2023 with a leverage ratio of 1.6 times net debt to adjusted EBITDA and expect to end 2024 with leverage of approximately 1.8 to 2 times adjusted EBITDA. The increased leverage in 2024 is due to one-time investments of approximately $80 million to stand up the company as we work towards TSA. This leverage ratio excludes the impact of investments to modernize our supply chain, which we'll provide an update on later this year. In 2024, we'll continue to generate positive underlying cash flow. However, we expect our total cash free cash flow to be slightly negative due to the one-time investments and setting up the company. Similar to what I noted earlier in the leverage discussion, this cash flow excludes the impact of investment in modernizing our supply chain.

Working capital largely normalized throughout Q4 and as a result, we exited Q4 at targeted debt levels and with zero balance on our revolving credit facility.

We ended 2023 with a leverage ratio of one six times net debt to adjusted EBITDA and expect to end 2024 with leverage of approximately one eight to two times adjusted EBITDA.

Increased leverage in 2024 is due to onetime investments of approximately $80 million to stand up the company as we work towards TSA exit.

This leverage ratio excludes the impact of investment to modernize our supply chain, which will provide an update on later this year.

In 2024 will continue to generate positive underlying cash flow. However, we expect our total cash free cash flow to be slightly negative due to the onetime investments and standing up the company similar to what I noted prior and the leverage discussion this cash flow excludes the impact of investment in <unk>.

Dave McKinstry: Turning now to our outlook on slide 20, based on the momentum in our business and confidence we have in our plan, we are providing EBITDA guidance ahead of the guidance we provided in Q3. We expect 2024 full-year net sales growth to be in the range of negative one to positive one percent. Due to our revenue growth management initiatives, we expect full-year price to be positive low single digits and volume to decline low single digits. For 2024 EBITDA, we expect growth in the range of 3 to 5%, which reflects EBITDA dollar delivery of between $265 and $270 million. This is an increase versus the $255 million to $265 million range we provided yesterday and reaffirmed on our Q3 call. Importantly, this EBITDA growth includes the lapping of the benefit of the one-time insurance recoupment in Q2 of 2023 of $16 million. For the full year 2024, we expect total interest expense of approximately $40 million and other income of approximately $25 million. Other income includes the benefit of pension income of $45 million, which is a non-cash item.

Using our supply chain, turning now to our outlook on slide 'twenty based on the momentum in our business and confidence we have in our plan. We are providing EBITDA guidance ahead of the outlook we provided at Q3.

We expect 2020 for full year net sales growth to be in the range of negative one to positive 1% due to our revenue growth management initiatives, we expect full year price to be positive low single digits and volume to decline low single digits.

For 2020 for EBITDA, we expect growth in the range of 3% to 5%, which reflects EBIT dollar delivery of between 265 $270 million.

This is an increase versus the $255 million to $265 million range, we provided at Investor day, and reaffirmed on our Q3 call.

Importantly, this EBITDA growth includes the lapping the benefit of the one time insurance recruitment in Q2 of 2023 of $16 million.

For the full year 2024, we expect total interest expense of approximately $40 million and other income to be approximately $25 million. Other income includes the benefit of pension income of $45 million, which is a noncash item.

Gary H. Pilnick: Similar to our leverage outlook I covered on the previous slide, this interest expense excludes any impact of increased debt to fund our supply chain modernization. Now, I will hand it back over to Gary to close out the call. 2023 was a transformational year for WK as we stood up as an independent company and delivered strong performance aligned to our strategic priorities and our expectations. I would like to thank our team of more than 3,000 colleagues for their efforts and contributions to a successful year. In 2024, you can expect more of the same as we focus on delivering our financial model, bringing even more excitement to the serial category, and executing like a soon-to-be 118-year-old startup. I'll now open the call to questions. Thank you. As a reminder, if you'd like to ask a question, you can press star flood by one on your telephone keypad. Please ensure you are unmuted locally when asking your question.

Similar to our leverage outlook I covered on the previous slide this interest expense excludes any impact of increased debt to fund our supply chain modernization.

And now I will hand, it back over to Gary to close out the call.

Dave as we said on the top of the call and what we hope you heard today is that we are fulfilling promises that we are focused on execution and that our engagement is driving impact 2023 was a transformational year for W. K as we stood up an independent company and deliver strong performance aligned to our strategic.

T J priorities and our expectations I would like to thank our team of more than 3000 colleagues for their efforts and contributions to a successful year. In 2024, you can expect more of the same as we focus on delivering our financial model, bringing even more excitement to the cereal category and executing like <unk>.

Soon to be 118 year old startup I'll now open the call to Q&A.

Thank you Adam.

Reminder, if you'd like to ask a question you compress style front by one on your telephone keypad.

And Sheila Unmetered like Cleveland, asking a question.

Operator: Please also limit yourself to one question and one follow-up. Thank you. Our first question for today comes from Andrew Lazar of Barclays. The line has now opened. Please go ahead.

Please also limit yourself to one question and one follow up thank you.

Our first question, let's say comes from Andrew Lazar of Barclays.

