Kellanova : First Quarter 2025 Earnings Release and Non-GAAP Reconciliations
K
Published on 05/01/2025 at 08:03
Kellanova
Financial News Release
John Renwick, CFA (269) 961-9050
Maxime Clermont, (269) 660-4224
Kris Bahner, (269) 961-3799
As announced on August 14, 2024, Mars, Incorporated, a family-owned, global leader in pet care, snacking, and food, and Kellanova, a leading company in global snacking, international cereal and noodles, North American plant-based foods, and frozen breakfast foods, had entered into a definitive agreement under which Mars has agreed to acquire Kellanova for $83.50 per share in cash. Shareowners approved this proposed transaction on November 1, 2024. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close within the first half of 2025.
While net sales were impacted by negative currency translation and widespread category softness, the Company sustained growth on an organic basis, led again by its emerging markets.
Operating profit growth benefited from lapping prior-year restructuring charges, while declining as expected on an adjusted-basis.
Earnings per share growth was driven by the lapping of prior-year restructuring charges and a lower effective tax rate.
Due to the pending merger with Mars, Incorporated, Kellanova will not be providing forward-looking guidance.
"Our organization demonstrated focus and determination in managing through what is undeniably an uncertain macroeconomic and industry environment," commented Steve Cahillane, Kellanova's Chairman, President, and Chief Executive Officer. "We delivered against our budget in the quarter, led by our emerging markets, and we are encouraged by our improvement in category share performance in key markets around the world. Meanwhile, we are planning contingencies and taking action for
managing through continued global economic uncertainty, even as we prepare for our next chapter as part of a global snacking powerhouse with Mars."
(millions, except per share data)
2025
2024
Change
Reported Net Sales
$ 3,083
$ 3,200
(3.6)%
Organic Net Sales *
$ 3,222
$ 3,200
0.7 %
Reported Operating Profit
$ 430
$ 393
9.3 %
Adjusted Operating Profit *
$ 441
$ 508
(13.1)%
Currency-Neutral Adjusted Operating Profit *
$ 454
$ 508
(10.5)%
Reported Diluted Earnings Per Share
$ 0.87
$ 0.78
11.5 %
Adjusted Diluted Earnings Per Share *
$ 0.90
$ 1.01
(10.9)%
Currency-Neutral Adjusted Diluted Earnings Per Share *
$ 0.93
$ 1.01
(7.9)%
March 29, March 30, %
* Non-GAAP financial measure. See "Non-GAAP Financial Measures" section and "Reconciliation of Non-GAAP Amounts" tables within this release for important information regarding these measures.
First quarter 2025 GAAP (or "reported") net sales decreased by 4% year on year, as negative foreign currency translation more than offset the net impact of increased price/mix and lower volume. On an organic basis, which excludes the impact of currency, the Company's net sales increased by 1%.
Reported operating profit in the first quarter increased by 9% year on year, due primarily to the lapping of last year's network optimization charges, which more than offset negative foreign currency translation and the profit margin impacts of higher costs and adverse mix. On an adjusted basis, which excludes mark-to-market and one-time charges, operating profit decreased by 13%, and excluding currency translation, operating profit decreased by 11%.
Reported earnings per share in the first quarter increased by 12% year on year, due to the higher operating profit and a lower effective tax rate, partially offset by increased average shares outstanding. On an adjusted basis, earnings per share decreased by 11%, and excluding currency translation, adjusted earnings per share decreased by 8%.
Year-to-date net cash provided by operating activities was $116 million, representing a decrease from the year-earlier period's $366 million, primarily due to lapping a $175 million post-retirement distribution in the year-earlier quarter. Capital expenditure of $176 million was higher than prior year due to timing differences. Free cash flow, defined as net cash provided by operating activities less capital expenditure, was therefore $(60) million year-to-date, a decrease of $269 million from the year-earlier period.
Please refer to the segment tables in the back of this document.
