• Net Sales: Declined 1.1% for the year; 0.9% decline excluding currency impact.
• Gross Margin: Increased by 90 basis points to 29.8% for the year.
• EBITDA: Grew 6.6% for the year, with a margin of 10.1%, a 70 basis points improvement.
• Fourth Quarter Net Sales: $640 million, down 1.8% year-over-year.
• Fourth Quarter EBITDA: $57 million, a 7.5% increase year-over-year.
• Free Cash Flow: Negative $29 million for the year.
• Net Debt: $495 million at year-end, with leverage of 1.8 times.
• 2025 Guidance: Expected organic net sales down approximately 1%; EBITDA growth of 4% to 6%.
• Capital Expenditures: $129 million for 2024, with 2025 expected to be approximately $200 million for supply chain modernization.
• Dividend: Increased by 3%, representing $0.66 per share annually.

• Warning! GuruFocus has detected 3 Warning Signs with KLG.

Release Date: February 11, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• WK Kellogg Co (NYSE:KLG) successfully progressed its strategic priorities, including modernizing its supply chain and creating its own operating infrastructure.
• The company delivered a 6.6% growth in EBITDA for the year, exceeding its raised guidance expectations.
• Gross margin improved by 90 basis points to 29.8%, driven by better supply chain operations and cost discipline.
• WK Kellogg Co (NYSE:KLG) maintained a stable top line and is on track to achieve significant margin expansion by 2026.
• The company launched a robust innovation plan for 2025, including new product platforms and expanded offerings in non-measured channels.

Negative Points

• Net sales declined by 1.1% for the year, impacted by currency fluctuations and a challenging market environment.
• The US cereal category saw a decline in dollar sales and volume, with WK Kellogg Co (NYSE:KLG) experiencing a 2.8% drop in market share.
• The company faced increased promotional activity in the category, which affected its top line and market share.
• Special K, one of WK Kellogg Co (NYSE:KLG)'s core brands, underperformed, impacting overall market share.
• Potential tariffs on Mexico and Canada pose a risk to the company's 2025 financial outlook, with no impact included in the current guidance.

Q & A Highlights

Q: What is WK Kellogg's 2025 topline guidance based on category and market share performance? A: Gary Pilnick, CEO: The 2025 plan assumes the category will perform at pre-COVID levels, down single digits (1% or 2%). We have growing confidence in our ability to execute, with a maturing team and transformed demand-creating infrastructure. This is the first commercial plan developed and sold by WK after the spin, which makes a big difference for us.

Q: How did WK Kellogg achieve gross margin expansion despite volume declines? A: David McKinstray, CFO: The gross margin expansion was driven by continued operational discipline and efficiency improvements. We executed PPA throughout the year, which contributed to price dynamics. We expect to realize price benefits in the first half of next year, with volume normalizing in the back half.

Q: Can you explain the discrepancy between organic sales growth and scanner data in the quarter? A: David McKinstray, CFO: The discrepancy is due to several factors, including the lapping of a one-time investment from 2023, strong performance in non-measured channels, and an expected inventory build due to a larger innovation plan. These factors contributed to the difference between organic sales growth and scanner data.

Q: How is WK Kellogg addressing potential impacts from Canadian and Mexican tariffs? A: Gary Pilnick, CEO: The situation is fluid, making it difficult to provide reliable estimates. We make most of our food in the US for the US, and our supply chain modernization plan is designed with long-term objectives in mind. We have significant investments in the US, and we believe this is the right plan for our business.

Q: What are WK Kellogg's expectations for promotional activity in 2025? A: Gary Pilnick, CEO: We view promotion as one of many levers to drive the category and our business. Our focus is on delivering value through the right food, innovation, messaging, and pricing. We expect our promotional activity to be consistent with our commercial plan, focusing on return and delivering value to consumers.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.