Your line is now open. Please go ahead.

Great Good morning, and thanks, Good morning, Gary and Dave.

Andrew Lazar: Great. Good morning and thanks. Good morning, Gary and Dave. How are you?

Good morning, Andrew how are you aren't Andrew. Thank you. Thank you. So just start off maybe I was hoping you could talk a bit about what youre seeing in terms of the overall cereal category at this stage.

Gary H. Pilnick: Good. Thank you. Thank you. So, to start off, maybe I was hoping you could talk a bit about what you're seeing in terms of the overall serial category at this stage. One of your competitors, I think, recently said something to the effect that maybe towards the end of the quarter, the declines in the serial category had maybe started to moderate a bit. I'm wondering if you're seeing something similar. And if so, whether you think it's attributable to maybe some one-off factors, weather, et cetera, or maybe the start of something a little more sustainable. It's a great question.

One of your competitors I think recently said something to the effect that maybe towards the end of the quarter. The declines in the cereal category has maybe started to moderate a bit.

Im wondering if youre seeing something similar and if so if you think it's attributable to maybe some one off factors weather et cetera, or maybe the start of something a little more sustainable.

Okay.

It's a great question and thanks for asking that Andrew So when you think about the category.

Gary H. Pilnick: Thanks for asking that, Andrew. So when we think about the category, what we're seeing in the category is that it's quite stable, right? The category has a lot of tailwinds, and overall, when you zoom out, when you look at it over a quarter, over the last year, even as we enter 2024, we're seeing good stability across the category. And we're one of the beneficiaries of that. So, and we think there are a variety of reasons. You talked about the weather; you talked about other things.

We're seeing in the category.

It's quite stable right now the category has a lot of tailwind to it and when overall when you zoom out when you look at it over a quarter over the last year, even as we enter 2024, we're seeing a good stability across the category and we're one of the beneficiaries of that so and we think there is a variety of reasons you talked to.

Whether you talked about other things, where we go to on top of that would be the consumers under pressure. This category is quite affordable we talked in our prepared remarks, Andrew about how a bowl of cereal with milk and fruit is under a dollar you can see people trading into consumers trading in.

Gary H. Pilnick: On top of that, we go to the consumers under pressure. This category is quite affordable. We talked in our prepared remarks, Andrew, about how a bowl of cereal with milk and fruit is under a dollar.

Gary H. Pilnick: You could see people trading into, consumers trading into, our category. So we do think there are a lot of tailwinds for the category, but we're actually quite pleased with the way the category is performing.

Our category. So we do think there's a lot of tailwind for the category, but we're actually quite pleased with the way the category is performing.

Gary H. Pilnick: And then maybe I was hoping to provide just a bit more color on how you see the shape of the year playing out on the top line. I think on the 3Q call and then today as well, you stated you expected maybe still some volume pressure in the first part of the year, partly given some of the timing of your pricing actions versus others. So I was hoping you could get into a little bit more detail on kind of how you see the first part of the year playing out in terms of that price mix versus volume combination. Thanks so much.

Great. Thanks for that and then maybe I was hoping you can provide just a bit more color on how you see the shape of the year playing out on the top line I think on the <unk> call and then and then today as well.

You stated you expected maybe still some some volume pressure in the first part of the year, partly given some of the timing of your pricing actions versus others. So I was hoping you could get into a little bit more detail on kind of how you see the first part of the year playing out in terms of that price mix versus volume combination. Thanks. So much yeah, Andrew I think thats quite fair and that was what we talked about in Q2.

Gary H. Pilnick: Yeah, Andrew, I think that's quite fair. And that was what we talked about in Q3, so I appreciate you raising that. The first thing I think we would say is, and because you mentioned Q3, I'll mention it here, the business is performing as we expected. We forecasted the business. It's playing out as we thought. I give the team a lot of credit for the way they're forecasting. And you're exactly right. We had talked about what the balance of the year would look like. Now, we're being careful.

So I appreciate you raising that.

First thing I think we would say is in because you mentioned Q3 I'll mention it here the business is performing as we expected we forecast the business, it's playing out as we thought I'd give the team a lot of credit for the way they are forecasting and you're exactly right. We had talked about what the balance of the year would look like now we're careful we don't give quarterly guidance.

Gary H. Pilnick: We don't give quarterly guidance, but you're exactly right. We talked about the impact on our business of lapping prices; our last major pricing action of last year happened in March. So we're going to be experiencing that and managing through that as the year begins. So I think you're right about the pressure that you just mentioned.

But you're exactly right, we talked about the impact on our business of lapping pricing our last major pricing action of last year happened in March so we're going to be experiencing that and managing through that as the year began so I think youre right about the pressure that you just mentioned the other thing that's worth mentioning is in.

Gary H. Pilnick: The other thing that's worth mentioning is in Q2 that we had a one-time benefit from an insurance payment last year of $16 million. So that's also something that we'll be lapping when we get to Q2. But overall, we feel good about what the shape of the year looks like. And one thing that we did mention that's worth mentioning here about volume was in Q3, we talked about the narrowing of the gap between dollars and volume. We saw that happen between Q3 and Q4. If you look at the public data for P1 for January, it's happening even more.