Kellanova in the first quarter sustained growth in organic net sales, in line with its internal projection. This growth was led by emerging markets, and was delivered in spite of prolonged category-wide softness, particularly in developed markets. As expected, profit and profit margins were pressured in the quarter by higher costs and adverse business mix, and the Company delivered against its internal projections for adjusted operating profit and earnings per share.
North America's reported and organic net sales decreased by 4% during the first quarter, as volume declined amidst further softening of snacking and frozen categories. North America's reported operating profit in the quarter decreased by 9% year on year, reflecting primarily the net sales decline and related negative operating leverage, partially offset by lapping up front charges for network optimization and separation costs in the year-ago quarter. On an adjusted and currency-neutral adjusted basis, operating profit decreased by 18%.
AMEA's reported operating profit in the quarter decreased by 2% year on year, as negative currency translation more than offset the impact of strong local-currency net sales growth. On an adjusted basis, operating profit decreased by 2%, and excluding currency translation it increased by 10%.
With approximately $13 billion in net sales in 2024, Kellanova (NYSE: K) is a leader in global snacking, international cereal and noodles, and North America frozen foods with a legacy stretching back more than 100 years.
Powered by differentiated brands including Pringles®, Cheez-It®, Pop-Tarts®, Kellogg's Rice Krispies Treats®, RXBAR®, Eggo®, MorningStar Farms®, Special K®, Coco Pops®, and more, Kellanova's vision is to become the world's best-performing snacks-led powerhouse, unleashing the full potential of our differentiated brands and our passionate people.
At Kellanova, our purpose is to create better days and ensure everyone has a seat at the table through our trusted food brands. We are committed to promoting sustainable and equitable food access by tackling the crossroads of hunger, sustainability, wellbeing, and equity, diversity & inclusion. Our goal is to create Better Days for 4 billion people by the end of 2030 (from a 2015 baseline). For more detailed information about our commitments, our approach to achieving these goals, and methodology, please visit our website at https:// https://www.kellanova.com.
This filing includes non-GAAP financial measures that we provide to management and investors that exclude certain items that we do not consider part of on-going operations. Items excluded from our non-GAAP financial measures are discussed in the "Significant items impacting comparability" section of this filing. Our management team consistently utilizes a combination of GAAP and non-GAAP financial measures to evaluate business results, to make decisions regarding the future direction of our business, and for resource allocation decisions, including incentive compensation. As a result, we believe the presentation of both GAAP and non-GAAP financial measures provides investors with increased transparency into financial measures used by our management team and improves investors' understanding of our underlying operating performance and in their analysis of ongoing operating trends. All historic non-GAAP financial measures have been reconciled with the most directly comparable GAAP financial measures.
Non-GAAP financial measures used include currency-neutral and organic net sales, adjusted and currency-neutral adjusted operating profit, adjusted and currency-neutral adjusted diluted EPS, currency-neutral adjusted gross profit, currency-neutral adjusted gross margin, adjusted other income (expense), adjusted effective income tax rate, net debt and free cash flow. We determine currency-neutral results by dividing or multiplying, as appropriate, the current-period local currency operating results by the currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period. These non-GAAP financial measures may not be comparable to similar measures used by other companies.
Currency-neutral net sales and organic net sales: We adjust the GAAP financial measure to exclude the impact of foreign currency, resulting in currency-neutral net sales. In addition, we exclude the impact of acquisitions, divestitures, and foreign currency, resulting in organic net sales. We excluded the items which we believe may obscure trends in our underlying net sales performance. By providing these non-GAAP net sales measures, management intends to provide investors with a meaningful, consistent comparison of net sales performance for the Company and each of our reportable segments for the periods presented. Management uses these non-GAAP measures to evaluate the effectiveness of initiatives behind net sales growth, pricing realization, and the impact of mix on our business results. These non-GAAP measures are also used to make decisions regarding the future direction of our business, and for resource allocation decisions.
