WK Kellogg Co - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered net sales of $640M (-1.8% YoY), adjusted EBITDA of $57M (+7.5% YoY), and adjusted diluted EPS of $0.42 (vs $0.29 YoY), driven by improved supply chain productivity despite volume decline and FX headwinds.
• Full-year 2024 saw net sales of $2.71B (-2.0% YoY), adjusted EBITDA of $275M (+6.6% YoY vs standalone), and gross margin expansion to 29.8% (+90 bps YoY) on operational efficiencies; free cash flow was -$29M on back-half CapEx and working capital timing.
• 2025 guidance: organic net sales down ~1% and adjusted EBITDA growth of 4–6% ($286–$292M), with back-half weighting and explicit note that potential Canada/Mexico tariffs are excluded; Board raised the quarterly dividend 3% to $0.165/share.
• Near-term trading catalysts: Q1 2025 headwinds from Easter timing and lapping a large retailer promotion (1.5–2.5 pts incremental pressure to the full-year sales cadence), tariff overhang, and continued promotional intensity in U.S. cereal category.

What Went Well and What Went Wrong

What Went Well

• Adjusted EBITDA grew 7.5% in Q4 (to $57M) and 6.6% for FY 2024 (to $275M), above raised guidance, on improved supply chain efficiency and reduced waste.
• Gross margin expanded: Q4 adjusted gross margin to 30.5% (+130 bps YoY), FY 2024 to 29.8% (+90 bps YoY), reflecting operational discipline and OEE improvements; management highlighted progress toward a 14% EBITDA margin exiting 2026.
• Canada and Caribbean maintained/gained share (Canada Q4 share 39.2%; FY share 38.9% +90 bps; Caribbean +50 bps FY), underpinning stable top-line outside measured U.S. channels.

Management quotes:

• “We delivered adjusted EBITDA growth above the top end of our guidance range.” — Gary Pilnick, CEO.
• “Gross margin for the fourth quarter was 30.5%, a 130 basis point increase… driven by operational efficiency improvements.” — David McKinstray, CFO.
• “We are on track to deliver [EBITDA margin] from 9% to approximately 14% as we exit 2026.” — Gary Pilnick, CEO.

What Went Wrong

• Volumes remained pressured: Q4 volume -5.6% (price/mix +3.8%), with category promotional intensity impacting end-market performance; FX (weak CAD) was a 40 bps headwind to quarterly sales.
• U.S. market share declined 40 bps to 27.4% for FY 2024, with Special K called out as an underperforming core brand, necessitating focused activation plans.
• Free cash flow negative (-$29M FY) as modernization CapEx and TSA exit investments ramped; net debt rose to $495M at year-end (from $442M in Q3) with leverage at ~1.8x to fund strategic initiatives.

Transcript

Operator (participant)

Hello everyone, and welcome to the WK Kellogg 4th Quarter 2024 Earnings Call. My name's Lydia, and I'll be your operator today. After the prepared remarks, there'll be an opportunity to ask questions. If you'd like to participate in our Q&A, you can do so by pressing star followed by one on your telephone keypad. We kindly ask that you limit yourself to one question and one follow-up. I'll now hand you over to Karen Duke, Vice President of Finance and Investor Relations, to begin. Please go ahead.

Karen Duke (VP of Finance and Investor Relations)

Thank you, Operator. Good morning, and thank you for joining us today for a review of our fourth quarter results. I'm joined this morning by Gary Pilnick, our Chairman and Chief Executive Officer, and Dave McKinstray, our Chief Financial Officer. Slide two shows our forward-looking statement disclaimer. As you are aware, certain statements made today, such as projections for the company's future performance, are forward-looking statements. Actual results could differ materially from those projected.

For further information concerning factors that could cause these results to differ, please refer to the disclaimer slide in our earnings presentation, as well as the disclaimers and risk factors noted in our SEC filings. As we discuss our results today, unless noted as reported, we'll be referencing the respective non-GAAP financial measure, which adjusts for certain items included in our GAAP results. For periods prior to the spinoff, results are presented on a standalone basis.

For periods after the spinoff, results are presented on and referred to on an adjusted basis and compared to our 2023 standalone adjusted results. You can find definitions of each non-GAAP measure and GAAP to non-GAAP reconciliation within our earnings release and in the appendix to the slide presentation. I will now turn the call over to Gary.

Gary Pilnick (Chairman and CEO)

Thanks, Karen, and good morning, everyone. Thank you for joining our fourth quarter call. Today, I will discuss 2024, including our financial results and in-market performance. I will also provide highlights of 2025, including our progress on strategic priorities. I'll then turn the call over to our Chief Financial Officer, Dave McKinstray, who will provide additional detail on our 2024 performance and 2025 guidance. We'll close out the call with time for Q&A. Let's start by reviewing 2024 of slide three.

As we all step back and reflect on our very first year as an independent company, we're proud of what we've accomplished. First, we're successfully progressing our strategic priorities through focused execution. For example, every day, our dedicated sales force is in store selling our iconic brands and delivering our integrated commercial plan to win.

The capabilities of the team are maturing, and our connections with store managers and overall relationships with retailers are growing. We also launched our new marketing model and can already see the benefits of our enhanced capabilities through better return on investment. Another key strategic priority is modernizing our supply chain. During our Q2 call, we announced the details of our plan and, importantly, confirmed all of the economics that we provided at Investor Day in 2023.

We're investing up to $500 million while expanding margin by approximately 500 basis points as we exit 2026. Execution of this strategic priority is on track, and our supply chain performance is already improving. Second, we are investing to build a strong foundation for the future by creating our own operating infrastructure across the company.

As part of the spin, we have been separating just about every aspect of our business from Kellanova. Our business was highly integrated with Kellogg North America, and we are now close to completing the separation activities associated with becoming a standalone company. This has required investment and has been a major body of work, which has utilized resources from across the entire organization.

