Welcome back, everybody, day three. Hopefully, the conference is going well, and everybody's finding it really, really productive. We're really excited, really excited for our session this morning. So I wanna welcome our fireside chat with Kellanova. All right, with me today is Chairman, President, and CEO of Kellanova, and current CEO of Kellogg, as you all know, Steve Cahillane. Steve, great to see you, and thanks- Great to be with you, Andrew. for being here. Thanks. Yeah, we appreciate it. So maybe just a quick one to start. Understanding there's still some customary approvals that you've gotta get through, maybe can you give us any updates on when in the fourth quarter you expect the spin-off transaction could take place? Yeah, so you've heard us mention, for a while now, our confidence in the fourth quarter. Mm-hmm. We remain very confident in the fourth quarter. July 31st, we started running what we call company-in- company, which is essentially running the water through the pipes before putting up the drywall, so, so to speak, to see exactly, you know, what works, what doesn't work, what needs to be improved. That has gone, I would say, remarkably well, and the team has done an exceptional job, continues to do an exceptional job. And the way to think about that is WKKC is in effect, has been since July 31st, operating under the umbrella of Kellogg, but as a separate company. Mm-hmm. Everything from order to cash, you know, collections, sale, you know, the selling organization and so forth with a great deal of effectiveness. So we're confident that it's working, and we're actually, you know, we'll be making more announcements in the coming days, but we'll be closing and spinning in October. Got it. Great. Excellent. You recently hosted an Investor Day, in which you effectively unveiled the two post-separation company strategies and financial outlooks. I guess for those that either couldn't attend or didn't listen in, what were really the most important messages that you wanted to convey that day? Yeah, so, you know, we obviously made the announcement June 21st of last year that we would do the spin, and there was a lot of questions around the industrial logic around it. And I think there was a pretty clear understanding of that industrial logic, but some of the biggest questions were, "Yeah, but what about dyssynergies? What about stranded costs? You know, is this gonna be... Is this juice worth the squeeze? Yep. And there was, you know, some estimates out there around those dyssynergies and stranded costs, and I think what we showed during the Investor Day, it was much less than feared. So if you look at the EBITDAs of the two companies- Mm-hmm. you know, you'd see that we've done, I think, a pretty exceptional job at minimizing dyssynergies and stranded costs. That was one. I think the other from the WKKC side was the compelling logic around focus, attention, its own sales organization, the prioritization that happens- Sure ... that will create the opportunity to turn that into a more effective business. Mm-hmm. Then finally, you know, we, we've been talking about this for a number of years now, how our portfolio has really you know, pivoted to more of a snacking- Mm-hmm ... emerging markets business. But I think there was a number of light bulbs that went off when you actually show the Kellanova pro formas and say, "You know, this business is now 80% snacking in emerging markets," I mean, 30% emerging markets. And even though people kind of knew that, you know, I mean, people follow our company, smart people, I think to see it in that stark way and understand that that's gonna be the business going forward, this really is a snacking powerhouse, was, you know, was kind of a discovery for, for some people. The other thing, when you think about our top five power brands, really differentiated brands, Pringles- Yep ... Rice Krispies Treats, Pop-Tarts, and on, you know, making up 50% of our, of our sales going forward, and again, very, very differentiated brands. Yeah. There's only one Pop-Tarts. Yeah. There's only one Pringles. And obviously, I'm a little biased, but they are very, very differentiated brands- Yeah ... that have been performing very well for four years now. And then the final thing I'll say is, you know, when you look at our performance on a pro forma Kellanova basis, and you stack it up against, you know, some very successful snacking peers, I mean, we're right there or better. Okay. So I think those were some of the messages we wanted to get across, and I think those were some of the messages that that landed. Okay. Maybe as a follow-on, you know, Kellanova is essentially 80%-85% of Kellogg Company's net sales today. So the question we get a lot is: What will make it different as a standalone company? And why should that produce better and more consistent financial results over time? Well, as I said, I think it’ll shine a brighter light on the portfolio, as I already mentioned. Mm-hmm. It'll shine a brighter light on some underappreciated assets. Africa, for example. We get a lot of questions about our African business, and I don't think we've been effective enough at explaining- Mm ... the true competitive advantage that we have in West Africa, in particular, that we're spreading now- Yeah ... to the, you know, the Gulf States as well as South Africa, and how that has really inoculated us from some of the, you know, the real challenges that consistently come in emerging markets. I mean, for five years now, we've been growing, you know, nearly double digits in that market, and there's a reason for that. Because I think all those things will come to, you know, be better appreciated by the markets. Mm-hmm. Then the final thing, just as WKKC can be more effective running that cereal business because it's their main focus, it's the absence of a challenge for the Kellanova business going forward. It's a real focus around growth and how you really focus your capital and your attention on the future and future growth opportunities. You'll see, even in our capital plans, you know, we're gonna be about 3.5%-4.5% on an ongoing basis, you know, in terms of ratio of CapEx spend. Yep. Really around four, but that may go up to 4.5 or so in the next year or two, because we need greenfield sites for Pringles. You know, we put a site in Malaysia- Mm-hmm ... a number of years back, and it's completely full. We put a site in Kutno, Poland. We just put a sixth line there, completely full from the moment it went in. And we have, you know, we have unmet demand in Asia and Latin America- Mm-hmm ... that we know, and, you know, every capital investment we've made in Pringles has had an incredible ROIC, 'cause the brand- Right ... has got, you know, demand that we know we can create, and that's unmet. Mm-hmm. You'll see, you'll see that a lot more, I think, clearly, as we spin off into Kellanova. Got it. Yeah, thank you. You spent a lot of time at the recent Investor Day talking about the important role that you expect sort of each region, you know, to play as you strive to hit the top line growth target of 3%-5%. I think it might be helpful if you could walk us through maybe what sort of growth you're expecting from the more well-established snacking businesses in the U.S., North America, maybe versus the contribution you're expecting from emerging markets and some of the other overseas markets that you currently operate in. Just how the build up to that sort of 3%-5%. Yeah. So you, you saw we took our long-term algorithm up based on the confidence we have on the historical performance of the Kellanova portfolio. So if I start in North America, which will be obviously a snacking-led, more snacking-led business now, again, you know, biggest- Mm-hmm Brands being Cheez-It, in this case, and Pringles. You know, you know, we see low- to mid-single-digit growth going forward, driven by that portfolio and bolstered by, you know, really solid performance in Eggo as well, but led by the snacking businesses. Mm-hmm. Europe, you know, for six years now, we've been growing in Europe, which makes us a little bit unique, because it is a challenging developed