K
#Specifically regarding the changes in snacks, the change was designed to separate sales and merchandising functions within the sales force, to enable better focus and execution between setting up and merchandising.
It's as simple as that.
It does come a top of previous investments we've made in our DSD specifically sales force in terms of technology, which obviously will unlock some of the benefits of technology as we do this as well.
So it's separate from anything we've done in morning foods and feet on the street but it is a continuation of building more effective and efficient working practices within our DSD sales organization.
Obviously any disruptive change is disruptive.
So when you touch as many salespeople, merchandisers in the context of customers, there is some disruption.
So many people find themselves in new roles calling on new stores.
We anticipated that.
We've seen a bit more on the incremental side in terms of display, especially on cookies and crackers.
We're largely through that now as we come into the month of May and so we expect things to pick up from here.
It's interesting.
I meet with a lot of customers.
I haven't met a customer yet who doesn't want to engage with big brands to drive growth.
I think our focus across all of our categories is very much on building winning plans or our customers.
The bigger the idea, the better you execute it, the more impact you will have in store.
I think specifically to Kellogg, there's a little bit of timing in the cereal business where we were very strong last year in March, April because of the Avengers promotion.
Our big idea this year is the Finding Dory movie which launches in June.
So there's a little bit of timing in there but we feel very good about the quality of our plans, our brand communication and our innovation ideas as they come to market here.
Morning, <UNK>.
In the quarter we ---+ in terms of gross margins or operating margins.
If you've seen the reported data, the snacks business did pretty well on operating profit through the first quarter.
So there's no real near-term impact on margins.
There was some sales disruption as I said when it comes to our performance on display at the top line.
We are hopefully through that and we move forward.
We expect this to be a more effective and more efficient way of operating going forward.
No, there's no cost addition to this at all.
In fact, it will be more efficient and effective going forward.
If you look at the Kashi business over the last 18 months or so now ---+ at least 15 months, we continue to see sequential improvement in the performance of the business.
As you are aware, we put the team back in California just over a year ago.
We are seeing especially our cereal business perform a lot better.
Share was flat in the first quarter, we're actually growing the business now in the natural channel.
The team has been really working hard at building a pipeline of ideas to get back ahead in terms of a food-focused mission-based operation.
So we have new Kashi and Bear Naked cereals launching here now.
We have savory granola bars launching at the end of the second quarter.
We have some culturally inspired crackers that I've spoke about before.
We have granola bites coming from Bear Naked at the turn of the quarter as well in the third quarter.
And we have a brand-new range which is shipping now, of Kashi Go Lean and Kashi branded protein powders to lean into new segments with the brand.
Of note, our Bear Naked granola business is growing at a good mid-single to high single-digit click.
So the granola business in Bear Naked does well.
While more part of the Kashi company is stretch out in fruit snacks, a very small business we don't to talk a lot about.
But that's growing at a strong double-digit rate as well.
We've reinvented that food, made it all organic, invested back in the food there as well.
So there's been a lot of reinvestment in food to renovate.
And now a lot of innovation about to come which gives us the confidence that we're going to get this business back to growth over the coming months in 2016 and into 2017.
Sure, Rob.
I think if you come back and look the US business over the last couple of years, we said there were two big brands in the US that we needed to fix.
One was Special K, one was Kashi.
In both cases where we've put on-trend food in the marketplace, we've seen consumers respond to that very positively.
We've seen those results come through in the US results last year and into this year.
Same is true in Canada.
As I said in the prepared remarks, in Australia, we are also seeing significantly improved results through first quarter on the back of improved food that's more on trend with what consumers are looking for.
The same will be true in the UK.
We have four large cereal markets US, Canada, Australia and the UK.
The UK is the last one for us to turn.
We believe, again, putting the right food in the marketplace for consumers is going to make the difference.
The Ancient Legends food that we had at Day at K is more of a granola, great taste, visible nutrition type food, as is the Special K Nourish food that's been an important part of the Special K turnaround in the US.
And the Special K Red Berries renovation in the US we'll also have going into the UK market as well.
A lot of those food changes, though, got cut into the shelf in the later part of Q1.
So we do expect to see the business respond to that.
I don't necessarily expect to see the European cereal business get back to growth in this year.