Two of the key separation initiatives include transitioning to our own independent warehouse network, which is largely complete. We're also creating our own scalable IT infrastructure. This means we'll be able to utilize systems and tools that are fit for purpose and built to serve our unique business. We're pleased with the progress we've made to date and expect to exit all of the transition services by the middle of 2025.

Finally, we accomplished all of this while delivering against our financial goals in a challenging environment. We delivered top-line results broadly in line with our expectations, drove margin expansion, and grew EBITDA ahead of our raised guidance. Across the organization, we're focused and disciplined, and our teams are energized to continue our journey as we transform this business together.

Now, let's take a closer look at our performance for the year on slide four. For the year, net sales declined 1.1% or 0.9% when excluding the impact of currency. During the fourth quarter, the Canadian dollar weakened considerably relative to the U.S. dollar, which negatively impacted our full-year net sales delivery by 20 basis points. We're pleased with our commercial execution, improving our return on investment while also ensuring we're delivering value for the consumer. We remain focused and disciplined, taking a balanced approach.

The same focus and discipline are evident in our gross margin delivery. Gross margin for the year was 29.8%, an increase of 90 basis points. A key driver of our gross margin performance was improved supply chain operations. We drove better end-to-end execution in 2024, becoming more efficient, reducing waste, and enabling our top line through improved customer service. This performance benefited EBITDA, which grew 6.6% for the year, exceeding our raised guidance expectations of 5.6% growth.

EBITDA margin for the year was 10.1%, a 70 basis points improvement versus the prior year. A key element of our value proposition and strategy is expanding EBITDA margin from 9% to approximately 14% as we exit 2026. We are on track to deliver that target, even in a challenging operating environment, demonstrating the team's ability to execute and the earnings power of our business.

Let's turn to slide five to discuss the category trends and our performance. The category in the U.S. and Canada is providing the backdrop to execute the strategy I mentioned a moment ago. For the year, U.S. cereal category dollar sales, as measured by Nielsen xAOC, declined 1.3%, with volume declining low single digits. In the U.S., in-market dollar sales for WK, as measured by Nielsen xAOC, were down 2.8%, and we ended the year with a share of 27.4%, a decline of 40 basis points versus the prior year. We saw the challenging environment persist in Q4, with consumers continuing to seek value, which resulted in increased levels of promotional activity within the category.

That said, our promotional activity was similar to that of Q4 2023, which impacted our top line and share position for the quarter and the year. Despite that, we broadly delivered against our financial goals, and our strategy remains on track. Our plans assume that the challenging operating environment will persist in 2025. We will apply the lessons learned from 2024 and remain disciplined in our approach to driving demand through exciting innovation, brand building, and delivering consumers the right pack at the right price in the right channel.

In Canada, our team delivered yet another solid quarter, holding share at 39.2%. For the year, Canada has increased their market leading position by 90 basis points to 38.9%. Additionally, our Caribbean team grew share 50 basis points for the year. Looking at slide six, you could see we improved our overall supply chain performance in a year where we made difficult decisions and announced the planned consolidation of our manufacturing network.

We delivered a meaningful increase in customer service levels in 2024, driven by optimized planning and improved overall equipment effectiveness, or OEE. These improvements have been at the center of our margin improvement and EBITDA delivery in 2024. Notably, we've achieved these improvements before realizing the benefits of our capital investment. This improvement is coming for focus, integration, expanding capabilities, and driving better engagement.

You could see how, through our supply chain, we are already building a foundation that is stronger, a foundation from which we can build. You also know the importance of innovation in our category. Slide seven shows the breadth of our innovation plan for the first half of 2025. It is important to note the impact of what we like to call platforms. Let's start with glazed, which is what we would call our very first food platform launch.

This concept allows our R&D teams and growth teams to work together to create fantastic foods and then leverage our key brands such as Frosted Flakes, Apple Jacks, and Krave. Raisin Bran is a good example of how we activate brand platforms. Several years ago, Raisin Bran Crunch was developed, which is now even bigger than original Raisin Bran. Last year, we launched Frosted Bran, which includes our delicious Raisin Bran flakes without the raisins. And then this year, we take that chassis and launch Blueberry Bran Crunch.

You could see the flexibility of this food form and how that brand can grow going forward. And we will continue to expand our format platforms with new on-the-go offerings, building upon our success in cups this year, and we're extending our granola platform, including launching Bear Naked Oats & Honey.

Innovation is a key component of our plan, and we're very excited about 2025. Before I turn it over to Dave, let's turn to slide eight to review more of what's to come in 2025 as we execute our strategy and continue building for the future. Our commercial plan is enhanced, driven by the innovation we just reviewed, and our execution will be stronger as our new direct sales team is maturing and will leverage their experiences from 2024.

The investment to modernize our supply chain continues, with a significant amount of construction work scheduled to be completed this year. We will also finalize separating from Kellanova. As I mentioned earlier, we expect to exit all of our transition services by the middle of the year. We also expect to continue to deliver against our financial goals, maintaining a stable top line and driving EBITDA growth of 4% to 6%.

As we noted in our press release, our 2025 guidance does not include any impact from the potentially significant tariffs on Mexico and Canada, which could create an additional challenge for the business. Of course, we're undertaking a review of our operating plans, doing scenario planning to see how we might be able to partially mitigate an impact from those tariffs. I'll now turn the call over to Dave, and as I do, we hope you could see the strength of our execution and the focus of our team. We are confident that we have the right strategy and remain well-positioned to navigate through a dynamic operating environment.

