Kellogg(K) - 2025 Q2 - Quarterly Results

Executive Summary & Highlights Summarizes the pending acquisition by Mars, Inc. and Kellanova's better-than-expected Q2 earnings despite market softness Pending Transaction Kellanova's definitive agreement with Mars, Inc. for an $83.50 cash per share acquisition, approved by shareholders and expected to close by end of 2025 - Mars, Incorporated will acquire Kellanova for $83.50 per share in cash[3] - Shareholders approved the proposed transaction on November 1, 2024[3] - The transaction is expected to close by the end of 2025, subject to customary closing conditions including regulatory approvals[3] Quarterly Highlights Kellanova's Q2 earnings surpassed expectations due to innovation and emerging market growth, maintaining organic net sales despite market softness - Company's Q2 earnings exceeded expectations despite broad market demand softness, driven by innovation, commercial and operational execution, and growth in emerging markets (especially the African noodles business)[5] - Net sales were impacted by broad market softness, but the company maintained organic growth, primarily driven by emerging markets[6] - Adjusted operating profit and EPS declines were less than anticipated, despite negative mark-to-market impacts and rising costs[6] - Kellanova will not provide forward-looking guidance due to the pending merger transaction with Mars, Incorporated[6] Consolidated Financial Results Presents Kellanova's Q2 and YTD 2025 consolidated financial performance, highlighting net sales, operating profit, EPS, and cash flow Financial Summary (Table) Provides a concise overview of Kellanova's key reported and adjusted financial metrics for Q2 and YTD 2025 versus 2024 Kellanova Financial Summary (millions, except per share) | Metric (millions, except per share) | Q2 2025 | Q2 2024 | % Change | YTD 2025 | YTD 2024 | % Change | | :---------------------------------- | :------ | :------ | :------- | :------- | :------- | :------- | | Reported Net Sales | $3,203 | $3,192 | 0.3% | $6,286 | $6,392 | (1.7)% | | Organic Net Sales * | $3,202 | $3,192 | 0.3% | $6,423 | $6,392 | 0.5% | | Reported Operating Profit | $438 | $493 | (11.2)% | $868 | $886 | (2.1)% | | Adjusted Operating Profit * | $477 | $502 | (5.0)% | $918 | $1,009 | (9.1)% | | Reported Diluted Earnings Per Share | $0.85 | $1.00 | (15.0)% | $1.72 | $1.78 | (3.4)% | | Adjusted Diluted Earnings Per Share * | $0.94 | $1.01 | (6.9)% | $1.85 | $2.02 | (8.4)% | Second Quarter Consolidated Performance Kellanova's Q2 2025 reported net sales slightly increased, driven by African noodles, while reported operating profit and EPS declined due to mark-to-market impacts - Reported net sales slightly increased year-over-year in Q2 2025, with volume growth in the African noodles business offsetting market softness in other regions and business portfolio changes; organic net sales growth rate was identical[10] - Reported operating profit decreased by 11% year-over-year in Q2, primarily due to negative mark-to-market impacts and the profit impact of lower net sales outside Africa; adjusted operating profit decreased by 5%[12] - Reported diluted EPS decreased by 15% year-over-year in Q2, reflecting negative mark-to-market impacts, the profit impact of lower net sales outside Africa, and reduced other income; adjusted diluted EPS decreased by 7%[14] Year-to-Date Consolidated Performance Kellanova's YTD 2025 reported net sales decreased due to currency, with declines in operating profit and EPS, and negative free cash flow - Reported net sales decreased by 2% year-to-date, with negative foreign currency translation only partially offset by volume growth in the African noodles business; organic net sales slightly increased[11] - Reported operating profit decreased by 2% year-to-date, primarily due to negative mark-to-market impacts, negative foreign currency translation, and the profit impact of lower net sales outside Africa; adjusted operating profit decreased by 9%[13] - Reported diluted EPS decreased by 3% year-to-date, primarily due to negative mark-to-market impacts, negative foreign currency translation, the profit impact of lower net sales outside Africa, and reduced other income; adjusted EPS decreased by 8%[15] Year-to-Date Cash Flow (million USD) | Metric | YTD 2025 | YTD 2024 | Change | | :-------------------------------------- | :------- | :------- | :----- | | Net cash provided by operating activities | $285 | $740 | $(455) | | Capital expenditure | $324 | $297 | $27 |\ | Free cash flow | $(39) | $443 | $(482) | Segment Performance Details Kellanova's Q2 and YTD 2025 financial performance across its North America, Europe, Latin America, and AMEA segments North America North America experienced Q2 and YTD net sales and operating profit declines due to softness in snacks and