Kellogg 2Q15 Earnings Call Notes

We’re on track to hit our target of 2-4% decline in currency neutral operating profit

“We’re on track to meet our guidance for the full year. Specifically, we expect: approximately flat currency-neutral comparable sales; a decline in currency-neutral comparable operating profit of between 2% and 4%, including a negative impact of three to four points from rebasing of incentive compensation'”

Forecast 1B in FCF, repurchase 700m of shares in 2015

“We continue to anticipate that cash flow after capital spending will be approximately $1 billion, as I mentioned. And this includes total incremental cash costs of $350 million for Project K, partially offset by benefits from our supplier-financing initiative and other cash flow initiatives. Total capital spending should be in a range between 4% and 5% of sales, including approximately one point of sales for incremental capital associated with Project K. And our current plan is that we will repurchase between $700 million and $750 million of shares in 2015.”

Cereal as a category has improved

“As you may have seen in public consumption data, the performance of the cereal category has improved this year. Total consumption across all channels was approximately flat in the second quarter, and, importantly, Kellogg branded sales were essentially flat, too,”

Looking to remove artificial flavors/colors

“We know consumers are looking for foods with simpler ingredients and work is well underway to answer that call. Already in North America, 75% of our cereals are made without artificial colors, and more than half are made without artificial flavors. Further, we have been working to remove artificial colors and flavors across Kellogg’s branded cereals and a variety of Kellogg’s branded snack bars as well as Eggo frozen foods. Our goal is to complete this transition by the end of 2018.”

We’re going to start using zero-based budgeting

“Fact is we already ran some pilots on zero-based budgeting back in 2014, so we’ve learned from those pilots. We have determined now the application is right. We’re going to begin in North America. And actually that gives us some support for confidence in growing profit in North America next year. ”

Did close a cereal facility in Canada last year (RE: industry capacity question)

“Obviously, we did close a facility last year in Canada, so that came out of the Kellogg business. I can’t talk to all the stuff that’s going on with our competitors, but I know they’re making moves as well. I think the marketplace is pretty rational at the moment. We’re seeing a little bit of price realization. We’re putting our money, as I said, back into our food”

Pepsico FY 2Q15 Earnings Call Notes

Increasing growth outlook

“Based on the strength of the quarter, our overall first half results and our outlook for the remainder of the year, we are increasing our full year of core constant currency 2015 EPS growth outlook to 8%.”

Eight years ago we were a decentralized organization in innovation

“eight years ago. At that time, we were in an extremely decentralized organization, operating as a loose confederation of geographic business units, with each largely driving its own development agenda and establishing their own processes”

Adopted a “demand moments framework” for innovation

“we globally adopted the proprietary Demand Moments framework, originally developed at Frito-Lay North America. The framework focuses on the triggers of consumption by examining consumer needs based on the context of the occasion. This created much stronger linkage between consumer and shopper insights in the R&D functions, and has led to our innovation being more incremental to top line growth.”

Clearly there are macro challenges but we will navigate them

“Clearly, there are a number of macro challenges around the world, but we believe we have the right strategies and programs in place, to enable us to continue to navigate successfully through the current environment. The construction of our product and geographic portfolios enable us to continue to deliver strong results. In part, because our balanced portfolio creates a natural hedge against the global macro and political volatility that has become the new normal. And all of this bolsters our confidence in our ability to continue to achieve our financial target.”

Foreign exchange negatively impact revenue and earnings by nine and 11 percentage points

“We expect foreign exchange translation to negatively impact net revenue and core earnings per share growth by approximately nine and 11 percentage points respectively, based on current market consensus rates.”

43 years of dividend increases

“Our annualized dividend is now $2.81, an approximate 60% payout ratio based on 2014 core EPS. This represents the 43rd consecutive year of annual dividend increases and our annualized dividends per share have grown at 10% compound annual rate over the past 10 years.”

Second half comps will be a little tougher than the first half

“we are certainly facing more of an uphill for growth in the back half of the growth. Number two, you are correct, commodities are more of a headwind in the back half of the year than they were in the first half of the year.”

There is some bifurcation of center of store vs. perimeter

“there is some bifurcation between what’s happening in the center of the store, and what’s happening on the perimeter. But from the perspective of the categories we participate in, with the exception of center of the store, where we saw Quaker category slow down a little bit; most of our categories are robust and saw pretty good growth across the quarter”

In conversations with governments to make sure no discriminatory taxes on our products

“we are also in constructive conversations with governments, to make sure there aren’t any discriminatory taxes or discriminatory action on any of our categories.”

The board focuses on talent management for the top couple hundred roles

“talent management is something that the board and I are focused on a lot. I mean, our phenomenal board, spends a lot of time thinking through succession for the top couple of hundred jobs. And one of the things we always looked at is, where is that bright talent across the company that should be lifted up, so that they can be part of a succession process in the company. And every time we get an opportunity, we figure out ways to lift them up, in order to stretch people, in order to really build exciting talent for the future, and that’s what the most recent changes enabled us to do.”