market in many cases. But our Pringles business continues to be the driver of growth there. We kept cereal very purposefully in the Kellanova portfolio because it provides important scale for us, and it's a good business. It's a stable business. It's bolstered by great brands like Crunchy Nut, you know, just a terrific brand. Trésor, biggest continental European brand, so a good business there, but a stable business. And so we, we look for low single digit growth in Europe, and that growth being driven by the continued, exceptional performance of Pringles. Mm-hmm. Latin America, you look to, you know, mid-single-digit growth, and again, we have a very important cereal business in Mexico. You know, roughly a 65% share of business there. Again, purposefully kept that business because of the scale advantages it gives us and has really allowed us for, you know, a number of years now to grow Pringles in an exceptional way. Mm-hmm. Then you look at our EMEA region, which, as I just mentioned, has been growing exceptionally well for a number of years, and we look for, you know, high single-digit growth, which would be a call down from what it's been doing. Yeah. But again, an exceptional performance, and that's led by again, a snacking business that's performing very well, a noodles business, which I mentioned is probably underappreciated. And we do get some questions, "So why did you keep the noodles business if you're a snacking business?" And what we said is, you know, "We're a snacking-led business, but, you know, one of the reasons we like noodles is it actually grows faster than snacks." I mean, it's an exceptionally good business. And in Nigeria, as one example, we have a joint venture that, you know, we don't consolidate. Mm-hmm. It's a manufacturer and marketer of Indomie noodles, as well as other household staples, and it's about the best penetrated brand in West Africa. And so there's a lot of reasons to really like our EMEA business, and, you know, we're counting on them for high single digit growth and have a lot of confidence in that. Brands like Pringles, Cheez-It, Pop-Tarts, Rice Krispies Treats, undeniably differentiated brands, that have been greatly successful here in the U.S. I guess, what gives you the confidence you can sustain their growth domestically, and expand them internationally, where some of them don't necessarily exist today? Yeah. You know, in the case of Cheez-It and what have you. So, you know, we have a great history of growing those brands, and when we launched Deploy for Growth over five years ago now, and we exited DSD, many of you will remember that, and there was a lot of skepticism going all the way back to when we exited DSD, and there was a notion that without DSD, these snacking brands are gonna suffer. You won't get displays. You won't be able to control your shelf positions, and I think we've proved that demonstrably false. Yeah. And those brands since then have performed very, very well because we've invested in them, and we've invested in really good consumer messaging, really good promotional programs with customers, and for a number of years now, they've grown, and they've grown reliably. And we'll continue that performance, and we'll continue to invest in these... When you see our algorithm, you also see us in, you know, continuing to invest A&P in those brands in North America and around the world. Then you, the second part of your question, why do we believe they can travel? A couple of reasons. Cheez-It, we get asked many times, you know, why is it still mostly domiciled in the U.S.? It's a very strong brand. We launched in Canada a couple of years ago. It's been successful. We now launched in Brazil and Mexico, and early days are showing real promise and real success, and we're looking at Europe and other markets. So we have demonstrated to ourselves that we know how to do this. We get the food right. Obviously, cheese is a very local profile. You know, you have to get the flavor right, so we have Parmesan, for example, in Brazil. We don't have that in the United States. Sometimes snack as a platform is a better expansion opportunity than the core cracker. So we get the food right, but it's still real cheese. You know, Cheez-It with real attitude and real cheese, that's the kind of the center of the positioning, and it's worked well. And in some of our other brands, Rice Krispies Treats is already very successful- Yeah -in Europe and Australia. So, you know, we're, you know, maybe we should have gotten started 10 years ago- Mm-hmm. But there's no time like the present. Yeah. And so we're not gonna, you know, try and tackle 30 countries all at once, but we've got a plan over the coming years to take, you know, one country at a time, continue to refine the playbook. You know, we learned from Canada. We applied those learnings to Brazil. We learned more in Brazil. We're applying those to Mexico, and so we'll continue to do that. We see, you know, a number of years of really good, steady, incremental growth coming from some of these power brands and how they'll travel outside the United States. And you touched on, on Africa a bit before. It's a market many of us don't have as much visibility to. Maybe you can provide a little more detail and color on that business, what the strategy in the region is, and your outlook for future growth, how that looks? Yeah, so you know, I mentioned a couple of things about Africa, but it really is a fantastic business for us. And under Amit Banati's leadership, he's our CFO here with us today, we really altered our strategy in Africa and adopted the Affordability Pyramid. And so historically, if you go way back to when we first went into Africa, we went into South Africa with cereal- Mm-hmm ... all the way back in Mr. Kellogg's days, and, you know, had to really develop the habit, for, for breakfast cereal.... and it was very premium product, and so it's a, it, it's a natural limit on what you can achieve. And so what we've done in Africa is, since then in Nigeria and the rest is, in this affordability pyramid, you know, we start with something that may be two times the cost of a local, you know, kind of untraditional food, and go up the pyramid from there, with Pringles being at the top. And then we really focus on route to market. And so in Africa, we get asked, you know, "Why do you own the distributor, Multipro?" Well, Multipro is the moat that we have around Africa. We have 51%, but it's, it's basically our route to market for everything that we sell through our Dufil joint venture. I mentioned Indomie noodles, cooking oils, and so forth, and we get to every single traditional point of sale that you wouldn't be able to get to without the scale that Multipro gives you. And so we are now the largest food company, you know, in Nigeria. We're a staple item to African consumers. It's the last thing they would cut from their shopping list. And so you have to think about that as an integrated business with Multipro being what we consolidate, but it is a very, very powerful and necessary route to market advantage that we have. And we're applying that into Egypt, Saudi Arabia, South Africa as well. We've launched Kellogg's Noodles now in the Gulf States as well as South Africa, and that's, you know, that's off to a very good start. Number two noodles brand now in Africa. All right. Great, thank you. Closer in, just looking at sort of recent scanner data for maybe the 12 weeks through August 26th, perhaps not as strong as maybe expected, not just for Kellogg, but the broader industry as we've seen. Your medium-term sales growth algorithm for Kellanova calls for about 3%-5% sales growth, and we've seen sales for salty snacks and toaster pastries, waffles, crackers, kind of up more low single digit. I think snack and nutrition bars are down a bit. I guess, would you expect there to be a period of time where sales growth might be a bit below the medium-term algorithm that you set out for Kellanova, or are we just overthinking some of the, the near-term data for, for really the industry as a whole? Yeah. We'll get into that more also in a little bit. Yeah, I think the latter, Andrew, and