Q2 that we had a onetime benefit from an insurance payment last year of $16 million. So that's also something that we'll be lapping when we get to Q2, but overall, we feel good about what the shape of the year. It looks like in one thing that we did mention that's worth mentioning here about volume was in Q3, we talked about the <unk>.

Narrowing of the gap between dollars and volume we saw that happen between Q3 and Q4, if you look into public data for <unk>. One for January is happening even more.

Gary H. Pilnick: And you add to that a stable category; we actually think that's quite good for the category, good for our business, and good for our people. Thank you. Our next question comes from David Palmer of Evercore ISI. David, your line is now open; please go ahead.

Add to that a stable category, we actually think thats quite good for the category good for our business and good for our people.

Thank you our next question.

David Palmer of Evercore ISI.

David Your line is now open. Please go ahead.

David Palmer: Thanks and good morning and congratulations on the improving profitability. I guess my question is on reinvestment this year. You talked about a couple things, your efforts to improve, uh... service levels and supply chain. In the past, you've talked about efforts in merchandising, and perhaps that would require some in-store trade. You talked about a couple brand launches, and then, of course, there's advertising. You just talked about where the best dollars spent will be for Kellogg this year and longer term and where you are reinvesting some of this profitability to get the flywheel going. David, thank you. And I appreciate the commentary.

Thanks, and good morning, and congratulations on the improving profitability.

Yes. My question is on reinvestment this year.

Talked about a couple of things your efforts to improve.

Service levels and supply chain in the past you've talked about efforts in merchandising and perhaps that would require some in store trade and talked about a couple of brand launches and then of course, there's advertising could you just talk about where the best dollar spent will be for Kellogg. This year this year and longer term and where you are.

We are reinvesting.

Some of this profitability to get the flywheel going thank you.

David Thank you and I appreciate the commentary.

Gary H. Pilnick: And we are very proud of the result. This is our first quarter as a standalone company. So on behalf of the entire team, we appreciate the congratulations you just provided. And when we think about where we're investing, we're investing across the enterprise. As a new company, as we stand up, there's a couple of different areas that we're going to focus on. And with our P&L and our budget, we're fully loaded to do so. So you would start with the supply chain. You're already starting to see the benefits in our performance in our P&L. You heard us talk about what's happening with Kaysville and OEE.

We are very proud of the results. This is our first quarter as a standalone company. So on behalf of the entire team. We appreciate the congratulations you just provided and when we think about where we're investing we're investing across the enterprise as a new company as we're standing up is a couple of different areas that we're going to focus on in our P&L in our budget.

We're fully loaded to do so so you would start with supply chain you are already starting to see the benefits in our performance in our P&L you heard us talk about what's happening with case fill with the OE that is the very beginning of the impact that our team is making Sherri <unk>, our head of supply chain. The work that she and her team are doing.

Gary H. Pilnick: That is the very beginning of the impact that our team is making. Sherry Bryce is our head of supply chain. The work that she and her team are doing across the network is already starting to pay dividends, and we'll continue to invest there as part of our program to modernize our supply chain. And that's investing capital, as well as building capability. You add to that what we're doing on the commercial side. What we'd like to talk about is when we're talking about in-market pressure, it's about returns. It's about ROI. How do we make sure that we're in the market, that we're balancing profitability as well as volume?

Across the network is already starting to pay dividends will continue to invest there as part of our program to modernize our supply chain and Thats investing capital as well as building capability.

You add to that what we're doing on the commercial side, what we'd like to talk about is when we're talking about in market pressure. It's about returns it's about ROI, how do we make sure that we're in market that we're balancing profitability as well as volume will continue to do that and as the year moves forward. We are constantly looking for other places to invest.

Gary H. Pilnick: We'll continue to do that, and as the year moves forward, we're constantly looking for other places to invest. And when we find areas to invest that bring a great return, we will certainly do that. But David, our budget is fully loaded.

And when we find areas to invest they get a great return, we will certainly do that but David our budget is fully loaded we have the investment dollars that we need to drive this business going forward and into 2024.

Gary H. Pilnick: We have the investment dollars that we need to drive this business going forward and into 2024. And just a quick follow-up on that, just if we're tracking, 4-week would be down a couple percent. Your guidance is a little bit better than that. Is there a road map, a timing that you think you're going to see?

And just a quick follow up on that just if we're tracking. These these data as you know we look at scanner data and everyone looks at scanner data closely.

Four week would be down a couple percent your guidance is a little bit better than that is there a roadmap of timing that you think youre going to see more improvement in what metrics would you have us focusing on thank you.

Gary H. Pilnick: More improvement in what metrics would you have us focus on? Yeah David, we look at those metrics too, so we appreciate the question. I'm really glad you asked it because it lets me reinforce the unique circumstances that we are working through.

Yes, David we look at those metrics and so we appreciate the question Im really glad you asked it because it lets me reinforce the unique circumstances that we are working through we talk about two different things that we were lapping in Q4 and that was the relaunch of the business the previous year as well as the lapping of pricing.

