Kellanova

a review of our fourth quarter results and a discussion of our outlook for 2024. I'm joined this morning by Steve Cahalan, our Chairman, President, and Chief Executive Officer, and Amit Banati, our Vice Chairman and Chief Financial Officer. Slide number three shows our forward-looking statements disclaimer. As you are aware, certain statements made today, such as projections for Kelnota'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 the third slide of this presentation, as well as to our public SEC filings. A recording of today's webcast and supporting documents will be archived for at least 90 days on the investor page of www.kelanova.com. As always, when referring to our results in Outlook, unless otherwise noted, we will be referring to them on an organic basis for net sales, and on a currency neutral adjusted basis for operating profit and earnings per share. Included in our press release are financial results for the fourth quarter 2023, as well as the first three quarters and full years of 2023 and 2022, recasting WK Kellogg Co. in those periods as discontinued operations in accordance with applicable accounting guidelines. These recast financials will be the basis of comparison used in the year-on-year growth rates we provide today for all items except free cash flow, which was not recast. Keep in mind that the accounting guidelines for discontinued operations are such that the recast financials for the periods prior to the spinoff include expenses related to providing transition services to WKKC, such as warehousing and IT related expenses, but they do not include the reimbursement for those expenses, which Calenova is receiving from WKKC under a transition services agreement. For periods after the spinoff, that is from Q4 2023 on, both the expenses and the reimbursements will be included, which will impact year-on-year comparisons. This also creates a difference from the carve-out financials that you would have seen from WKKC as different accounting guidelines apply to carve-out financials. And now I'll turn it over to Steve.

Thanks, John, and good morning, everyone. It's a real pleasure to be able to present to you results for Kelanova for the first time. Allow me first to point to you to slide number five and remind everyone of Kelanova's more focused, more growth-oriented portfolio. And let me also remind you of our updated and sharpened strategy. This strategy, appropriately called Differentiate, Drive, and Deliver, is shown on slide number six. This strengthened portfolio and sharpened strategy were in full force during our initial quarter as Kelanova. We delivered another quarter of solid results as summarized on slide number seven. We began the quarter with our transformational spinoff, which we executed successfully from a transactional, financial, and operational perspective. We did not let this transformational transaction distract us from the task at hand, delivering results. In the quarter, we delivered results for net sales, operating profit, and EPS that all were better than the guidance ranges we provided back in November. Our organic net sales growth remained at a rate that is above our long-term algorithm, even in spite of challenging industry conditions marked by rising elasticities in our categories around the world. Importantly, the strength of our diverse emerging markets was again evident. We continued to restore profit margins that had been pressured by last year's soaring input costs and rampant supply impediments. And this led to operating profit growing at a rate that exceeded our long-term algorithm as well. Meantime, we delivered more free cash flow than we had anticipated, further strengthening our balance sheet and financial flexibility, which was used to opportunistically accelerate share repurchases. Importantly, we have shifted our focus back toward demand generation after a few years of having to focus more on supply, and we solidified our plans and assumptions for 2024 accordingly, as outlined on slide number 8. We are affirming the 2024 guidance we gave back in August at our Day at K Investor event, underscoring the dependability we intend to continue to exhibit as Kelanova. While it could take a couple of quarters before these negative industry trends abate, We are confident that our return to a full commercial plan will gradually stabilize and improve our volume as the year progresses. Our innovation is bigger and better than last year's supply-related pullback. Our highly differentiated brands are fully supported with A&P investment, and we are back to normal levels of merchandising. We are also confident in our sustained momentum in emerging markets, another point of differentiation for Kelanova. Meantime, we also expect margin expansion in all four regions in 2024. The result is an outlook for an on-algorithm net sales and operating profit growth and free cash flow generation that is strong enough to incrementally invest in future growth and future margin expansion. This investment in future growth includes incremental capital expenditures for adding much needed capacity for Pringles and our emerging markets, as we've discussed previously. But we're also investing in margin expansion, as shown on slide number nine. Consistent with our long-term plans to optimize our global supply chain network, we have commenced two optimizations of production facilities, one in our North America frozen foods business and one in our European cereal business. These are high-return projects that require very little cash up front and will start delivering savings by late this year. All of this is contemplated in our guidance. And even after deploying some of the savings into growth-oriented investments, particularly behind snacks and emerging markets, These actions enable us to get to our medium-term operating profit margin of 15% by 2026, a little earlier than we had previously indicated, while also progressing on our strategy's ambition to deliver best-in-class service through agile, flexible supply chain. Our focus is also on growing the right way, and slide number 10 shows some of the ways our Better Days Promise Program manifested itself during the fourth quarter. We unveiled new, more ambitious targets for Kelanova, sustained our legacy of helping our communities, and linked these activities to our commercial endeavors. And we continue to be recognized for our efforts. So now let me turn it over to Amit, who will walk you through our financials before I come back and discuss each of our businesses in more detail.