let me tell you why. When we launched the algorithm, we'd seen these numbers, and we've seen this fortress, and we saw this coming. And so I know there's a lot of focus and talk around volume and what's happened in volume and where's the volume going, but if you take a step back- Yeah ... and say, okay, two, 2.5 years ago to where we are today, and the industry would've taken something like 30% pricing- Mm-hmm ... and seen only mid-single-digit volume degradation, you'd say, "Well, sign me up for that. Yeah. And if you go back just 12 months ago, there was really nobody dancing in the street saying, "Look at this double-digit pricing and no effect on volume." Well, it's bound to catch up. Yeah. And so I think what, what we're seeing is kind of the cliff and the consumer saying- Mm-hmm ... "Whoa, this is, you know, this is quite significant. Yeah. We've been saying at every one of our quarterly calls and every public opportunity that we are expecting elasticities- Yeah ... to come back, and they're coming back. Yeah. They're still not all the way back, but it was always gonna be lumpy- Yeah ... and hard to predict exactly how it would happen. And so I think that's what we're seeing. Okay. As we look into 2024- Mm-hmm ... and going forward, you know, the consumer is gonna start to get used to these prices because it's, it's not just across food, it's across everything, as we know. Yeah. The prices are gonna be mostly sticky. Mm-hmm. Wages are starting to catch up. So in 2024, I don't think volume has been permanently destroyed. And the other thing is, us, like many others, we had a supply chain that was not nearly as reliable as historically it would've been. Those things are starting to normalize, or in fact, have normalized. Yeah. We may have been a little bit slower than others to come back to promotional activity. We're still nowhere close to pre-pandemic levels, but we have a confidence in our supply chain that allows us to go to retailers and really sell some quality merchandising, get some more promotional activity, which drives displays onto the floor, and so it'll continue for the rest of the year. I don't think there's any doubt. There's not gonna be a magic, you know, the next four weeks- Yeah ... scanner is all gonna show something different. Mm-hmm. You know, this is where the consumer's at. Yeah. But in 2024, you know, wages will continue to catch up a little bit. Mm-hmm. You're gonna lap all these things. Yeah. Prices will, you know, will not continue to increase. Yeah. People get used to that new price point, but right now it's still a little bit of- Yeah ... sticker shock. It almost feels like an industry, if we could just fast forward six months, you know? Just start 2024. And we always view this journey or this transition, maybe from the anomalous actions over the last couple of years to maybe a more stable environment, right to your point, wasn't gonna be linear. Yeah. And we're seeing that across the industry as a whole, so, you know, appreciate your perspective on that. Your guidance for Kellanova in 2024 implies margin expansion in the first year. I guess, how are you expecting to be able to overcome any of the dyssynergies, stranded costs associated with the spinoff, and still be able to achieve margin expansion in the sort of the first year post-spin? Yeah, I think a couple of things. First, from the moment we spin, we're a higher margin company, right? And I mentioned our top five power brands, and they're really good margin brands for us, and so we have, based on the velocities and the momentum of our brands, we have a natural positive mix that starts to happen from day one. I already mentioned the work that we've done against stranded margins, and so you've seen that in our forecast that we've already tackled that. Much of that, the fact that we're running Company in Company right now, and have embedded that in our guidance, should give further confidence to that. I mentioned supply chain and supply chain reliability. You know, like many others, during the course of the pandemic, all our productivity programs were essentially put on hold, and you can't have people working on significant productivity programs when you're really worried about keeping shelves full. Yep. And so we'll get back to, you know, targets around 4% productivity at the same time. And so you put all those things together, and a higher margin business right out of the gate with a, you know, with a target to get to fifteen- Mm-hmm. you know, in the near term, and, you know, why stop there? Mm-hmm. And so we see, we see the opportunity for margin expansion as being real. We also see it as being very important. And we've got, you know, targets against that. We've got the organization really aligned against the need for it, and again, we've got some positive natural momentum that comes from the way the brands are performing currently. Right. You talked about the sort of near to medium term operating margin target of 15%, up from about 13% today. Can you maybe shed a bit more light into what you expect to be some of the more significant drivers of that, call it, 200 basis points worth of margin expansion that you're looking for in the next few years? Yeah, with some of what I just said, I mean, it still... It flows from the gross margin- Yep. natural mix, positive mix that comes from those- Mm-hmm. Faster moving brands. It comes from our emerging markets, getting to scale. So if you look at... Here, here's a good example. Look at our Mexico business. That's margin accretive to the company, and not a lot of people would not appreciate that. Right. India is not margin accretive, but it's coming up and will soon be margin accretive. Then you have Brazil, which is on the other end of the spectrum, where, you know, for a number of years it was very margin dilutive. It's making very good progress. The Parati acquisition's been a very good one. And so you have the natural scale that's happening in our emerging markets that starts to become margin accretive or margin neutral. Yep. that type of negative margin mix never bothered us because it's, you know, positive dollars coming in. Mm-hmm. It's not incremental. It's growth, you know. And so that starts to happen. And I'd go back to the supply chain, really getting back to productivity programs that we've had historically and been successful at. And so lots of building blocks- Mm-hmm that gets us to the confidence level that gets us to the 15%. There, you know, there are others, and we've talked about this in the snacking space, with, with operating margins al- you know, already exceeding that 15% level, with likely still further room, you know, to go. I realize that 15% target is maybe more of a, a medium-term target, but how should investors think about the, the margin potential of this business sort of longer term? Is 15% what you view as sustainable margin level, kind of a ceiling, or are there potentially more opportunity over time beyond that? It is not a ceiling. Mm-hmm. It's a signpost along the way to continuous improvement. Mm-hmm. You know, I'm not gonna give a target and say that, you know, ultimately, we have to get to 20% or whatever your number is, but all the things that I just mentioned don't stop at a certain time, so scale in emerging markets continues. And, you know, we look at margin improvements market by market, and so that Africa business that I mentioned is a bit of a margin percent headwind because you've got that distributor business, which we love because it's a competitive advantage. But the more velocity, the more we put through there, the more that becomes margin accretive or less dilutive. Yep. And so, you know, we don't see anything structural that stands in the way of performing, you know, at the top of the peer set over time. Mm-hmm. Yep. You know, and we talked a little bit about this. You know, as we head into the back half of the year, a lot of concern over how investors should think about the path towards sort of volume recovery. How much benefit to the top line do you think, in sort of the increased marketing and promotional activity, could ultimately yield? As you