Q1 2024 Kellanova Co Earnings Call

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Operator: Good morning. Welcome to Kellanova's first quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise.

Good morning, welcome to Kevin Nova's first quarter 2024 earnings call all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session with publishing analysts at this time I would like to turn the call over to John Renwick, Vice President of Investor Relations.

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

John P. Renwick: And corporate planning for Kevin Knight that Mr. Renwick, you may begin your conference call.

John P. Renwick: Thank you, operator. Good morning, everyone.

John P. Renwick: Thank you operator, good morning, everyone and thank you for joining us today for a review of our first quarter results as well as an update on our outlook for 2024 I'm joined this morning by Steve <unk>, Our chairman President and Chief Executive Officer.

John P. Renwick: And Amit Banotti, our vice Chairman and Chief Financial Officer.

John P. Renwick: And thank you for joining us today for a review of our first quarter results, as well as an update on our outlook for 2024. I'm joined this morning by Steve Cahillane, our Chairman, President, and Chief Executive Officer, and Amit Banati, our Vice Chairman and Chief Financial Officer. Slide number three shows our forward-looking statements disclaimer. As you are aware, certain statements made today, such as projections for Kellanova's future performance, are forward-looking statements.

John P. Renwick: Slide number three shows our forward looking statements disclaimer as you are aware certain statements made today such as projections for <unk> future performance are forward looking statements.

John P. Renwick: Actual results could be materially different from those projected. For further information concerning factors that could cause these results to differ, please refer to the third slide of this presentation, as well as to our public SEC filing. A recording of today's webcast and supporting documents will be archived for at least 90 days on the investor page of www.kellanova.com. As always, when referring to our results and outlook, unless otherwise noted, we will be referring to them on an organic basis for net sales and on a currency-neutral adjusted basis for operating profit and earnings per share.

John P. Renwick: Actual results could be materially different from those projected for further information concerning factors that could cause these results to differ please refer to the third slide of this presentation as well as to our public SEC filings.

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

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

John P. Renwick: Also, remember that our 2023 results have been recast to treat the spun-off W.K. Kellogg Co. as a discontinued operation in accordance with applicable accounting guidelines. Those recast statements can be found in our Q4 2023 Earnings Press Release from February 8th of this year. Now, I'll turn it over to Steve.

John P. Renwick: Also remember that our 2023 results have been recast to treat the spun off W. K Kellogg co as a discontinued operation in accordance with applicable accounting guidelines. Those recast statements can be found in our Q4 2023 earnings press release from February eight of this year.

John P. Renwick: And now I'll turn it over to Steve Thanks, John and good morning, everyone. Two quarters ago, we became Kevin over with a more focused and growth oriented portfolio, a refresh strategy more ambitious financial targets and the continued commitment to deliver long term value for our shareowners I am proud to say that we have continued to deliver solid results.

John P. Renwick: Over to Steve. Thanks, John. And good morning, everyone.

Steven A. Cahillane: Two quarters ago, we became Kellanova, with a more focused and growth-oriented portfolio, a refreshed strategy, more ambitious financial targets, and the continued commitment to deliver long-term value for our shareholders. I'm proud to say that we have continued to deliver solid results, even amidst challenging macro and industry conditions. Our first quarter was a very strong start to 2024, with better sales growth, profit margins, and cash flow than we had projected, and it was another quarter of on-algorithm performance year-on-year, in fact, at the upper end of our algorithm ranges.

Steve: Even amidst challenging macro and industry conditions, our first quarter was a very strong start to 2024 with better sales growth profit margins and cash flow than we had projected and it was another quarter of an algorithm performance year on year in fact at the upper end of our algorithm ranges. We are encouraged by the <unk>.

Steven A. Cahillane: We are encouraged by the early signs of headway we are making in the marketplace, including here in the United States, and we continue to deliver strong organic growth in emerging markets. Put it all together, and you can see why we were able to reaffirm our 2024 guidance today and with an increased level of confidence. But before we dive into the details of our financials and regional performance, let me remind you of a few important drivers of this performance. First is our strategy, differentiate, drive, and deliver, shown on slide number 6.

Steve: Early signs of headway, we are making in the marketplace, including here in the United States and we continued to deliver strong organic growth in emerging markets put it all together and you can see why we are able to reaffirm our 2024 guidance today and with an increased level of confidence, but before we dive into the details of our financials and regional.

Steve: <unk>, let me remind you of a few important drivers of this performance.

Steve: First is our strategy differentiate drive and deliver shown on slide number six each and every element of this strategy is being addressed and executed both to deliver our near term commitments, but also to build for a strong future. The strategy. Clearly has is further differentiating ourselves as a company driving the action.

Steven A. Cahillane: Each and every element of this strategy is being addressed and executed, both to deliver our near-term commitments but also to build for a strong future. The strategy clearly has us further differentiating ourselves as a company, driving the actions that deliver shareholder value. Then, of course, there is our global footprint, another area of differentiation for Kellanova, depicted on slide number seven.

Steve: <unk> that deliver shareowner value.

Steve: Then of course, there is our global footprint another area of differentiation for Kellen, Nova depicted on slide number seven.

Steven A. Cahillane: Our heavy international presence adds diversification and growth, both of which were once again on display in the latest quarter. And this footprint, with its growth orientation and diversification, will remain a key differentiator for years to come. All of this is driving differentiated results. Slide number 8 shows how our organic net sales growth has remained above our peer group median. Recently, we have benefited in part from our ability to raise prices significantly in markets where the currency has devalued sharply of late. But this is differentiated growth, differentiated from our peers, and differentiated from our past.

Steve: Our heavy international presence adds diversification and growth both of which were once again on display in the latest quarter.

Steve: And this footprint with its growth orientation and diversification will remain a key differentiator for years to come.

Steve: All of this is driving differentiated results.

Steve: Slide number eight shows how our organic net sales growth has remained above our peer group median recently, we have benefited in part from our ability to raise prices significantly in markets, where the currency has devalued sharply of late but it is differentiated growth differentiated from our peers and differentiated from our past.

Steven A. Cahillane: And it does reflect the benefits of our sharpened strategy and our more growth-oriented portfolio. Our portfolio is not only more growth-oriented today, but it is also more profitable. Slide number nine shows how our post-spin company's margins are higher than we were as Kellogg Company, even before the pandemic. So, as stated on slide number 10, we are again reaffirming our full year guidance, and we are doing so with increased confidence. This increased confidence comes from the over-delivery of our first quarter.

Steve: And it does reflect the benefits of our sharpened strategy and a more growth oriented portfolio.

Steve: Our portfolio is not only more growth oriented today, but it is also more profitable.

Steve: Slide number nine shows how our post spin companies margins are higher than we were as Kellogg company, even before the pandemic.

Steve: So as stated on slide number 10, we are again reaffirming our full year guidance and we are doing so with increased confidence. This increased confidence comes from the over delivery of our first quarter.

Steven A. Cahillane: It also stems from the fact that a return to full commercial activity is gaining traction, resulting in sequential improvement in key in-market metrics. A good example is the U.S., where we saw consumption volume and sales improve their trends in March and into April. Meanwhile, category-level elasticities are starting to moderate, which further supports our expectations for stabilizing volume. We continue to invest in our emerging markets businesses, an important source of our differentiated long-term growth.

Steve: It also stems from the fact that our return to full commercial activity is gaining traction resulting in sequential improvement in key end market metrics are. Good example is the U S, where we saw consumption volume and sales improve their trends in March and into April. Meanwhile, category level elasticities are starting.

Steve: Moderate which further supports our expectations for stabilizing volumes.

Steve: We continue to invest in our emerging markets businesses and important source of our differentiated long term growth and we are in the process of adding capacity for our biggest brand pringles in these emerging markets. We continue to restore and expand margins progressing ahead of our plan in this area and finally, we.

Steven A. Cahillane: And we are in the process of adding capacity for our biggest brand, Pringles, in these emerging markets. We continue to restore and expand margins, progressing ahead of our plan in this area. And finally, we continue to enhance our financial flexibility through increased free cash flow and a deleveraged balance sheet. Meanwhile, we also continue to focus on growing the right way, and slide number 11 provides just a few examples of our Better Days promise in action during the first quarter.

Steve: Continue to enhance our financial flexibility through increased free cash flow and a deleveraged balance sheet.

Steve: Meanwhile, we also continue to focus on growing the right way and slide number 11 provides just a few examples of our better days promise in action during the first quarter as always we had a heavy focus on addressing food insecurity worldwide, but we also know that doing the right thing is good for business.

Steven A. Cahillane: As always, we had a heavy focus on addressing food insecurity worldwide, but we also know that doing the right thing is good for business, and during the first quarter, we again partnered with customers and leveraged our brands as we supported the communities we serve. We also continue to be recognized for our good work. So now, I will turn it over to Amit, who will walk you through our financials before I come back and discuss each of our businesses in more detail. Thank you.

Steve: And during the first quarter, we again partnered with customers and leveraged our brands as we supported the communities. We serve we also continued to be recognized for our good work. So now let me turn it over to Amit who will walk you through our financials before I come back and discuss each of our businesses in more detail.

Amit Banati: Thank you, Steve, and hello, everyone. Slide 13 summarizes our key financial results for quarter one. As Steve said, we are pleased to report another quarter of on-algorithm results, and the fact that these results exceeded our expectations gives us even more confidence in our full year outlook. Our organic growth and net sales were toward the top end of our long-term target range, with much of this organic growth attributable to pricing to offset currency devaluation.

Amit Banati: Thank you, Steve and Hello, everyone.

Amit Banati: Slide number 13 summarizes our key financial results for quarter one.

Amit: As Steve said, we are pleased to report another quarter of on algorithm results and the fact that these results exceeded our expectations gives us even more confidence in our full year outlook.

Amit Banati: Our organic growth in net sales was towards the top end of our long term target range.

Amit Banati: With much of this organic growth attributable comprising two offset currency devaluation.

Amit Banati: But even outside of that, our sales and volume came in a little better than planned. On a currency neutral basis, our adjusted operating profit grew strongly year on year. If you normalize the year-ago recast base to also include the pass-through of transition services expenses, this year's growth would still be in the double digits on a currency neutral basis, and it was driven by a restoration of the gross profit margin that more than covered increased brand-building investment. Below the line items more or less offset each other, resulting in growth in earnings per share that was similar to the operating profit and a very good Meanwhile, Free Crash Pro is also off to a good start.

Amit Banati: But even outside of that our sales and volume came in a little better than planned.

Amit Banati: On a currency neutral basis, our adjusted operating profit grew strongly year on year.

Amit Banati: If you normalize the year ago Recall's base to also include the pass through of transition services expenses. This year on your growth would still be in the double digits on a currency neutral basis and it was driven by a restoration of gross profit margin that more than covered increased brand building investment.

Amit Banati: Below the line items more or less offset each other resulting in growth and earnings per share that was similar to the operating profit and a very good start to the yield.

Amit Banati: Meanwhile, free cash flow is also off to a good start.

Amit Banati: Slide number 14 walks you through the major components of our year-on-year net sales growth. As you can see, our 5% organic growth was primarily driven by price mix, which itself was led by revenue growth management actions taken over the past 12 months to cover what had been rising input cost inflation, as well as pricing actions taken more recently in Nigeria to cover currency devaluation. As expected, our overall prize mix growth decelerated sequentially again in Q1, and it should continue to do so as the year goes on. Volume declined due to elasticity impacts around the world.

Amit Banati: Slide number 14 walks you through the major components of our year on year net sales growth.

Amit Banati: As you can see a 5% organic growth was primarily driven by price mix, which itself was led by revenue growth management actions taken over the past 12 months to cover what had been rising input cost inflation as well as pricing actions taken more recently in Nigeria Lacaba currency devaluation.

