Q3 2023 Earnings Summary
- $K is ahead of pace in the first 9 months of 2023 and is on track with its projections, indicating strong underlying business performance.
- The company expects international growth to outpace the U.S. in the next quarter, with emerging markets showing strong performance, offsetting any temporary lag in North America.
- Management expresses optimism for 2024, with plans to return to full merchandising and ambitious innovation, particularly in North America, suggesting potential for improved performance and growth.
- Volumes continue to lag despite strong revenue growth driven by pricing, with management acknowledging that elasticities have risen due to consecutive mid-teens price increases, and that they returned to merchandising and innovation activity later than competitors. This may indicate sustainability concerns over revenue growth without volume support.
- Weakness in U.S. sales, with scanner data showing a 4.5% decline in U.S. measured channels, suggesting that North America is lagging and the company relies heavily on international markets to meet growth targets. This raises concerns about the company's ability to achieve its long-term growth algorithm across all segments.
- Currency headwinds are expected to have a negative impact on top-line growth, with management projecting a 3% drag on net sales in the fourth quarter due to foreign currency translation, similar to the third quarter. This continues to exert pressure on reported financial results.
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2024 Long-Term Algorithm
Q: Will you achieve long-term algorithm growth in 2024?
A: Management expects to be on their long-term algorithm growth rates in 2024, expressing confidence in meeting targets shared in August. Specific details will be provided in February after completing the budgeting process ,. -
Volume Growth Outlook
Q: Can we expect volume growth in 2024?
A: They anticipate a gradual return to volume growth in 2024, especially as they lap previous price increases and return to full merchandising and innovation activities. -
North America Performance
Q: Will North America meet the long-term algorithm next year?
A: While North America lagged due to a later return to merchandising and the spin-off, management is optimistic about improved performance in 2024 with a more ambitious innovation plan and return to quality merchandising activities. -
Margin Improvement Sustainability
Q: Are the margin improvements sustainable going forward?
A: Margin recovery is driven by pricing offsetting inflation and a better-performing supply chain. While margins are recovering faster than expected, specifics for 2024 will be provided after budgeting. -
Impact of Pricing on Volumes
Q: How is pricing affecting your volumes compared to peers?
A: Significant pricing actions led to expected volume elasticity. They returned to merchandising and innovation later than competitors, impacting volumes. There's nothing structural affecting performance, and they remain optimistic for 2024. -
Currency-Neutral Targets Validity
Q: Are the previous currency-neutral targets still valid?
A: They expect to be on long-term growth algorithms but will update absolute figures in February, considering currency impacts and completion of 2023 results ,. -
AMEA Pricing and Currency Impact
Q: How are currency headwinds affecting AMEA growth?
A: Pricing actions have been taken to cover devaluations, notably in Nigeria. Despite a lag between operating devaluation and official rates, the business continues to grow double digits organically, with volumes holding up despite pricing. -
Capital Allocation and M&A
Q: What's your stance on M&A given current leverage?
A: They prioritize investments in organic growth opportunities, especially capacity expansion for Pringles in emerging markets. They continue to evaluate M&A opportunities in snacking and emerging markets but emphasize a disciplined approach.