frozen foods, partially offset by restructuring cost reductions North America Net Sales and Operating Profit Performance | Metric | Q2 2025 % Change | YTD 2025 % Change | | :----------------------------------- | :--------------- | :---------------- | | Reported Net Sales | (4)% | (4)% | | Organic Net Sales | (4)% | (4)% | | Reported Operating Profit | (1)% | (5)% | | Adjusted Operating Profit (Currency-Neutral) | (6)% | (12)% | - Volume declines attributed to ongoing softness in snacks and frozen foods[19] - Operating profit decline partially offset by reduced upfront costs for network optimization and other restructuring[19] Europe Europe's Q2 reported net sales grew due to currency and price/mix, despite volume declines, while operating profit decreased due to network optimization costs Europe Net Sales and Operating Profit Performance | Metric | Q2 2025 % Change | YTD 2025 % Change | | :----------------------------------- | :--------------- | :---------------- | | Reported Net Sales | 2% | (1)% | | Organic Net Sales | (5)% | (4)% | | Reported Operating Profit | (17)% | 32% | | Adjusted Operating Profit (Currency-Neutral) | (16)% | (8)% | - Q2 volume declines linked to continued softness in snacks and cereal categories and specific large customer order disruptions[21] - Year-to-date reported operating profit growth benefited from reduced upfront network optimization costs[22] Latin America Latin America saw Q2 and YTD net sales and operating profit declines, primarily from negative currency translation, mark-to-market impacts, and volume softness Latin America Net Sales and Operating Profit Performance | Metric | Q2 2025 % Change | YTD 2025 % Change | | :----------------------------------- | :--------------- | :---------------- | | Reported Net Sales | (7)% | (11)% | | Organic Net Sales | (1)% | (1)% | | Reported Operating Profit | (21)% | (25)% | | Adjusted Operating Profit (Currency-Neutral) | (4)% | Slightly Increased | - Volume declines related to soft categories, particularly Mexican cereal[23] - Operating profit impacted by significant negative foreign currency translation and negative mark-to-market impacts[23][24] Asia Pacific, Middle East and Africa (AMEA) AMEA reported strong Q2 and YTD net sales growth, driven by African noodles and cereal, with operating profit growth partially offset by currency AMEA Net Sales and Operating Profit Performance | Metric | Q2 2025 % Change | YTD 2025 % Change | | :----------------------------------- | :--------------- | :---------------- | | Reported Net Sales | 15% | 9% | | Organic Net Sales | 19% | 18% | | Reported Operating Profit | 5% | 1% | | Adjusted Operating Profit (Currency-Neutral) | 8% | 9% | - Growth primarily driven by volume growth in the African noodles business, price increases from last year's currency impacts, and broad-based cereal net sales growth in the region[25] - Operating profit growth partially offset by negative foreign currency translation[25][26][27] Company Overview Presents Kellanova as a global leader in snacks and cereals, outlining its 2024 net sales and long-term vision About Kellanova Kellanova is a global leader in snacks, international cereals, and frozen foods, with $13 billion in 2024 net sales and a vision for sustainable food access - Kellanova is a global leader in snacks, international cereals and noodles, and North American frozen foods[29] - Net sales of approximately $13 billion in 2024[29] - Company's vision is to be the world's best performing snacks-led enterprise[29] - Committed to advancing sustainable and equitable food access through its trusted food brands, aiming to create better days for 4 billion people by the end of 2030[30] Financial Statements Presents Kellanova's consolidated income statement, cash flow statement, and balance sheet for Q2 and YTD 2025 Consolidated Statement of Income Details Kellanova's income, expenses, and net profit for Q2 and YTD 2025 and 2024, offering a view of profitability Kellanova Consolidated Statement of Income (millions, except per share) | Metric (millions, except per share) | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :---------------------------------- | :------ | :------ | :------- | :------- | | Net sales | $3,203 | $3,192 | $6,286 | $6,392 | | Cost of goods sold | $2,113 | $2,031 | $4,137 | $4,200 | | Operating profit | $438 | $493 | $868 | $886 | | Net income (loss) attributable to Kellanova | $299 | $344 | $603 | $611 | | Diluted earnings per share | $0.85 | $1.00 | $1.72 | $1.78 | Consolidated Statement of Cash Flows Outlines Kellanova's cash flows from operating, investing, and financing activities for YTD 2025 and 2024, including free cash flow Kellanova Consolidated Statement of Cash Flows (million USD) | Metric | YTD 2025 | YTD 2024 | | :-------------------------------------- | :------- | :------- | | Net