Amit Banati: As expected overall price mix growth decelerated sequentially again in quarter, one and it should continue to do so as the yoga was on.

Amit Banati: Volume declined on elasticity impacts around the world.

Amit Banati: Subsequently, from quarter four, our overall volume decline was affected by Nigeria experiencing fewer accelerated orders than last quarter. However, in most of our other regions, we're encouraged by the pace of what we have always planned to be a gradual stabilization and recovery. Moving along the graph, the small impact from last year's divestiture of our Russia business will continue for one more quarter as the transaction anniversaries at the start of quarter three.

Amit Banati: Sequentially from quarter four our overall volume decline was affected by Nigeria experiencing less accelerated orders than last quarter.

Amit Banati: However, and most of our other regions. We're encouraged by the pace of what we have always planned to be a gradual stabilization and recovery.

Amit Banati: Moving along the graph the small impact from last year's divestiture of our Russia business will continue for one more quarter as the transaction anniversaries at the start of quarter three.

Amit Banati: Foreign Currency Translation Clipped Net Sales Growth By A Larger Than Expected 9 Percentage Points In Q1, Principally Reflecting The Nigerian Nairo. If exchange rates experienced during quarter one were to hold, the full year's currency impact would be around negative 7%. Now let's look at gross profit on slide number 15. As we've discussed previously, the discontinued operations accounting used to recast 2022 and the first three quarters of 2023 takes into account only the expenses associated with our transition services agreement and not the pass-through of those expenses to WK Kellogg Co. Year-on-year, this contributed about 110 basis points to our margin expansion during Q1. Currency devaluations affected our country mix, contributing a year-on-year margin benefit in Q1 of approximately 170 basis points.

Amit Banati: Foreign currency translation clipped net sales growth by a larger than expected nine percentage points in quarter, one principally reflecting the Nigerian naira.

Amit Banati: If exchange rates experienced during quarter, one were to hold the full year's currency impact would be around negative 7%.

Amit Banati: Now, let's look at gross profit on slide number 15, as we've discussed previously the discontinued operations accounting used to recast 2022, and the first three quarters of 2023 takes into account only the expenses associated with our transition services agreement and not the pass thru, although the expenses to W. Cake.

Amit Banati: Local.

Amit Banati: Year on year. This contributed about 110 basis points of our margin expansion during quarter one.

Amit Banati: Currency devaluations affected our country mix contributing a year on year margin benefit in quarter one.

Amit Banati: Approximately 170 basis points.

Amit Banati: But as you can see, even without these recast and country mix impacts, we continued a multi-quarter trend of increased gross profit dollars and improvement in our gross profit margin. Driving this margin recovery have been a number of factors, including the improved supply environment, a resumed higher level of productivity, and last year's revenue growth management actions against moderating input cost inflation. The fact that this gross margin restoration has continued to run ahead of pace gives us additional confidence in our full year outlook of more than 35%.

Amit Banati: But as you can see even without these recast and country mix impacts we continued a multi quarter trend of increased gross profit dollars and improvement in our gross profit margin.

Amit Banati: Driving this margin recovery have been a number of factors, including the improved supply environment, a resumed higher level of productivity and lost deals revenue growth management actions against moderating input cost inflation.

Amit Banati: The fact that this gross margin restoration has continued to run ahead of pace gives us additional confidence in our full year outlook of more than 35%.

Amit Banati: The same holds true for operating profit shown on slide 16. This was driven by our top-line growth and recovering gross profit margin, which were enough to fund advertising and consumer promotion that increased faster than net sales. The absence of TSA reimbursement from the year-ago recast base was a year-on-year impact of roughly $45 million at the operating profit line, which explains a little less than 150 basis points of the margin expansion. And the currency-related makeshift had the effect of adding less than 100 basis points of the margin expansion.

Amit Banati: The same holds true for operating profit shown.

Amit Banati: On slide number 16.

Amit Banati: This was driven by our topline growth and recovering gross profit margin, which was enough to fund advertising and consumer promotion that increased faster than net sales.

Amit Banati: The absence of DSA reimbursement from the year ago, Recall's base, while the year on year impact of roughly $45 million at the operating profit line, which explains a little less than 150 basis points of the margin expansion.

Amit Banati: And the currency related mix shift had the effect of adding less than 100 basis points of the margin expansion.

Amit Banati: Even if we exclude these two factors, we still continue to grow operating profit in dollars and in margin, and quite substantially. Like our gross profit, this operating profit performance was better than expected, another promising sign for the full year. This strong quarter one margin performance lends confidence to our outlook for an operating profit margin of over 14% for the full year. Moving down the P&L, we come to our earnings per share walk on slide number 17.

Amit Banati: Even if you exclude these two factors, we still continue to grow operating profit in dollars and in margin and quite substantially.

Amit Banati: Our gross profit this operating profit performance was better than expected another promising sign for the folio.

Amit Banati: This strong quarter, one margin performance lends confidence to our outlook for an operating profit margin of over 14% for the folio.

Amit Banati: Moving down the P&L, we come to our earnings per share walk on slide number 17.

Amit Banati: As you can see, all of our EPS growth in Q1 was attributable to our growth in operating profit, as below the line items offset each other. Interest expense increased meaningfully year-on-year, reflecting higher interest rates, but this was offset by a similar increase in other income, reflecting currency translation gains. As expected, our effective tax rate came in at about 22.6%.

Amit Banati: As you can see all of our EPS growth in quarter, one was attributable to our growth in operating profit as below the line items offset each other.

Amit Banati: Interest expense increased meaningfully year on year, reflecting higher interest rates.

Amit Banati: This was offset by a similar increase in other income reflecting currency translation gains.

Amit Banati: As expected our effective tax rate came in at about 22, 6%.

Amit Banati: Joint Venture Earnings and Minority Interests were collectively about a penny drag on EPS. Our average shares outstanding decreased modestly year on year, reflecting share buybacks that we accelerated into the previous quarter. Let's turn to slide number 18 and look at our free cash flow and net debt. We're off to a good start on free cash flow, even in what is normally a small quarter for this metric. Though some of this is timing-related, specifically the timing of a planned distribution from a post-retirement fund which is expected to be offset later in the year. Meanwhile, we've continued to pay down debt, even as we return sizable cash to shareholders, mostly through our divinities. Our debt leverage remains well below our targeted ratio of net debt to trailing EBITDA of three times.

Amit Banati: And joint venture earnings in minority interest were collectively about a penny drag on EPS.

Amit Banati: Our average shares outstanding decreased modestly year on year, reflecting share buybacks that we accelerated into the previous quarter.

Amit Banati: Let's turn to slide number 18, and look at our free cash flow and net debt were off to a good start on free cash flow even in what is normally a small quarter for this metric.

Amit Banati: So some of this is timing related specifically the timing of a planned distribution from a poster Diamond fund, which is expected to be offset later in deal.

Amit Banati: Meantime, we have continued to pay down debt, even as we returned sizable cash to shareowners, mostly through our dividend.

Amit Banati: Our debt leverage remains well below our targeted ratio of net debt to trailing EBITDA of three times.

Amit Banati: On slide number 19, you can see that we're making no changes to our 2024 financial guidance. For net sales, we continue to expect organic growth within our long-term targeted range, specifically calling for 3% growth or better in 2024. Outside of Nigeria, we still assume that price mix growth will moderate as we continue to lap prior actions, that industry-wide elasticities will fade gradually during the year, and that our return to full commercial activity will result in volume stabilization and improvement as the year progresses. The exception is Nigeria, where currency-influenced pricing actions have continued, and where we assume we will start to see meaningful elasticity impact on volume.

Amit Banati: On slide number 19, you can see that we're making no changes to our 2024 financial guidance.

Amit Banati: For net sales, we continue to expect organic growth within our long term targeted range, specifically, calling for 3% growth or better in 2024.

Amit Banati: Outside of Nigeria, we still assume that price mix growth will moderate as we continue to lap prior year actions that industrywide elasticities will fade gradually during the year and that a return to full commercial activity will result in volume stabilization and improvement as the year progresses.

Amit Banati: The exception is Nigeria, where currency influence pricing actions have continued and way we assume we will start to see meaningful elasticity impact on volume.

Amit Banati: Organic growth, of course, excludes currency translation, which, based on exchange rates we saw during Q1, would be a headwind of about 7% for the full year. For Adjusted Basis Operating Profit, we again reaffirm the range of $1.85 billion to $1.9 billion. This incorporates a worsened negative impact from currency translation, which, based on exchange rates experienced during Q1, would be about negative 2-3% for the full year

Amit Banati: Organic growth of course excludes currency translation, which based on exchange rates, we saw during quarter, one would be a headwind of about 7% for the folio.

Amit Banati: For adjusted basis operating profit, we again reaffirm the range of $1 85 billion to $1 9 billion.

Amit Banati: This incorporates a wasn't a negative impact from currency translation, which based on exchange rates experienced during quarter, one would be about negative 2% to 3% for the folio.

Amit Banati: This operating profit guidance still implies continued margin expansion as an improving gross profit margin more than offsets a strong increase in brand investment. In fact, we are taking advantage of our strong quarter one to increase our reinvestment in brands and capabilities. Adjusted basis earnings per share is still expected to be in the range of $3.55 to $3.65. Interest expense for the year now should be around $315 million versus the $310 million we signaled last quarter, and currency translation is running worse than previously expected.

Amit Banati: This operating profit guidance still implies continued margin expansion as an improving gross profit margin more than offset a strong increase in brand investment.

Amit Banati: In fact, we are taking advantage of our strong quarter, one to increase our investment in brands and capabilities.

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

Amit Banati: Interest expense for the year now should be around $315 million versus the $310 million, we signaled last quarter and currency translation is running worse than previously expected, while the other and other incomes favorable quarter. One brings up the full year, even as the remaining quarters are still expected to run at.

Amit Banati: On the other hand, other income favorable quarter one brings up the full year, even as the remaining quarters are still expected to run at around $15 million per quarter. We also estimate that our effective tax rate will come in below the 23% we previously guided, to something more like what we saw in quarter one, and the Collective Impact of Joint Venture Earnings and Minority Interest may continue to run at a similar rate as in Q1.

Amit Banati: 115 million per quarter.

Amit Banati: We also estimate that our effective tax rate will come in below the 23%. We previously guided to something more like what we saw in quarter, one and the collective impact of joint venture earnings and minority interest may continue to run at a similar rate as in quarter one.

Amit Banati: And we are reaffirming our outlook for free cash flow of approximately a billion dollars with year-on-year growth driven by operating profits and despite capital expenditure temporarily elevated as a percentage of sales for expanded Pringles capacity in emerging markets, as well as usual cash outlays related to our two network optimization projects. Our strong start to the year across all of these metrics gives us increased confidence in this guidance while still allowing some room for potential risks, such as further currency devaluations or disruptions in the Middle East, as well as the opportunity to add some investment behind brands and capabilities.

Amit Banati: And we are reaffirming outlook for free cash flow of approximately $1 billion.

Amit Banati: With year on year growth driven by operating profit.

Amit Banati: And despite capital expenditure temporarily elevated as a percentage of sales were expanded pringles capacity in emerging markets as well as usual cash outlays related to our two network optimization projects.

Amit Banati: Our strong start to the year across all of these metrics gives us increased confidence in this guidance, while still allowing some room for potential risks such as further currency devaluations are disruptions in the middle east as well as the opportunity to add some investment behind brands and capabilities.

Amit Banati: So, in summary, our financial position is solid. We kicked off 2024 with results in the first quarter that were ahead of plan. Our commercial activities are starting to be reflected in improving in-market performance, and our profit margins are recovering ahead of schedule. Plus, we continue to address our future margins and return on invested capital, making progress on network optimization projects. All of which gives us increased confidence in the full-year guidance we first provided last August and allows us to increase reinvestment.

