Kellogg's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Kellogg (K)

Q1 2012 Earnings Call

April 26, 2012 9:30 am ET


Simon Burton - Executive Officer of Snacks business unit

John A. Bryant - Chief Executive Officer, President and Director

Ronald L. Dissinger - Chief Financial Officer and Senior Vice President


Alexia Howard - Sanford C. Bernstein & Co., LLC., Research Division

David Palmer - UBS Investment Bank, Research Division

Andrew Lazar - Barclays Capital, Research Division

Eric R. Katzman - Deutsche Bank AG, Research Division

Kenneth Goldman - JP Morgan Chase & Co, Research Division

Cornell Burnette

Jonathan P. Feeney - Janney Montgomery Scott LLC, Research Division

Scott Andrew Mushkin - Jefferies & Company, Inc., Research Division

Christopher Growe - Stifel, Nicolaus & Co., Inc., Research Division

Robert Dickerson - Consumer Edge Research, LLC

Robert Moskow - Crédit Suisse AG, Research Division

Matthew C. Grainger - Morgan Stanley, Research Division



Good day, ladies and gentlemen, and welcome to the Kellogg Company First Quarter 2012 Earnings Call. [Operator Instructions] At this time, I'll turn the call over to Simon Burton, Kellogg Company Vice President of Investor Relations. Mr. Burton, you may begin your conference.

Simon Burton

Thanks, Hewey. Good morning, and thank you, everyone, for joining us today for a review of our first quarter 2012 results. I'm joined here by John Bryant, our President and CEO; and Ron Dissinger, our Chief Financial Officer. The press release and slides that support our remarks this morning are posted on our website at As you are aware, certain statements today, such as projections for Kellogg Company's future performance, including earnings per share, net sales, margin, operating profit, interest expense, tax rate, cash flow, brand building, upfront costs, investments and inflation are forward-looking statements. Actual results could be materially different from those projected. For further information concerning factors that could cause these results to differ, please refer to the second slide of this presentation, as well as to our public SEC filings.

As a reminder, a replay of today's conference call will be available by phone through Monday, April 30, and the call will also be available via webcast, which will be archived for at least 90 days. Now, I'll turn it over to John.

John A. Bryant

Thank you, Simon, and thank you, everyone, for joining us this morning. We posted lower-than-expected results in the first quarter, in what proved to be a difficult operating environment. In fact, as you have seen in the data, volume growth across the industry and across most categories in the U.S. was challenging in the quarter. The results we announced on Monday were obviously disappointing. However, we have recognized over the years, that setting realistic goals is an important driver of the success of our business. Given the difficult start to the year, we have revised our growth expectations for 2012. We believe that 2% to 3% sales growth for the year is a pragmatic goal and is one that allows us to follow our long-term model and invest in future growth. Lowering guidance is never easy, but it makes it possible for us to remain committed to our operating principles. As you'll remember from the fourth quarter call, we anticipated a continued difficult environment in specific categories and geographies throughout the year. This was certainly the case in Europe. We will discuss this in more detail later, but Europe's weak performance accounted for the majority of the impact on the quarter. As a result of this and the early weakness in the U.S., total internal revenue growth for the quarter was approximately flat, lower than we originally expected.

It's also important to note that while we've adjusted our expectations for full year revenue growth because of weaker-than-expected revenue performance in the first quarter, we've adjusted our expectations for operating profit and earnings to allow us to continue to invest in the future growth of the business, while also absorbing the impact of the first quarter. Obviously, the timing of this year's delivery and even the shape, will likely change given the first quarter's results and the pending acquisition of Pringles that we announced in February. Also, as we told you last quarter, we still see 2012 as a continuation of the transition we began in 2011. As I've said, we remain committed to driving future growth and plan to invest in the business. As you might imagine however, the inclusion of Pringles will also change the timing and even the specifics of this investment.

The planning for the integration of the Pringles business remains on track. It's still relatively early, but we're making good progress. We still expect to close the transaction around or before the middle of the year, and look forward to the benefits that will accrue from the combination of these 2 fantastic businesses.

And now, if you'll turn to Slide 4, you'll see some more detail regarding the progress we've made with the planning of the integration. Both Kellogg and P&G have transition planning teams in place. We evaluated the integration process. We've highlighted the milestones we need to reach and when we need to reach them. And we have a plan in place that will enable us to achieve our goals. There's been a lot of work on both sides, but things are progressing well. Financing of the deal is also going well. We had good support from the banks, and we expect a good reception from the market. And as you might imagine, we remain very excited about the strategic rationale of this combination. As we discussed when we announced the transaction, the growth potential we see and the international scale that Pringles provides are very important to us. In addition, while we didn't build any synergies from product expansion into the financials of the deal, we do believe that there is the potential for us to recognize a meaningful amount over the years. Obviously, we'll give you more detail on future calls.

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