said, a lot of this were things that you just couldn't, or the industry, couldn't have done, given supply chain constraints, maybe the last year or two. What do you see with respect to sort of your interaction with your key retail partners, knowing some of the merchandising events you've got planned, you know, for the coming sort of fall, back to school, holiday season, what have you? I guess, how much visibility does that give you to at least, to your point, volume trends moving in the right direction, if you know, if not necessarily- Yeah Flipping immediately to as positive as everyone wants to see it? Yeah, so I think, you know, the rest of the year, we're gonna see a lot of what we've seen this year because it's, as you just said, you can't flip a switch and say, "Okay- Mm. everybody's used to these new price points." But we have had a... I mean, just look at the% sold on promotion for us and for others. Mm-hmm. It's still very low. You know, it's not close to pre-pandemic levels, and so there's been a lack of true quality merchandising activity, and you're starting to see that change, but it won't ignite a consumer change overnight. Mm. But it will provide the runway and the path to a 2024 that I think becomes more pre-pandemic normalized. Yep. And so quality merchandising, done correctly, getting the types of lifts that, you know, historically we've seen, I think is very much in the future. And the other positive that comes out of it is, you know, remember when the pandemic hit, like, we and every... There was no promotions. Everything stopped. Yep. And so when you start to layer back in promotions, you're, you know... The tools that we have and the understanding we have around ROIs against promotional mechanics is as good as it's ever been. And so we're gonna start by layering in the best, most effective, highest ROI promotional activity that we know. And, you know, that will start to really, I think, ignite more consumer interest, more consumer demand. But all those, all those variables working together, and particularly the consumer getting to a better place, is really important, but I think it points to 2024 really being the, the, you know, what you have to wait for- Mm in terms of the volume performance. Yep. I can go back to what I said. It's... That is not, I don't think that should be taken as any kind of- Mm-hmm dire, "This business is in terrible shape." It's... we've never lived through a time where we've taken 30% pricing- Yeah. in, in a very, you know, a very short period of time, and the consumer's had a fairly modest reaction. Yeah. Again, like I've said a couple of times now, it's not gonna be linear. Yep. But, you know, the demand is, there's no evidence that we've seen that there's been permanent demand destruction. And therefore, you know, the brands that we, you know, talked about, we know consumers, based on all the work that we do, you know, still maintain a strong loyalty, a strong love for them. Mm-hmm. And so, you know, it gives us good confidence- Good. -as we look toward, you know, next year. How is the retailer feedback? You know, your sort of top-to-top spin with respect to this plan to, you know, spin off WK Kellogg. I assume they're supportive, as it gives you the ability to focus more on items that generate a lot of velocity for them and everything else, but I'm curious just how that- Yeah ... you know, interplay goes. It's been very positive, and which we don't take for granted. I think by and large, the message we got back from retailers from the very beginning was: We really understand the logic around why you would do this. Mm-hmm. From our perspective, however, we don't want any friction. Right. You know, we don't want to, you know, have your portfolio be more difficult to deal with. Mm-hmm. Now, naturally, going in, they know, okay, you have, just to be simple about it, you have one person calling on me, now you're gonna have two. That's already adding complexity for me. Right. So show me, show me how this is gonna add value. But they really appreciate the idea that there's gonna be somebody singularly focused on cereal, that cares more than anything about cereal, because it's an important aisle. Mm-hmm. I mean, we all know that. It's a highly penetrated category for them. It builds basket size, you know, basket value, all those things. It's very important, so they like that. They equally like that, you know. We're gonna be at Kellanova singularly focused on growth. Like, how do we grow these brands even faster? You know, how do we provide the tailwind and grow faster than the rest of your store? Mm-hmm. And so those have been exciting things for them from the beginning, and I think we've proven, as we've gone through this, we have limited friction. Mm-hmm ... as best we possibly could. And we got feedback when we went to Company in Company, that I shared with our company internally during a town hall. Mm. A number of retailers, one in particular, said, "This is the best spin we've ever seen. Yeah. I mean, it has really worked out. We wouldn't even know that it's happening- Yeah. ... and, you know, love the way that you're doing it, and thanks for, you know, thanks for keeping us at kind of the- Mm-hmm ... the centerpiece of it." Because, you know, if we disappoint our customers, and we disappoint our consumers because we're doing something structurally with our business, we'll have failed. And, you know, there's still a long way to go. I mean, this is not a victory lap. Yep. But as I said, we're gonna spin in October, and we're ready, and we're excited about it, and you know, it's a new day for us. Maybe a couple last things. You know, one question I get a lot around this, this concept of elasticity is, you know, if elasticity was more modest for a lot of the time as prices were rising pretty significantly, the question I get is: Well, then, you know, as pricing has lapsed, why would, why would elasticity be any more favorable on the way up, if you will? You know, and I, I, I don't have a great answer for that, you know? And, I think consumers are... Investors are just trying to get a sense of, you know, so many food companies are saying, "Hey, as pricing has lapsed, it's purely mechanical, right? Volume will come back." But if volume wasn't hurt nearly as much as we might have expected with 30% cumulative pricing, why would it work favorably the other way? I guess, is the question I get. If I understand the question, I think, as I said a couple of times now, it's amazing that we've had this, this amount of inelasticity. Yeah. And I think there's a... The way to think about it- It is- There's a new set, right? Mm-hmm. We are where we are right now. Yeah. And as we go into the rest of this year and 2024- Mm-hmm ... even if we went back to traditional elasticities- Mm-hmm ... I don't think that's a bad thing. I mean, for- Yep ... decades, we've been living with this- Mm-hmm ... and it's been reset at a level where the dollars are much higher. Yeah. And so I think as we get back into- Mm ... quality merchandising, we all have better tools at our disposal. We all have much better intelligence and much better data around what drives quality promotions. And so I think actual promotional effectiveness continues to get better, and that's probably the single biggest reason to believe that elasticities may actually be better, is because you have sharper- Mm-hmm ... better analytics around what's gonna drive quality merchandising. Yeah. You know, we all need to get better, get back to real quality merchandising and, you know, delighting consumers because at the end of the day, I mean, we've got to delight consumers. The other thing, you know, we didn't talk about this, but, I mean, innovation- Mm-hmm ... was kind of put on hold for a lot of companies during the course of- Sure ... the pandemic. You're gonna start to see more and more and better and better innovations coming forward, which is always, you know, a nice thing to fight elasticities, right? Yep. Maybe last is just touch a bit on how you're thinking about capital allocation priorities, you know, as a, as a separate entity at Kellanova, you know, as we go