Amit Banati: So in summary, our financial position is solid we kicked off 2024 with the results in the first quarter that will ahead of plan.

Amit Banati: Our commercial activities are starting to be reflected an improving end market performance and our profit margins are recovering ahead of pace.

Amit Banati: Plus we continue to address our future margins and return on invested capital, making progress on network optimization projects all of which gives us increased confidence in our full year guidance. We first provided last August and allows us to increase our investment.

Amit Banati: Our cash flow and balance sheet are giving us enhanced financial flexibility, and we continue to return cash to share owners, not only in the form of the opportunistic share buybacks we made late last year but also the increase in our dividend that we announced just last week. And with that, I now turn it back to Steve for a run-through of our businesses around the world.

Amit Banati: Our cash flow and balance sheet are giving us enhanced financial flexibility and we continue to return cash to shareowners not only in the form of the opportunistic share buybacks. We made late last year, but also the increase in our dividend that we announced just last week.

Amit Banati: And with that let me now turn it back to Steve for a run through of our businesses around the world. Thanks, Amit who will start with <unk> in North America, and slide number 22.

Steven A. Cahillane: around the world. Thanks, Amit.

Steven A. Cahillane: We'll start with Kellanova, North America, on slide 22. Our organic net sales were flat in the quarter against our toughest comparison of the year. As expected, price mix growth is moderating as we lap last year's revenue growth management actions and last year's relative lack of merchandising activity. Industry-wide elasticities continue to pressure volume in the quarter, but it is important to note that we again realize sequential moderation in these volume decline

Steve: Our organic net sales were flat in the quarter against our toughest comparison of the year as expected price mix growth is moderating as we lap last year's revenue growth management actions and last year's relative lack of merchandising activity.

Steve: Industry wide elasticity has continued to pressure volume in the quarter, but it is important to note that we again realized sequential moderation in these volume declines and we expect this to continue as our increased commercial activity combined with expected diminishing of elasticities and our categories North America's operating profit increased <unk>.

Steven A. Cahillane: And we expect this to continue as our increased commercial activity combines with the expected diminishing of elasticities in our category. North America's operating profit increased substantially as margins continue to be restored. However, half of this year-on-year profit growth can be explained by the year-earlier recast figures not incorporating the pass-through of transition service expenses.

Amit Banati: Abstention <unk> as margins continue to be restored half of this year on year profit growth can be explained by the year earlier recast figures not incorporating the pass through of transition service expenses. The other half of this growth was driven by productivity initiatives and year on year improvements in service levels and logistics. So in spite of sort.

Steven A. Cahillane: The other half of this growth was driven by productivity initiatives and year-on-year improvements in service levels and logistics. Hence, in spite of soft category demand, North America again delivered financially. Slide number 23 shows how both our snacks and our frozen businesses experienced strong year-earlier growth through the first half before beginning to experience the category-level rise in elasticities that became more pronounced in the second half last year. Hence, being flattish in quarter one was expected for both businesses.

Amit Banati: Category demand in North America again delivered financially.

Amit Banati: Slide number 23 shows how both our snacks and frozen businesses lapped strong year earlier growth through the first half before beginning to lap the category level rise and elasticities that became more pronounced in the second half last year hence.

Amit Banati: Hence being flattish in quarter, one was expected for both businesses Encouragingly, our U S categories in market in quarter, one showed moderating volume declines as the elasticities began to moderate Meanwhile, our ramped up commercial activity is starting to improve our share performance as we had planned while we returned.

Steven A. Cahillane: Encouragingly, our U.S. categories in market in quarter one showed moderating volume declines as elasticities began to moderate. Meanwhile, our ramped-up commercial activity is starting to improve our share performance as we had planned. While we returned to merchandising in the second half of last year, quality display activity requires lead time, and we are now starting to see this quality activity with increasing retailer acceptance as we have refined our price points, pack sizes, and merchandising periods and events.

Amit Banati: Merchandising in the second half last year quality display activity requires lead time, and we are now starting to realize this quality activity with increasing retailer acceptance as we have refined our price points pack sizes and merchandising periods and events.

Steven A. Cahillane: Slide number 24 shows this improvement in two of our most important categories. In both crackers and salty snacks, you can see our upward trajectory in consumption sales and volume, particularly when compared to their respective categories. In salty snacks, Pringles picked up share in March, and in crackers, our declines are narrowing rapidly thanks to increased marketing for Cheez-It and share gains by Club and Toasty. The same is true in our other categories.

Amit Banati: Slide number 24 shows this improvement in two of our most important categories in both crackers and salty snacks, you can see our upward trajectory in consumption sales and volume, particularly when compared to their respective categories.

Amit Banati: In salty snacks Pringles picked up share in March and in crackers are declines are narrowing rapidly thanks to increasing merchandising for cheez, it and share gains by club and toasted.

Amit Banati: The same is true in our other categories. We gained share in portable wholesome snacks in the first quarter led by pop Tarts <unk> started to narrow its share losses in March on meaningful gains in distribution and Morningstar farms continues to pick up share. So we are gaining traction and we have more building blocks taking shape in the second quarter.

Steven A. Cahillane: We gained share in Portable Wholesome Snacks in the first quarter, led by Pop-Tarts. Eggo started to narrow its share losses in March on meaningful gains in distribution, and Morningstar Farms continues to pick up share. So we are gaining traction, and we have more building blocks taking shape in the second quarter when we pick up distribution on shelf resets and innovation launches, all supported by increased brand investment and merchandising activity. And that's on top of likely easing of elasticities, as last year's SNAP and other government allotments anniversary.

Amit Banati: When we pick up distribution on shelf resets and innovation launches all supported by increased brand investment and merchandising activity and thats on top of likely easing of elasticities as last years snap and other government allotments anniversary. So we fully expect to sustain this improvement in consumption volume and share performed.

Steven A. Cahillane: So we fully expect to sustain this improvement in consumption volume and share performance in the second quarter and through the second half. As indicated on slide number 25, there is no change in our expectations for North America, only increased confidence. Our increased innovation is beginning to hit the shelves now, and our brand building and merchandising have increased and are of higher quality. Best of all, we're already seeing this activity start to bear fruit in the marketplace.

Amit Banati: In the second quarter and through the second half.

Amit Banati: As indicated on slide number 25, there is no change in our expectations for North America, only increased confidence or increased innovation is beginning to hit the shelves now and our brand building and merchandising have increased and are of higher quality best of all we're already seeing this activity start to bear fruit in the marketplace.

Steven A. Cahillane: We expect our volume performance in this region will continue to improve as a result. Meanwhile, our margins continue to recover ahead of schedule, and we are seeing early evidence of the post-spinoff benefits of a more focused and agile organization. And I'm just back from the Los Angeles premiere of Jerry Seinfeld's new Netflix movie, Unfrosted, which I can tell you is absolutely hilarious. It's a farcical take on the launch of our beloved Pop-Tarts. Only the most iconic brands merit a star-studded movie, so be sure to watch its release tomorrow night on Netflix.

Amit Banati: We expect our volume performance in this region will continue to improve as a result means.

Amit Banati: Meantime, our margins continued to recover ahead of pace and we are seeing early evidence of the post spinoff benefits of a more focused and agile organization.

Amit Banati: And I'm just back from the Los Angeles premiere of Jerry Seinfeld's, New Netflix movie on Frosted, which I can tell you is absolutely hilarious. It's a farcical take on the launch of our beloved pop tarts only the most iconic brands Merit a star studded movie so be sure to watch its release Tomorrow night on Netflix.

Steven A. Cahillane: Now let's turn to Kellanova, Europe, and slide number 26. This region sustained good net sales growth, growing organically by 3% in the first quarter, even as it took prior year revenue growth management action. Importantly, we realized a modest sequential improvement in volume performance. Even excluding favorable currency translation, Europe's adjusted basis operating profit grew by 4% year-on-year despite last year's mid-year divestiture of Russia. Profit margins continue to recover nicely in this business, even with significant boosts in brand building investment.

Speaker Change: Now, let's turn to Kevin over Europe, and Slide number 26. This region sustained good net sales growth growing organically by 3% in the first quarter, even as it lapped prior year revenue growth management actions importantly, we realized a modest sequential improvement in volume performance, even excluding favorable currency translation.

Kevin Knight: <unk> Europes adjusted basis operating profit grew by 4% year on year, Despite last year's midyear divestiture of Russia.

Kevin Knight: Profit margins continue to recover nicely in this business, even with significant boost in brand building investment.

Steven A. Cahillane: On slide number 27, you can see that snacks, which represent over half of our sales in Kellanova, Europe, continue to lead our growth in this region during the first quarter. Our snack net sales grew organically by 4% as they experienced double-digit growth and as we experienced trade inventory timing in certain markets, as well as softened demand in Israel, which is the lone Middle East market serviced out of Kellanova. In the market, we saw continued deceleration in retail sales growth for our primary categories due to moderating price increases and sustained elasticity.

Kevin Knight: On slide number 27, you can see that snacks, which represent over half of our sales and Kevin over Europe continued to lead our growth in this region during the first quarter.

Kevin Knight: Our snacks net sales grew organically by 4% as they lapped double digit growth and as we experienced trade inventory timing in certain markets as well as soften demand in Israel, which is the loan middle East market service that are killing over Europe.

Kevin Knight: End market, we saw continued deceleration in retail sales growth for our primary categories on moderating price increases and sustained elasticities.

Steven A. Cahillane: The Salty Snacks category is growing at low to mid-single-digit growth rates in developed markets while sustaining mid-teens growth in emerging markets like Poland and Romania. Impressively, Pringles gained share across most markets in the first quarter. In cereals, we remained on a trend of 1% organic net sales growth. We gained share in the growing UK cereal market but did see continued category slowing and shifts to private label in many markets in the region. Slide number 28 reviews the elements to watch for in Europe in 2024.

Kevin Knight: The salty snacks category is growing at low to mid single digit growth rates in developed markets, while sustaining mid teens growth in emerging markets like Poland, and Romania impressively Pringles has gained share across most markets in the first quarter in cereal. We remained on a trend of 1% organic net sales growth.

Kevin Knight: We gained share in the growing UK cereal market, but did see continued category slowing and shifts to private label in many markets in the region.

Kevin Knight: Slide number 28 reviews, the elements to watch for in Europe in 2020 for Pringles is poised to sustained momentum as we execute our biggest ever campaigns around football launches set of limited edition flavors and continue our paper can partnership with a major U K retailer.

Steven A. Cahillane: Pringles is poised to sustain momentum as we execute our biggest ever campaigns around football, launch a set of limited edition flavors, and continue our paper can partnership with a major UK retailer. All while we prepare for the launch of Cheez-It in the UK in the third quarter. In Serial, we're excited about the launch of Kellogg-sponsored football camps across the UK affiliated with prestigious professional clubs.

Kevin Knight: All while we prepare for the launch of Cheez it starting in the UK in the third quarter in cereal. We're excited about the launch of Kellogg's sponsored football camps across the UK affiliated with prestigious professional clubs were also enthusiastic about building momentum behind innovations like new charcoal corn flakes and <unk>.

Steven A. Cahillane: We're also enthusiastic about building momentum behind innovations like the new Choco Corn Flakes and Trezor Brownies. The result will be a 7th consecutive year of organic net sales growth for this region, even as we progress on plans for an optimization of our serial portfolio and, pending consultation, our manufacturing network. Now let's look at our emerging markets regions, starting with Latin America on slide 29. In the first quarter, Latin America's net sales increased by 5% organically.

Kevin Knight: <unk>.

Kevin Knight: The result will be a seventh consecutive year of organic net sales growth for this region, even as we progress on plans for an optimization of our cereal portfolio and pending consultation our manufacturing network.

Kevin Knight: Now, let's look at our emerging markets regions, starting with Latin America on slide number 29 and.