cash provided by (used in) operating activities | $285 | $740 | | Net cash provided by (used in) investing activities | $(322) | $(454) |\ | Net cash provided by (used in) financing activities | $(281) | $(290) |\ | Increase (decrease) in cash and cash equivalents | $(340) | $(2) |\ | Cash and cash equivalents at end of period | $354 | $272 |\ | Free cash flow | $(39) | $443 | Consolidated Balance Sheet Displays Kellanova's assets, liabilities, and equity as of June 28, 2025, and December 28, 2024, providing a financial position snapshot Kellanova Consolidated Balance Sheet (million USD) | Metric | June 28, 2025 | December 28, 2024 | | :-------------------------- | :------------ | :---------------- | | Total current assets | $3,673 | $3,754 | | Total assets | $15,871 | $15,628 | | Total current liabilities | $5,384 | $4,660 | | Long-term debt | $4,341 | $4,998 | | Total liabilities and equity | $15,871 | $15,628 | | Total Kellanova equity | $4,109 | $3,775 | Non-GAAP Financial Measures & Reconciliations Explains Kellanova's non-GAAP financial measures and provides detailed reconciliations for key metrics Non-GAAP Financial Measures Explanation Kellanova uses non-GAAP metrics like organic net sales and adjusted profit to provide transparent operational analysis, excluding non-recurring items - Non-GAAP metrics are used by management and investors to evaluate business results, make decisions, allocate resources, and for incentive compensation[32] - Currency-neutral results are determined by dividing or multiplying current period local currency operating results by the comparable prior-year period's exchange rates used to translate financial statements[33] - Organic net sales exclude the impact of foreign currency, acquisitions, and dispositions to show underlying net sales performance trends[33] - Adjusted profitability metrics (gross profit, operating profit, EPS) exclude restructuring programs, separation transaction costs, mark-to-market adjustments, and other costs impacting comparability[36] - Free cash flow is defined as net cash provided by operating activities less capital expenditures, used to assess cash available for debt repayment, dividends, acquisitions, and share repurchases[40] - Net debt is defined as the sum of long-term debt, current portion of long-term debt, and notes payable, less cash and cash equivalents, used to assess the company's capital structure and credit quality[40] Significant Items Impacting Comparability This section details specific pre-tax expenses and adjustments impacting the comparability of reported financial results, including mark-to-market adjustments, separation costs, network optimization, proposed merger costs, and business and portfolio realignment Pre-Tax Charges/Benefits Impacting Comparability (million USD) | Item | Q2 2025 | YTD 2025 | Q2 2024 | YTD 2024 | | :------------------------- | :------ | :------- | :------ | :------- | | Mark-to-market | $(21) | $(17) | $10 | $22 | | Separation costs | $(3) | $(9) | $(6) | $(19) | | Network optimization | $(8) | $(15) | $(9) | $(109) | | Proposed merger costs | $(7) | $(12) | $0 | $0 | | Business & portfolio realignment | $0 | $0 | $(4) | $(4) | - Mark-to-market adjustments include gains/losses on pension and postretirement benefit plans, commodity contracts, certain foreign currency contracts, and certain equity investments[82] - Separation costs are related to the company's successful separation transaction completed on October 2, 2023[83] - Network optimization costs are primarily related to restructuring to improve productivity and efficiency in the company's supply chain, including severance and asset impairments[84] - Proposed merger costs are primarily legal and advisory fees related to the definitive agreement for Mars to acquire Kellanova[85] Reconciliation Tables Provides detailed reconciliation tables for non-GAAP financial measures, adjusting reported results to currency-neutral and adjusted figures Net Sales Reconciliation Reconciles reported net sales growth to currency-neutral and organic growth, detailing volume and pricing/mix impacts Consolidated Net Sales Growth Reconciliation (Q2 2025 vs 2024) | Metric | % Change | | :---------------------- | :------- | | Reported growth | 0.3% | | Foreign currency impact | 0% | | Currency-neutral growth | 0.3% | | Organic growth | 0.3% | | Volume (tonnage) | 3.2% | | Pricing/mix | (2.9)% | Consolidated Net Sales Growth Reconciliation (YTD 2025 vs 2024) | Metric | % Change | | :---------------------- | :------- | | Reported growth | (1.7)% | | Foreign currency impact | (2.2)% | | Currency-neutral growth | 0.5% | | Organic growth | 0.5% | | Volume (tonnage) | 0.3% | | Pricing/mix | 0.2% | - Organic net sales for AMEA noodles and other businesses grew by 64.1% in Q2 and 57.7% year-to-date[77][79] Gross Profit & Margin Reconciliation Reconciles reported gross profit and margin to adjusted and currency-neutral adjusted figures Gross Profit Reconciliation (million USD) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :------------------------------ | :------ | :------ | :------- | :------- | | Reported gross profit | $1,090 | $1,161 | $2,149 | $2,192 | | Adjusted gross profit | $1,114 | $1,164 | $2,190 | $2,307 | | Currency-neutral adjusted gross profit | $1,110 | $1,164 | $2,221 | $2,307 | Gross Margin Reconciliation | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :------------------------------ | :------ | :------ | :------- | :------- | | Reported gross margin | 34.0% | 36.4% | 34.2% | 34.3% | | Adjusted gross margin | 34.8% | 36.5% | 34.8% | 36.1% | | Currency-neutral adjusted gross margin | 34.7% | 36.5% | 34.6% | 36.1% | Operating Profit & Margin Reconciliation Reconciles reported operating profit and margin to adjusted and currency-neutral adjusted figures Consolidated Operating Profit Reconciliation (million USD) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :------------------------------ | :------ | :------ | :------- | :------- | | Reported operating profit | $438 | $493 | $868 | $886 | | Adjusted operating profit | $477 | $502 | $918 | $1,009 | | Currency-neutral adjusted operating profit | $473 | $502 | $928 | $1,009 | Consolidated Operating Profit Growth (2025 vs 2024) | Metric | Q2 % Change | YTD % Change | | :------------------------------ | :---------- | :----------- | | Reported growth | (11.2)% | (2.1)% | | Adjusted growth | (5.0)% | (9.1)% | | Currency-neutral adjusted growth | (5.7)% | (8.1)% | Consolidated Operating Margin Reconciliation | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :------------------------------ | :------ | :------ | :------- | :------- | | Reported operating margin | 13.7% | 15.4% | 13.8% | 13.9% | | Adjusted operating margin | 14.9% | 15.7% | 14.6% | 15.8% | | Currency-neutral adjusted operating margin | 14.8% | 15.7% | 14.4% | 15.8% | Other Income (Expense) Reconciliation Reconciles reported other income (expense) to adjusted figures Other Income (Expense) Reconciliation (million USD) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :------------------------------ | :------ | :------ | :------- | :------- | | Reported other income (expense) | $9 | $33 | $20 | $76 | | Adjusted other income (expense) | $10 | $33 | $23 | $63 | Income Taxes & Effective Tax Rate Reconciliation Reconciles reported income taxes and effective tax rates to adjusted figures Income Taxes Reconciliation (million USD) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :---------------------- | :------ | :------ | :------- | :------- | | Reported income taxes | $83 | $97 | $156 | $179 | | Adjusted income taxes | $91 | $101 | $165 | $204 | Effective Tax Rate Reconciliation | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :------------------------------ | :------ | :------ | :------- | :------- | | Reported effective tax rate | 21.7% | 21.9% | 20.5% | 22.5% | | Adjusted effective tax rate | 21.4% | 22.4% | 20.2% | 22.5% | Diluted EPS Reconciliation Reconciles reported diluted EPS to adjusted and currency-neutral adjusted figures Diluted EPS Reconciliation | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :------------------------------ | :------ | :------ | :------- | :------- | | Reported EPS | $0.85 | $1.00 | $1.72 | $1.78 | | Adjusted EPS | $0.94 | $1.01 | $1.85 | $2.02 | | Currency-neutral adjusted EPS | $0.93 | $1.01 | $1.86 | $2.02 | | Currency-neutral adjusted EPS growth | (7.9)% | | (7.9)% | | Net Debt Reconciliation Reconciles total debt liabilities to net debt by subtracting cash and cash equivalents Net Debt Reconciliation (million USD) | Metric | June 28, 2025 | December 28, 2024 | | :-------------------------- | :------------ | :---------------- | | Total debt liabilities | $5,879 | $5,743 | | Less: Cash and cash equivalents | $354 | $694 | | Net debt | $5,525 | $5,049 | Forward-Looking Statements Disclosure Provides standard disclosures on forward-looking statements, outlining risks and uncertainties related to the proposed Mars acquisition Forward-Looking Statements Disclosure Standard disclosure on forward-looking statements, detailing risks and uncertainties related to the proposed Mars acquisition and regulatory approvals - The press release contains forward-looking statements regarding the proposed acquisition of Kellanova by Mars, Incorporated, including expectations for regulatory approvals and transaction timing[38] - Highlights risks and uncertainties such as transaction timing, satisfaction of conditions, regulatory approvals, potential litigation, and impacts on company operations and personnel[38] - The company does not undertake any obligation to publicly update forward-looking statements[39]