Thanks, Steve. Good morning, everyone. Slide number 12 summarizes our results for the fourth quarter and folio for Kelanova. As John indicated, the year-on-year growth rates are based on recast results for the four quarters of 2022 and the first three quarters of 2023. As you can see, our results for the quarter came in above the guidance we had provided, and they complete a full year in which we maintained our focus on delivering consistent on-algorithm results, even amidst the incremental work of executing the spinoff. Net sales increased by about 7% on an organic and recast basis in quarter four, featuring decelerating volume declines and price mix growth that is moderating as we lap significant revenue growth management actions in the prior year. For the full year, Kelanova's organic net sales growth was about 8%, well above our long-term growth target. Operating profit in quarter four increased by 30% on an adjusted and currency neutral basis and comparing against a recast 2022. This was driven by the solid top-line growth as well as by a restoration of our underlying gross profit margin and reimbursement for expenses related to transition services we're providing to WK Keller Company. For the full year, Kelanova's operating profit increased by 18% on the same recast basis. Even taking into account the year-over-year impact of expense reimbursement for transition services provided to WKKC in quarter 423, which did not exist in the year earlier quarter, our year-on-year growth in operating profit was still in double digits for the quarter and the year, well ahead of our long-term target. Earnings per share on an adjusted and currency-neutral basis increased by about 19% year-on-year in quarter 4 and by 7% year-to-date, as strong operating profit performance more than covered significant headwinds from macroeconomic factors that drove up interest expense and pulled down pension income. Finally, free cash flow came in higher than we had expected in quarter four, finishing the year at $968 million. Free cash flow is not recast for discontinued operations, so the decrease from last year solely related to one-time outlays related to the spinoff and the absence of North America serials cash flow in the fourth quarter. Now let's take a look at each metric in closer detail, starting with our net sales growth on slide number 13. As expected, price elasticities continue to rise around the world in quarter four, putting pressure on volume, though this volume again came in better than projected due to better performance in our emerging markets. Price mix continued to moderate sequentially from recent quarters, as expected, as we lapped some of our largest revenue growth management actions last year. The result was another quarter of elevated organic net sales growth, though to be clear, about half of that came from our Africa joint ventures where substantial pricing is needed to cover a devaluing currency and shipments were unusually strong. That said, even excluding that business, we sustained organic growth that was in line with our long-term target. Moving across To the non-organic drivers of net sales, the divestiture of our Russia business, which occurred in July, clipped about a percentage point from our overall net sales growth in Q4, just added as it did in Q3. Foreign currency translation was a headwind of about negative 6 percentage points in Q4 and about negative 4 percentage points for the full year. This reflected primarily the Nigerian Naira, which continued to devalue during the fourth quarter and was only partially offset by strength in the Euro, pound sterling, and Mexican peso. While we don't provide guidance on foreign exchange rates, if today's rates held for the year, we would likely experience an impact on net sales that is similar to the impact that we saw in quarter four. Now let's discuss our profit margin recovery, starting with gross profit on slide number 14. In quarter four, we continue to grow gross profit and restore gross profit margins. As in the previous quarters, this restoration of margins was aided by revenue growth management, productivity, and improved supply and service levels. In addition, the other half of the quarter's margin expansion was driven by reimbursement of expenses related to transition services provided to WKKC, which did not exist in the year-ago quarter. You'll notice that at 34% in quarter four, Calanova's gross margin is structurally higher than Kellogg Company's margin, and it continued to come in higher than we had anticipated. We expect to continue to improve gross margin in 2024. Turning to slide number 15, we see that in quarter four and the full year, we also grew operating profit, driven by growth in net sales and the higher gross profit margin. Meantime, Operating profit margin improved year-on-year in Q4 and the full year. Remember, the 12.3 margin you see for 2023 is recast for discontinued operations, so it does not include reimbursement for transition service expenses during the first three quarters. We expect our operating profit margin to reach 14% in 2024. Moving down the income statement, slide number 16 shows how our adjusted basis earnings per share growth in 2023, even on a recast basis, felt the year-on-year effects of macro-related headwinds within our non-operating below-the-line items. These below-the-line pressures were expected and were experienced year-on-year in quarter four and the full year, even comparing to a recast 2022, and for all the reasons we have discussed previously. Foreign currency translation was modestly positive to earnings per share in 2023, including Q4, as strengthened European and Mexican currencies more than offset what is a relatively small impact from Nigeria and Naira at