Kevin Knight: In the first quarter Latin America's net sales increased by 5% organically.

Steven A. Cahillane: Price Mixed Growth is moderating as expected as we lap prior year actions to offset high cost inflation. The good news is that volume declines continue to moderate even in spite of the impact of our SKU rationalization and price pack architecture initiatives. Operating profit declined in the first quarter against strong 20% plus year-earlier growth.

Kevin Knight: Mixed growth is moderating as expected as we lap prior year actions to offset high cost inflation.

Kevin Knight: The good news is that volume declines continue to moderate even in spite of the impact of our SKU rationalization and price pack architecture initiatives.

Kevin Knight: Operating profit declined in the first quarter against strong, 20% plus a year earlier growth.

Steven A. Cahillane: Slide number 30 shows our Latin American net sales growth by category group. Organic net sales for our snacks business dipped year-on-year due to lower elasticities in Central America and the lapping of a strong year-ago quarter. However, in-market data indicate that category growth rates for salty snacks generally remain strong, and both Pringles and Cheez-It outpaced the category with double-digit consumption growth in Mexico and Brazil. Our serial net sales increased by a better than expected 10% in spite of lapping a similarly strong year-ago performance.

Kevin Knight: Slide number 30 shows our Latin American net sales growth by category group organic net sales for our snacks business dipped year on year due to elasticity is in Central America, and the lapping of a strong year ago quarter, However, and market data indicate that category growth rates for salty snacks generally remained strong and both pringles and.

Kevin Knight: Cheez it outpaced the category with double digit consumption growth in Mexico and Brazil.

Kevin Knight: Our cereal net sales increased by a better than expected, 10% in spite of lapping a similarly strong year ago performance.

Steven A. Cahillane: In the market, the serial category remains particularly robust in Mexico and Brazil, and we gain share in both of those markets. In fact, in Mexico, we recorded our highest share in the past decade through commercial activation of our core brands and expanded distribution. Slide number 31 reminds you of what to watch for in our Latin America business this year.

Kevin Knight: And market the cereal category remains, particularly robust in Mexico, and Brazil, and we gained share in both of those markets. In fact in Mexico, We recorded our highest share in the past decade through commercial activation of our core brands and expanded distribution.

Kevin Knight: Slide number 31 remind you of what to watch for in our Latin America business. This year, we expect a seventh straight year of organic net sales growth with growth in both snacks and cereal pringles growth should be sustained by innovation and distribution expansion and we also expect good growth in cereal margin should improve.

Steven A. Cahillane: We expect a seventh straight year of organic net sales growth, with growth in both snacks and cereal. Pringles growth should be sustained by innovation and distribution expansion, and we also expect good growth in cereal. Margins should improve, reflecting price pack architecture and other RGM initiatives, operating efficiencies, and the potential for moderating input cost pressures later this year. And we'll finish with our EMEA region, starting with slide number 32.

Kevin Knight: <unk> price pack architecture, and other <unk> initiatives operating efficiencies and the potential for moderating input cost pressures later this year.

Kevin Knight: And we will finish with our EMEA region, starting with slide number 32.

Steven A. Cahillane: Currency influence price increases drove substantially all of the region's 19% organic net sales growth in the quarter, and this organic growth was more than offset by adverse currency translation. Nevertheless, our business in Nigeria continues to execute well through this challenging currency environment. It is priced to keep up with parallel market currency rates and has operated very effectively.

Kevin Knight: Currency influence price increases drove substantially all of the regions, 19% organic net sales growth in the quarter and this organic growth was more than offset by adverse currency translation.

Kevin Knight: Nevertheless, our business in Nigeria continues to execute well through this challenging currency environment. It is price to keep up with parallel market currency rates and has operated very effectively up to now elasticities have remained manageable, though they are now on the rise given the significant pricing we've had to execute.

Steven A. Cahillane: Up to now, elasticities have remained manageable, though they are now on the rise given the significant pricing we have had to execute. Stepping back, these short-term challenges are dramatically outweighed by the long-term growth opportunity that this growing market and our advantaged assets provide us. Outside of Nigeria and our joint ventures with Talaram, our organic net sales declined slightly year on year as it lapped double-digit growth in the year ago quarter and as demand has been impacted by the heightened tensions in the Middle East.

Kevin Knight: Stepping back the short term challenges are dramatically outweighed by the long term growth opportunity that this growing market and our advantage assets provide us.

Kevin Knight: Outside of Nigeria, and our joint ventures, with Colorado, our organic net sales declined slightly year on year as it lapped double digit growth in the year ago quarter and as demand has been impacted by the heightened tensions in the middle East.

Steven A. Cahillane: On a currency neutral basis, Amiya's operating profit grew by 29%, though the extremely adverse currency translation brings this growth down to 2% in U.S. dollars. Excluding our joint ventures with Toleram, Amiya's operating profit still grew in the double digits year on year, both with and without currency translation, as margin recovery continues. On slide 33, the magnitude of currency-driven pricing in Nigeria is reflected in the accelerated organic net sales growth for noodles and others.

Kevin Knight: On a currency neutral basis EMEA operating profit grew by 29%, though the extremely adverse currency translation brings this growth down to 2% in U S dollars.

Kevin Knight: Excluding our joint ventures with tolerance Emea's operating profit still grew in the double digits year on year, both with and without currency translation as margin recovery continues.

Kevin Knight: On slide number 33, the magnitude of the currency driven pricing in Nigeria is reflected in the accelerated organic net sales growth for noodles and other pricing has had to continue and while volume has held up well. Some of this is related to timing of advance orders in recent quarters, there will likely negatively impact the second quarter and we will.

Steven A. Cahillane: Pricing has had to continue, and while volume has held up well, some of this is related to timing of advance orders in recent quarters that will likely negatively impact the second quarter, and we also are prudently projecting elasticities to finally rise in this business. Meanwhile, our Kellogg's noodles in South Africa and Egypt continue to grow rapidly, gaining distribution and share. In snacks, we left a notably strong year earlier quarter, and Pringles is feeling the impact of the conflict in the Middle East. Outside of that sub-region, however, our snack sales remained in solid growth, led by Pringles. In serial, our organic net sales slipped by less than 1% despite lapping notably strong growth in the prior year-ago quarter.

Kevin Knight: Also our prudently projecting elasticities to finally rise in this business.

Kevin Knight: Meanwhile, our Kellogg's noodles in South Africa, and Egypt continued to grow rapidly gaining distribution and share.

Kevin Knight: In snacks, we lapped a notably strong year earlier quarter and Pringles is feeling the impact of the conflict in the middle East outside of that sub region. However, our snack sales remained in solid growth led by Pringles and cereal our organic net sales slipped by less than 1%, despite lapping notably strong growth.

Kevin Knight: <unk> in the prior year ago quarter category Elasticities persist, though we are encouraged by our sales in Australia.

Steven A. Cahillane: Category elasticities persist, though we are encouraged by our sales in Australia. So for EMEA in 2024, we continue to watch for the elements listed on slide 34. This region looks to extend its enviable track record of consistently delivering organic growth. Noodles remain a growth business for us even as we contend with increased pricing and elasticities. We expect to sustain momentum in snacks, led by Pringles, though the Middle East situation may slow its overall growth in the region.

Kevin Knight: So for EMEA in 2024, we continued to watch for the elements listed on slide number 34. This region looks to extend its enviable track record of consistently delivering organic growth <unk>.

Kevin Knight: <unk> remains a growth business for us even as we contend with increased pricing and elasticities, we expect to sustain momentum in snacks led by Pringles, though the middle East situation may slow as overall growth in the region and we expect a sustained growth in cereal led by emerging markets and EMEA as restoration of profit margins.

Steven A. Cahillane: And we expect to sustain growth in cereals, led by emerging markets, and Amiya's restoration of profit margins should continue. So let me summarize with slide number 36, where two quarters past the spinoff, and already the benefits of a more focused, more growth-oriented, and more profitable portfolio are on display. We again delivered continued algorithm financial performance that tracked ahead of expectation. Our stronger commercial plans are taking hold, with improving in-market performance that is leading to improving volume performance, and this improvement will continue.

Kevin Knight: Should continue.

Speaker Change: So let me summarize with slide number 36.

Speaker Change: We're two quarters past, the spinoff and already the benefits of a more focused more growth oriented and more profitable portfolio are on display.

Speaker Change: We again delivered continued on algorithm financial performance. The tracked ahead of expectations are.

Speaker Change: Our stronger commercial plans are taking hold with improving end market performance that is leading to improving volume performance and this improvement will continue we continued to progress ahead of schedule and the restoration of profit margins. All of this enables us to reaffirm our 2024 guidance with an increased level of confidence.

Steven A. Cahillane: We continue to progress ahead of schedule in the restoration of profit margins. All of this enables us to reaffirm our 2024 guidance with an increased level of confidence. Meanwhile, we continue to take value-creating actions for the future, including, for example, adding much-needed emerging market capacity for Pringles, expanding Cheez-It internationally, and optimizing our global manufacturing network. Simply put, we have the strategy, the portfolio, the footprint, and the financial flexibility to deliver results consistently, quarter after quarter, and create long-term value for our shareholders.

Speaker Change: While we continue to take value, creating actions for the future, including for example, adding much needed emerging market capacity for pringles, expanding cheez it internationally and optimizing our global manufacturing network simply put we have the strategy the portfolio the footprint and the financial flexibility to do.

Speaker Change: Deliver results consistently quarter after quarter and create long term value for our shareowners and as always the biggest reason for our confidence is the talent and energy of our Kellen over team who are working hard every day to deliver value for you, our shareowners and with that we'd be happy to take your questions.

Steven A. Cahillane: And, as always, the biggest reason for our confidence is the talent and energy of our Kellanova team, who are working hard every day to deliver value for you, our shareowners. And with that, we'd be happy to take your questions.

Operator: We will now begin the question and answer session with publishing analysts. Analysts may enter the queue by pressing the star key and the number one on their telephone keypad. As a courtesy to your colleagues, please limit yourself to one question. The first question today is from the line of Ken Goldman of J.P. Morgan.

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

Speaker Change: And so the queue by pressing the star key and the number one on that telephone keypad.

Speaker Change: CCR colleagues, please limit yourself to one question.

Speaker Change: Our first question today is from the line of gold sorry, Ken Goldman of Jpmorgan. Please go ahead.

Kenneth B. Goldman: Hi, good morning, everybody. Hi, just in scanner data, I know it doesn't cover everything, but, clearly, you're able to perform quite well anyway lately, but just noticing that, you know, as we've seen for a little while now, private label continues to gain share in both crackers and potato chips, maybe at a little faster rate than it does in most food categories. So I'm just curious as we maybe think about 2Q and 3Q with some of the maybe elasticity fading trends, as you mentioned, maybe some lapping of last year's SNAP reductions. How do we think about you as a category and private label in the context of that and maybe some of the competitive trends within that?

Kenneth B. Goldman: Hi, good morning, everybody.

Kenneth B. Goldman: Okay.

Speaker Change: In north.

Kenneth B. Goldman: Hi.

Kenneth B. Goldman: Just in scanner data I know it doesn't cover everything, but and clearly are able to perform quite well anyway lately, but just noticing that as.

Kenneth B. Goldman: We've seen it for a little while now private label continues to gain share in both crackers and potato chips, maybe at a little faster rate than they are in most food category. So I'm just curious as we maybe think about <unk> with some of the BB OS <unk> fading trends as you mentioned may be seen.

Kenneth B. Goldman: Lapping of last years snap reductions how do we think about you.

Kenneth B. Goldman: As a category and private label in the context of that and maybe some of the competitive trends within there.