forward. Yeah, so capital allocation for Kellanova, not much change from where we are today, right? And so think about an investment-grade company, with access to commercial paper being very important. Think about the dividend that we pay. Collectively, between WKKC and Kellanova, that dividend, in absolute terms, remains the same. Yep. That will take out our payout ratio for- Mm ... for Kellanova up to, call it 59-61, you know, in that range,%. We'll, we'll wanna bring that down over time, not by reducing the dividend- Mm-hmm ... but by growing it slower than earnings grow, to get it more to, like, a 50% payout ratio. You've seen our leverage and our balance sheet come down, you know, to a ratio like 2.8 times, depending on whose metric you want to use. So the balance sheet is strong. It gives us, you know, dry powder, so if we want to pursue both on acquisitions, emerging markets, snacks, things like that, we're, we're capable of doing it. And so we, we like that capital allocation. I already mentioned from a CapEx standpoint, you know, you think around, you know, 4%, uh, in terms of the right ratio around, uh, uh, CapEx, maybe slightly higher than that in the first year or two as we add Pringles capacity. But I think—and, and obviously, a very, very cash accretive business. Yeah, great. Well, good. I think that's a really great place to cut it off. Let's take it over to the breakout session, and please join me in thanking Steve for being here today. Thank you. Thanks, Steve. CEO Gary Pilnick and CFO David McKinstry. Great to be with you both. Thanks so much for spending some time with us today. Thanks. Exciting. We now know October, it's a couple of weeks from now, is sort of the date set for the spin. So, I think we're all looking forward, looking forward to that, and hopefully, we've got a group here that can get a little bit more perspective on the plan and the strategic outlook going forward for the company. Maybe a good place to start, you recently hosted your Investor Day. Mm-hmm. You discussed, you know, extensively, why you feel WK Kellogg should benefit from becoming a standalone company. Maybe a good place to start would be to remind everyone what's going to be different, all right, about how the cereal business is run as a separate company, and why you think that a split away from Kellanova will be a positive for, for WK. It's a perfect place to start, and when we're gonna give you our opinion about why we think this is different, we're gonna zoom out, go a little bit higher level, because we'll get into some of the details during the course of this conversation. But it's our opinion. It's also the Kellogg Company's opinion, and you might remember a year ago, you sat here with Steve. It was shortly after we announced that the spin was going to occur, and Steve queried: "If you're a cereal company, who would you want to compete against? A big company that has a deprioritized cereal business or a smaller, we'd say, scale company that only focuses on cereal?" Well, that's the underlying logic of the spin. Everything we're gonna do is in service of cereal. So let us give you a couple of examples of things that are gonna be very different, because we're a 117-year-old startup. We'd like to say that. So we're coming with significant capability, Andrew, but at the same time, the startup piece, different types of operating performance going forward. Some of the examples would be, number one, we're gonna run an integrated business. Right now, there are five separate businesses that we're gonna consolidate into one. Let's be clear. That's exactly the right way to organize these businesses in the context of a $9.5 billion-dollar North American Kellogg business. But for us, Caribbean, Canada, U.S. retail, away from home, Kashi, Bear Naked, all come together under one leadership team driving the business. Second thing, which we think is the most tangible difference, is we're gonna have a direct sales force like the Kellogg Company has now, but it's only gonna be focused on cereal. Today, they go into store, and they're selling Pringles and Cheez-It and Rice Krispies Treats and Eggo and cereal. Our sales force, with the same coverage, will be selling just cereal. And the other piece would be the investment we want to make. We want to make in our supply chain, to modernize our supply chain. We'll talk more about that, I'm sure, later, but we do think coming out of that, we end up with a reliable, resilient, efficient supply chain that drives considerable margin expansion. None of those things would have happened but for the spin, because the Kellogg Company would have even better opportunities and priorities to drive their business forward. Yeah. That's the reason why we think this business will be better situated to move forward into the future as an independent company than as part of the Kellogg Company. Great. Thank you for that. You know, a major piece of the strategy you laid out at Investor Day revolved around supply chain modernization. Mm-hmm. In fact, over the next couple of years, I think the company intends to invest somewhere between the range of $450 million-$500 million into modernizing the supply chain. I guess, what does a modernized supply chain look like for WK? How are these investments ultimately enabling you to capture these sort of circa 500 basis points of margin expansion that your guidance is calling for? This is the centerpiece of our strategy in terms of expanding our margin. We talked at the Investor Day, we'll come out of 2023, 9% EBITDA margin. We want to get to, in this first horizon, that's an important point, the mid-teens, 14%-15%. That's the 500 basis points. And we'll do it by pulling a bunch of different lever, levers, RGM. We have a different overhead structure, a marketing model as well, but the centerpiece will be our supply chain modernization. Think about it in two different ways, Andrew. First, new. Right now, at the Kellogg Company, our infrastructure is being maintained. We're going from maintaining to modernizing, and we can all think about things in our lives where if you're maintaining versus investing, maintaining versus modernizing, you end up with a very different outcome. So we'll be modernizing. So what comes out of that is investment in new, new packaging, new lines, new infrastructure, new digital capabilities. So a lot of that's gonna happen by spending the $450 million-$500 million. The second thing is, when we're spending that money, where is it gonna be spent? It's gonna be spent... We talked about this during Investor Day, but it's gonna be spent at our most efficient plants, our most efficient platforms. We talked during Investor Day that there's a considerable gap between our lowest cost and our highest cost plants and our lowest cost and highest cost platforms. Platforms, we mean by, if you're making Rice Krispies, that's a platform. If you're making flakes, that's another platform. So we're gonna be focusing this investment on new, on the lower cost, the higher, more efficient platforms and facilities. By doing that, we'll end up with a more reliable, promises made, promises kept, resilient, when bad things happen, you can actually then, so you can keep performing, and efficient supply chain. A tangible example of that is something we announced a couple of years ago, because the process has already started. We announced a move to expand a plant in Belleville, Canada, where we're gonna be putting in a brand-new line. It's a DX line. They know how to run DX. It's a lower-cost facility. That process is in place, but that gives you the sense of the type of work we're talking about as we're modernizing our supply chain. Thank you. Very helpful. Maybe you could talk about the cadence of the expected 500 basis points of margin expansion. You know, do you anticipate it's a sort of a steady improvement over the course of the next three years, or is there sort of more of a step change at some point? And if so, when should investors expect to see that inflection? Yeah, I'm gonna turn it over to you in a second, but the way we would think about this is we're gonna be spending the money earlier, and