Gary H. Pilnick: We talked about two different things that we were lapping in Q4, and that was the relaunch of the business the previous year as well as the lapping of pricing. You might recall that when we took pricing, we took it later than a lot of the other manufacturers in our category. That's because we were still recovering from the fire and the strike.

Recall that when we took pricing we took it later than a lot of the other manufacturers in our category. That's because we were still recovering from the fire and the strike our last substantial price increase was in March of 2023. So at the beginning of the year, we're still working our way through that you see it in price really.

Gary H. Pilnick: Our last substantial price increase was in March of 2023. So at the beginning of the year, we're still working our way through that. You see it in price realization in the data. So that's what's happening early on.

<unk> in the data so thats whats happening early on again, we feel very good about our overall guidance and the shape of the year, but that's a unique situation that's happening right now.

Gary H. Pilnick: Again, we feel very good about our overall guidance and the shape of the year, but that's a unique situation that's happening right now. Thank you. Our next question comes from Max Dunport of PNP Paribas. Your line is now open, please go ahead.

Our next question comes from Mike Dunn pulse of Pnp Powerbar.

Your line is now open. Please go ahead.

Max Dunport: Hey, thanks for the question. I was hoping you could provide a bit more color on the drivers of the better than expected gross margin expansion in 4Q. I think I heard you mentioned a balanced commercial approach and operational efficiencies and then how this informs your outlook for 24 gross margin. Thank you.

Hey, Thanks for the question I was hoping you could provide more color on the drivers of the better than expected gross margin expansion in <unk> I think I heard you mentioned, a balanced commercial approach and operational efficiencies and then how it informs your outlook for 'twenty for gross margin. Thanks.

Hey, Max Thanks, So I think if you look back at 2023, and we had the slide that really showed the progression throughout the year and we talked about the front half of the year.

Dave McKinstry: So I think if you look back at 2023, and we had the slide that really showed the progression throughout the year, and we talked about the front half of the year, really benefiting from the lapping of the relaunch of the business, we talked about the price realization that played through the gross margin and the benefit of that price mix. The other thing Gary talked about is that as we moved to the latter part of the year, that focus on operational discipline, and Gary mentioned the metric OEE, we're really focused on making sure that we're running our plants efficiently, effectively making sure that we're maximizing output, getting the right food, and all those things are really playing through just that that focus has really helped in the latter part of the year. And yes, we did talk about the optimization of our promotional plan in the market really balancing our returns against profitability and volume. We talked about that dynamic on the Q3 call, and we will continue to do that through Q4. So those are really the big drivers as we move through 2023.

Really benefiting from the lapping of the relaunch of the business, we talked about the price realization that played through to gross margin and.

And the benefit of that price mix, the other thing and Gary talked about as we move to the latter part of the year that focus on operational discipline and Gary mentioned the metric OE, we're really focused on making sure that we're running our plants efficiently effectively making sure that we're maximizing output getting the right <unk>.

Food and all of those things are really playing through just that focus has really helped in the back part of the year and yes. We did talk about the the optimization of our promotional plan.

And the market really balancing our returns against profitability and volume we talked about that dynamic on the Q3 call and we continue to do that through Q4. So those are really the big drivers as we move through 2023 and is as we think forward to 2024 and Thats why our focus is continuing to drive that.

Dave McKinstry: And as we think forward to 2024, that's where our focus is, continuing to drive that ROI, driving that discipline throughout not just our plants but the totality of our supply chain. And again, as Gary mentioned, we're planning on making sequential improvements in gross margin into 2024, despite that one-time lapping impact of the insurance recoupment. So we're pleased with our performance here as we finished out the year, and as I mentioned in the prepared remarks, how that sets us up for 2024. Great. And on that as well, I saw the Capesville improvement that you're making progress on. That was nice to see, but you are still well below historical levels.

It's continuing to drive that discipline throughout not just our plants, but the totality of our supply chain.

And again as Gary mentioned, we are planning on making sequential improvements in gross margin into 2024, despite that one time lapping impact of of the insurance recruitment. So we're pleased with our performance here as we finished out the year and as I mentioned in the prepared remarks, how that sets us up for 2000.

24.

Great.

I saw the Keystone improvement that you are making progress on that it's nice to see but you are still well below historical levels.

Dave McKinstry: And the broader packaged food industry seems to be catching up to, I'd say, you know, more normal levels already, so I'd imagine that there's more improvement you can make on this metric in 24, and that could open up some opportunities on gross margin and the broader supply chain. Can you just talk more about what that might open up for 24, maybe even 25? Thanks.

And the broader packaged food industry seems to be.

Catching up to I'd say more normal levels already I'd imagine that there is more improvement you can make on this metric in 'twenty four and that could open up some opportunities on gross margin and the broader supply chain can you just talk more about what that might open up for 24, and maybe even 25, thanks I'll leave it there.