Steven A. Cahillane: Yeah, thanks for the question, Ken. You know, we don't really see the same thing that you're talking about in terms of private label. It's been a little bumpy, to be honest with you, and if you look back at say 2019, all the way through this year, there have been no meaningful moves in private label in the categories that you mentioned. And if you look at PWS, you know, Portable Wholesome Snacks, there might be a little bit more movement there.

Speaker Change: Yes. Thanks for the question, Ken We don't we don't really see the same thing that you are.

Speaker Change: Talking about in terms of private label, it's been a little bumpy to be honest with you and if you look back to say 2019, all the way through this year. There is no meaningful moves in private label in the categories that you mentioned.

Speaker Change: And if you look at PWM portable wholesome snacks, there might be a little bit more movement, there, but I think it's really a story of not much to see there when you take all the noise out because you do have private label last year.

Steven A. Cahillane: But I think it's really a story of not much to see there when you take all the noise out. Because you do have private label last year, spring a little bit more due to supply disruptions and bottleneck shortages.

Speaker Change: Bring a little bit more due to supply disruptions bottleneck shortages. So theres. Some of that is just coming back to where it was I think equally there is in.

Speaker Change: In the non measured channels as you said growing faster and so you can always look at the syndicated data as.

Speaker Change: A complete proxy for our own topline performance because of that growth and the growth in the away from home channels as well which has been.

Steven A. Cahillane: So some of it's just coming back to where it was. I think equally, there is, in the non-measured channels, as you said, growing faster. And so you can't always look at the syndicated data as a complete proxy for our own top line performance because of that growth and the growth in the away from home channels as well, which has been, which has been very good. So I think not to be, I hope you don't take that as a dismissive comment. But I think there is not as much to see as you might, you know, really think as you really analyze the fulsomeness of the data.

Speaker Change: Has been very good.

Speaker Change: So I think not to be.

Speaker Change: Hope you don't take that as a dismissive comment, but I think it's not as much to see as you might really think as you really analyze the fulsome this of the data.

Steven A. Cahillane: No, it's dismissive of Nielsen, not me; I'll take it that way. But I'm curious if we can maybe broaden it out a little bit. And thank you for that. You know, just as you think about lapping the SNAP reductions, you know, what are your estimates, maybe forgetting, you know, what we're seeing in private label, just thinking about it more broadly, in terms of maybe the lower income or, you know, some of the consumers that are struggling a little bit, do you expect maybe to see a little bit of improvement, just more on a macro basis, as Yeah, we do, Ken. And

Speaker Change: No.

Speaker Change: Smith with Nielsen not me I'll take it that way.

Speaker Change: But I'm just curious if we can maybe broaden it out a little bit and thank you for that.

Speaker Change: Just as you think about lapping the snap reductions what are your estimates maybe forgetting what we're seeing in private label just thinking about it more broadly in terms of maybe the lower income or some of the consumers that are struggling a little bit do you expect maybe to see a little bit of improvement just more on a macro basis as we lap.

Speaker Change: Some of last year's trends.

Steven A. Cahillane: Yeah, we do, Ken, and you hit the nail on the head. The lower income consumers, as you know, are under a lot more pressure than the balance of the consumers. And that continues. We're probably, as we get in the back half of the year, going to be past the worst of that because of the SNAP benefits, because of the restoration of having to pay for student loans, because of the improving economic environment overall from an employment standpoint and from a wage standpoint. I think we've seen the last of it.

Speaker Change: Yes, we do Ken.

Speaker Change: You hit it right on the head the lower income consumers as you know.

Speaker Change: <unk> are under a lot more pressure than the balance of the consumers and that continues we're probably as we get into the back half of the year going to be passed the worst of that because of the snap benefits because of the restoration of having to pay.

Speaker Change: <unk>.

Speaker Change: <unk> loans.

Speaker Change: Because of the improving economic environment overall from an employment standpoint, and from a wage standpoint, I think we've seen the last of it. So we always forecasted elasticities to be the most challenging the first half of the year and to improve in the back half of the year for us we're actually seeing a better performance than that so if you look at the syndicated data.

Steven A. Cahillane: So we always forecast the elasticities to be the most challenging in the first half of the year and to improve in the second half of the year. But for us, we're actually seeing better performance than that. So if you look at the syndicated data, again, I dismissed it on one hand, but not entirely, you can see that our performance is improving, we're getting back to full mark merchandising activity, which we had, you know, said. So we're moving from really, you know, telling everybody what we're going to do to showing what we're doing.

Speaker Change: Again, I just missed it in one hand, but not entirely you can see that our performance is improving we're getting back to full merchandising activity, which we said so we're moving from really telling everybody what we're going to do to showing what we're doing and you actually see that in our improvement. So we feel much more confident in our volume.

Steven A. Cahillane: And you actually see that in our improvement. So we feel much more confident in our volume performance. I'm speaking about North America now, even into the second quarter, and certainly that we see that in the back half of the year. So overall category, I think, back half of the year improvement for us, even sooner than

Speaker Change: <unk> Im speaking about North America, now even into the second quarter and certainly that that we see that continuing into the back half of the year. So overall category I think back half of the year improvement for us even sooner than that.

Helpful. Thank you.

Max Andrew Stephen Gumport: Our next question today is from the line of Max Gumport, BNP Paribas. Please go ahead, your line is open.

Speaker Change: Our next question today is from the line of Mexico.

Mexico: <unk>. Please go ahead your line is open.

Max Andrew Stephen Gumport: Okay.

Max Andrew Stephen Gumport: Hey, thanks for the question. First, just on the TSA impact, I think we've got the moving pieces now, but it sounds like maybe it was 45 to 50. $1 million benefit on EBIT and then maybe, I believe the 35 of that was on the gross profit line. Do I have that right in terms of the size of the TSA? The Reimbursement Piece. Yeah. Thank you.

Mexico: Hey, Thanks for the question first just on the TSA impact.

Mexico: You've got the moving pieces now, but it sounds like maybe it was a 45 50.

Speaker Change: Million dollar benefit on.

Max Andrew Stephen Gumport: And then maybe.

Max Andrew Stephen Gumport: Okay.

Max Andrew Stephen Gumport: 35 of Atlas on the gross profit line right at that rate in terms of the.

Mexico: The TSA with <unk>.

Mexico: Investment piece.

Mexico: Yes.

Amit Banati: Yeah, I think you've got that right. You know, I think the TSA reimbursement was around 45 million. And you know, that split between gross profit and SG&A is

Speaker Change: Yeah, I think you've got that right I think the DSA reimbursement was around $45 million.

Amit Banati: Led between gross profit and SG&A is about right.

Amit Banati: and then how should I think, nevertheless, even if we include that Yeah, I think, you know, even if you exclude that we saw strong double-digit growth in our operating profit, you see a gross margin. Even if you exclude, you know, the TSA, as well as the Forex impact, our gross margins were up 190 basis points in the quarter.

Mexico: And then how should we think nevertheless, even if any portion of that.

Amit Banati: Yes, I think even if you exclude that we saw strong double digit growth in our operating profit you saw gross margin.

Amit Banati: Even if you exclude that.

Mexico: The DSA as well as the Forex impact our gross margins were up 190 basis points.

Amit Banati: In the quarter.

Amit Banati: I think, you know, from a go forward standpoint, we'd expect TSAs to continue to be in that range but start to ratchet down in quarter two. As I've mentioned previously, we are transitioning the distribution centers into WKKC. So that process is underway, and it's going really well. So its levels are high as we're doing the transition. As that transition happens through the course of 2024, you'll see some of the TSA costs move directly to WKKC. And so that'll start ratcheting down through the year. And of course, you know, in quarter four, you'll anniversary that.

Mexico: From a go forward standpoint, we'd expect DSA to continue.

Mexico: It'll be in that range, but starting to ratchet down in quarter two.

Mexico: As I've mentioned previously.

Mexico: We are transitioning the distribution centers into WK Casey so that process is underway, it's going really well. So levels are are high as we are doing the transition so as that transition happens through the course of 2024, you will see some of the TSA cost move directly to <unk>.

Amit Banati: And so that'll start ratcheting down through the year and of course in quarter four youll anniversary that so that's what's baked into the guidance.

Max Andrew Stephen Gumport: So that's what's built into the guide. Great, very helpful. And then Steve, you just touched on this, but over the last several months, you know, we've been hearing more and more commentary of a consumer, particularly a lower income consumer that is feeling stressed and, as a result, eating out less. And that's only become more clear in the last several days. Restaurant Earnings. I think what's not as clear as whether or not we're seeing this result in the shift to. I'm just curious what you're seeing on this front and where you think the volume could be going. Thanks very much.

Speaker Change: Great very helpful and then Steve you just.

Mexico: <unk> touched on this over the last several months, we've been hearing more and more commentary on the consumer particularly of lower income consumer that is feeling stressed.

Mexico: As a result eating out less and that's the only become more clear for the last several days.

Max Andrew Stephen Gumport: Restaurant earnings.

Max Andrew Stephen Gumport: Not as clear as whether or not we're seeing this resulted in a shift too.

Max Andrew Stephen Gumport: Food at home I'm, just curious what you're seeing on this front and where you think that the volume could be down. Thank you very much I'll leave it there.

Steven A. Cahillane: Yeah, I think, you're clearly seeing value-seeking behavior and discretionary income. The consumers under the most pressure from a discretionary income standpoint are eating out less, I think that's clear. And they are returning to the at-home channels, but they're still seeking value, even among that. So, you know, you see growth in, you know, different channels that, you know, better cater to, or, you know, really focus on the value-seeking consumer; you continue to see lower packs, you know, you know, seeking price points.

Max Andrew Stephen Gumport: Yes, I think youre, clearly seeing value seeking behavior and discretionary income.

Mexico: <unk> is under the most pressure from a discretionary income standpoint, or eating out west I think thats clear and they are returning to the at home channels, but they are still seeking value even among that so you'll see growth in.

Steven A. Cahillane: Different channels that better cater or.

Steven A. Cahillane: Really focus against the value seeking consumer you continue to see lower packs.

Steven A. Cahillane: And so we're trying more and more not to vacate those very attractive price points. But yeah, that's exactly what we're seeing. And as I said in the earlier comment, I think in the back half of the year, that pressure will start to abate.

Steven A. Cahillane: Seeking price points and so we're trying more and more not to vacate those very attractive price points.

Steven A. Cahillane: But yes, that's exactly what we're seeing and as I said in the earlier comment I think in the back half of the year that pressure will start to abate.

Max Andrew Stephen Gumport: Great, thanks very much.

Speaker Change: Great. Thanks very much.

Max Andrew Stephen Gumport: Okay.

Alexia Howard: Our next question today is from the line of Alexia Howard of Bernstein. Please go ahead.

Max Andrew Stephen Gumport: Our next question today is from the line of Alexia Howard of Bernstein. Please go ahead.

Alexia Howard: Okay.

Alexia Howard: Good morning, everyone.

Alexia Howard: Morning, Alexia.

Alexia Howard: Good morning.

Alexia Howard: Hi there. So I think you mentioned at the beginning that the first quarter was coming in a bit better than expected on both the top and the bottom line. I'm wondering, therefore, why there wouldn't be guidance raised at this point or whether maybe there are things on the table that are still highly uncertain. I mean, we just mentioned the consumer. Maybe you could just speak to what you see as the key uncertainties as we move through the next few quarters. Thank you.

Alexia Howard: Hi, there.

Alexia Howard: So I think you mentioned at the beginning that the first quarter at what's coming in a bit.

Alexia Howard: Lower than expected.

Alexia Howard: On both the top and bottom line.

Alexia Howard: I'm wondering why that wouldn't be a guidance raised at this point, whether maybe there are things.

Alexia Howard: He is on the table that is still highly uncertain I mean, we've just mentioned.

Alexia Howard: Maybe you could just speak to what you see as the key uncertainties as we move through the next few quarters. Thank you.

