Kellanova Co (K) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Quarterly Results: Kellanova reported strong quarterly results, demonstrating growth-oriented and profitable portfolio performance post-spin-off.
• Organic Net Sales Growth: The company achieved year-on-year organic growth in net sales, with volume trends improving sequentially outside of Nigeria.
• Operating Profit Growth: Kellanova experienced year-on-year currency neutral operating profit growth, with continued improvement in profit margins.
• Innovation and Commercial Activity: The company highlighted its return to full commercial activity and innovation, with new product launches across regions expected to drive net sales contribution.
• Global Footprint and Diversification: Kellanova emphasized its differentiated global footprint and exposure to faster-growing markets as a key strength.

Pessimistic Highlights

• Volume Decline in Nigeria: The company faced volume declines in Nigeria due to currency-driven price increases, impacting overall volume growth.
• Elasticity Impacts: Elasticity impacts around the world, particularly in Nigeria, led to volume declines despite price/mix growth driving organic net sales growth.

Company Outlook

• Raised Full Year Guidance: Based on strong first-half results and a positive outlook for the second half, Kellanova raised its full-year guidance for organic growth, operating profit, and earnings per share.
• Continued Margin Improvement: The company expects to continue improving its profit margins, progressing towards its 2026 target of a 15% operating profit margin.
• Innovation and Market Performance: With a heavy innovation calendar and full commercial activity, Kellanova anticipates continued improvement in market performance and volume growth in most regions, excluding Nigeria.

Q & A Highlights

• Q: Can you discuss the sustained volume improvement in North America and its drivers? (Rob Dickerson, Jefferies)

  A: The improvement is led by full commercial activation, including increased distribution and innovation launches like Pringles Mingles. Pricing remains rational, with a focus on meeting consumer price points. (Steve Cahillane)

• Q: How do you view the go-forward in Europe, balancing pricing and volume with upcoming innovations like Cheez-It? (Chris Carey, Wells Fargo Securities)

  A: Europe faces challenges but expects growth in the back half, driven by activations and innovations. The Cheez-It launch in the UK is particularly anticipated to drive growth. (Steve Cahillane)

• Q: Could you comment on the performance in Latin America, especially in Mexico and Brazil, amid macro challenges? (Peter Galbo, Bank of America)

  A: Latin America had a strong quarter, with growth in both snacks and cereal. Mexico showed record shares in cereal, and despite floods in Brazil, the underlying business remains strong. (Steve Cahillane)

• Q: How are you addressing North America price sensitivity and pack sizes? (Robert Moskow, TD Cowen)

  A: The focus is on meeting right price points and pack sizes, especially for consumers under pressure. The environment requires hitting the right promotions at the right time. (Steve Cahillane)

• Q: What are your expectations for Pringles Mingles launch and its market competition? (David Palmer, Evercore ISI)

  A: Pringles Mingles is not expected to be a significant difference maker in NSV forecast for the year. The insight for the launch is based on brand love and product testing. (Steve Cahillane)

• Q: Can you provide insights on Nigeria's volume momentum and when it might improve? (Michael Lavery, Piper Sandler)

  A: Elasticities in Nigeria were better than expected, but further pricing actions are anticipated. The outlook remains prudent, with potential upside. (Steve Cahillane, Amit Banati)

• Q: What are your expectations for operating profit in the second half, considering consensus estimates? (Thomas Palmer, Citi)

  A: The guidance increase mainly reflects first-half upside, with second-half expectations largely unchanged. Margin progression will moderate in the second half due to various factors. (Amit Banati)

• Q: How do you balance driving gross margins higher while being cognizant of retailers' awareness of vendors' margin growth? (Ken Goldman, JPMorgan)

  A: The focus is on productivity and increasing brand-building investment to drive volume through retail channels, aiming for a constructive dialogue with customers. (Steve Cahillane)

• Q: Given the return to normal levels of promotional activity, what are you seeing around lift on promotional activity? (Andrew Lazar, Barclays)

  A: Lifts on promotional activity have improved sequentially, with investments yielding better returns. The company expects this trend to continue. (Steve Cahillane)