Adjusted: gross profit, gross margin, operating profit, operating margin, and diluted EPS: We adjust the GAAP financial measures to exclude the effect of restructuring programs, costs of the separation transaction, mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodity contracts, certain equity investments and certain foreign currency contracts, a gain on interest rate swaps, and other costs impacting comparability resulting in adjusted. We excluded the items which we believe may obscure trends in our underlying profitability. By providing these non-GAAP profitability measures, management intends to provide investors with a meaningful, consistent comparison of the Company's profitability measures for the periods presented. Management uses these non-GAAP financial measures to evaluate the effectiveness of initiatives intended to improve profitability, as well as to evaluate the impacts of inflationary pressures and decisions to invest in new initiatives within each of our segments.
Currency-neutral adjusted: gross profit, gross margin, operating profit, operating margin, and diluted EPS: We adjust the GAAP financial measures to exclude the effect of restructuring programs, costs of the separation transaction, mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodity contracts, certain equity investments and certain foreign currency contracts, other costs impacting comparability, and foreign currency, resulting in currency-neutral adjusted. We excluded the items which we believe may obscure trends in our underlying profitability. By providing these non-GAAP profitability measures, management intends to provide investors with a meaningful, consistent comparison of the
Company's profitability measures for the periods presented. Management uses these non-GAAP financial measures to evaluate the effectiveness of initiatives intended to improve profitability, as well as to evaluate the impacts of inflationary pressures and decisions to invest in new initiatives within each of our segments.
Adjusted other income (expense): We adjust the GAAP financial measure to exclude the effect of restructuring programs, mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded) and certain equity investments, losses resulting from divestitures, and other costs impacting comparability. We excluded the items which we believe may obscure trends in our underlying profitability. By providing this non-GAAP measure, management intends to provide investors with a meaningful, consistent comparison of the Company's other income (expense), excluding the impact of the items noted above, for the periods presented. Management uses these non-GAAP financial measures to evaluate the effectiveness of initiatives intended to improve profitability.
Adjusted effective income tax rate: We adjust the GAAP financial measures to exclude the effect of restructuring programs, costs of the separation transaction, mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodity contracts, certain equity investments, and certain foreign currency contracts, and other costs impacting comparability. We excluded the items which we believe may obscure trends in our pre-tax income and the related tax effect of those items on our adjusted effective income tax rate, and other impacts to tax expense. By providing this non-GAAP measure, management intends to provide investors with a meaningful, consistent comparison of the Company's effective tax rate, excluding the pretax income and tax effect of the items noted above, for the periods presented. Management uses this
non-GAAP measure to monitor the effectiveness of initiatives in place to optimize our global tax rate.
Net debt: Defined as the sum of long-term debt, current maturities of long-term debt and notes payable, less cash and cash equivalents. With respect to net debt, cash and cash equivalents are subtracted from the GAAP measure, total debt liabilities, because they could be used to reduce the Company's debt obligations. Company management and investors use this non-GAAP measure to evaluate changes to the Company's capital structure and credit quality assessment.
Free Cash flow: Defined as net cash provided by operating activities reduced by expenditures for property additions. Free cash flow does not represent the residual cash flow available for discretionary expenditures. We use this non-GAAP financial measure of free cash flow to focus management and investors on the amount of cash available for debt repayment, dividend distributions, acquisition opportunities, and share repurchases once all of the Company's business needs and obligations are met. Additionally, certain performance-based compensation includes a component of this non-GAAP measure.
These measures have not been calculated in accordance with GAAP and should not be viewed as a substitute for GAAP reporting measure
This news release contains, or incorporates by reference, "forward-looking statements" with projections concerning and expectations, among other things, the proposed acquisition (the "Merger") of Kellanova (the"Company") by Mars, Incorporated, regulatory approvals, and any other statements regarding the Company's future expectations, beliefs, plans, objectives, financial conditions, assumptions or future events or performance that are not historical facts. Forward-looking statements include predictions of future results or activities and may contain the words "expects," "believes," "should," "will," "anticipates," "projects,"
Disclaimer
Kellanova published this content on May 01, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 01, 2025 at 12:02 UTC.