Steven A. Cahillane: Yeah, I think Alexia, you know, it really comes down to the simple fact it's only the first quarter, so there's always uncertainty with three quarters to remain, but it really gives us very strong confidence that we're going to deliver a very good year. And what I mean by that is it allows us to really think about the best levels of reinvestment that we can do, and I'll give you some examples of that. Root2Market in Latin America and EMEA continues to be really exciting for us. We're going to invest a little bit more in Root2Market.

Speaker Change: Yes, I think Alexia it really comes down to the simple fact is only the first quarter. So there's always uncertainty with three quarters to remain but it really gives us the very strong confidence that we're going to deliver a very good year and what I mean by that is it allows us to really think about the best levels of reinvestment that we can.

Steven A. Cahillane: And I'll give you some examples of that route to market in Latin America, and EMEA continues to be really exciting for us, we're going to invest a little bit more in route to market.

Steven A. Cahillane: Anything around digital transformation in artificial intelligence allows us to lean in more than we had planned we were already leaning in this year in our plans we can lean in even more on that and then Brandon, especially brand building I'll give you a realized example of that I talked about the past starts moving it really is an exceptional movie and.

Steven A. Cahillane: Everything around digital transformation and artificial intelligence allows us to lean in more than we had planned. We were already leaning in this year in our plans. We can lean in even more on that, and then brand building, especially brand building. I'll give you a real-life example of that.

Steven A. Cahillane: You know, I talked about the Pop-Tarts movie. It really is an exceptional movie, and you know, when a comedic genius and icon like Jerry Seinfeld makes a movie about your product, a full feature-length movie about your product with a star-studded cast, it gives you an opportunity. We didn't know about it, and we're leaning into it. We've got displays going up all over the place. We've got a special pack with Jerry's, you know, picture on it, and we've got a 90-second video shot by Jerry that's airing right now.

Steven A. Cahillane: When a comedic genius and icon like Jerry Seinfeld makes a movie about full feature length movie about your product with a star studded cast. It gives you an opportunity when we didn't know about it.

Steven A. Cahillane: And we're leaning into it we've got displays going up all over the place we've got a special pack with Jerry's picture on it and we've got a 92nd.

Steven A. Cahillane: Video shot by Jerry.

Steven A. Cahillane: <unk> right now none of that was in the budget and we were able to lean in in a meaningful way.

Steven A. Cahillane: None of that was in the budget, and we were able to lean in in a meaningful way to really accelerate the Pop-Tarts momentum, so we're in that type of position right now. So there's nothing looming on the horizon that's scaring us. It just allows us to really set up the year for an exceptional year.

Steven A. Cahillane: To really accelerate the pop tarts momentum. So we're in that type of position right now so theres nothing looming on the horizon that scaring us it just allows us to really.

Steven A. Cahillane: Set up the year for an exceptional performance.

Alexia Howard: Great. And can I just follow up?

Speaker Change: Great and can I just follow up your leverage is obviously low at the moment, you've got the transitional services agreement, that's going to be fading down.

Speaker Change: What's your appetite for doing a deal I know, there's a lot of moving pieces right now is it too soon to tell.

Speaker Change: To replace.

Speaker Change: The sales and EBIT locked with the spinoff that W. K Kellogg.

Speaker Change: Or are you actively looking at the moment and if so I presume that would be in snacking, but would it be domestically or internationally just curious.

Steven A. Cahillane: Your leverage is obviously low at the moment. You've got this transitional services agreement that's going to be fading away. What's your appetite for doing a deal? I know there are a lot of moving pieces right now. Is it too soon to try to replace [inaudible]

Alexia Howard: Yeah. So we like the health of our balance sheet without a doubt our net debt continues to go down our leverage ratios continue to go down. So we have the capacity to do something if it create shareowner value and we're always on the lookout for anything that does create shareowner vascular shareowner value So youre right.

Steven A. Cahillane: As we talked about being in snacking led powerhouse.

Steven A. Cahillane: 50% of our business is outside the U S. So we could do something domestically or outside we're not really looking to change to proactively change to be more international and more domestic we would look at the absolute.

Steven A. Cahillane: Yeah, so you know, we like the health of our balance sheet. Without a doubt, our net debt continues to go down, our leverage ratios continue to go down. So we have the capacity to do something if it creates shareholder value. And we're always on the lookout for anything that does create shareholder value. So you're right, Snacks is, you know, we talked about being a snacking-led powerhouse. 50% of our business is outside the US, so we could do something domestically or outside. We're not really looking to change to proactively change to be more international or more domestic. We would look at the absolute best deal out there.

Steven A. Cahillane: Best deal out there.

Steven A. Cahillane: And we have the capacity to do it equally we're very excited about our organic opportunities, which I just mentioned pop tarts cheez. It internationally continues to be.

Steven A. Cahillane: A priority for us, adding pringles capacity is very much part of our capital plan. This year building two new factories, one in Latin America and.

Steven A. Cahillane: In Asia. So we've got good uses for our capital with high Rois, but M&A could.

Steven A. Cahillane: And we have the capacity to do it. Equally, we're very excited about organic opportunities, such as the Pop-Tarts, but Cheez-It international continues to be a priority for us. Adding Pringles capacity is very much a part of our capital plan this year, building two new factories, one in Latin America and one in Asia. So we've got good uses for our capital with high ROIs, but M&A could factor into that as well.

Steven A. Cahillane: Factored into that as well.

Steven A. Cahillane: Okay.

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

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

Thomas Hinsdale Palmer: Our next question today is from the line of Tom Palmer of City. Please go ahead; your line is open.

Alexia Howard: Our next question today is from the line of Tom Palmer of Citi. Please go ahead. Your line is open.

Thomas Hinsdale Palmer: Good morning. Thanks for the question.

Thomas Hinsdale Palmer: Good morning, Thanks for the question.

Thomas Hinsdale Palmer: Wanted to just try to bridge the profit improvement we saw in North America, I think even excluding the TSA contribution that you noted.

Thomas Hinsdale Palmer: We'd be looking at almost a 20% increase in operating profit relative to last year's adjusted number.

Amit Banati: I wanted to just try to bridge the profit improvement we saw in North America. I think even excluding the TSA contribution that you noted, we'd be looking at almost a 20% increase in operating profit relative to last year's adjusted number. Clearly, the positive pricing would seem to have offset the volume decline, but just wondering on other items, it does seem like investments were stepped up, but the cost environment maybe is a bit more favorable, and then kind of how that cost environment progresses as we think about subsequent quarters. Thanks.

Thomas Hinsdale Palmer: Yes, clearly the positive pricing, we seem to have offset the volume decline, but just wondering on other items. It does seem like investments were stepped up but the cost environment, maybe is a bit more favorable and then kind of how does that cost environment progressed as we think about subsequent quarters. Thanks.

Amit Banati: Yeah, I think, you know, a very strong performance in our North America business this quarter. So, very pleased with that.

Speaker Change: Yes, I think very strong performance in our North America business. This quarter. So very pleased with that I think it's all of the factors that you mentioned so it's the benefit of the revenue.

Amit Banati: I think, you know, it's all the factors that you mentioned, you know, so it's the benefit of the revenue, you know, growth of actions that we took last year. You know, it's a moderating cost environment. So we're seeing that play out. I think this quarter the supply chain performed well. And, you know, from a lapping standpoint, this was the biggest lap due to the shortages and bottlenecks. So, you know, those were kind of some of the drivers.

Amit Banati: Growth.

Amit Banati: All actions that we took last year.

Amit Banati: A moderating cost environment, so we're seeing that play out.

Amit Banati: I think this quarter the supply chain performed well and from a lapping standpoint.

Amit Banati: This was the biggest lap from the shortages and bottlenecks.

Amit Banati: Those are kind of some of the drivers will continue to.

Amit Banati: We continue to expect to see, you know, strong profit performance, both gross and operating, through the year, probably not at the pace we saw in quarter one because, you know, with lapping, the bulk of the shortages and bottlenecks we encountered, that was predominantly in quarter one. And then, you know, some of the mechanical elements, like the currency impact, were most pronounced in quarter one; that'll probably moderate in the rest of the year. I mentioned earlier that, you know, we lapped the anniversary of the TSA reimbursements in quarter four. So, you know, we'd expect continued good performance through the year, but not as pronounced as we saw in quarter one.

Amit Banati: We continue to expect to see.

Amit Banati: Strong profit profit performance, both gross and operating a truly youre probably not at the pace.

Amit Banati: We saw in quarter, one because we are lapping a bulk of the shortages and bottlenecks, we lap that was predominantly in quarter one.

Amit Banati: And then some of the mechanical elements like the currency impact was most pronounced in quarter, one that will probably moderate in the rest of the deal I mentioned earlier that we lap the anniversary of the DSA reimbursements and portable so we'd expect continued good performance through the year, but not as pronounced as we saw in quarter one.

Amit Banati: Yes.

Thomas Hinsdale Palmer: Okay, thank you. And then a quarter ago, you guided for all operating segments to report organic sales growth and constant currency operating profit growth in line with their long-term algorithms. Is this still the case? Are there any shifts here just given the strong start to the year?

Speaker Change: Okay. Thank you and then a quarter ago, you guided for all operating segments to report organic sales growth.

Thomas Hinsdale Palmer: In constant currency operating profit growth in line with their long term algorithms is this still the case are there any shifts here just given the strong start to the year.

Amit Banati: I'd say broadly in line with what we got. So, no, no changes.

Speaker Change: I would say broadly in line with what we've got.

Amit Banati: So no no.

Amit Banati: I think it's come in slightly better than expected.

Amit Banati: Currency in Nigeria is obviously devalued more than we thought and the teams there are pricing to recover that.

Amit Banati: So some changes, but overall broadly I'd say in line with.

Amit Banati: In line with the long term algo that we had guided to.

Speaker Change: Okay. Thank you.

Amit Banati: Our next question today is from the line of Andrew resolved.

Amit Banati: Yes.

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

Andrew Lazar: I think, you know, it's coming slightly better than expected. The currency in Nigeria is obviously devalued more than we thought, and, you know, the teams there are pricing to recover that. So, you know, some changes, but, overall, broadly, I'd say in line with, you know, are in line with the long-term algo that we are guided to.

Speaker Change: Great. Thanks, so much.

Andrew Lazar: A lot of discussion on <unk>.

Andrew Lazar: With America profitability, obviously coming in far better than most of us have modeled even.

Andrew Lazar: Our next question today is from the line of Andrew Lazar of Barclays. Your line is open, please go ahead.

Amit Banati: Great, thanks so much. Amit, a lot of discussion on North American profitability obviously coming in and far better than most of us had modeled, even you know adjusting for some of the one-off nature of things, but I assume there was actually also some element of negative fixed cost absorption or in there due to the fact that volume in North America has continued to be on the weaker side. I guess how much of a headwind to gross margin might that have been in North America or to overall Kellanova, which I would assume would also start to moderate or taper off as volume trends start to stabilize and or even improve in the back part of the year.

Andrew Lazar: Adjusting for some of the one off nature of things, but I assume there was actually also some element of negative fixed cost absorption or in there due to the fact that volume in North America has continued to be on the weaker side.

Amit Banati: How much of a headwind to gross margin might have been in north America or or the overall kellan over that I would assume would.

Amit Banati: I would also start to moderate or taper off as volume trends start to stabilize or even improve in the back part of the year.

Amit Banati: Yeah, I think, Andrew, it was a headwind. But like I said, I think, you know, the improved supply chain performance more than offset that. So while the volume line was a bit of a headwind, you know, by far the biggest driver was, you know, the lapping of the improved supply chain performance and the improved service levels. And so I think, you know, that's kind of more than offset that. And of course, you know, we'd expect the volume leverage to start improving as the volume trend starts improving in the latter part of the year. You know, the benefit of the lapping of the bottlenecks will moderate, and some volume leverage would pick up. So that's kind of the shape of the year.