Dave McKinstray (CFO)

Thank you, Gary. Before reviewing our results, I'd like to highlight that our GAAP results this quarter include charges related to our supply chain modernization initiative. Quantification of the business portfolio realignment and restructuring costs that have been incurred through the fourth quarter are included in the appendix of our presentation and in the earnings release. As we said in the past, due to the spinoff, our 2024 results are based on a comparison to our 2023 standalone adjusted results, which exclude intercompany sales and royalty arrangements with Kellanova that ceased to exist upon the spinoff.

Similar to previous presentations, and as Karen mentioned at the beginning, our results are presented and referred to on an adjusted basis. We believe this provides investors with increased transparency and improves comparability across periods. Further detail of these non-GAAP measures and reconciliations to the most directly comparable GAAP measure have been provided in today's press release and the appendix to this presentation.

Now, looking at our results on slide 10, net sales for the fourth quarter were $640 million, down 1.8% versus the prior year period. Our net sales performance was driven by price realization of 3.8%, offset by volume decline of 5.6%. Net sales in the quarter were impacted by the significant weakening of the Canadian dollar relative to the US dollar. This unfavorable impact from the foreign exchange translation drove a 40 basis point headwind in the quarter.

As Gary mentioned earlier, the category saw increased levels of promotional activity in the quarter, while our activity remained consistent with the prior year. This impacted our in-market performance. Despite this headwind, net sales for the year were down 1.1% versus the prior year and down 0.9% when excluding the impact of translational effects.

Recall, guidance for net sales was to be at the lower end of our guidance range, which was down 1%. Despite the challenging operating environment, we remained focused and disciplined, ensuring we broadly delivered our financial guidance on the top and bottom line. Similar to previous quarters, we continued to deliver strong performance in Canada and non-measured channels and saw a slight increase in retailer inventory levels.

Turning to profit, EBITDA for the fourth quarter was $57 million, a 7.5% increase versus the prior year, which was driven by continued operational discipline across our supply chain. Full-year EBITDA of $275 million increased 6.6% versus the prior year, exceeding our guidance range and was primarily driven by improved operational efficiencies. Stepping back, the category is providing the stable backdrop we need to deliver our margin improvement. We're pleased with our financial delivery and know that we can continue to drive value.

In 2025, we will continue to invest behind our brands and drive innovation. We continue to focus on ROI as we pursue the right investment opportunities to drive the right outcomes for our business. Turning to slide 11, I will now focus on our operational highlights.

Gross margin for the fourth quarter was 30.5%, a 130 basis point increase versus the prior year, which resulted from continued cost discipline and operational efficiency improvements. EBITDA margin in Q4 was 8.9%, a 70 basis point increase versus last year, driven by gross margin improvement. Full-year gross margin was 29.8%, a 90 basis point increase versus the prior year, and EBITDA margin for the full year was 10.1%, a 70 basis point increase versus the prior year. Looking at below-the-line items, interest expense in Q4 was $7 million and other expense was $2 million.

Our full-year profit delivery gives us confidence in our strategy and our ability to drive further margin improvement as we modernize our supply chain and progress towards our goal of approximately 14% EBITDA margin as we exit 2026. Let's now turn to slide 12 to cover cash flow and the balance sheet.

Full-year 2024 net cash flow from operations were $100 million and capital expenditures were $129 million, which includes investments in our supply chain and standing up our own infrastructure as we exit our transition services. We ended the year with free cash flow of negative $29 million, which came in ahead of our expectation and was primarily driven by the timing of core working capital. Additionally, we paid $55 million in dividends to shareholders throughout the year. We remained focused on optimizing our cash flow across the organization, and you can see that reflected in our results.

Turning to the balance sheet, we ended the fourth quarter with $535 million of debt and cash equivalents of $40 million, resulting in net debt of $495 million. This was an increase of $53 million versus last quarter and was driven by the increasing levels of investment in our strategic initiatives.

As a result, we ended the year with leverage of 1.8 times, and we continue to be well-positioned as we begin to increase spend on our supply chain modernization initiative. Let's turn to slide 13 to discuss our 2025 outlook. As Gary mentioned earlier, our outlook does not include the impact of the potential Canadian and Mexican tariffs. Quantifying any potential impact would depend on the timing, duration, and magnitude of the tariffs. For the year, we expect full-year organic net sales to be down approximately 1%.

We are moving to organic net sales, which is on a currency-neutral basis due to the increased foreign exchange volatility. Our net sales guidance also excludes the impact of the 53rd week, which occurs at the end of 2025 and represents approximately 1.5 percentage points of net sales growth on the year.

Due to the carryover impact of PPA and RGM initiatives, we expect to realize price in the low single digits and for volume to decline low single digits. For EBITDA, we expect full-year adjusted EBITDA growth to be 4%-6%, which includes the impact of the 53rd week. However, the incremental EBITDA associated with the 53rd week will be reinvested back into our brands during the course of the year to drive the long-term health of our business.

This guidance is consistent with our prior commentary of EBITDA growth in 2025 being similar to 2024 and reflects dollar delivery of $286 million-$292 million, and while we don't give quarterly guidance from a phasing perspective, it's important to note that Q1 2025 net sales and profit delivery when compared to 2024 will be negatively impacted by shipment timing, given that Easter is later in the year and by the lapping of a large retailer promotion.

We expect this to negatively impact net sales in the first quarter by an additional 1.5%-2.5% versus our full-year guidance. Given this impact and the impact of the 53rd week in the reinvestment in earlier quarters, we expect our EBITDA growth to be more back half-weighted when compared to previous years.

In summary, our 2025 outlook is consistent with our financial algorithm, maintaining a stable top line so we can deliver significant value through margin expansion. We're excited about our 2025 plan, which is supported by more robust and balanced innovation, continued operational discipline, and continued focus on maximizing our return on investment. Finally, let's turn to slide 14 to discuss our capital investments for 2025.