Dave McKinstry: I'll leave it there. Yeah, thanks, Max. So you're right, we're not yet at our goal. We had that outlined on the slide in the prepared remarks. We are happy with the improvements we've made, and we've made them in a relatively short amount of time. But as we head into 2024, we're aware that there's opportunity. And again, that operational discipline, it's not just on the cost side, but it's making sure that we have and produce the right product and making sure that we're filling orders and servicing our customers at a level that they expect and, frankly, that we expect. Thank you. Our next question comes from Pamela Kaufman of Morgan Stanley. Your line is now open, please go ahead.

Yeah. Thanks, Matt So you're right, we're not yet to our goal we had that outlined on the slide.

Slide and the prepared remarks, we are happy with the improvements we've made and we've made them in a relatively short amount of time here, but as we head into 2024 were aware that there is opportunity and again that operational discipline and it's not just on the cost side, but it's making sure that we're having and producing the right product and making sure that we're.

Sure.

<unk> orders in servicing our customers at a level that they expect and frankly that we expect.

Thank you.

Our next question comes from Pamela Kaufman of Morgan Stanley Your line.

Please go ahead.

Pamela Kaufman: Good morning. I just wanted to say that you're out. Good morning. I just wanted to dig into your outlook for price mix to be up low single digits in 2024. And how do you think about the balance between price realization and increasing promotional activity? To what extent does the low single-digit pricing growth reflect the carryover benefit of pricing from last year? And can you elaborate on the RGM initiatives that would contribute to your price realization in 24? Hey, Pam.

Good morning.

I just wanted to good morning, Pat.

<unk>.

Good morning.

Wanted to dig into your outlook for price mix to be up low single digits in 2024, and how youre thinking about the balance between price realization with increasing promotional activity.

What extent does the low single digit pricing growth reflects the carryover benefit of pricing from last year and can you elaborate on the <unk>.

That would contribute.

Price realization in 'twenty four.

Dave McKinstry: Yeah, so I think Gary mentioned that we'll lap our last list price increase at the beginning of March. So there is that impact, at least for a couple months of the year when the list price lapping happens. Gary did talk further about our other RGM initiatives that we're focused on in 2024, those being promotion optimization. I'll start there.

Hey, Pam, yes, so I think Gerry mentioned that will lap or our last list price increase at the beginning of March. So there is that impact in there at least for a couple months of the year of the list price lapping.

Gary did talk then further about our other our GM initiatives that we're focused on in.

In 2020 for those being promo optimization I'll start there and Thats something thats really a continuation from 2023 and that's the focus on ROI.

Dave McKinstry: And that's something that's really a continuation from 2023, and that's the focus on ROI, making sure that we're getting maximum dollars for every dollar that we're putting into the marketplace. The second is our price pack architecture initiative. Again, really focused on getting the right product, the right sizes, and the right customers for our consumers to enjoy all of our foods. And then the last one Gary mentioned is premiumization. We're excited about our two new innovation launches that Gary mentioned, Mouth Off and Extra. And those just mechanically through that premium offering drive price realization through the P&L.

Making sure that we're getting maximum dollars for every dollar that we're putting into the marketplace.

Second is our price pack architecture initiative again really focused on getting the right product the right sizes and the right customers for our consumers to enjoy all of our foods and then the last one Gary mentioned, so premium <unk>. We're excited about our two new innovation launches that Gary mentioned mouth off an extra.

And those just mechanically through that premium offering dry price realization through the P&L. So those are the factors.

Dave McKinstry: So those are the factors, and I highlighted what we expect the kind of shape to be that volumes will decline by those single digits, and then we'll realize price from there to get back within our guidance range. Thank you. And just on the competitive dynamics in the category, can you talk about what you're observing and do you anticipate gaining market share in cereal this year? When we think about what's happening in the competitive set in the category, so if you zoom out, when we think about the pressure in the market right now, we think about promotion and investment in the category. So Dave talked about our approach, which is that we focus on returns; we focus on balancing volume as well as profitability. And this has been going on in the serial category for years.

I highlighted what we expect kind of the shape is it yes volumes will decline low single digits and then we'll realized price from there to get back within our guidance range.

Great. Thank you.

And just I don't know competitive dynamics in the category can you talk about what you're observing and do you anticipate gaining market share.

Yeah.

Yeah.

When we think about what's happening on the competitive set in the category. So if you zoom out when we think about the pressure in the market right now we think about promotion and investment in the category. So Dave talked about our approach, which is we focus on returns we focus on balancing volume as well as profitability.

And this has been going on in the cereal category appears it is worth noting its good for the category well designed from promotions really drive category performance and in fact that has some of the best lifts in retail when it's done well and when we take a look at the data Pan we're not seeing anything, particularly unusual we sort of go back in time and see.

Gary H. Pilnick: It is worth noting that it's good for the category. Well-designed promotions really drive category performance. And, in fact, it has some of the best lifts in retail when it's done well.

Gary H. Pilnick: And when we take a look at the data, Pam, we're not seeing anything particularly unusual. We sort of go back in time and see, you know, compare it to previous periods, and there's nothing unusual in there. And in terms of growing market share, we've talked about winning in the market and winning as a company. And what makes our model work is a stable top line, so our profit expansion can ripple through the P&L. We also think part of that is winning market share over time, and that is certainly one of our many goals. Thank you. Our next question comes from Peter Galbo of Bank of America. Your line is now open, please go ahead.