Amit Banati: Yes, I think Andrew it was a headwind.

Amit Banati: Like I said I think the improved supply chain performance.

Amit Banati: More than offset that.

Amit Banati: So while the volume line was a bit of a headwind.

Amit Banati: Sure.

Amit Banati: By far the biggest driver was the lapping of the.

Amit Banati: The improved supply chain performance to improve service levels.

Amit Banati: And so I think in all of that is kind of more than offset that.

Amit Banati: And of course, we would expect the volume leverage to start improving as the volume trends start improving.

Amit Banati: In the latter part of the year.

Amit Banati: The benefit of the lapping of the bottlenecks will moderate.

Amit Banati: Some volume leverage would pick up so thats kind of the shape of the deal.

Steven A. Cahillane: Okay, and then quickly, Steve, just, you know, we've heard a lot of discussion also in general about just, you know, consumers, maybe the lower income consumers, obviously reacting to just sort of absolute price points, right, being sort of where they are, as opposed to, you know, anything having to do with price gaps, you know, vis-a-vis private label or anything else. And sometimes there's an adjustment period here, in terms of consumers adjusting their sort of reference price points, you know, with what they may have equated with, you know, a product on promotion prior to the sort of the last two years of inflation, and whatnot.

Speaker Change: Okay, and then quickly Steve just we've heard a lot of discussion also in general about just.

Steven A. Cahillane: Consumers, maybe the lower income consumers, obviously reacting to just sort of absolute price points being sort of where they are as opposed to anything having to do with price gaps vis vis private label or anything else and sometimes there is an adjustment period here.

Steven A. Cahillane: In terms of consumers adjusting there sort of a reference price points with what they may have equated with.

Steve: Product on promotion prior to the sort of the last two years of inflation and whatnot I guess, where do you think the consumer is with respect to adjusting their sort of their reference price points do you think they are making some progress on that front.

Steven A. Cahillane: I guess, where do you think the consumer is with respect to, you know, adjusting their sort of reference price points? Do you think they're making some progress on that front? And maybe that's part of what plays into hopefully helping industry volumes in the back part of the year as well. I'm just curious about your thoughts on that. Thanks.

Steven A. Cahillane: And maybe that's part of what what plays into hopefully helping industry volumes in the back part of the year as well I'm just curious your thoughts on that thanks.

Steven A. Cahillane: Yeah, Andrew, I think he I think that's exactly right. You know, we talked in the last quarter and probably the last two quarters about those very reference price points and talked about, you know, the consumer will walk away after four or five trips and not just be able to accept that new reference price point. So I think we're there, or thereabouts, you know, probably the seventh or eighth inning, if you like. At the same time, companies like ours continue to also work on RGM initiatives. And, you know, it's not shrinking flation; it's, you know, making sure that you can hold your margin and hit a price point. And sometimes that means a smaller size.

Speaker Change: Yes, Andrew I think I think that's exactly right, we talked I think in the last quarter and probably the last two quarters about those very referenced price points and talking about the consumer will walk by four to five trips and not just be able to accept that new reference price point. So I think we're there.

Steven A. Cahillane: And so I think the combination of all of those things working together leads us to believe that the second half of the year is going to be an inflationary point for the consumer. And for us, as I said, I think we'll get there even faster than that because of what we're learning. Because, you know, we admittedly came back to merchandising activity, perhaps later than we otherwise would have, knowing what we know today.

Steven A. Cahillane: Or thereabouts, probably in the seventh or eighth inning. If you like at the same time companies like ours continue to also work our GM initiatives, it's not shrink <unk>, it's making sure that you can hold your margin and hit a price point and sometimes that means a smaller size and so I think the combination of all of them.

Steven A. Cahillane: Those things working together leads us to believe that the second half of the year is going to be the inflection point for the consumer and for US as I said I think we get there even faster than that because of what we're lapping because we admittedly came back to merchandising activity, perhaps later than we otherwise would have knowing what we know today, but the fact.

Steven A. Cahillane: But the fact of the matter is, you know, we are there now. We are merchandising more effectively, we've got more quality displays, we like our price points, we do like our price points and where they are with consumers. And so we see all that leading to a better second half of the year, although still, you know, not without pressure, you know, so I don't want to be pollyannish about it, the consumer is still under a good, good bit of pressure. But I do think that there is, you know, there is brightness on the horizon.

Steven A. Cahillane: The matter is we are there now we are merchandising more effectively.

Steven A. Cahillane: Got more quality displays we like our price points, we do like our price points and where they are with consumers and so we see all of that leading to a better back half of the year, although still not without pressure. So I don't want to be pollyannish about it the consumer is still under a good bit of pressure, but I do.

Steven A. Cahillane: We think that there is there is brightness on the horizon.

Speaker Change: Thank you.

Michael Lavery: The next question today is from the line of Michael Lavery of Hypersandler. Please go ahead.

Steven A. Cahillane: The next question today is from the line of Michael Lavery of Piper Sandler. Please go ahead.

Michael Lavery: Oh.

Michael Lavery: Thank you and good morning.

Michael Lavery: I just want to come back to the big picture outlook for the consumer, and we've touched a little bit already on possibly the food and away from home shift to food at home as a possible tailwind. I guess, you know, every company is looking for volume improvement in the second half. Even if you think about food away from home shifts, adding, and growing the pie, private label momentum is still strong. We hear over and over again about the pressured consumer; that lapping snap kind of puts an incremental negative in the rear view but doesn't replace it with any new boost.

Michael Lavery: Okay.

Michael Lavery: I just want to come back to the big picture outlook for the consumer and we've touched a little bit already on possibly the food away from home shift to food at home as a possible tailwind but.

Speaker Change: I guess.

Michael Lavery: Every company is looking for volume improvement in the second half.

Michael Lavery: Even if you think about food away from home shifts, adding growing the pie privately.

Michael Lavery: Private label momentum is still strong we hear over and over again about a pressured consumer.

Michael Lavery: Lapping snap kind of puts ink.

Michael Lavery: Incremental negative in the rear view, but it doesn't replace it with any new boost so.

Michael Lavery: I guess, where does all the volume come from? Do you expect private label share to reverse? Is it just that, you know, other competitors in the Brandon Space, we'll seed share it to Kellanova. How do we think about how that's meant to unfold?

Michael Lavery: I guess, where does all the volume coming from is it do you expect private label share to reverse.

Michael Lavery: Is it just that.

Michael Lavery: Other competitors in the.

Michael Lavery: Branded space, we'll cede share to.

Speaker Change: <unk>, how do we think about how thats meant to it to unfold.

Steven A. Cahillane: Yeah, so I think if you step back and look at everything, I don't think that there has been any volume destruction. Right, if there is a caloric reduction in the population, it is quite minimal. And, you know, a couple of quarters ago, everybody wanted to talk about the GLP one drugs. I think, you know, that's faded as well. So if you start with the premise that more or less the calories are the same, [inaudible] make sure that we're delighting our consumers all along the way because we think the volume potential is still very real and hasn't had any full diminishment, if you like.

Speaker Change: Yes, So I think if you step back and.

Steven A. Cahillane: We look at everything I don't think that there has been volume destruction right. If there is a caloric reduction in the population.

Steven A. Cahillane: It is quite minimal.

Steven A. Cahillane: And.

Steven A. Cahillane: A couple of quarters ago, everybody wanted to talk about the <unk> one drugs I think that's faded as well. So if you start with the premise that more or less the caloric.

Steven A. Cahillane: The state remains the same than the volume go somewhere and I think those with the best full commercial activation with brands that matter.

Steven A. Cahillane: Two consumers are going to be the ultimate winners and that's why we're excited about where we are in terms of our ability to reinvest.

Steven A. Cahillane: And continue to step up our investment against the consumer.

Steven A. Cahillane: And against household penetration.

Steven A. Cahillane: And making sure that we're delighting our consumers all along the way because we think the volume potential is still very real and Hasnt had any.

Steven A. Cahillane: Any full diminishment, if you like.

Michael Lavery: And you've touched in the past on potential consumer adjustments in terms of things like waste reduction, you know, just using more leftovers. Is that some of the behavior that might refer to prior norms? Or is that, you know, some of the things you're counting on as part of the

Steven A. Cahillane: And you've touched in the past on potential consumer adjustments in terms of things like waste reduction.

Michael Lavery: Just using more leftovers.

Michael Lavery: That some of the behavior that might revert to.

Michael Lavery: Prior norms.

Michael Lavery: Is that some of the things you are counting on as part of the change.

Steven A. Cahillane: Yeah, I think, you know, it's interesting because you all on this call, and we and all of our peers have been in search of where that volume is, right? And there are a lot of hypotheses. And I think the fact is, it's probably a lot of things that are hard to measure.

Speaker Change: Yes, I think.

Michael Lavery: Interesting because you all on this call and we and all of our peers.

Steven A. Cahillane: Had been in search of where that volume is right and theres been a lot of hypotheses and I think the fact is it's probably a lot of things that are hard to measure one is <unk>.

Steven A. Cahillane: Managing the household pantries, that's leftover is more creativity I think all of those things have been coming into play but they are now if you think about it there in the base right you can only work that pantries. So long the pantry is not an infinite supply of stuff in the corners, and so thats been worked but I think this new consumer behavior around.

Steven A. Cahillane: One is, you know, managing the household pantry, less leftovers, more creativity. I think all those things have been coming into play. But they're now, if you think about it, they're at the base, right? You can only work that pantry for so long; the pantry is not an infinite supply of, you know, stuff in the corners. And so that's been worked out. But I think this new consumer behavior around, you know, less food waste and more, you know, making sure that leftovers are really used, is probably a consumer behavior, as far as we can tell, that will remain.

Steven A. Cahillane: Round.

Steven A. Cahillane: Less food waste and more.

Steven A. Cahillane: Making sure that leftovers or really used is probably consumer behavior as far as we can tell that will remain but again, it's in the base and so I think theres a new normal if you like now as the economy improves if it does improve as discretionary income keeps growing faster than inflation, you'll probably you'll likely see a return to.

Steven A. Cahillane: But again, it's in the base. And so I think there's a normal, if you like. Now, as the economy improves, if it does improve, if discretionary income keeps growing faster than inflation, you'll probably, you'll likely see a return to, you know, kind of the pre-inflationary times as people become a little bit more comfortable. I think that would be a natural outcome. But right now, I think we see the continuation of that, of that behavior, recognizing that it's in the base.

Steven A. Cahillane: You kind of re inflationary times as people become a little bit more comfortable I think that would be a natural outcome, but right now I think we see the continuation of that.

Steven A. Cahillane: That behavior, recognizing that it's in the base.

Michael Lavery: And just a quick follow-up on LATAM, you called out the performance there being what it was, despite the skew rationalizations that you've had. Can you just give a sense of maybe the magnitude of what that was? And are there incrementally new ones we should be mindful of modeling ahead? Or is this closer to winding down?

Speaker Change: And just a quick follow up on Latam I mean, you called out the performance there being what it was despite the SKU rationalizations that you've had.

Michael Lavery: Can you just give a sense of maybe the magnitude of what that was and are there incrementally new ones. We should be mindful of modeling ahead or is this closer to winding down.

Steven A. Cahillane: I think it's largely behind us. And so, yeah, it's But overall, you know, we're seeing good momentum in our LATAM business, both in Mexico and in Brazil.

Michael Lavery: I think it is largely behind us.

Steven A. Cahillane: And so yes.

Steven A. Cahillane: Yes.

Steven A. Cahillane: But overall, we're seeing good momentum in our in our Latam business, both in Mexico as well as in Brazil.

Speaker Change: Okay. Thanks, so much.

David Palmer: Our next question today is from the line of David Palmer of Evercore ISI. Please go ahead.

