K
#Yes.
Good morning, <UNK>.
Thank you for giving the opportunity to clarify it.
That is a concern out there.
I feel very good about the progress we are making on the top line.
If you look back over the last three or four years, we've talked about the importance of stabilizing the large four core cereal businesses.
I'm happy to say that if you look at the US, Canada and Australia, you will get the measured data, you can see the categories are stable, and our share is stable across those three businesses.
The UK continually is a work in progress.
That's why we're not happy with this performance, but we expect to see improving results in the back half of the year in the UK.
So core cereal is looking better than what I would say a couple years ago.
Special K has been a major drag.
In fact, pretty much all the loss of sales the Company has had over the last few years has been Special K.
And what you're seeing in business end-markets like Canada and the US, particularly in cereal, that business has stabilized.
And we've still got some work to do in some snacks extensions of Special K, but we're feeling better there.
And so we do think that the growth from Pringles and so on will keep coming through.
And although while we are being cautious and saying flat sales again, is because, one, we are being, I think, prudent from a modeling perspective.
And clearly if we can get sales growth, it will give us even more flexibility in the P&L.
So one, I think we're trying to avoid overstating expectations ---+ over-cooking expectations.
So [good economics].
And secondly, as we do drive for more price realization, as we do de-emphasize some [royal] profit elements of the portfolio, we might see drag on the top line.
But it's a drag that I would not be concerned about, because we are building a stronger core business over time, with a better growth profile.
So I think we're just giving prudent guidance at this stage.
Yes, I would love to, <UNK>.
It is never productive to comment on competitors, but I will give you a perspective of how we are looking at the category.
For me, the category dynamics appear pretty rational.
If you look both across cookies and crackers, both categories are up in consumption, average price is up in both categories, both on a per pound basin, as well as a per unit basis.
Quality merchandising is flat, features and displays are up, displays are down.
So it is pretty rational of what you would expect.
It is more competitive, and I can tell you, as we look at this from a Kellogg's standpoint, our pricing is very similar to what we're seeing in the category.
Our price per pound and per unit, both in cookies and crackers, are up versus a year ago in the quarter.
But ultimately, in the long run, to win in this category, you have to do three things.
You've got to invest in your brands.
You've got to launch innovation consumers love.
And you have to drive in-store excitement.
And so we are going to continue down our playbook in terms of how to go win in this category, and you will see us do that, both in cookies on Keebler, as well as a couple of our regional brands, as well as the big three in crackers.
Good morning, <UNK>.
This is <UNK>, <UNK>.
When you look at Project K ---+ and we've discussed this before with analysts and investors ---+ it is very different than that billion-dollar challenge.
Where we took capacity out of our network, we were actually closing down facilities, that previous billion-dollar challenge, we were simply taking people out of the organization and asking the organization to do the same with less people.
That was a bit harder for them to accomplish.
So we feel good about Project K and the integrity of our infrastructure as a result of the actions we are taking there.
Zero-based budgeting, it's really just a refreshing way to look at our cost structure and ensure the investments that we have are prioritized and aligned with our strategy.
It is nothing more than that.
We are being very thoughtful on how we take costs out of our business and make sure that the investments we're making are aligned with our priorities and strategy.
Gary, I think we have time for one last question.
Good morning.
On Kashi, we feel very good about where we are from an investment perspective.
Now we have the entire portfolio GMO-free, if we can turn the marketing program on in the back half of the year.
We had a very strong slate of innovation go through here at the middle of the year.
So we expect to see Kashi return to growth in the back half of the year.
Now, there are some parts of the Kashi business and frozen pizza items and some other items that we've culled out of the portfolio, so that might continue to drag on the business.
But that was ultimately lower-margin segments of the portfolio anyway.
So we feel good right where we are in Kashi in terms of positioning it for long-term growth.
If I could just say, on K&A Other, because that is a part of the portfolio that did drag in the second quarter, so a few quick comments more broadly on that segment.
Three businesses in there.
One is frozen foods.
In frozen foods, Eggo is actually doing reasonably well when you add in non-measured channels.
MorningStar Farms has gone through a very difficult packaging transition that is now complete.
Turning on the marketing in the back half of the business ---+ back half of the year for that business.
And also, we did cull some SKUs on the Eggo business at the end of last year.
So when you add all that together, it's had a bit of a rough first half, but we do expect frozen foods to return to growth in the second half of the year.
Canada, we have had significant transactional foreign exchange issues in Canada.
We have increased our promotional price points.
That's going to lead to some disruption in the market as that sort of settles its way in.
So I think Canada has a tough year.
It's the right, low-term decision, but it's going to come with a little bit of short-term pain as we go through that.
And then Kashi, as I said, we do expect Kashi to return to growth in the back half of the year, and feel better about it.
So in the back half of the year, we have two of the three businesses within North America Other returning to grow, and we think that the same ---+ we'll look better in the back half than the front half.
No, we have not given that sort of guidance.
I think we'll will wait until each annual discussion, when we provide more color of why it is what it is.
But clearly within a flat sales guidance, you would expect volume to be down a little bit, and price mix to be providing some benefit.
And again, let me reiterate, internally we will chase better numbers than that, but we don't want to promise those numbers.
Clearly we want to deliver them, though, when the time comes.
Hey, Gary, that went faster.
We can do one more.
Hey, <UNK>.
Let me answer the sales question, and I will hand it over to <UNK> to answer the margin question.
On sales, I'd say the heavy lifting on margin expansion is going to be more in North America and Europe, just given the size of those businesses.
And I would expect those businesses to be slightly lower in growth than the portfolio average, with more growth coming from Latin America and Asia Pacific.
So I would say, again, flat is a range.
Flat is not 0.0%.
So I would hope that even those two big businesses can be in the flat ballpark in terms of top-line growth.
But I would not point out that I expect them to grow faster, say, than the portfolio average.
<UNK>, do you want to talk about the margin goal.
Yes, just the way I think about the margin growth, so it is off of a 2015 base, and I have been looking at it on an ex-Venezuela basis.
Venezuela is distorting mainly the 2016 results.
But I think about that growth on an ex-Venezuela basis.
All right, Gary, I think we are finally out of time.
Thanks, everyone.
We appreciate the time on the call, and <UNK> and I and the team are available for follow-up calls throughout the day.
Thank you.
