WK Kellogg Q1 2025 Earnings Report

WK Kellogg EPS Results

• Actual EPS: $0.20
• Consensus EPS: $0.41
• Beat/Miss: Missed by -$0.21
• One Year Ago EPS: $0.37

WK Kellogg Revenue Results

• Actual Revenue: $667.00 million
• Expected Revenue: $677.91 million
• Beat/Miss: Missed by -$10.91 million
• YoY Revenue Growth: -6.20%

WK Kellogg Announcement Details

• Quarter: Q1 2025
• Date: 5/6/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, May 6, 2025
• Conference Call Time: 10:00AM ET

WK Kellogg (NYSE:KLG) operates as a food company in the United States, Canada, and the Caribbean. It manufactures, markets, and distributes ready-to-eat cereal products primarily under the Frosted Flakes, Special K, Froot Loops, Raisin Bran, Frosted Mini-Wheats, and Kashi brands. The company was formerly known as North America Cereal Co. and changed its name to WK Kellogg Co in March 2023. The company was incorporated in 2022 and is headquartered in Battle Creek, Michigan.

WK Kellogg Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Hello, and welcome to WK Kellogg Co. To report First Quarter Results May 6. My name is Harry, and I will be your operator today. All lines are currently in a listen only mode, and there will be an opportunity for Q and A after management's prepared remarks. I I would now like to hand the conference over to Karen Duke, Vice President of Investor Relations.

[Operator]

Thank you. Please go ahead.

[Karen Duke, Vice President Finance and Investor Relations at WK Kellogg Co]

Thank you, Harry, and good morning, everyone. Thank you for joining us today for W. K. Callow Co. First quarter twenty twenty five earnings Q and A session.

[Karen Duke, Vice President Finance and Investor Relations at WK Kellogg Co]

I hope everyone has had the chance to read our press release and listen to our prerecorded management remarks, both of which are available on our website. In addition, we have posted a transcript of our prerecorded remarks. Please note that during today's Q and A session, we may make forward looking statements that are subject to various risks and uncertainties. Our actual results could differ materially from those projected or implied by these forward looking statements. For further information concerning factors that could cause our results to differ, please refer to the disclaimer slide in our earnings presentation as well as the risk factors disclosed in our most recent Form 10 ks filed with the SEC.

[Karen Duke, Vice President Finance and Investor Relations at WK Kellogg Co]

Finally, please note that we may refer to certain non GAAP measures that we believe provide useful information for investors. Definitions of these non GAAP measures and reconciliations to the most directly comparable GAAP measure are included in this morning's press release and in the appendix to the slide presentation. I'm joined this morning by Gary Pilnik, our Chairman and Chief Executive Officer and Dave McKinstry, our Chief Financial Officer. With that, I will turn the call over to the operator for our first question.

[Operator]

Thank you. Our first question will be from the line of Andrew Lazar with Barclays. Please go ahead. Your line is open.

[Andrew Lazar, Managing Director at Barclays]

Thanks so much, How are So maybe to start off, you mentioned in the prepared remarks several times the sort of rapid acceleration in consumer interest in health and wellness brands within the ready to eat cereal category in the quarter. I know this has been a longer sort of burning trend over time, but it does seem like something flipped or a switch sort of flipped, if you will, on this in the quarter itself. And I'm trying to get a sense of what you think drove that sort of recent rapid acceleration.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

It's a great question. We've been talking about that internally. If you don't mind, I'm going to tease the words a little bit, Andrew. We do think it's been accelerating. We've been watching this for a while.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

It's the reason why we're able to pivot so quickly. The second you heard what we're doing and what our plans are in the back half of the year. The reason for that is because we saw this coming. We actually think it's quite a good thing for the category, a good thing for us. And that's why we're prepared with not just new foods like the Kashi relaunch but campaigns across many of our mainstream brands regarding fiber.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

So we were prepared for this. If we sit back and say, Why do we think this might be happening? Well, as we're looking at what's happening within the consumer, sentiment is obviously down. We are all seeing the same information. So there's continuing interest and focus on value.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

We understand that. At the same time, in our category, what we're also seeing is some of our consumers are also willing to pay more. It's an interest in health and nutrition. I think that's going to continue. I think this is simply the continuation of a trend that we saw coming that at some point started to accelerate.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

And quite honestly, maybe this was just how it would naturally happen, but we don't expect it to slow. We think this is something that is more than a fad. It's a trend going forward. That's why we're already prepared, we're doing things with our food and our promotion. And again, we think this is quite a good thing for our category and for us because as folks are focusing on a combination of value, on health, those two things, we're a terrific destination for that because we know we could provide that in the category.

[Andrew Lazar, Managing Director at Barclays]

Thanks for that. And then just one for Dave. I'm just trying to get a better sense of the magnitude of sort of gross margin contraction expected in the second quarter. And I guess do you think one quarter is enough to sort of rightsize finished goods inventory with sort of the revised demand forecasts? Thank you.