Our 2025 capital plan includes investing in our strategic initiatives, base business CapEx, and funding our dividend, which will be supported by a strong base business cash flow and available debt capacity. Our underlying cash flow sufficiently covers our dividend and base business CapEx needs, while our strategic initiatives will be funded via debt.

We expect 2025 capital and one-time costs related to our supply chain modernization to be approximately $200 million, and we continue to look for opportunities to further optimize our cash outlays on this project. Spend related to exiting our Transition Services Agreement is expected to be approximately $60 million. Base business CapEx is expected to be $70 million, which represents approximately 2.5% of net sales.

All of these estimates are consistent with our prior outlook and planning assumptions. Due to the timing of supply chain modernization spend, we expect CapEx for the year to be more back half-weighted. As we announced last week, the board of directors declared a dividend increase of 3%, which on an annualized basis represents $0.66 per share. This increase reflects our confidence in the execution of our strategy, our commitment to return capital to shareholders, and our focus on improving the cash flow of the company. I'll now turn it over to Gary for closing remarks.

Gary Pilnick (Chairman and CEO)

Thanks, Dave. On slide 15, as we close, I hope you can hear how we are executing our plan and delivering our value proposition. Maintaining a stable top line and driving outsized margin growth is how our near-term model works, and we're firmly on that path. We deliver 2024 broadly in line with our expectations while also building for the future by prioritizing our work, focusing the organization, and executing with excellence.

Our 2025 plan is robust, and as we take a step back, we are delivering what we promised at investor day before the spin. Our top line is stable, and we're on track to deliver upside margin expansion as we exit 2026. I'm extremely proud of the team across the WK organization and how they are transforming this business. They worked diligently in 2024 to deliver the right outcomes, and I'm confident we will do the same in 2025. With that, I'll open the call to Q&A.

Operator (participant)

Thank you. Please press star followed by the number one if you'd like to ask a question, and ensure your device is unmuted locally when it's your turn to speak. A kind reminder to please limit yourself to one question and one follow-up. Our first question comes from Andrew Lazar with Barclays. Please go ahead. Your line is open. Great. Thanks so much.

Andrew Lazar (Managing Director and Senior Equity Research Analyst)

Good morning, Gary and Dave. Good morning, Andrew. First thing, I'm curious what your 25 top line guidance is sort of embedding from a category performance and a market share performance for WK.

Gary Pilnick (Chairman and CEO)

Oh, it's a good start. So let's talk about the plan. And I think what you're hearing, Andrew, from the prepared remarks is that we have growing confidence in our ability to execute. But if you take a step back, it starts with the category. And we believe our category is providing us the backdrop we need to execute on our strategy. We talked way back when in investor day that for planning purposes, we would assume that the category would perform at pre-COVID levels down single digits, one or two%. And that's also our planning assumption for our 2025 plan. So that's the first part of it.

When you think about the rest of the program, we're very confident in our abilities to execute because of the way our team is executing and the way we executed in 2024. This being our second year, the maturing capabilities that we have, we've transformed most of our demand-creating infrastructure. That's marketing, that's sales, supply chain. This being year two, gives us the ability to have that much more confidence in the way we're going to execute the overall plan. And the last thing I'll say, Andrew, and I know you have a follow-up, this is the very first commercial plan that's been developed by WK and sold in by WK after the spin. That makes a big difference for us, and we feel very good about what we're about to deliver.

Andrew Lazar (Managing Director and Senior Equity Research Analyst)

Great. Thank you for that. And then, Dave, gross margin expansion in the quarter was certainly quite a bit better than we had modeled, even with volume being down nearly sort of 6% in the quarter. I guess any way to sort of quantify how much of an impact that volume deleverage had on gross margin? I'm really just trying to get a sense of maybe what margins would have looked like if volume was not as much of a drag, just to kind of understand maybe some of the underlying progress.

Dave McKinstray (CFO)

Yeah, Andrew, I'd step back by saying that as we look at our delivery in Q4, it's broadly in line with what we said on our Q3 call, right? And so as we look at it, the volume declines. One big thing that we'll talk about, and we talked about throughout the year, was our PPA execution. So as we progressed through the year, we've been executing PPA. So we had a little bit of a price dynamic that just kind of happened through our P&L, right? So as we go into next year, one dynamic that we think about is we're going to continue to realize price through the first half of the year.

As we get to the back half of the year, we'll have started to fully lap that PPA activity, and we should see the volume start to normalize. So as we think about our gross margin expansion, that was all considered in there, and it's part of our overall margin expansion play that we've had really and talked about since 2023.

Andrew Lazar (Managing Director and Senior Equity Research Analyst)

Thank you so much.

Operator (participant)

Our next question comes from Peter Galbo with Bank of America. Your line is open.

Gary Pilnick (Chairman and CEO)

Good morning, Peter.

Peter Galbo (Managing Director and Senior Equity Research Analyst)

Hey, guys. Good morning. Good morning, Gary. Good morning, Dave. Dave, just a question that we've gotten this morning from a few folks. If you could help bridge, I think, some of just the organic sales growth relative to the scanner data in the quarter, I think you had a kind of a favorability on a trade accrual from last year that would explain some of it. But scanner data was implying something down like mid-single digit sales growth, and obviously, you posted the minus two. So just helping to bridge us the rest of it would be very helpful.

Dave McKinstray (CFO)

Yep. You hit on a component of it, and we mentioned the Q3 call, the lapping of the one-time investment that we had in 2023. So that was a natural benefit. We've talked about our non-measured channel performance in prior calls. We've continued to see that play out.

I also mentioned here on the call an inventory build into the end of the year. Now, we expected that. We always see an inventory build as we head into a new year when the big dynamics that we have is we're shipping in innovation. Versus last year, we had a much bigger innovation plan.

