Q4 2023 Earnings Summary
- Negative industry trends are causing rising price elasticities, putting pressure on volume, and it may take a "couple of quarters before these negative industry trends abate".
- Weak U.S. retail performance, with "retail tracking data looks very, very weak in the U.S.", and recovery is expected to be gradual throughout the year, with significant improvements not until the third quarter.
- Heavy reliance on emerging markets, especially in Africa, where substantial pricing is needed to cover devaluating currency and shipments were unusually strong, accounting for about "half of that [net sales growth] came from our Africa joint ventures".
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Margin Outlook
Q: What's your margin progression plan and confidence in targets?
A: We expect to improve our margins significantly, moving from a 12% margin in 2023 to 14% in 2024, aiming for 15% by 2026. This confidence is driven by network optimization projects, growth in our top five brands—which comprise 50% of sales and have higher margins—scale in emerging markets, and a return to full productivity in our supply chain. -
Gross Margin Improvement
Q: How are gross margins expected to evolve in 2024?
A: Gross margins have improved better than expected, reaching 34% in Q4. We anticipate approaching 35% in 2024. This improvement is driven by a well-performing supply chain, cost reductions, wraparound pricing benefits, and slightly deflationary input costs. We expect gross margin progress to be fairly balanced across the quarters. -
Impact of Innovation on North America Sales
Q: How will innovation and merchandising affect North America sales growth?
A: Returning to stronger innovation and merchandising throughout the year should drive low single-digit organic sales growth in North America. After a pullback in 2023, we're launching many more innovations across brands like Pringles, Cheez-It, Pop-Tarts, and Rice Krispies Treats. Momentum will grow cumulatively, becoming most notable in the third quarter, exiting the year with strong momentum. , , -
Reorganization and Plant Closure
Q: What's behind the reorganization in frozen and cereal businesses?
A: We're closing an underutilized plant in the UK and moving production to more efficient facilities, focusing on driving effectiveness and efficiency now that we have the bandwidth post-pandemic. These straightforward programs will contribute to cost savings and improved operations. -
TSA Reimbursements and EBIT Growth
Q: How do TSA reimbursements affect EBIT growth in 2024?
A: TSA reimbursements are about $40–$50 million per quarter in 2024, reflecting services we're providing to W.K. Kellogg Co. As these services conclude, both the costs and reimbursements will drop off. The year-over-year EBIT growth rate appears higher due to having four quarters of reimbursements in 2024 versus one in 2023, but it's mainly a timing effect from the spin-off. , , -
FX Impact on Guidance
Q: Does your operating profit guidance include currency headwinds?
A: Yes, our operating profit guidance includes a currency headwind of approximately 2% at today's rates. This impact is built into the dollar numbers we've provided. , -
International Expansion of Cheez-It
Q: What's the plan for expanding Cheez-It internationally?
A: We're launching Cheez-It in major European markets in the back half of the year, following successful launches in Canada, Brazil, and Mexico. While it's a long-term play not expected to materially impact top-line in the near term, we anticipate Cheez-It becoming a much bigger international brand over the next five years.