WK Kellogg Co

For joining, I'm Pam Kaufman, Morgan Stanley's U.S. Food and Tobacco Analyst. I'm very excited to be on stage this afternoon with W.K. Kellogg's leadership team. We have CEO Gary Pilnick and Dave McEntree, CFO. So thank you both for joining us. Before we get started, I just need to cover the standard disclaimer. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com slash researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. I'll kick it off with questions, and we'll open it up to Q&A at the end. Obviously, a very exciting time for the company, just recently spun off as an independent company. Why don't we kind of start by getting your perspective on the U.S. consumer. It's been a dynamic time for the consumer over the last couple of years and we've seen trends decelerate within the food space. So what are you seeing and how would you characterize the current environment?

It's a great place to start. And I think it's probably fair to say the consumer is not a monolith, but we're all consumers. And I think the consumer base is under pressure. We see what's happening with inflation. We see credit card debt. It's rising. So I think it's very fair to say that we have a dynamic right now where we're responding to a consumer under pressure. And we expect that to continue, at least for the near term. Now, what's interesting for us is the cereal category tends to do well in moments like this, in economic moments like this. And the primary reason for that is it's a very affordable category. We've said publicly you don't get a lot of meals for about a dollar or less than a dollar when a bowl of cereal and milk. So these moments were all very difficult for consumers. Actually, the category is a place that they would seek value because we would think they'd be value-seeking when they're under pressure. And a couple dynamics when you think about shifting, you would immediately go to, well, what about private label? And in our category, private label has seen an uptick. What's interesting about private label in our category, it holds about a 7% share. That's relatively low when you compare that to other categories in the food space. Earlier this year, there was some more TDPs provided to private label. Their share went up, but it stabilized around 7%. What's even more interesting is the dynamic within our category of premiumization. You would think when consumers are under pressure, the premium side of the category wouldn't be growing. It is. It's growing meaningfully. Now, it's a smaller part of the category. We're participating. Special K Zero, the first product into the category with zero added sugar. Special K High Protein. We develop both of these during the spin. And others are in there as well. And we're going to participate even more. But it just shows the dynamic nature and affordability of the category. Maybe the last thing I would say is, potentially our category could be even more important to retailers right now in that they're looking to drive traffic. If any people are listening are shoppers, you know that cereal's on your list. We're a destination category. We drive traffic. So maybe at this point in time, our category could be that much more robust because the consumer is under pressure.

And since some investors might be newer to your story, given you are a newly public company, can you maybe talk about some of the benefits of the spin and how you expect that to help the business strategically?