Our base is savory snacks

“our base is savory snacks, and we are a very-very strong player in savory snacks. First of all globally, we still have a lot of growth within savory snacks. We came from a salty crisp snack background, and we are expanding more and more into other savory snacks, be it crackers, be it nuts and seeds, we are expanding into those areas, there is lot of opportunity there.”

We have the opportunity to take away eating occasions from other macro snack categories

“The other area is taking away eating occasions from other macro-snacks category. Its interesting, unlike beverages, in the case of snacks, we can go off and take eating occasions from other macro-snacks, be it cookies, or confectionery or chocolate. And our goal is to focus on what we are doing, but looking at our signs of demand spaces, which I talked about briefly, look at each eating occasion by cohort group, and figure out, how we can leverage our salty snack platform, to go after other macro snacks, be it — replace it with a salty occasion, or do some sort of a salty-sweet combination, for example Stacy’s with cinnamon sugar. It’s based on a pita chip, but it’s certainly sweet when you taste it, and has a much better mouth feel and experience, than if you eat something totally sweet by itself. At least, that’s my perspective.”

Nobody likes cost cutting, everybody likes growth

“look nobody likes cost cutting, everybody likes growth. I think we are one of those companies that are doing a wonderful balance of growing the top line and delivering productivity, and that’s what we want to focus on. Swinging the pendulum too much to cost cutting, I don’t think is a good idea at all, because it just jeopardizes the future of the company.”

Conagra 4Q14 Earnings Call Notes

New CEO

“I am delighted to be here with you on my first call since joining ConAgra Foods. As you know, I’ve been in deep study on our business, our capabilities and our culture since I walked in the door on March 3rd. My detailed review of the company has largely confirmed the perspective that I had coming in. The crux of which was if the company is prepared to move quickly and to take bold actions on a number of fronts, there is meaningful value to be created.”

The Board wants change

“before I started the Board made it clear to me they fully understood the misstep that had occurred at ConAgra and assured me that I would have the latitude to make the moves that I felt were necessary to best drive value creation. They made it clear that they wanted me to bring change. They have given me their full support to pursue any path following appropriate due diligence that will create long-term sustainable value for our shareholders”

CHange is needed

“Change is needed and we have a responsibility to perform better in the market place. We know that the inconsistency of our past performance is totally unacceptable. And we need to raise our game such that when we make a long-term commitment, we deliver it. We are highly confident that we can implement the changes operationally and culturally that will enable just that. It will of course take time.”

This is similar to when I joined Sara Lee and Hillshire

Frankly, aspects of the situation are not all that different from when I joined Sara Lee and led the transformation into Hillshire brands. There we turned in aging and underperforming food company into a more energized, agile performer capable of creating significant value as a standalone company.”

Four pillars

“that plan has four pillars. One; divest our Private Brands business for greater focus. Two; aggressively pursue SG&A reductions and productivity improvements to drive margin expansion. Three; grow our Consumer Foods and Lamb Weston businesses through portfolio and capability improvements. And four; maintain a balanced capital allocation philosophy. ”

There are reasons to be optimistic

“I have been pleasantly surprised by the organic prospects of ConAgra Foods and believe we have reasons to be optimistic. In fact, some good works were already underway when I arrived. For example, we begun the SG&A reduction process and we started on portfolio segmentation in the branded consumer business.”

Divesting Private Brands business

“That said let me preview some of the most critical elements of our plan for remaking ConAgra Foods into a focused, higher margin, more contemporary and higher performing company. As I mentioned earlier, the first step in our plan we will be the divesture of our Private Brands business. While we are taking the right steps to improve our execution and began restoring this business to previous levels, we believe the better investment of our resources is on other priorities where our capabilities are more mature.”

Intensive SG&A reduction effort

“On SG&A, we are well into mobilizing an intensive SG&A reduction effort that is aimed not only at offsetting stranded cost associated with a Private Brands divesture, but moving ConAgra into the top quartile of SG&A efficiency in our space over time. ”

We would benefit from further acquisitions given emerging scale and capabilities

“we believe ConAgra Foods would benefit from further acquisitions in the consumer branded space given our scale and emerging capabilities. But this point speaks to the need for us to maintain a strong balance sheet with ample fire power as we seek to balance returning capital to shareholders with investing back into the business and on strategic acquisitions.”

I’ve been under the hood and decided that we need to focus

” I have been under hood on every single piece of this company to try understand where the opportunity is and how resource intensive the work would be in order to accomplish what we see as the opportunity in those different parts. And our conclusion is that there is significant opportunity with this company to create value but we need to be focused and we need to have our resources squarely lined up against areas where our capabilities are more matured, where we can get the most impact on the fastest possible timetable, and ultimately that led me and the Board to make a decision that we need to focus”

Question: why did you do this so quickly? Answer:

“Well, we haven’t gone public with it; you probably would have found out about it anyway one way or another. So we thought it would just be best part our shareholders to understand the big picture of our plan. ‘

We haven’t spoken with Jana yet

” We have not yet spoken with the folks at JANA. But clearly we welcome their feedback as we would with any of our shareholders who are focused on long-term value creation. I think that is common ground that we have with JANA with other investors.”