2015 Results

FY 2015 Results

Review of 2015

In keeping with the goals laid out in our 2020 Growth Plan, 2015 showed positive results over the previous year. Many of our businesses saw sales growth such as U.S. Specialty Channels, European Snacks, Latin America and Asia Pacific. We believe this is a strong validation of our strategy and bodes well for the future.

Our full-year currency-neutral comparable revenue growth was 1.2 percent, currency-neutral comparable operating profit declined by 2.3 percent, and currency-neutral comparable earnings were $3.81 per share. It is worth noting that the results for operating profit and earnings per share were impacted negatively by the rebasing of incentive compensation; for example, without this impact full-year operating profit would have increased by approximately 1 percent. Full-year cash flow from operations, less capital expenditures, was $1.1 billion, which exceeded our original expectations. And we continued to make important progress executing Project K and implementing zero-based budgeting in 2015; both Project K and zero-based budgeting are programs designed to improve our efficiency and effectiveness. So, the performance we achieved has set a solid base for continued growth in the coming year.

We saw improvement as the year progressed in the U.S. Morning Foods business where we posted a decline in comparable sales of 1.6 percent. We worked hard to improve the fundamentals, emphasizing brand building and new product launches, such as the introduction of our new granolas and müeslis. And we put fun back in the box with Avengers and Disney’s Frozen-themed cereals. Our progress in Morning Foods has us optimistic about this business as we roll into 2016.

The U.S. Snacks business posted a decrease in currency-neutral comparable sales of 1.6 percent in 2015. However, we saw sequential improvement in consumption in the cookie, cracker, wholesome snacks, and Pringles businesses as we ended the year. Cheez-It continued to perform well in the Cracker category, Rice Krispies Treats posted good growth in the Wholesome Snacks category, and performance improved in the Cookie category. One of the powerhouses behind U.S. Snacks continues to be the Pringles business, which posted low-single-digit sales growth, building on mid-to-high-single-digit growth last year. Pringles posted growth across all channels, including Club and Convenience. The Snacks team has been doing a lot of work in each of the categories, which resulted in the improvement we saw last year.

Currency-neutral comparable net sales in the U.S. Specialty Channels business increased by 0.7 percent last year. The Convenience, Girl Scouts and Vending channels all posted growth. The performance in Foodservice was driven by the growth of wholegrain cereal and wholesome snack offerings in the K-12 school business and share gains in on-the-go segment. In addition, we also saw excellent, broad-based growth across the categories in the Convenience channel and we’ve grown share in the Cereal, Cracker, Wholesome Snack, Salty Snack and Cookie categories. One success story in Specialty has been our new Zip Dips product that brings Pringles and dip together in a winning combination. Zip Dips won the 2015 Retailer Choice award for best new product in the Convenience channel and helped the overall Pringles business post strong rates of growth.

Comparable sales in the U.S. Other segment, which is composed of the U.S. Frozen Foods, Kashi and Canadian businesses, declined by 3.2 percent in 2015. In Frozen Foods, our Eggo hand-held sandwiches continued to perform well. In Kashi, our recent innovation has been well received and overall consumption trends improved significantly as the year progressed, as we expected. And we’re increasingly confident about 2016. We’re focused on progressive nutrition and have some great introductions planned. In fact, our total weight of innovation in 2016 is twice what it was in 2015.

As for the Canadian business, comparable net sales increased at low-single-digit rate. We have plans to introduce new products and programs in 2016, although we expect the business to be negatively impacted by transactional foreign exchange.

With regard to the European business, overall currency-neutral comparable sales declined by 0.6 percent last year. The Pringles business in Europe, however, had an outstanding year, posting double-digit sales growth. Importantly, we grew share in both the U.K. and Germany for the full year. We have some exciting activity planned for Pringles in 2016. This includes a soccer-themed promotion timed to coincide with the Euros soccer tournament and the continued rollout of Pringles Tortilla in the region.

While sales in the European cereal business declined, we improved our plans for Special K and Crunchy Nut in the U.K., saw good performance from Extra in Italy, and invested in Kellogg’s-branded granola in Germany. And we recently launched the Ancient Legends brands in the region. These are great products, which include ingredients like spelt, apples, sultanas and chia seeds. We also have new foods coming across the region in 2016, including the relaunched Special K bars and new products made with fruits, nuts and seeds. We expect improvement to continue in 2016 as we launch great new products, invest for growth and focus on execution.

We also had a good year in the Latin American region in 2015. Despite challenging conditions driven by slowing economies and weakening currencies, the business achieved currency-neutral comparable sales growth of 24.6 percent; this was largely due to the impact of pricing in Venezuela. Sales growth in Mexico was driven by great performance in the cereal business. We gained share in the Cereal category later in the year and we saw improved performance from our adult-oriented cereals. We also gained share in Brazil for the year. These gains were partially the result of parent-brand innovation and support. We launched Ancient Grains in Brazil in the fourth quarter, and in the Andean region in the first quarter of 2016. We also have Special K protein, and granola with quinoa, planned for introduction.

Sales in the region’s snack business also increased, thanks to better execution, good innovation, and Pringles strength. In fact, the Pringles business grew at a double-digit rate. Commercial innovation, strong execution and promotional programs drove growth, and we expect continued good performance from the brand in 2016. Additionally, our focus on high-frequency stores continues to drive results in convenience and mini-superstores in Mexico, and in smaller mom-and-pop stores in Colombia. We've also had success driving sales growth through packaging initiatives designed for affordability and accessibility in various areas of the business.

Our Latin America team has done a great job managing through challenging economic conditions, and we expect continued good performance from the region in 2016.

We are pleased with the performance of the Asia Pacific region, which posted currency-neutral comparable sales growth of four percent in 2015. Results in Asia were very good with many of the countries in the region seeing double-digit sales growth as the result of excellent innovation and great support. We also saw strong high-single-digit sales growth in the region’s Pringles business, which was the result of broad-based growth across markets. The environment in Australia remained challenging with category performance continuing to decline. But, with the granola and müesli segments growing well and execution remaining strong, we expect to address this weakness in the year ahead. We expect another year of good performance from the total region in 2016.

2015 Annual Report