a good, a certain amount of it will be notably stepped up toward the tail end of our three-year period. But our investors, our stakeholders, should be expecting sequential improvement as we move forward from the 9% EBITDA margin we have right now on our journey to 14%-15%. But David, why don't you take them through the cadence? Yeah, I, I think Gary said it. We expect sequential improvement in 2024, 2025, so what we said back at Investor Day will be approximately 9% exiting 2023 on a standalone, adjusted, trying to get to apples to apples. So we would expect some improvement into 2024, then another sequential improvement in 2025. But we would expect a more outsized improvement in 2026, as all those investments that are really being made in 2024, 2025, we start seeing the returns on those investments come through the P&L. Got it. You know, taking a step into the supply chain, in your view, is all this work or is it actually will bring it above where sort of maybe key competitors are today? And if you can speak a bit to what some of the key differentiators will be versus others of this modernization work. When we think about the supply chain work, it's important to recognize we see this as a transformation of our supply chain. So during the next three years, spending $450 million-$500 million, I can come back later and explain why we're so confident in this program, but we're gonna spend that money on new and in the right locations. What comes out of that is the resilient supply chain that we're looking for and that we're very confident about. Now, we talked about what the outcome would be. 500 basis points of margin improvement, particularly on top of a company that's generating 9%, that's a significant amount of growth and significant value, but it's also what the peer average is as we see it. So our view is this is a mile marker, not a destination, because we've come out of what we called Horizon One, Andrew, about a three-year period. You never know when the horizons begin and end. It's a little bit fuzzy, but let's assume it's three years. When we come out of that, we do believe our margin is gonna be in the mid-teens, but at that point, the transformation is done. We're modernized, but we're still first starting to begin to use that supply chain. So we do think there's more margin expansion to come in the next horizon. So we feel very good about where we are. In terms of how we compare to other supply chains, where I would rather go to is the differentiators in our business, because we do think when we think of, when we consider our business, one of the key differentiators would be we're only gonna be focusing on cereal. A good example is this investment we're making. Yep. The sales force we talked about, but also the brands. The brands that we have, they're iconic brands. Everybody knows Tony the Tiger. We were actually, we're delayed at the New York Stock Exchange during Investor Day because analysts needed to take their pictures with Tony. That was getting in our way. But we do think those three things are key differentiators for us to drive the business during the first horizon, but also as we think about the future of the business. At Investor Day, you noted the expectation that the ready cereal category as a whole is, at least in your planning horizon, will revert back to its sort of historical flat, to call it, you know, or minus low single digit sales declines. How should investors think about the long-term trends for the cereal category? And, you know, are there any subsegments that you think are better positioned for growth, that WK Kellogg is looking to take advantage of? When we were at Investor Day, we talked about for planning purposes, and that's actually a very important nuance for us. For planning purpose, we thought it'd be pragmatic to assume that the category would revert back to pre-COVID performance. That's low single-digit decline. At the same time, we said for it to make our model work, all we would need is a flat top line. So that's what we were guiding to for planning purposes. Now, this is a very meaningful category. It's a $10 billion category. It's big. It's been around as long as we've been around. It's durable. We know how important it is to retailers. It's one of the top center-of-store categories, so it's important to retailers. It's still the number one choice for in-house consumption for breakfast. So this is an important category, and we're a leader in that category. We actually believe there's a lot of tailwinds in this category as well. But again, what we need for our model to work is a flat top line. When we talk about where we think there's some green shoots and real opportunities, we think there's a lot going on here, but when we think about specifics, let's talk about a couple of things. Let's talk about a food form. Yep. Granola. Granola's growing. We used to have the number one brand in granola, that's Bear Naked. It's now going to be under Doug VanDeVelde's management, under the growth team. We think there's something there that could be special across our entire region, and it makes sense. It seems so on trend because it's lower processed, natural, and Bear Naked is a tremendous brand. The second place we would go is a consumer segment. Now, Andrew, this, if we talk about you and me, it turns out that the older you get, the more cereal you eat. Mm-hmm. We've looked at this over the years. That's always. I appreciate that. I appreciate that. But that tends to happen whenever we look at the data. There's an aging population, and if you think about the lineup we have, All-Bran, Raisin Bran, Kashi, Bear Naked, Special K, we have a lineup to really go after that.... Yeah. The other thing that I'll mention, if you don't mind, just occasions. So two different occasions. 25% of cereal is consumed outside of the breakfast occasion. During Investor Day, we showed a campaign about cereal for dinner. We think there's a real opportunity there. And a related point is snacking. We created something called Jumbo Snax, cereal for snacking. We did it in 2019, came out of the gates very, very well, but then 2020 happened and 2021 happened. Despite that, it's been quite resilient. We're going to put a lot of energy behind that because the world is snacking, and this is a great choice for families to make in those moments. We think there's quite an opportunity for cereal snacking. Yeah, great. Your, your medium-term growth algorithm, as you mentioned, is calling for sort of flat top line, and that's in the context of a category, as just discussed, that could be declining, call it low single digit. Mm-hmm. So it implies WK Kellogg will need to gain some share in the category to achieve this flat top line growth target. So guidance assumes the company gains roughly 200 basis points in share in cereal over the next sort of three years. Mm-hmm. I guess, what gives you the confidence that you can gain this share in, you know, it's always been, you know, a relatively active and sort of competitive category? It's always been a competitive category. You're exactly right. There's great competitors out there. If you look at the branded competitors, they're some of the best companies, food companies in the co- in the food space, and we have confidence that we can grow share. There, there's two primary reasons I'll talk about today. First is the recovery. If you go back in time, we were all together in April—March and April of 2020. Feels like a million years ago, but it wasn't that long ago, where the world shut down. Everybody was responding to increased demand. We're running plants flat out. At the same time, we're trying to figure out how you actually run a plant with people with this virus and bottlenecks and shortages. Everybody was dealing with that. And then shortly after that, it was in July of 2021, we had a catastrophic fire. The Memphis plant went down. It was shut down. The entire plant was shut down, and then we had a work stoppage shortly after that. Now, one of those things would have hurt our business, but a combination of them, running it flat out, you can't meet demand. Now, we had the catastrophic fire in