So we expected our inventory levels to go up as we head into the end of the year because of that innovation, because of the commercial plan that Gary alluded to. Really, as you work down the list, it's the investment dynamic, the non-measured channels, and then the difference in the inventory shift or build, if you will, in 2023 and then in 2024.

Peter Galbo (Managing Director and Senior Equity Research Analyst)

Got it. Thanks for that. Gary, in your comments, you've mentioned obviously that tariffs are not included in the base guidance. But just given some of the action plans you've taken around optimization, the expansion at Belleville, Ontario. Just wondering if you can kind of help us quantify at all size or even just directionally kind of where you're sourcing into from those two plants, the one in Ontario and the one in Mexico. Thanks very much, guys.

Gary Pilnick (Chairman and CEO)

No, we appreciate it. I think it's fair to say that the situation right now is quite fluid and dynamic, and that's why it's difficult to provide reliable estimates. When we think about what we're doing as a company, just a modern supply chain has flows of raw packed wheat. The inputs just move across borders very naturally. We make most of our food in the U.S. for the U.S.

But I think the larger point you might be getting after is the way we're the strategic priority in terms of modernizing our supply chain. We expect to continue executing our plan. We began designing this plan literally a year before the spin, maybe two and a half years ago, with the objective of making sure we have the network for our long-term future in mind. And recall, we have significant investments in the U.S. as well. So we know that's the right plan for us and the right thing for our business longer term.

Operator (participant)

Our next question comes from Kenneth Goldman with J.P. Morgan. Please go ahead.

Kenneth Goldman (Managing Director and Senior Equity Research Analyst)

Hi. Thank you. Just to continue a little bit, if I could, the conversation about shipment versus consumption timing.I do appreciate the help you gave us in terms of understanding the fourth quarter and also in terms of modeling out the first quarter.

Can you help us understand a little bit how to think about after the first quarter? It's just an important point, I think, for a lot of people on the call because you are somewhat of a single category company. And so we really do rely a little bit more on Nielsen and Circana for some of the forecasting. Just should we still expect, I guess, is the main question, your shipments to generally be ahead of what we see in measured channels for the rest of the year, just considering the non-measured momentum that you've had in the business for a little while now?

Dave McKinstray (CFO)

Yeah, Ken, good question. So I think I'd start with Q1 just to reiterate a couple of the points that we made in the remarks. So we would expect our net sales to probably deliver slightly below the Scanner data in Q1. And that's really a product of the Easter timing shift. So again, not to get into too much detail on normal inventory flows for us, but Easter moving out has an impact on it. So for Q1, expect our net sales to be below our Scanner data. As we move through the year then to get to our overall guidance of down one for the year, think about that pretty evenly distributed across the remaining quarters.

And then as you think about that, I would expect our Scanner data, there'll be nuances, and we'll update you as the year goes on as things move. But I would expect our Scanner data to start moving more closely with our net sales in those back three quarters of the year. But again, there may be nuances that come up through the year that we'll update you as we progress.

Kenneth Goldman (Managing Director and Senior Equity Research Analyst)

Understood. That's clear. And thank you for that. And with the understanding we're just beginning 2025, I think your guidance, as you laid it out at the initial investor day, was for EBITDA growth rates to be somewhat similar in 2024 and 2025. And it's great to see that that's coming in as planned, but then accelerate into 2026. And I'm just wondering, is that still the plan that we should think about as we look ahead in our forecasting?

Dave McKinstray (CFO)

No, I'm glad you asked that, Ken. And the answer is yes. That's the way you should plan that. If I take a step back, what we had talked about was stable top line will allow us to then, as we expand our margins, the EBITDA then drops to the bottom line. You have it exactly right. We thought that 2025 would look a lot like 2024. Then we would be exiting 2026 with the expanded margin. As a reminder, we said we'd be going from 9% to 14%, 500 basis points of margin expansion. That is still the plan that we'd be exiting the year at those levels.

Kenneth Goldman (Managing Director and Senior Equity Research Analyst)

Great.Thank you.

Operator (participant)

The next question comes from Max Gumport with BNP Paribas. Your line's open. Thanks for the question. I just wanted to follow up on cadence to make sure I understand what you're signaling correctly.

Max Gumport (VP and Senior Equity Analyst)

I guess the first part would be for Q1, is it simply take what we're seeing in Nielsen or Circana and then say there's 1.5 - 2.5 points of headwinds primarily from Easter inventory, but also from a promo lap that we should be keeping in mind as well? Do I have that right? And if so, why wouldn't the promo lap already be put in, or why wouldn't we be seeing it in Nielsen?

Gary Pilnick (Chairman and CEO)

Yeah. To be clear, Max, that 1.5 - 2.5 points I referenced in the prepared remarks would be versus our full year guidance of down one. So as you think about our Q1 net sales, think about down one and then add the 1.5 to 2.5 points that, as I answered Ken's question earlier, what that should result in or what we would expect it to result in is that net sales that I just went over to be below our Scanner data in Q1. So you're right. The promotional activity would be reflected within the Scanner data. Really, the only difference would be that Easter timing shift.

Max Gumport (VP and Senior Equity Analyst)

Okay. And then we would see some benefit from that Easter timing in Q2. Would that be the correct way to think about that?

Gary Pilnick (Chairman and CEO)

Well, I kind of answered it, Ken, there. What I would expect in Q2 through Q4 would be our net sales to be relatively uniform across those quarters to get us back to the down one. So without giving specific quarterly guidance, I'd expect Q2 through Q4 to be relatively uniform from a net sales delivery to get us back to that down one from the Q1, which is a little bit behind that pace.

Max Gumport (VP and Senior Equity Analyst)

Okay. Got it. And I'll just end with, for Q2 through Q4 then, it seems to me like the numbers we're seeing in Nielsen right now for your business, like a minus two, it would seem like we're going to need to see that get much better Q2 through Q4. Is that largely driven by some of what you've talked about? And I think most notably, your innovation plan for 2025 being much bigger than it was in 2024. Just trying to get a sense for what's going to drive that improvement in underlying trends in Q2 through Q4. Thanks very much.