[David McKinstray, Chief Financial Officer at WK Kellogg Co]

Yes, Andrew. Good question. I mean you can see we've adjusted our top line estimate for the year. Our demand outlook we think is commensurate with what we're seeing in the category, the dynamics we're seeing in the consumers on which Gary just alluded to, as well as then the actions and activity that we're enhancing in the back half of the year. I'm sure you listened to the prepared remarks that went through all of that and we can go through that in more detail as well.

[David McKinstray, Chief Financial Officer at WK Kellogg Co]

But our demand forecast and what we have now guided to considers all of that. And now what we've done is we've adjusted our manufacturing plan that's commensurate with that. We feel good about that. We feel good about where that's tracking. And like you said, that will mean that we have the largest impact to Q2 as we make those adjustments to our manufacturing plan.

[David McKinstray, Chief Financial Officer at WK Kellogg Co]

But as we move to the back half of the year, we should come out of Q2 right sized on the right levels of inventory we need to operate our business. And that will set us up then for a more stabilized gross margin performance in the back half.

[Operator]

Thank you. Our next question will be from the line of Ken Goldman with JPMorgan. Please go ahead. Your line is open. Hi, Ken.

[Ken Goldman, Managing Director at J.P. Morgan]

Hi, Thanks so much. I wanted to ask a little bit, one of the comments in the prepared remarks was that the category in The U. S. And Canada continues to provide the stable backdrop you need to execute your strategy. I know that you did support the 500 basis points of growth by the end of twenty twenty six today.

[Ken Goldman, Managing Director at J.P. Morgan]

But I was just curious to circle back a little bit toward the part of the strategy that talks about flattish sales growth, right? And then maybe positive sales growth after 26%. I think that's sort of what the initial outlook was anyway. So just trying to get a sense in light of kind of some of the challenges you're facing today, how you think about or how you define stable backdrop just so we kind of understand that phrase a little bit?

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

No. I think that's very fair, Ken. I appreciate the question. And when we think about what's happening in the category, the reason we said in the prepared remarks as providing that backdrop, because the way it's performing right now is consistent with our planning assumptions and what we need to deliver our model. If you take a look in The U.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

S, down about 80 basis points sequential improvement on both sales as well as volume. And TDPs, displays, the fundamentals of the category are solid right now. The key for us is, as we're seeing a shift in the category, we need to shift with it. And we believe we could do that. We're confident we could do that.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

So if you take a look at what's happening, we know that there's continued interest in value and continued interest and growing interest in health and wellness. That's the place that we're going to go. I talked about that a moment ago during Andrew's discussion. So we do we still continue to drive a business that focuses on a stable top line, minus 1%, plus one in that range. We talked about that.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

And then that allows us then to deliver the outsized margin growth over the long term. And I appreciate you mentioning the supply chain program. That's the restructuring we're doing. You reach all the way out. That's what delivers a significant amount of margin for us.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

And most of that is mechanical, as you know. As you get closer in, we're also always looking for ways to drive our profitability, and we have a variety of things that are in sight right now. And then if you go to the top line where you were describing, in our prepared remarks, we did talk about the trajectory changing in the back half. And you heard us talk about very tangible things that we've already done, for example, distribution gains in channels that are winning right now. They're coming online now.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

They're going to come online in the back half of the year. We talked about incremental investment in our brands. We know that when we do that properly, the top line responds to it. Dave talks a lot about return on that investment. The good news is that has been improving.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

And then you also heard what we're doing with respect to the launches associated with different health and nutrition brands. But don't misunderstand. Our mainstream brands also are getting a lot of attention. We simply we just finished up filming. I'll give you a secret, Ken.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

We just finished filming a spot with Tony Hawk, the skateboarder. We associate Tony with Frosted Flakes that happened a while back. We're bringing him back into the franchise, and we're excited about that. So those are the reasons why the tangible reasons why we do think our trajectory will change in a positive way. And we do need a stable top line to deliver that model, and we feel good that we can deliver on that.

[Ken Goldman, Managing Director at J.P. Morgan]

All right. And then quick follow-up. It was mentioned that the higher promotions reflects a strategic reallocation of the fifty third week profit. I think it was mentioned that you're redirecting from some other brand investments. Is it as simple as you're maybe not going to be spending on air as much?

[Ken Goldman, Managing Director at J.P. Morgan]

Just wanted to kind of get a better sense of which brand investments are not being deemphasized, but are sort of feeling a little bit of that reallocation.

[David McKinstray, Chief Financial Officer at WK Kellogg Co]

Yes, Ken, good question. So I'd start with saying it's not that we're deemphasizing brand investment. We're more strategically shifting that investment, and we're trying to get closer to where the consumer is. So as we think about that, we've talked a lot about ROIs over the last eighteen months. One of the things that we focused on specifically in our consumer facing investments was our return on those investments over the last eighteen months.

[David McKinstray, Chief Financial Officer at WK Kellogg Co]

We've done a really nice job of enhancing the returns on those investments over the last eighteen months, And that gives us confidence that that's going to provide better returns for us both in the short term but also in the long term as consumers continue to interact with our brands, pick it up off the shelf or in their online retailers. So that's how we're thinking about it, Ken, is more just a shift of activity. It's not less brand interaction but really just how the consumer is interacting with it a little bit differently.