Compared to previous periods and Theres nothing unusual in there and in terms of growing market share we've talked about winning in the market and winning as a company and what makes our model work is a stable top line. So our profit expansion can rattle through the P&L. We also think part of that is winning market share overtime.

And that is certainly one of our many goals.

Thank you Keith.

Next question comes from Peter Galbo of Bank of America.

Your line is now open. Please go ahead.

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

Hey, guys. Good morning, Thanks for taking the questions.

Good morning, Peter Good morning, Peter.

Operator: Dave, maybe just two really quick cleanup ones and then Gary a broader one. Dave, if you strip out the, I think you said it was 60 basis points of benefit from insurance to the base gross margin for 23, just as a building block, what's your base inflation that you're baking in for 2024 on the COGS line? And then also, if you had a CapEx number you could help us with on the free cash flow side. Yeah, thanks, Peter. So a couple of things that I'd start with on the, sorry, your first question was about inflation.

Maybe just just two really quick cleanup ones in that area.

A broader one.

Dave If you strip out the I think you said it was 60 basis points of benefit from insurance to the base gross margin for 2003.

It is a building block whats your base inflation that youre baking in for 2024 on the Cogs line and then also if you had a capex number you could help us with on the free cash flow side.

Yeah. Thanks, Peter So couple of things that I would start with.

On the sorry. Your first question was on inflation. So let's start there on the inflation side of things I think generally speaking we've seen what I would call more of a stable environment at these elevated price levels.

Dave McKinstry: So let's start there on the inflation side of things. I think, generally speaking, we've seen what I would call more of a stable environment at these elevated price levels. So if you look at an aggregate, we're not seeing a significant amount of deflation in 2023 or in our outlook in 2024. But if you go into specific areas of our cost structure, or our basket of goods, if you will, there's a couple areas we're seeing deflation. You guys can see it, you know, namely corn and wheat. But there's a couple others that have been what I would call resiliently high and have actually worked the other way. Those being sugar and rice, are just a couple examples.

If you look in aggregate were not seeing a significant amount of of deflation.

In 2023 or in our outlook in 2024, if you go into specific areas of our cost structure.

Our basket of goods, if you will theres a couple of areas. We are seeing the deflation you guys can see it, namely corn wheat, but theres a couple of others that had been what I would call resilient Lehigh and it actually worked the other way those being sugar and rice is a couple of examples and we saw some of the CPI data even as recently this morning.

Dave McKinstry: And, you know, we saw some of the CPI data even as recently this morning, where we're continuing to see inflation in the marketplace be relatively sticky, is a word I would say. But again, I characterize it for us as more of a stabilization at these higher levels. If we then think about our capital plan for next year, you know, we're targeting the two and a half percent of net sales as a base CapEx. As you think about that 80 million that I overviewed to stand up, there will be some CapEx in that 80 million. So it'll be split between one-time costs and CapEx, probably a little bit heavier on CapEx in that 80 million. So those are the two pieces.

We're continuing to see inflation in the marketplace be relatively sticky.

A word I would say, but again I'd characterize it for us more of a stabilization at these higher levels.

If we then think about our capital plan for next year, we're targeting that two 5% of net sales as our base Capex as you think about that 80 million that I overview to stand up there will be some capex in that $80 million. So it will be split between one time cost and capex, probably a little bit heavier on capex.

And that $80 million. So those are the two pieces to be clear Peter we have about a two 5% of net sales base capital plan, and then that $80 million will be split between capex and onetime cost, but a little bit heavier on capex.

Dave McKinstry: To be clear, Peter, we have about a two and a half percent net sales base capital plan. And then that 80 million will be split between CapEx and one-time costs, but a little bit heavier on CapEx. Got it. No, that's helpful.

Got it no. That's helpful. And then Gary just one thing Thats come up in a bunch of other calls this earnings season, particularly around the volume discussion.

Gary H. Pilnick: And then, Gary, just one thing that's come up on a bunch of other calls this earnings season, particularly around the volume discussion, has been a shift, you know, back to more away-from-home occasions. And while that has, you know, a negative impact on the volume or on the tonnage side, it's having a positive impact on mix, you know, like single-serve items, that sort of thing. Just curious, like, are you observing that at all? It's something we've seen across other categories. So we'd just love your perspective on that. Thanks very much.

<unk> has been a shift back to more away from home occasion, and while that has a negative impact on the volume or on the tonnage side.

Having a positive impact on mix like single serve items that sort of thing just curious what are you observing that at all it's been something we've seen across other categories.

Would just love your perspective on that thanks very much.

Gary H. Pilnick: Yeah, what you're getting at is occasions for us, and when we think about our business, we think you have it exactly right. We think there's an opportunity for us when you think away from home, you think single serve. When we think about cereal, we clearly are the number one choice for breakfast. We've talked about cereal for dinner, but we also believe there's a real opportunity for us in snacking.