the EPS level. Recall that due to our ownership structure, while the Naira had a large impact on net sales, its impact on operating profit and EPS is much smaller. Turning to slide number 17, we are pleased with our cash flow generation and balance sheet. Noting that we have not recast free cash flow for discontinued items, we finished 2023 only modestly below 2022, despite the absence of the spun-off North America serial cash flows for a quarter and despite one-time cash outlays related to the spinoff. In fact, the combination of these spinoff factors amounted to about $300 million of negative impact If you added that back, you can see that our free cash flow would have come in above 2022 levels. Our balance sheet after the transfer of net debt to WKKC remains solid with debt leverage remaining well below our targeted ratio of net debt to trailing EBITDA of three times. Now let's discuss our 2024 guidance shown on slide number 18. The 2023 base is recast for discontinued operations And because these figures may differ from WKKC carve-out figures and our internal management figures, we've chosen to continue to provide you with absolute dollar guidance for operating profit and earnings per share in 2024. After all, 24 is what is really important as it is the first full year in our current P&L structure. Let's go through each metric. For net sales, we affirm our guidance for growth within our long-term targeted range, specifically calling for 3% growth or better in 2024. Across most of our businesses, price mix growth will moderate as we continue to lap prior actions, and industry-wide elasticities will fade gradually during the year. The exception is Nigeria, where currency-influenced pricing actions will likely continue, which we assume produce meaningful elasticity impact on volume. Organic growth, of course, excludes currency translation, which based on today's exchange rates would be a headwind of 5% to 6%. For adjusted basis operating profit, we continue to provide absolute dollar guidance because year-on-year growth rate can be impacted by discontinued operations accounting. We are firming the range of $1.85 to $1.9 billion today. This incorporates a negative impact from currency translation, which based on today's exchange rates would be approximately 2%. Versus recast 2023 figures, this implies growth in operating profit in the mid-teens. After taking into account the year-over-year impact of expense reimbursement for transition services provided to WKKC for four quarters in 2024 versus only in the fourth quarter in 2023, This year-on-year growth is still in the mid-single digits, solidly on our long-term target. Our guidance implies continued margin expansion as an improving gross profit margin more than offsets a strong increase in brand investment. We expect to reach a 14% operating margin in 2024. Adjusted basis earnings per share is still expected to be in the range of $3.55 per to $3.65. We make no change to our previously communicated expectation for an increase in our effective tax rate to 23%. Our outlook for interest expense is about $310 million, and we expect other income to be around $50 million. And we are forming an outlook for free cash flow of approximately $1 billion. With year-on-year growth driven by operating profit, partially offset by capital expenditure, temporarily elevated for expanded Pringles capacity in emerging markets, and modest cash outlays related to our two network optimization projects. These network optimization projects are addressed on slide number 19. At our Day at K investor event in August, we cited network optimization as one of the drivers of our margin expansion, and we are now ready to discuss specific initiatives. The two projects we are announcing today are both high-return projects. Only about half of the projects upfront costs are cash, even before asset sales, and the projects collectively become cash-neutral by 2025. In 2024 specifically, upfront costs will amount to about $160 million, with less than $40 million of that in cash, and this has been incorporated into our cash flow guidance. Savings for the project start very quickly, with a small portion of the overall $75 million coming as soon as the second half of 2024, and this too is incorporated into our guidance. In fact, this is a contributor to our operating profit margin expanding to 14% this year, as implied by our operating profit guidance. Importantly, with this announcement, we can also now be more specific about the timing of our medium-term goal of a 15% operating margin. We expect to reach that margin in 2026. So let's summarize our financial condition on slide number 20. In what was our debut quarter as Calenova, our fourth quarter results came in as guided from net sales to earnings per share. The business remains in good shape with margin restoration proceeding ahead of pace and volume performance on a path of gradual improvement. Consequently, we have affirmed our guidance for 2024 even amidst challenging industry and macroeconomic conditions. Our medium-term goal of attaining a 15% operating profit margin has been accelerated to 2026 as ongoing margin expansion drivers are now augmented by network optimization initiatives which get started this year subject to consultation. And we continue to generate strong free cash flow that, along with our deleveraged balance sheet, gives us financial flexibility. This flexibility has been on display in the form of opportunistic share buybacks during quarter four and in our decision to elevate capital investment to expand capacity for our rapidly growing Pringles business. So we enter 2024 in a strong financial condition. Let me now turn it back to Steve for a run through of our businesses around the world.