Gary Pilnick (Chairman and CEO)

No, it's a terrific question. I think the way we would answer that is we would speak to our 2025 plan. We just started February. When we think about the actual plan, I'll go back to a little bit of what I said before and then add a bit to it. But number one, the category is providing us the backdrop we need. We don't need a change in the trajectory of our category in order for us to deliver on our strategic goals. That's a big deal for us, and that might not be the same in other categories right now, just given the challenging environment that we're in. Secondly, we just talked about our execution. Year two is a big deal for us versus year one.

Just our ability coming out of the gates in year two, a more seasoned organization, the ability with our matured capabilities in sales, marketing, and supply chain, and that reliability in our supply chain makes a difference for us to drive our top line. But then you get to the commercial plan. With our commercial plan, we like the activation that we have in market. We like the plans that we have. We have the firepower to invest in our brands. We also have the innovation that we have out there this year. Dave talked about it being more broad-based. So we think that's going to be a tailwind for us throughout the year. Then a couple of other things I'll mention. One, there are green shoots in the category itself. The natural and organic, we have the brands that could play there.

We're going to be leaning in even more. There's also white spaces. That is, there are under-penetrated parts of our category that we're not participating in very much. Cups was a good example from last year. There are others. When you pull all that together, we feel good about our overall plan, and then the guidance made sense. Dave, anything else you want to add to that?

Dave McKinstray (CFO)

Yeah. I think just one small thing. Don't overlook the non-measured channels. We talked about that a couple of times. So I know we're all looking at the Nielsen data weekly and seeing how that's going to play out. But just a small thing is we have a business in Canada that's performed quite well for us. We have a business in the Caribbean that's performed well. And then we have business in that non-measured channel. So while we all follow that Nielsen very closely, we do as well. It's an important little nuance, again, to remember there is a portion that's not measured.

Operator (participant)

Our next question comes from Matthew Smith with Stifel. Your line's open.

Matthew Smith (Director of Food and Tobacco)

Hi, good morning. Thank you for taking my question. If we think about the $200 million of supply chain modernization spending in 2025, are you able to give an outline of what you would expect from a CapEx versus cash cost for the year? And if that's still in development, kind of the puts and takes around what could shift it one way or the other?

Dave McKinstray (CFO)

Yeah. So the $200 million is our total cash outlay with the project in the calendar year. As we think about what's going to be CapEx versus cash, the large majority will be on the CapEx side. I'd say the, call it 90+% will be on the CapEx side of things. So think about it this way. The $200 million is all the cash in this year of the $500 million that we've talked about or up to $500 million. And the large majority of that will be against CapEx.

Matthew Smith (Director of Food and Tobacco)

Thank you for that. And as a follow-up, if we go back to the commentary around promotion phasing through 2025, can you just talk about what your expectation is for the overall level of promotion? You mentioned it was a bit more competitive in the fourth quarter than I think you had anticipated. Do you expect the category to remain at an elevated rate of promotional activity as we move through 2025? And how would you think about your commercial plan relative to your expectation around the category? Thank you.

Gary Pilnick (Chairman and CEO)

No, thanks for that. One thing about when we talk about promotion, we tend to like to look backwards rather than forwards. That's just an important part of the way we think about our business. But we understand the importance of the commentary. The way we would think about it is when we think about promotion, it's just one of the many levers that we need to pull in order to drive the category and also drive our business.

So when we think about that, we need to make sure we have the right food, the right innovation, the messaging needs to get to our consumers, tie-ins and partnerships, but also the right price, the right pack, and the right place. So we understand how critical it is to get that equation right. We also recognize with our consumer, value is important. So we are focused on making sure we deliver value.

And as a branded company, we do that through pulling all those different levers. So when you look back with our Q4, we talked about our spend was general, the same activity that we had the previous year. And going forward, we feel good about our overall commercial plan and our ability to make sure we have the right investments in our brands. And at the same time, making sure that we're focusing on return because that's the key thing that we do. We focus on return with the brands and our channels to make sure we're doing the right thing for the business, but also delivering value for our consumers.

Operator (participant)

Our next question comes from David Palmer with Evercore ISI. Please go ahead.

David Palmer (Senior Managing Director of Restaurants and Food Producers)

Thanks. Good morning, guys. I wanted to ask you about price mix. I think you mentioned that you expect low single-digit price mix growth for 2025. Is the expectation. Recently, and if you look at your data or the category data, we see Kellogg's down 3.5% or so in price mix in the last four weeks, down a couple of % in the last 12 weeks. And the category is tracking similarly. As you noted, it's a promotional category right now. So I'm wondering, what is the plan to get price mix positive? Is it a mix thing from some of the innovation? Any plans to get that into the positive category would be helpful.

Dave McKinstray (CFO)

So, David, I think for us, we do see positive price mix, both in market and through our P&L. And as we talked about in my response to Andrew on the first question, a lot of that is mechanically coming through our PPA activity. So we've been executing PPA throughout the calendar year. We've now completed that. And as we move into next year, we'll pick up the lapping benefit of it in the first half. As we move to the back half of next year, I would expect our price and volume to move rather lockstep with one another.

One data point that we've talked about in the past is we've executed this PPA activity. One new data point we're looking at, I shouldn't say new, but maybe not as talked about data point is the units. So we're looking at our unit performance in relation to price, in relation to volume. And you can measure that as we move forward as well. I would expect all three of those, volume, units, and dollars to converge as we move towards the back half. Now, there might be some small nuances with mix. We've talked about cups. We've talked about some other things. But I wouldn't expect it to have a material impact on the overall.