Yes, what youre getting at is occasions for us and when we think about our business.

You have it exactly right. We think there is an opportunity for us when you think away from home you think single serve when we think about cereal. We clearly are the number one choice for breakfast, we've talked about cereal for dinner, but we also believe there's real opportunity in snacking. So that we do believe is a tailwind for US you saw in the innovation com.

Gary H. Pilnick: So that, we do believe, is a tailwind for us. You saw in the innovation comments that we had that we're leaning into that right now. But, you know, is that a trend?

Rents that we had that we're leaning into that right. Now so is it a trend I don't know, but we think it's a real opportunity for us one way or another and we're going to be getting after it.

Gary H. Pilnick: I don't know, but we think it's a real opportunity for us one way or another, and we're going to be going after it. Thank you. Our next question comes from Matt Smith of Stiefel. Your line is now open, please go ahead.

Thank you. Our next question comes from Mark Smith of Stifel.

Your line open. Please go ahead.

Matthew Edward Smith: Hi, good morning. I had a follow-up question on the CapEx outlook for the business. You've stripped out the additional capital spend associated with supply chain modernization and the guidance that you've given us. And from a high level, given the faster progress against EBITDA and some of the underlying operational efficiencies you're seeing, does that affect your outlook for the $400 to $500 million of investment in that supply chain modernization over time to unlock the margin expansion? Is there an opportunity for that to move lower? Any comments you can make there would be appreciated. Hey, Matt, morning.

Hi, Good morning, I had a follow up question on the Capex outlook for the business you've stripped out the additional capital spend associated with supply chain modernization and the guidance that you've given us.

From a high level, given the faster progress against EBITDA and some of the underlying operational efficiencies youre seeing.

Does that.

Back to your outlook for the $4 to $500 million of investment for that supply chain modernization over time to unlock the margin expansion is there an opportunity for that to move lower.

Any comments you can make there would be appreciated.

Hey, Matt good morning.

Dave McKinstry: No, I'd say that everything that we've said to date on our supply chain modernization program still holds. So we haven't changed any of the direction there. I would say, and as I said in the prepared remarks, we'll come back later this year with further detail and be more precise on timing and all those elements. But so far, what we've said to date still holds. Thank you, Dave. And as a follow-up to your commentary around the investments you're making to stand up a standalone company, is there any phasing to the coming off of TSAs between you and Calinova that we need to be aware of? Do you still plan to be on a significant amount of TSA support when exiting 24? Or do you expect to lower your exposure there pretty meaningfully this year?

No I'd say that everything that we've said to date on our supply chain modernization programs still holds so we haven't changed any of the direction. There I would say and as I said in the prepared remarks, we will come back later this year with further detail and B.

Precise more on timing and all of those elements, but so far what we've said to date still holds.

Thank you David.

As a follow up to your commentary around the investments youre, making to standup a stand alone company is there any phasing to.

Coming off of TSA is between you and Kelly Novo that we need to be aware of do you still plan to be on a significant amount of TSA support exiting 'twenty four do you expect to lower your exposure there pretty meaningfully this year.

Dave McKinstry: Yeah, and I would characterize it as a phased exit. So, you know, we'll see some elements of the TSA disappear in 2024, and some will be totally gone in 2024 as we move into the back half of the year. Other ones will be in through 2025.

Yes, and how I would characterize as a phased exit so.

Exiting elements the TSA in 2024, and some will be totally off of.

In 2024, as we move into the back half of the year otherwise once.

We'll be in through 2025, so it's not a clean hey, here's the end of it but rather a phased exit really over the next call. It 18 ish months from here.

Dave McKinstry: So it's not a clean, hey, here's the end of it, but rather a phased exit really over the next, call it 18 ish months from here. Thank you. Our next question comes from Robert Mosko of TD Cohen. Your line is now open, please proceed.

Thank you.

Our next question comes from Robert Moskow of TD Cohen.

Your line is now open. Please go ahead.

Robert Mosko: Thank you. Good morning. Hey Robert, good morning. Hi there morning.

Hi, Thank you good morning, Hey, Robert.

Good morning.

Good morning.

Gary H. Pilnick: Hey, you know, with all the discussion about revenue growth management and, you know, with a mixed improvement through premiumization, I could imagine that it's not just you, but your competitors, too, using that strategy. Is it likely that this will lead to, kind of, a low single-digit volume decline for the category for the next few years? And maybe that's okay because it's mixed positive, and it's margin positive.

Hey.

With all the discussion about revenue growth management.

And.

Mix improvement through premium innovation.

I could it's not just you. It's also your competitors to us.

Using that strategy.

Is it likely that this will lead to.

Kind of like a low single digit volume decline for the category for the next few years and maybe that's okay, because it with mix positive and it's margin positive.

Gary H. Pilnick: Is that a scenario that you have thought through as you go through your supply chain revitalization planning? And is it fair to say that that's contemplated as a possibility in your margin targets as you go forward? It's a fair question, Robert.

Is that a scenario that you have.

Through as you go through your supply chain revitalization planning.

And.

Okay.

Is it fair to say that.