But in many respects that cereal weakness in Europe is masking some very strong growth in other parts of the European business.
When we have Pringles up high single-digits and wholesome stacks up high single-digits, we clearly have the ability to execute if we have great food in the marketplace.
We have great food behind cereal.
I have confidence we will see our European top-line trends improve as we go through this year.
Rob, it's <UNK>.
Obviously turning around wholesome, as you said, is going to take a bit of time.
It does mean a focus on food and a focus on core brands.
Rice Krispies Treats is a great brand that plays in a certain segment within wholesome snacks and has been doing very well and it's a question of fueling its growth.
Those things fit.
When you come across the Nutri-Grain, looking forward on Nutri-Grain, it's really reinvesting in the core soft-baked bars.
We have two initiatives coming, one a pumpkin spice initiative, another one with chocolate and raspberry which is very close in to what Nutri-Grain stands for.
Beyond that, if you lean towards the healthier elements, if you like, perceived elements of wholesome snacks, we've already renovated many of our base Special K bars.
And since those renovations, they are doing better.
We are now bringing protein trail mix bars to Special K.
And then the one or two brands that really I think need to step up and step in here to broaden out our portfolio and our growth, are actually coming Kashi and Bear Naked.
Because they really have been absent over the last two or three years and therefore we are renovating our core Kashi granola bars.
We're bringing new-to-the-world savory bars on Kashi.
We're bringing new granola bites from Bear Naked as we go into the end of the end of the second quarter here.
You will see more innovation coming on bars from Kashi and Bear Naked in that, what I would call, lifestyle performance area of wholesome snacks.
You have to look at the whole picture to think about how we innovate and renovate across every segment.
Again, the turn is not going to come overnight but we've spent a lot of time with a lot of customers talking about our view for the future.
There's a lot of encouragement coming about how our portfolio can play to win as we look forward.
I'm not sure the data you're looking at, <UNK>.
Special K was up about 3% and gained 30 basis points of share.
The Red Berries initiative, that part of that portfolio is still growing at north of 5%.
The brand is growing.
There may be some timing of activity year on year where we launched Red Berries, so you may see something in the near-in data that might look strange.
But the underlying trends, as we see them, and now with Nourish just gearing up, we have some great seasonal items coming in Q3 as well on Special K.
We think the brand is back on its stride.
I don't think it's going to be growing double-digit year in, year out but it should be contributor to growth across our core portfolio going forward.
So we feel good that we've got it growing.
I mentioned in Canada we've done something similar.
The Canadian business is ticking up as well.
So when we think core six brands and growing across our major customers, K is a huge component part of that.
We are happy with the progress we have made.
A comment on the macro-level.
I think when the category was soft ---+ and this is true for all of the large markets ---+ it really had to do with some of the adult brands not doing well.
Now the adult brands are doing much better with Kashi coming back, with Special K, even a brand like Raisin Bran doing a lot better.
And bringing adults back into the category and driving adult consumption, I think, is what happened across the 2000 and helped drive category then.
That's our focus as we drove forward here.
<UNK>, it's <UNK>.
We're confident in $100 million.
There is no doubt about that.
We're still on track within North America to deliver against that.
As I mentioned on our fourth-quarter call, our international regions would start progressing their zero-based budgeting initiatives early in the year.
They have done so.
They are identifying targets, assessing the spend ---+ discretionary spend ---+ across similar categories as to what we did in North America.
That is progressing extremely well.
We do expect to see a little bit of savings from the international regions in 2016 but most of that will come into 2017.
North America, by the way also, in the first quarter was on plan.
We had embedded the zero-based budget savings into their plan and they were on or slightly above plan, frankly.
So we're in good shape on the program.
On zero-based budgeting, it both delivers savings but it also provides a great tool and mechanism to challenge historical assumptions and to challenge some areas where some investment was happening were not getting a return.
And we would turn money to areas where we are getting good returns.
It's not always just the savings that comes out of it so much as the underlying methodology and driving and pushing on key assumptions.
Thank you.
Good morning, <UNK>.
<UNK>, first on the category and channel mix.
Across the business we are seeing a little bit more adverse mix as a result of some of our big developed cereal markets and the trends in those business.