David Palmer (Senior Managing Director of Restaurants and Food Producers)

So if we are seeing down low single-digit price mix in the scanner data all year long, that would be consistent with low single-digit positive price mix in your reported? I mean, how could we possibly, if we're tracking from home, so to speak, in terms of the scanner data, how would we possibly adjust for what we're seeing to what it would translate in terms of your reported price mix?

Dave McKinstray (CFO)

Sorry, David. I think we're saying the same thing. So our volume is declining at a higher rate than our dollars are declining. That's what we've seen throughout 2024, specific to WK. As we move forward into early next year, both in the P&L and the scanner data, we would expect our volume to decline at a higher rate than our dollars would decline in the first half of next year.

As we move forward into the back half, I kind of shaped what our expectation of net sales is. We would expect volume and dollars to move much more closely in line in the back half of next year. That's interesting because in Circana data, your units are tracking above your sales with price mix. And this is units in the Circana data, which I guess includes Amazon and Costco. So I don't know. Does that make sense to you? Yep. Yep. So that's what I was saying. Our units are moving ahead of volume, right?

So, volume declining, dollars declining at a less rapid rate, and units kind of closer to dollars than volume, a little bit ahead. The units moving ahead because of the PPA activity and because of the mix. We've talked about cups in the past.

David Palmer (Senior Managing Director of Restaurants and Food Producers)

I see. And then, as I said, as we move to the back half, the three of those will converge. And then one of the things, do you think does your plan contemplate these market share trends continuing at this level? Right now, we're seeing it looks like a category where the biggest brands are losing shares to little brands, a little bit to private label. How do you plan this year to go in terms of market share through the year? Do you contemplate market share stabilizing through the year? And how do you plan on that? Thank you.

Gary Pilnick (Chairman and CEO)

Thanks for that, David. When we think about market share, obviously, that's an important metric that determines the health of a business, the health of a category. The thing for us is it's important to make sure we remember what makes our model work. And what makes our model work is a stable top line. Because as we're expanding margin, allowing the EBITDA to drop through the P&L. That's the key thing for us. Now, when you think about share, look back to last year. Remember, we gained share in the Caribbean and in Canada. If you look at the other brands that we have, we've talked about a large percentage of them are actually performing consistent with or actually slightly better than the category. Special K is the outlier. As we look forward, we're thinking the brands should continue to work well for us. We like our activations.

We like the way the plans work. But the key thing for us is making sure that we maintain that stable top line. But rest assured, market share is something that the team focuses on quite a bit.

Operator (participant)

Our next question comes from Robert Dickerson with Jefferies. Please go ahead.

Robert Dickerson (Managing Director)

Great. Thanks so much. Excuse me. I guess maybe just going back to that last comment on Special K and Andrew's question on category growth and kind of just the overall commercial plan. It does seem like clearly certain brands may be resonating a little bit better than other brands in the portfolio.

So I guess very simplistically, as we think about 2025, even as we get through the back half of 2025, are the commercial plans kind of set in place such that there is clearly more activity or maybe more innovation coming from certain brands you can speak to relative to maybe some of the brands that just are underperforming in the overall portfolio?

Dave McKinstray (CFO)

No, it's a great point. And in fact, I think what you're doing for us is highlighting the power of our portfolio because we have the breadth of our portfolio from taste to wellness allows us to then focus on different consumer needs. And you're right. Different brands resonate with different consumers. And if you look at what we did in 2024, our very biggest brand is the fastest-growing brand, fastest-growing big brand in the category. So you're right.

So we would then spend more time and money on that because we think there's more opportunity there. Then you think about the green shoots I talked about earlier, the green shoots and natural and organic. We have Kashi and Bear Naked. We know that those brands could do something special. Bear Naked was back in the day the number one granola brand. It's now being managed by the team led by Doug VanDeVelde. He's never had those brands before.

So we're excited about what he could do with those brands. So the answer is certainly the way we design our overall plan, it's about the brands, it's about the channels, it's about the opportunities in the market. And it's one of the many reasons we think we have a competitively advantaged portfolio.

Robert Dickerson (Managing Director)

Okay. Got it. And then I guess just back to your comment early on around the pre-COVID kind of trajectory of the category, right? I think you said down 1%-2%. And that's what you discussed at the investor day. As we think about the cadence through the year coming out of the a little bit more pressure Q1 for nuanced reasons, you get back to the let's say we're in Q4 and let's just say you're flat for sake of argument.

Are you implying that's because of what you've done with the business and the activation plans and the commercial plan, what have you? Or is there a point at which, let's say, the category actually just does stabilize, right? I mean, volumes clearly have been down for some time, not just for you, but overall.

And maybe just kind of broader U.S., speaking to the U.S., consumption has actually kind of hit that trough level for a category that moves a lot but somewhat mature. Just trying to kind of gauge the idea because the down 1%-2%, I don't know if that's just into perpetuity or that's kind of for now. Any thoughts?

Gary Pilnick (Chairman and CEO)

No. No, Rob, my thoughts would be I think that's a very fair way of describing what we said in our prepared remarks and what I said before. But let me just fine-tune that just a little bit. What we talk about for planning purposes, we would assume the category would behave like it did pre-COVID. So down low single-digit 1%-2%. That gives us everything we need in order for us to deliver on our longer-term financial commitments, even our nearer-term financial commitments.

That said, given what we're doing, we're the originator of the category. We're now focused only on cereal. We think there's even more. I think there's even more. I'm optimistic about this category. But the point that we'd like to make is that the category continues to perform the way it's been performing. It's providing what we need in order for us to create unique value for our stakeholders.

Robert Dickerson (Managing Director)

Okay. Okay. Yeah. I mean, obviously, he's talking more about consumption and volume. I mean, at some point, I would think it becomes an issue if volumes are continuing to decline just from a retail perspective. But maybe if you have what you need, and I'm not really hearing this today or seeing the slides, but could there be innovation plans put in place that are still leveraging the brands but maybe aren't selling cereal? I don't know if that's in the foreseeable future.