Thats contemplated that as a possibility in your margin targets as you go forward.

Gary H. Pilnick: The way we look at it is, we talked about price realization, you identified the different ways we're going about it, and there are just certain outcomes that come from those activities. There are outcomes that come from a bunch of other activities we have as well. But yes, we have taken into consideration what that impact would be, how that impacts our supply chain, how that impacts our business. It's all baked into our overall plan. So yeah, we certainly did consider that as we planned the business going forward. All right. Thank you. Thank you. As a reminder, if you'd like to ask a question, that's star 1 on your telephone keypad. Our next question comes from Rob Dickerson of Jeffreys. Rob, your line is now open. Please go ahead. Great, thanks so much. Good morning, everyone.

It's a fair question Robert the way, we look at it is.

When we talk about price realization you identified the different ways, we're going about it and there are just certain outcomes that come from those activities theres outcomes that come from a bunch of other activities, we have as well, but yes, we have taken into consideration what that impact would be how that impacts our supply chain, how that impacts our business, it's all baked into our <unk>.

Overall plan. So yes, we certainly did consider that as we plan the business going forward.

Okay.

Alright, thank you.

Okay.

Thanks, Rob.

As a reminder, if you'd like to ask a question Thats star one on your telephone keypad.

Our next question comes from Rob Dickerson of Jefferies.

Your line is now open. Please go ahead.

Great. Thanks, so much good morning, everyone.

Yes.

Rob Dickerson: You know, look, given there have been a lot of questions around one singular category, fairly comprehensive, I just wanted to touch quickly on some of the below the line items on guidance. Like, I realize kind of what the net debt level is. You're at 23, but clearly, there were incremental capital needs for the supply chain improvements that you've been speaking about since investor day. So, maybe if you could just provide. Gary Pilnick, Matthew Smith, WK Kellogg, Gary Pilnick, Matthew Smith, WK Kellogg, Gary, Hey, Rob. We're not going to give it this time any further direction on supply chain modernization beyond what we've already given.

Given there have been a lot of questions around more similar category fairly comprehensive I just wanted to touch quickly on to the <unk>.

<unk> line items.

Guidance.

I realize its kind of what the net debt level is year end 'twenty three.

But clearly right there were incremental.

Capital raised needs for the supply chain improvements that you've been speaking about since the Investor day. So maybe if you could provide.

Any color at what potentially those needs could be at least in 'twenty four.

And then also I guess.

No.

Using some rational interest rate assumption, what what could that be incrementally relative to the guide on owned interest.

Hey, Rob.

We're not going to give at this time any further direction on our supply chain modernization beyond what we've given as I said in the prepared remarks, we will come back later this year with what that will mean for 2024, and what that will mean beyond <unk> and the absolutes and everything else. So we'll come back with that later this year.

Dave McKinstry: As I said in the prepared remarks, we'll come back later this year with what that will mean for 2024 and what that will mean beyond and in the absolutes and everything else. So we'll come back with that later this year. All right. And then I guess just DNA. DNA was lower than you've been speaking about or speaking to. Maybe just kind of why the change?

Alright.

And then I guess, just DNA DNA was lower than you've been speaking about we're speaking to.

Maybe just kind of why the change is that just kind of a.

Dave McKinstry: Is that just kind of a, you know, push forward in some of the timing? Yeah, exactly, Rob. I think your character there is correct.

Push forward in some of the timing.

Yes, exactly Rob I think you are characteristic there is correct. So if you think about Q4 of 2023, we had about $17 million.

Dave McKinstry: So if you think about Q4 of 2023, we had about 17 million DNA samples in our press release this morning, 75 to 85 million for next year for the full year. And really, the driver of that is back to that $80 million. And I mentioned the majority of that is, you know, the over half of it will be on CapEx on the $80 million. As we stand up, that will move into the depreciation line. And that's what leads to that. You know, I'd call it a slight increase year on year from current runs.

DNA, we had in our press release this morning $75 million to $85 million for next year for the full year.

And really the driver of that is back to that $80 million.

Mentioned, the majority of that or.

Over half of it will be on Capex on the $80 million as we stand up that will move into the depreciation line and Thats what leads to that.

Call it.

Slight increase year on year from current run rates.

Gary H. Pilnick: Thank you. Out of time, we currently have no further questions, so I'll hand you over to CEO Gary Pilnick for any further remarks. We'd like to thank all of you for joining our call today, this being the very first call of our very first quarter that we have had as an independent company. I hope you can hear the confidence we have in our business. We look forward to sharing our Q1 results with you in May. Thank you very much for joining us. Thank you for joining today's call. You may now disconnect your lines, www. GoldmanTopRecipes.com

Thank you Tom.

We currently have a nice other questions. So I'll come back to CEO, Gary <unk> for any further about.

We'd like to thank all of you for joining our call today. This being the very first call of our very first quarter that we have as an independent company I Hope you can hear the confidence we have in our business. We look forward to sharing our Q1 results with you in may Thanks, Roger Thank you very much for joining us.

Thank you for joining sites cool you may now disconnect your lines.

[music].

Okay.

Okay.