Steven A. Cahillane: Our next question today is from the line of David Palmer of Evercore ISI. Please go ahead.

David Palmer: Thanks. Good morning.

David Palmer: Oh. Thanks, Good morning last last quarter, I think you've guided to 20 for the year North America.

Steven A. Cahillane: Last quarter, I think you got it to 20 for the year North America snacks, organic sales growth, low single digits. Is that still the thinking? And if so, how do you anticipate price versus volume this year for North America? Just looking at the last four weeks, and I know you highlighted the last four weeks. I don't know if that composition is how you're thinking things will play out, but it does look like price per unit is down low single digits with volume offsetting that, and I'm not sure how indicative that will be.

David Palmer: Snacks organic sales growth low single digits is that still the thinking.

Steven A. Cahillane: And if so how do you envision a price versus volume this year for North America.

Steven A. Cahillane: Just looking at the last four weeks and I know you highlighted for the last four weeks I don't know if that composition is how you're thinking things will play out but it does look like price per unit is down low single digits with volume offsetting that and I'm not sure how indicative that will be.

Steven A. Cahillane: Yeah, David, I think if you look at what's happened in the last, you know, 18 months, two years, there has been too much price and not enough volume, for obvious reasons. And now we're starting to see the reversal of that in North America. And as I mentioned several times in the call, now we're seeing better volume performance; you can see that in the latest published data. We're seeing a gradual recovery in that.

Steven A. Cahillane: Yes, David I think if you look at what's happened the last <unk>.

Steven A. Cahillane: 18 months, two years been too much product and not enough volume for obvious reasons and now we're seeing that we're starting to see is the reversal of that in North America and as I mentioned several times on the call now we're seeing a better volume performance you can see that in the latest published data we are seeing a gradual recovery in that and we are very confident in the.

Steven A. Cahillane: Back half of the year based on what we see in right now in terms of our volume performance. So we like the balance that we see returning to our business and we have a lot of optimism that thats going to continue.

Steven A. Cahillane: And we are very confident in the back half of the year, based on what we see in, you know, right now, in terms of our volume performance. So we like the balance that we see returning to our business, and we have a lot of optimism that that's going to happen.

Steven A. Cahillane: Okay.

David Palmer: So do you think this is going to be one where volume is even stronger than net sales in that division? Is that the kind of year where, because you're leaning in with high quality merchandising, that's going to lead to some net pricing per unit offset to the volume that you're going to get? Is that fair?

Speaker Change: So do you think this is going to be one where we may be see volume.

David Palmer: Even stronger than net sales in that division is that the kind of year, because youre leaning in with high quality merchandising.

David Palmer: Going to lead to some net pricing per unit offset to the volume that youre going to get is that fair.

Steven A. Cahillane: Yeah, I would just, I don't want to go too deep into individual regions and volume price mix beyond what we said. And that is, it's getting a lot better; the volume performance continues to get a lot better. For us, you know, the return to full merchandising activity, which we mentioned several times, is the real driver of that volume recovery. And we like what we see in terms of that balance. We like what we're seeing with the reinvestments in our brand. We like what we're seeing in terms of our share improvements in the marketplace, all those things combining to give us, you know, the confidence that we've been talking about.

Speaker Change: Yes, I would just I don't want to go too deep into individual regions and volume price mix beyond what we said and that is it's getting a lot better. The volume performance continues to get a lot better for us the returned to full merchandising activity, which we mentioned several times is the real driver of that volume recovery.

Steven A. Cahillane: And we like what we see in terms of that balance we like what we're seeing.

Steven A. Cahillane: With the Reinvestments in our brands, we like what we're seeing in terms of our share improvements in the marketplace all of those things combining to give us the confidence that we've been talking about.

David Palmer: is just a follow up on supply chain was a constraint for the old Kellogg's and Kellanova, perhaps more than most companies last year. And I know it helped keep you from doing some of the things you're doing now that you know, the growth spending and so on. But also, maybe on productivity initiatives, are there certain metrics you could just talk about just year over year where you were can be the shift on time and in full, but other metrics, including productivity quarter year over year in the quarter, that can give us a sense of how much the supply chain is a big helper.

Speaker Change: And just a follow up on supply chain was a constraint for the old Kellogg's and killing Oba.

David Palmer: Perhaps more than most companies last year.

David Palmer: Yeah.

David Palmer: Kept you from doing some of the things Youre doing now.

David Palmer: The growth spending.

David Palmer: But also maybe on productivity initiatives are there certain metrics you could just talk about just year over year, where you where it can be shipped on time and in full but other metrics, including productivity quarter year over year in the quarter that can give us a sense of how much the supply chain is a big helper. Thanks.

Steven A. Cahillane: David, I would just say,

Steven A. Cahillane: David, I would just say I wouldn't say that our supply chain was disadvantaged in the past. What we did say is we were perhaps more conservative than others in wanting to keep our supply fill rates at a very high level and therefore did not return to full merchandising commercial activation as some of our peers did. Our supply chain right now is performing at a very high level, like think about pre-pandemic high watermarks in terms of on time and full.

Speaker Change: David I would just say.

Speaker Change: I wouldn't say that our supply chain was disadvantaged in the past what we did say is we were perhaps more conservative than others and wanting to keep our supply fill rates at a very high level and therefore did not return to full merchandising commercial activation as some of our peers did.

Steven A. Cahillane: Our supply chain right now is performing at a very high level like think about pre pandemic.

Steven A. Cahillane: High Watermarks in terms of on time in full so that's where we are and Thats why we have the confidence in terms of productivity. We're back to the type of productivity initiatives that we were pre pandemic as well. So that's been very very positive we announced worldwide a couple of productivity initiatives.

Steven A. Cahillane: That's where we are, and that's why we have confidence. In terms of productivity, we're back to the type of productivity initiatives that we were pre-pandemic as well, so that's been very, very positive. We announced worldwide a couple of productivity initiatives that we talked about last quarter that are proceeding very, very well. We like where our supply chain is in North America, and we like where our supply chain is globally.

Steven A. Cahillane: That we talked about last quarter that our.

Steven A. Cahillane: Proceeding very very well and so we like where our supply chain is in North America, and we like where our supply chain is globally.

Speaker Change: Thank you.

Steve Powers: Our next question is from the line of Steve Powers of Deutsche Bank. Steve, your line is open. Please go ahead.

Steven A. Cahillane: Our next question is from the line of Steve Powers of Deutsche Bank. Steve. Your line is open. Please go ahead.

Steve Powers: Yes, hey, good morning, guys. Just quickly, on that prior line of questioning about North American pricing kind of in combination with Andrew Lazar's question about volumetric leverage, as we think about the benefits of volume leverage throughout the year, you know, offset by the price investments that we're seeing, you know, how does that play out in terms of net impact on margins? Is that a net positive, and does that drag just as we think about the sequential progression?

Steve Powers: Yes, Hey, good morning, guys.

Steve Powers: Yes.

Speaker Change: Quick one I guess, a follow up on that prior line of questioning.

Steve Powers: North American pricing.

Steve Powers: Combination with Andrew <unk> question on volumetric leverage and when you think about the benefits of volume leverage throughout the year.

Steve Powers: Offset by the price investments that we are seeing.

Steve Powers: How does that play out on net impact on margins is that a net positive and that drag just as we think about the.

Steve Powers: <unk> progression.

Amit Banati: Yeah, I think, Steve, there are a number of things playing through in the margin, right? And, you know, like I mentioned earlier, we're confident that our gross margins will be more than 35%. Within that, there are a number of moving parts, obviously inflation, which we said and continue, the guide continues to be neutralish across a number of cost elements. So, that's playing through the improved performance of the supply chain is a tailwind this year. I think, you know, from a price standpoint, the price mix is obviously moderating. So, I think, you know, it's a combination of those factors.

Speaker Change: I think I think Steve there are a number of things playing through in the margin right like I mentioned earlier right wheel, we're confident that our gross margins will be more than 35%.

Amit Banati: Within that there are a number of moving parts, obviously inflation, which we said.

Amit Banati: And continue the guide continues to be neutral ish across a number of cost elements. So thats playing through the improved performance of the supply chain.

Amit Banati: As a tailwind this year.

Amit Banati: From a price standpoint, the price mix is obviously moderating.

Amit Banati: So I think it's a combination of those factors, we should start seeing some volume leverage as the volume trends improve.

Amit Banati: We should start seeing some volume leverage as the volume trends improve. But, you know, all of that kind of factors in to our expectation that, you know, we continue to see gross margin expansion, not at the rate we saw in quarter one. But, you know, we'd expect that the gross margins would continue to improve and be not at 35% for the year.

Amit Banati: Margin on all of that.

Amit Banati: Kind of factors into the two our expectation that we continue to see gross margin expansion not at the rate we saw in quarter, one, but we would expect that the gross margins will continue to be continue to improve.

Amit Banati: And be north of 35% for the year.

Steven A. Cahillane: Okay, very good. And Steve, you know, I was hoping you could talk a little bit more about the Cheez-Its expansion overseas. You gave some snippets, you know, because as you went region by region, you gave some snippets about kind of what to watch for. But maybe you could just pull them all together in aggregate and just talk about that initiative and kind of what to watch for in aggregate as you progress through 24. And we start thinking about further progression to 25. Thanks.

Speaker Change: Okay very good.

Speaker Change: I was hoping you could talk a little bit more about the.

Steven A. Cahillane: Expansion overseas.

Steve Powers: You gave some snippets.

Steven A. Cahillane: You Werent region by region to give some snippets about kind of what to watch for but maybe you can just pull all together.

Steve Powers: And just talk about that initiative and kind of what to watch for in aggregate.

Steven A. Cahillane: As you progress through 24, and we can start thinking about.

Steven A. Cahillane: For the progression of the 25 thanks.

Steven A. Cahillane: Yes, so we are excited about the Cheez-It and its international prospects. We've got Cheez-It now in Canada, Mexico, and Brazil. We're applying those learnings to the launch in Europe later this year, particularly in the UK, and you know the UK team is very excited about it. The initial research on product and on positioning is very strong, and so this is not anything that's going to really affect your models per se, because we're taking it in a very pragmatic way market by market, continuing to build the playbook so each next market is more successful than the one that came before it, and so 24 will be the European launch, and then later in 24, we'll talk about additional markets for 25 and beyond.

Steve Powers: Yes. So we are excited about the cheez it and their international prospects, we've got Cheez. It now in Canada, Mexico, Brazil, we're applying those learnings to the launch in Europe later, this year, particularly in the U K.

Steven A. Cahillane: The UK team is very excited about it the initial research on product and on positioning is very strong and so this is not anything thats going to really affect your models per se.

Steven A. Cahillane: Because we're taking it in a very pragmatic way market by market continuing to build the playbook. So each next mark was more successful than the one that came before it.

Steven A. Cahillane: So 24 will be the European launch and then later in 'twenty four we will talk about additional markets for 25 and beyond.

John P. Renwick: Thank you. And I'm afraid we have run out of time for any further questions today. So I'd like to hand it back to Mr. John Renwick for any closing remarks.

Steven A. Cahillane: Thank you and I'm afraid we have run out of time for any further questions today, So I'd like to hand back to Mr. John Renwick for any closing remarks.

Operator: Well, thank you everyone for your time and your interest. And if you do have follow-up questions, please do not hesitate to call us.

John P. Renwick: Well. Thank you everyone for your time and your interest and if you do have follow up calls please do not hesitate to call us.

John P. Renwick: Have a great day.

Operator: This concludes today's conference call. Thank you all for joining us. You may now disconnect your lines.

Speaker Change: This concludes today's conference call. Thank you all for joining you may now disconnect your lines.

Operator: Sure.

Operator: Okay.

Operator: Okay.

Operator: Yes.

Operator: Sure.

Operator: No.

Speaker Change: Got it.