Memphis and the work stoppage. It had a very meaningful impact on our business. The recovery began as we started turning our commercial muscle back on, but the recovery is not over. There's still 200 basis points of share that we have not yet recovered, and we think we're going to get after that. We know we're going to get after that. The second thing we'll talk about here is just the flywheel that we talk about internally, that once it starts spinning, a lot of good things happen to our business, including driving our top line. I talked about this a little bit earlier. It's the combination of the way we're going to run our commercial agenda in an integrated way, together with the sales force, together with our supply chain modernization. If you think about the Kellogg Company right now, again, exactly the right way to run a $9.5 billion business. There's a lot of integration. Sales is integrated, supply chain is integrated. It's a little easier or a lot easier for us to go from idea to in-store activation when the only thing the commercial team is thinking about is cereal, and the only thing our sales force is thinking about is selling cereal, and the only thing the supply chain is doing is making cereal. That type of visibility and flexibility, we see it already going end to end and having the impact in store. We think that'll make a meaningful difference. Thank you for that. Yeah, as you mentioned, it's been a strenuous couple of years for the cereal franchise, with the fire and the work stoppage toward the end of 2021, followed by, you know, a period of sort of limited availability as you were ramping production back up. I guess, where does your relationship with key customers stand today, and how have they responded to sort of the thought process around this spin thus far? Tremendous relationships. One of the things we bring with us to the WK Kellogg Company, the 117-year-old startup, we have terrific relationships with our retailers. That comes along with us. Now, we have to continue to earn that every day, but the reason why you have those relationships is the connectivity you have with them. They see you as a category catalyst. You need to do good by the retailer, and that is helping to grow their business. The retailers would see this spin, and one of the benefits of this spin is that we actually put the leadership team in place over a year ago. Bruce Brown, our Chief Customer Officer, has been connecting with retailers for over a year now, and the conversations have been quite positive. It makes perfect sense to be positive. Because we said earlier how important this category is to retailers. Well, now they have one of the major manufacturers only thinking about cereal. So how can we be a catalyst for them to drive the overall category? So that's why they'd be positive about it, and that's the feedback we're getting. The second thing I'll mention is we went to something called Company in Company on July 31. So we're doing the spin. We're getting ready for the spin-off. We heard today it's going to be in October, but we want to make sure that we turn the switch on before the actual spin date. You want to make sure you choose your metaphor, Andrew. Running water through the pipes. Let's make sure we know where the leaks are, so it works really well, perfectly on the spin date. So we did that on July 1, and that included shipping, billing, ordering with our retailers, with our customers. WK was doing it, and Kellanova was doing it. We didn't get one call from a retailer complaining or being concerned about that cutover. In fact, what we heard was one of our major retailers celebrating what we've done, because we've gone through a lot of these transitions, and they were celebrating how well it was being executed. So they like the idea, they like the way we're executing, and we see ourselves as maintaining and growing those relationships going forward. Great. Thank you. You also unveiled a new integrated commercial plan at the Investor Day. Maybe you could shed a bit more light on how this is different from how the cereal brands were managed previously, how the plan is set to sort of help you capture the TDP and merchandising opportunity that you talked about that's still ahead of you? And maybe taking a step backwards, can you help investors quantify sort of what that opportunity looks like? I hinted at this earlier. So if you think when we talked about integrating our commercial plan to win in cereal, that's all about bringing those five different distinct businesses, Caribbean, Canada, U.S. Retail, Away From Home, and Bear Naked and Kashi, bringing it together under one organization and working seamlessly with the sales force. That's really what's going to be different. Another click down from there is when you have five different businesses, again, that's the right way to run the business at the Kellogg Company, you would have consumer insights within each one of them. You'll have shopper insight maybe at the regional level, and then data analytics in different pockets of the organization. We're concentrating all of that under one organization. You can see the power of the customer insights, the shopper insights, the analytics that we're gonna have to help inform the best decisions we're gonna make. Before, you make the best decisions in Canada, the best decisions in the Caribbean. Now we'll make the best decisions across our $2.7 billion business. One of those examples is when we're thinking about the way we're gonna be using our dedicated sales force. You talked about TDPs and merchandising. We talked about that at Investor Day, and what we mentioned was, if you go back to 2019, the category hasn't lost TDPs, total distribution points or merchandising. We have. We're at 90% of where we were. If we simply capture back what we think is rightfully ours, that alone would generate 200 basis points of market share when we do our math. Yeah. The way you see that happening is with our sales force in store. They're only working on one category, and their job is: How do you disrupt? How do you turn a shopper into a buyer? How do you convert in the moment of truth? And when you're only working on one category, and the science in each category is different, we could see that affecting us, really driving our top line. Great. Thank you. Switching gears a little bit, you know, at Investor Day, the company laid out a financial model which showed a leverage ratio at the time of the spin at about 2x. However, it sounds as though the intention was to take on some additional debt to fund some of the investment we've talked about, in sort of modernizing the supply chain. So when and what multiple should we expect leverage to peak? Yeah. So good question. Maybe let me unpack that. So at Investor Day, we went through our, our two primary financing facilities, one, the Term Loan A and then RCF, and the 2x will be at date of spin. As we move forward, we expect it to peak, drawn debt to peak somewhere around 3x, and probably in 2025, okay? And that's really because we're gonna start maximizing all the dollars, the $450 million-$500 million into the supply chain, and then shortly thereafter, realizing on that investment. The other thing that I wanna mention, because I think there was a little bit of confusion around it, is the Kellogg Company has a receivables monetization program in place today. We're going to bring that with us, and you can think about it as a pretty straight ratio of net sales to the rest of the North American business will be coming over with us. So it's in the $250 million-$300 million range. So as we're thinking about that leverage ratio, we think about it both on a gross drawn debt level that will peak, as I said, about that 3x level, and then we also think about it on the monetization program as well. And so maybe one quick point of clarification, because I talked about our total financing cost that we would have. Mm-hmm. That would be included, both monetization and the drawn debt levels. Got it. Yep, that's great. And then understanding the first couple of years will be a little more volatile in terms of leverage, I guess, what do you