Gary Pilnick (Chairman and CEO)

It's an interesting question because actually, we're looking at each other here. We've talked about that before. We've talked about if you go back to investor day, Rob, it's a good reminder for everybody. We talked about two different horizons. We talked about the first horizon being all about optimizing cereal. We talked about a stable top line allows us to expand our margins. You could just do the math about how much value that could create. There's a lot to play for there. At the same time, we know there's another future out there.

So as we are now executing our strategic priorities, we're doing it in a way that we're creating what we would call scalable infrastructure that would allow us in the future, as we continue to optimize cereal and drive real value out of that category and that portfolio, we do think there's a future. We have something that no one else has, which are our brands. And we know our brands travel.

You combine that with an infrastructure like a sales force or a new distribution system that is scalable, you could see that there's real opportunity. But rest assured, right now, we're focusing on optimizing our cereal for two reasons. One, we know there's significant value there. I hope you could see 2024 was a first step. 2025 will be the next step.

But it also helps us while we're doing that, get ready for that next horizon because our sales force is maturing. Our distribution system will be able to operate and will be able to work through and optimize the distribution system and all the other things that will allow us to scale in the future. But right now, we're focused on cereal to drive that value.

Thank you. And next question comes from Robert Moskow with TD Securities. Please go ahead.

Robert Moskow (Managing Director and Senior Research Analyst)

Hi. Thanks for the question. Gary, I just wanted to ask you to evaluate the market share loss in 2024. The investment thesis of the spin was that execution would improve with increased focus. And why do you think market share was down? Just taking a step back. And was it transitory factors? Are there things that will reverse that in 2025?

Secondly, I wanted to ask about the plant closures in Omaha and Memphis. The closures won't take place for a long time. I wanted to know, is that a positive because people have plenty of time to adjust, and therefore, that mitigates the execution risk as opposed to something quick? Maybe comment on that. Thanks.

Gary Pilnick (Chairman and CEO)

No, thanks for that. A couple of things about this. As I talk about market share, if you don't mind, let me just sort of put that into a little bit of context for us because you talked about what we first talked about back at investor day. What we discussed there was a variety of different commitments. Getting through 2024, as we finish up our first year, I think we would say we've delivered on those commitments.

You start with our financial commitments, with our net sales, bottom end of the range, but within the range. And then EBITDA, we over-delivered EBITDA actually ahead of our raised guidance. You look at our margin, both on gross and EBITDA margin. And you heard Dave talk about cash coming in even better than expected. And importantly for us is executing on our strategic priorities.

That is the supply chain modernization program you just mentioned. I'll come back to that in a second. But also separating effectively from Kellanova. That is a bespoke body of work that many companies, most companies do not have. We're doing that because of the spin and working closely with our cousins at Kellanova.

The team has just done an extraordinary job of doing that while operating in what has become a more challenging environment, Rob, than when we were first talking about this at investor day. You move forward and you say, "Okay, let's look at your market share." I think when you zoom out again, I think you know the Caribbean and Canada had nice years for us gaining share. In the U.S., it's Special K.

We were down 40 basis points for the year. You look at all the other brands, our other core brands, Frosted Flakes. We have a variety of Frosted Flakes did really well for us. We know Mini Wheats. We know Frosted Froot Loops, Rice Krispies. Those brands, five of the six of our core brands either held or gained share. Our core brands represent 70%-80% of our business.

Even on an ex-core, Corn Flakes, Corn Pops, Apple Jacks, again, holding or modestly improving share. So we feel good overall about the portfolio. You're raising the point, and I think it's a fair one about Special K. And we're not happy with the way that brand has performed, particularly since it's our second largest brand. So you see the outsized impact that that has.

So I would say you talked about execution. I think the team's executing beautifully. And we need to do better with Special K. And we need to continue the momentum behind our other brands. And as we look at our 2025 commercial plan, we feel good about that. We would say we believe Special K is going to have a better year in 2025 than it did in 2024. But it does take time to make sure that we get the brand back and resonate in the way we want it to resonate.

Dave McKinstray (CFO)

Now, Rob, if it's okay, I was going to go to your supply chain question. Is that okay?

Robert Moskow (Managing Director and Senior Research Analyst)

Please. Yeah. Thank you. Okay.

Dave McKinstray (CFO)

Yeah. In terms of supply chain, you heard us back in Q2. We reiterated all the economics from that plan. We said we're going to spend $500 million. We're going to raise, expand our margins by 500 basis points. And we would come out of 2026 moving our EBITDA margin from 9% to approximately 14%. We said that on Q2. We said it in today's prepared remarks. That's meaningful because as time goes on, the team is executing. And for us, it's not a big surprise, even though the initiative is so complex. It's because the team is focused.

We've got the right leader working through this. The planning and execution is really impressive as we watch them execute on this overall plan. For us, the timing was based on the best way for us to organize and the best way for us to execute on the overall program. That's the reason we said we're going to take the time. We're going to plan it. We have eight different distinct initiatives.

We've got planning across each of those. We make sure that each of those priorities do not interfere with the commercial agenda. So we integrate that work with the way we're running the business. This is the right amount of time for us to make sure that we are executing well, and so far, so good. We're really pleased with the way the team is executing.

Robert Moskow (Managing Director and Senior Research Analyst)

Makes sense. Thank you.

Dave McKinstray (CFO)

You got it.

Operator (participant)

Thank you. We have no further questions. So I'll turn the call back over to Gary Pilnick for any closing comments. Thank you for joining our call today. We look forward to sharing more with you at CAGNY next week. Thanks so much for joining. This concludes today's call. Thank you for joining. You may now disconnect your line.