As <UNK> mentioned, the transition that we're doing in the US snacks, a very profitable business for us, both from a gross margin standpoint and profitability standpoint.
So as we go through that transition sales were down a little bit more than we had expected.
That had an adverse impact on our mix.
As we're growing in some of our emerging markets, we're seeing a little bit adverse impact in mix.
As I said in the prepared remarks, we expect this to improve as we progress through the course of the year and we build momentum on our sales outlook.
<UNK>, <UNK>.
On the question about space in-store and retailers.
We are not seeing anything at a macro-level but different retailers obviously have different strategies as to how they manage the categories.
We have seen in instances, for example, number of sizes reduced in certain retailers.
But we've also seen an increase in space for natural and organic which has benefited obviously brands like Kashi for us.
I think it really is a question of always looking to maximize assortment.
We spend a lot of our time trying to maximize assortment holding power behind the fastest-moving biggest items.
For me it's very much a question about sales fundamentals.
And back to this notion of customers want big brands to grow, we need bigger better ideas to help them grow.
So nothing at a macro-level but every retailer is different in terms of their strategy.
Thanks, <UNK>.
Good morning, <UNK>.
First, in terms of the cost savings that we are seeing, zero-based budgeting and Project K as well, it's spread relatively evenly over the course of the year.
We saw savings within the first quarter and we will see savings as we progress through the year well.
In terms of Venezuela, as I mentioned, we did this remeasurement at the middle of 2015 so we will be past that after the second quarter.
We do expect our sales trends to improve and as those sales trends improve, that will improve our profitability performance.
Remember, we guided 4% to 6% operating profit growth on our ex-Venezuela business.
We delivered 2% in the first quarter.
As you would expect, we'll see more growth going through the balance of the year.
I was going to turn to your Latin American question there for second, and margins in Latin America.
As you look across the Company, you can see it's investing back in the emerging markets.
Asia-Pacific and Latin America, we're not looking for as much, say, margin expansion as we are from North America and Europe.
Within Latin America within 2016, it's fair to say that we're seeing a little bit more economic softness a little bit more challenges in the southern part of Latin America than what we would have liked to have seen.
We do expect to see an operating profit growth on a comparable basis ex Venezuela in the region.
But probably more low single-digits in sales growth in the same range, again, ex Venezuela, reflecting the difficulty in the marketplace.
<UNK>, as we discussed at Day at K and at CAGNY, we are committed to expanding our operating margins over time.
We have set a goal of 17% to 18% operating margin by 2020.
Clearly we look very closely at what other companies are doing, our peer group and our competitors.
One of the core values of the Kellogg Company is that we have the humility and hunger to learn.
We will look very closely what's happening at Kraft Heinz and all the other companies in the industry.
If we see opportunities to improve the economics of our business and to drive shareholder value creation, we will certainly pursue those.
Gary, this is <UNK>, I think we've got time for one last question please.
<UNK>, you're thinking about it correctly.
When we started the year on the fourth-quarter call, I said expect our comparable earnings per share, and that includes the impact currency, to be spread relatively evenly across the four quarters of the year.
We did deliver a little bit more in the first quarter and we said that might come out of the second quarter.
And some of that is related to the timing of investments and activations that we're doing against our commercial programs and our innovations as we move into the second quarter.
So expect the second quarter to be little bit lower than the average of the four quarters now.
You're welcome.
Thank you all for your questions and interest in the Kellogg Company.
At this time I'd like to share with you the news that <UNK> <UNK>, our Chief Financial Officer for the past seven years, has decided to retire after 30 great years with the Company.
<UNK> has been a key member of our leadership team, combining a strong business acumen with a disciplined approach to finance.
I'm sure you all have enjoyed working with <UNK> as much as I have.
It may not surprising that <UNK> will be retiring in a very careful deliberate way.
He will remain the Company's CFO through the end of 2016.
This will give us proper time to do a thorough search, both internally and externally, for his successor.
<UNK> will also stay on into 2017 to ensure an orderly and effective transition so we will have good continuity.
Please join me in congratulating <UNK> on a wonderful career and in thanking him for his outstanding service.
That wraps up our call.
Thank you and have a great day.