view as the right sort of sustainable longer term leverage ratio for, for the company? Yeah. Our number one goal is to make sure that we have strategic flexibility. Mm-hmm. Right? We wanna make sure that as we move forward, we can advance on any strategic initiative that we have. Obviously, in the initial phase, it will be that investment in modernizing our supply chain. But as we move forward, we'll need to look at bringing down our leverage and being able to be strategically flexible. And we think that's probably around that two times range on a drawn debt. Again, wanna make sure that we're clear on that, at a drawn debt level. Yeah. Got it. Great. In terms of free cash flow, you know, I think on the face of it, a lot of investors would expect there'll be a Kellogg to sort of be a cash flow generating asset. And while there, you know, this may be the case, it sounds like it may take a bit of time to get there, given the large investments being put in place over the next couple of years, to get the business back in shape. How are you thinking about free cash flow profile of the business overall over the next three years or so? Yeah. So couple things. We think about our free cash flows, kind of bifurcating it. And what I mean by that is the cash flows from operating our business, right? The baseline cash flows. And you can think about those of generating or converting at about 100% of net income. Yeah. Right? And then, as we said, and we've spoken about up here, we're gonna be investing in the business, and that will have a negative impact on our cash flow in 2024, 2025 and draw up those debt levels as we just spoke about. But as we move forward and we start to stabilize and we start to realize those returns, we expect to continue to convert the cash from those operations at around that same 100% level, but we won't have that same level of investment into the business. So I think that's the way you think about cash flows, is that bifurcation of what are you getting from the operating business, and then what are you getting or what additional investments are going? It's actually nothing structural, you know, to be thinking about with respect to cash flow generation. It's the other pieces that you mentioned. Exactly. As you set out on this new journey as a standalone company, I guess, what are the capital allocation priorities of the business as we think forward? ... Yep, we laid those down at Investor Day, and our, again, it's gonna move a little bit as we go through time, but day one, it's gonna be investment into those high ROI projects that we've laid out to modernize our supply chain, really generate that 500 basis points that we talked about and increase those cash flows for the long term. The second piece, of course, will be returning cash to shareowners. We spoke about the dividend that we'll pay. And then as we move in the back half of the first horizon, as we've called it, we would expect to pay down the debt levels and then make sure that we have that strategic flexibility as we move forward. But that's really how I think about it, Andrew. And then, you know, Gary, a lot of time in Investor Day was spent discussing, you know, what you called sort of the first horizon- Mm-hmm. -of the strategy, where WK Kellogg will be focused on, right, building upon its foundation, optimizing the scaled cereal business. But maybe you can touch a bit on what the plan is once the company exits that first horizon. So now we're at the point in time where we're exiting Horizon Number One. We would have completed our transformation of our supply chain. We've grown our EBITDA margin from 9% to mid-teens, so we're generating that much more margin, that much more profitability. We're increasing our cash. That gives us the ability to invest back in our business, as well as return share to cash to-- return cash to our stakeholders. It also provides significant financial flexibility. So we then move into Horizon Two. Now, the modernization program isn't over in terms of the impact on the business. Mm-hmm. We will have completed the transformation, but the way it's going to impact the company will continue moving forward. Because now we're utilizing that network of the future that we want it to be foundational for our cereal business. So we are expecting additional profit margin enhancement as we move into Horizon Two. At the same time, we talked about beyond cereal. So we have our scaled cereal business, generating significant cash, giving us flexibility and beyond cereal. We think as during horizon one, we're building a company that we believe could be scalable. It should be scalable. If you think about our sales force, you think about distribution, think about IT. Going forward, we also have brands that we know can travel to other categories. So our view would be using our financial flexibility, joint ventures, licensing, M&A. I've been doing M&A for the company for the last 20 years. My very first assignment was when we acquired The Keebler Company. We became a US snacking company as well as global cereal, then Pringles, Africa, and so on. You could see the power in transforming a portfolio. We would evolve our portfolio, finding the right targets that we would be the natural parent for, because we'll have certain capabilities, like a center of store sales force. How do we leverage that in the M&A context? But also recognizing we have unique brands that we know can travel and can drive a top line. So that's how we're thinking about horizon two. Great. Thank you. And then, you know, maybe if we start to wrap it up, would be overall, the W.K. financial model looks for, you know, flattest top line, $450 million investment, delivering 500 basis points of margin expansion. I guess, why is this the right model for you? And do you have the day one sort of capital structure in place to be successful from the start? Why don't we start with the day one capital structure, and I'll come back and answer the second, the first part. Yeah, so we laid out the day one capital structure, the 2x on the debt, and we said we'll cap it again at 3x. So we feel good about those debt levels and being able to manage them, and we think it's the right debt structure to really drive what we need to drive to capture that EBITDA margin. So we feel good about that day one and as we move on into the future. Dave and team have been preparing for us. We will be ready day one with that capital structure, with the debt structure. We feel very good about that. In terms of the model and why we think it's the right model for us, we actually think it's the right model for us, but it's the right model for our stakeholders as well, because we can generate and will generate significant value with this model. We are looking for a flat top line. That's all we need to make our model work. I know I've repeated that, but that feels like a prudent planning assumption from what we think, what we believe would happen for planning purposes to the actual category and then how we could perform within it. We want to focus on setting the company up for the near term as well as the future by investing in our supply chain, driving the 500 basis points of margin that will create meaningful value. When you think about 9%-15% and we keep a flat top line, you can do the math. That is meaningful value for us. It's meaningful value for our stakeholders, but it's also the right work to be done as you move into that second horizon. Because then you have the supply chain you want. We talked about additional operating profit margin- Mm-hmm. and then that is the right foundation to move in the future. We call ourselves a 117-year-old startup, Andrew. It's a unique phrase. We do think this is a unique opportunity for our stakeholders as well. Great. Well, Gary, your, your optimism certainly comes through loud and clear. It's exciting, exciting time for, for you and David and the team, and obviously, we'll get to see this start to, to really take shape in just a couple of weeks' time. So we appreciate you both being here. Why don't we take it over to the breakout session, and please join me in thanking Gary and David. Thanks, Andrew.