Kellanova

Good morning. Welcome to the Kellogg Company's second quarter 2020 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star and the number one on your telephone keypad. Please limit yourself to one question during the Q&A session. Thank you. Please note, This event is being recorded. At this time, I will turn the call over to John Renwick, Vice President of Investor Relations and Corporate Planning for Kellogg Company. Mr. Renwick, you may begin your conference call.

Thank you, Gary. Good morning, and thank you for joining us today for a review of our second quarter results, as well as updates regarding our outlook for 2020. I am joined this morning by Steve Cahillane, our Chairman and CEO, and Amit Banati, our Chief Financial Officer. Slide number three shows our forward-looking statements disclaimer. As you are aware, certain statements made today, such as projections for Kellogg Company's future performance, are forward-looking statements. Actual results could be materially different from those projected. For further information concerning factors that could cause these results to differ, please refer to this third slide of the presentation as well as to our public SEC filings. This is a particular note during the current COVID-19 pandemic. when the length and severity of the crisis and resultant economic and business impacts are so difficult to predict. A replay of today's conference call will be available by phone through Thursday, August 6th. The call will also be available via webcast, which will be archived for at least 90 days on the investor page of KelloggCompany.com. As always, when referring to our results and outlook, unless otherwise noted, we will be referring to them on a currency-neutral basis for net sales, and on a currency-neutral adjusted basis for operating profit and earnings per share. And now we'll turn it over to Steve.

Thanks, John, and good morning, everyone. These are certainly unusual and troubling times. The pandemic drags on, with cases rising again in many states and countries that have just begun to reopen. And recent events around racial injustices have only added to an environment that is both uncertain and worrisome. It goes without saying that these crises have touched us all in some way, and our hearts go out to individuals and families that have been directly affected. And we certainly hope you and your families and friends are staying safe. As a company with heart and soul, it has been very important for us to maintain ongoing communication with our stakeholders about what we are doing to keep each other safe, how we continue to supply our markets with food, and how we are giving back to our communities. We've also worked to increase our open dialogue about diversity and inclusion. which we deem to be inherent in our company's values. This has included stepped-up actions like incremental donations to the NAACP, town halls and testimonials by employees, professors, and authors, and we will continue to do so. So we are certainly operating in unprecedented times, and from our employees on the front lines in our plants and distribution centers and now back in stores to our employees working from their homes, This organization has come together and rallied to the occasion like nothing I've ever seen before. From a business perspective, turning to slide number five, we're managing well through the crisis. Our number one priority, of course, has been keeping our employees and their families safe as best as we can. We've talked previously about the investments and process changes we have made, and we will remain vigilant to protect our people. We've told you that we feel we have an incredible responsibility in supplying food during this time. I'm happy to report that we've experienced no major supply disruptions and managed to increase our production and keep up our service levels in spite of higher than expected demand in many markets. We continue to aid our communities through volunteer hours and through what is now nearly $15 million in cash and food donations that we've made since this crisis began. These are our priorities during the crisis, and we are executing well against them. Turning to slide number six, it was in the usual quarter, to say the least. In addition to executing against our crisis priorities, we again delivered exceptional results in the second quarter, even amidst a very uncertain environment and new, unusual ways of working. Our net sales came in much higher than expected. We'd assumed that at-home consumption growth would decelerate meaningfully during the second quarter, but with prolonged crisis, it held up higher and for longer than we had forecast. And in some of our categories, retailers were able to catch up to demand and rebuild inventory. Meanwhile, declines in away-from-home channels persisted, and our emerging markets did not slow down as much as we had expected, given COVID disruptions and recessionary conditions. We also generated higher-than-expected operating profit. The higher-than-projected volume ran through our well-utilized plants, driving strong operating leverage. This more than offset significant incremental COVID-related costs in the quarter, mainly around safety, employee benefits, temporary labor, and logistics. The net of this was an unusually large increase in gross profit. Our operating profit also received a temporary boost from the deferral of various investments. We again shifted brand building investment to the second half, particularly investment in activities that we tied to canceled or delayed sporting events, movie releases, and innovation launches. We also shifted some overhead in capital investment to the second half. As a result, we have seen an even larger shift of the year's operating profit into the first half. It's important to recognize that we also executed well, and there are clear signs that our underlying business is in good shape. For instance, we continue to increase household penetration, aided by our ability to get food into the market and to adjust our brand communication. There is trial, repeat, and reappraisal that can benefit us long after the crisis finally passes. Other signs of execution include our improved category share performance, including some brands that we've been revitalizing through fresh brand messaging. And our supply chain is operating well, gradually improving our service levels amidst unusually challenging circumstances. All of these contributed to an outsized financial delivery in Q2. So let's discuss what this means for our full year, turning to slide number seven. We recognize that many companies have refrained from giving guidance in this uncertain environment and we can understand why. There are a number of variables that are extremely uncertain right now. So today we're going to offer you our planning stance for the second half and how we are approaching some of these variables. And we are raising our full year guidance to reflect our over delivery in the first half. From a net sales standpoint, our increased full year outlook reflects the strong growth we delivered in the first half as well as a slightly improved top line outlook for the second half. We won't get more aggressive than that because too many variables are simply too uncertain. From a profit and earnings standpoint, we do know that our second half profit will be weighted down by investment. Most of this increased second half investment is simply shifted from the first and second quarters, the result of focusing on supply and postponing promotional activity tied to canceled events. Specifically, In the second half, we plan to return to full commercial programming and to completely invest our full-year brand building budget. Again, there are many unique assumptions that we have to make in formulating an outlook right now. The length and severity of the COVID crisis and related economic recession is not knowable. But Ahmed will walk you through our key planning assumptions in a moment. Suffice it to say, we feel very good about having a front-weighted profit delivery this year and a strengthened commercial plan for the second half. So with that, let me turn it over to Ahmed, who will take you through our financial results and outlook in more detail.