WK Kellogg Co(KLG) - 2025 Q3 - Quarterly Report

Part I – Financial Information This section provides a comprehensive overview of the company's financial performance, condition, and cash flows, along with management's analysis and disclosures on market risks and internal controls Financial Statements This section presents the unaudited consolidated financial statements for the quarter ended March 29, 2025, highlighting decreased net sales and net income, and a slight increase in total assets Consolidated Financial Statements This subsection provides key financial data from the consolidated balance sheet, income statement, and cash flow statement for the specified periods Consolidated Balance Sheet Highlights (As of March 29, 2025) | Account | March 29, 2025 (M) | December 28, 2024 (M) | | :--- | :--- | :--- | | Total Current Assets | $652 | $619 | | Total Assets | $2,016 | $1,962 | | Total Current Liabilities | $836 | $841 | | Total Liabilities | $1,689 | $1,645 | | Total Equity | $327 | $317 | Consolidated Statement of Income (Quarter Ended) | Account | March 29, 2025 (M) | March 30, 2024 (M) | Change | | :--- | :--- | :--- | :--- | | Net sales | $663 | $707 | -6.2% | | Operating profit | $20 | $46 | -56.5% | | Net income | $18 | $33 | -45.5% | | Diluted EPS | $0.20 | $0.37 | -45.9% | Consolidated Statement of Cash Flows (Quarter Ended) | Activity | March 29, 2025 (M) | March 30, 2024 (M) | | :--- | :--- | :--- | | Net cash from operating activities | $(2) | $10 | | Net cash used in investing activities | $(60) | $(9) | | Net cash from financing activities | $49 | $(19) | | Decrease in cash and cash equivalents | $(13) | $(18) | Notes to Financial Statements The notes provide detailed explanations of accounting policies and specific financial statement items, including the company's spin-off, restructuring plan, debt, and derivative use - The company was spun off from Kellanova on October 2, 2023, and has entered into several agreements governing the separation of assets, liabilities, and ongoing services[22][23] - A restructuring plan to modernize the supply chain, including closing the Omaha plant and scaling back the Memphis facility, is expected to result in $230-$270 million in pre-tax charges through 2027, with $14 million recorded in Q1 2025[38][39][40] - In Q1 2025, the company borrowed an additional $50 million under its delayed draw term loan, bringing total borrowings to $597 million[50] - The company operates as a single reportable segment engaged in the manufacturing, marketing, and sales of cereal products in North America[63] Management's Discussion and Analysis (MD&A) Management discusses a challenging quarter marked by a 6.2% decline in reported net sales, a 45% drop in net income, and negative free cash flow due to supply chain modernization Results of Operations For Q1 2025, reported net sales decreased 6.2% to $663 million, driven by an 8.6% volume drop, while net income fell 45% and Adjusted EBITDA decreased 4% Net Sales Performance (Q1 2025 vs Q1 2024) | Metric | Value | | :--- | :--- | | Reported Net Sales Growth | (6.2)% | | Organic Net Sales Growth | (5.6)% | | Volume (tonnage) | (8.6)% | | Pricing/mix | 3.0% | Profitability (Q1 2025 vs Q1 2024) | Metric | Q1 2025 (M) | Q1 2024 (M) | Change | | :--- | :--- | :--- | :--- | | Reported Net Income | $18 | $33 | -45% | | Adjusted EBITDA | $72 | $75 | -4% | Gross Margin Performance (Q1 2025 vs Q1 2024) | Metric | Q1 2025 | Q1 2024 | Change (pts) | | :--- | :--- | :--- | :--- | | Reported Gross Margin | 28.5% | 28.7% | (0.2) | | Adjusted Gross Margin | 29.4% | 29.2% | 0.2 | - Selling, general and administrative (SG&A) expense remained relatively flat at $155 million, as a decrease in advertising was offset by incremental separation costs for IT infrastructure[99] Restructuring The company is proceeding with its supply chain modernization plan, recording $14 million in Q1 2025 restructuring charges, with total estimated pre-tax charges of $230-$270 million - The company recorded $14 million in restructuring charges for the quarter ended March 29, 2025, related to its supply chain modernization plan[104] - The total expected cumulative pre-tax charges from the restructuring are estimated to be between $230 million and $270 million, to be incurred through 2027[103] Liquidity and Capital Resources The company's liquidity is supported by its Credit Facility, but Q1 2025 saw negative free cash flow of $62 million due to increased capital spending on restructuring Free Cash Flow (Quarter Ended) | Metric | March 29, 2025 (M) | March 30, 2024 (M) | | :--- | :--- | :--- | | Net cash provided by operating activities | $(2) | $10 | | Additions to properties | $(60) | $(9) | | Free cash flow | $(62) | $1 | - During Q1 2025, the company borrowed an additional $50 million pursuant to the delayed draw term loan available under its Credit Facility[105] - Net cash used in investing activities increased to $60 million from $9 million in the prior year quarter, due to incremental capital spending on the supply chain optimization project[112] - The Board of Directors declared a dividend of $0.165 per share in May 2025[114] Market Risk Disclosures The company confirms no material changes in market risk exposures during Q1 2025, continuing to use derivatives for interest rate, foreign currency, and commodity price management - There have been no material changes in the Company's market risk during the first quarter of 2025[124] Controls and Procedures Management concluded disclosure controls were effective as of March 29, 2025, with a new ERP system implementation modifying the internal control environment - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[125] - During the quarter, the company implemented a new ERP system, which modified the internal control environment over financial reporting[126] Part II – Other Information This section covers legal proceedings, updates on risk factors, and other general information including director and officer trading plans and filed exhibits Legal Proceedings The company reports no current legal proceedings expected to have a material adverse effect on its financial condition or results of operations - The company is not currently involved in any legal proceedings that it believes will result in a material adverse effect on its financial condition or operations[129] Risk Factors The company states there have been no material changes to its risk factors from those disclosed in its 2024 Annual Report on Form 10-K - There have been no material changes in risk factors from those disclosed in the 2024 Annual Report[130] Other Information & Exhibits This section notes no Rule 10b5-1 trading plan adoptions or terminations by directors or officers during the quarter, and lists filed exhibits - During the most recent fiscal quarter, no directors or officers adopted or terminated any Rule 10b5-1 trading arrangements[131]