[Operator]

Thank you. As a quick reminder, to ask a question, please dial 1 on your telephone keypad. If you change your mind and would like to exit the queue, please dial 2. When preparing to ask your question, please ensure your phone is unmuted locally. And finally, please limit yourselves to one question and one follow-up per person, and then reenter the queue if needed.

[Operator]

The next question will be from the line of Megan Clapp with Morgan Stanley. Please go ahead. Your line is open.

[Megan Clapp, Executive Director at Morgan Stanley]

Hi. Good morning. Thanks so much. Maybe I could just follow-up on on Ken's first question there. You know, the category continues, as you mentioned, to perform in line with your expectation and more about your market share performance.

[Megan Clapp, Executive Director at Morgan Stanley]

And it's it's nice to hear you've identified some fixes, but I guess if we look at the balance of the year, it does seem to imply, you know, you're you're expecting to get back in line with what the cat how the category is performing. So how confident are you in that, in terms of the fixes that you've identified that you can get back to performing in line with the category this year?

[David McKinstray, Chief Financial Officer at WK Kellogg Co]

Megan. Thanks for the question. I'd start with saying it's not going to happen overnight. We've said that we'll sequentially improve kind of each quarter into the back half. So as we think about that and you think about the, call it, the building blocks that we have in the year to go, some of those things are happening now.

[David McKinstray, Chief Financial Officer at WK Kellogg Co]

Gary just mentioned that we're picking up distribution gains in a key channel as we speak. That just happened starting really kind of the middle of P4. So that is just getting into market. We have more of that coming as we move into Q3, more coming in Q4. So it is kind of sequenced out that first piece of distribution gains.

[David McKinstray, Chief Financial Officer at WK Kellogg Co]

We talked about the strategic investment allocation. We'll have dollars working harder in the marketplace both in Q3 and then in compared to a year ago in Q4 as well. So think about it like that as we'll have a little bit of sequential improvement throughout the quarters as the year goes on. The Kashi relaunch, we're excited about that. We think that, that food is going right where the consumer is.

[David McKinstray, Chief Financial Officer at WK Kellogg Co]

So that will be happening, call it, right around the end of Q2. So again, these things aren't just a big bang here immediately. They're going to be kind of staged in as the year goes in. And then as we think about 2026, all those distribution gains will wrap into next year. Obviously, the Kashi relaunch will wrap into next year, and we're continuing.

[David McKinstray, Chief Financial Officer at WK Kellogg Co]

As we talked about at KEGNI and the SPOONS framework, we're continuing that activity and enhancing our health propositions, both from a health and wellness and emphasizing the health benefits of our mainstream brands into 2026.

[Megan Clapp, Executive Director at Morgan Stanley]

Okay. Great. That's helpful. And then maybe just as a follow-up, can you help us understand between and the balance of the year, you know, how how the top line guide is changing as it relates to volume and price? I think previously, you talked about kind of low single digit pricing realization in '25.

[Megan Clapp, Executive Director at Morgan Stanley]

Is that still how you're thinking about it? Was was the change more on the volume? Or was it kind of equal between price and and volume? Thank you.

[David McKinstray, Chief Financial Officer at WK Kellogg Co]

Yeah. Megan. So just as a reminder, we executed our second wave of PPA around the middle of last year. So as we finish out Q2, we will have fully lapped that second wave of PPA in the marketplace. So we would expect to realize price in the low single digits here in Q2, call it about the same rate, maybe a little bit less than we did in Q1.

[David McKinstray, Chief Financial Officer at WK Kellogg Co]

And then as we move in the back half, we would expect that price realization to flatten out. So we would expect our pounds and dollars to move relatively in line in comparison to year ago both in Q3 and Q4. And then as we move into 2026, we'd expect similar movement.

[Operator]

Thank you. The next question is from the line of Peter Galbo with Bank of America. Please go ahead. Your line is open.

[Peter Galbo, Director - Equity Research at Bank of America]

Hey, guys. Good morning. Thanks for taking the question. Gary, I want to step back a little bit on the commentary you gave reiterating the 500 basis points of EBITDA margin expansion still exiting 26. And just based on the commentary both for the quarter today and what we're probably going to see through the rest of the year with gross margins being flattish, I'm just curious if the complexion of how you're still planning to get to that 500 basis points has changed.

[Peter Galbo, Director - Equity Research at Bank of America]

And what I mean by that is, I think previously we had kind of all expected that it would be via 500 basis points of or close to 500 basis points of gross margin expansion. And based on just some of the commentary both for the quarter and for year to go today, I'm just wondering if that again, that complexion from the gross to EBITDA margin line has kind of changed in your thinking?

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

No, it's a fair push. So let me start with Ian, and I'll back it up. We're not changing our view on that. So the view is the 500 basis points would be coming through gross margin. Let me explain.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

And I'm going to back up a little bit at CAGNY. Sherry talked about the program being on schedule on our budget. She mentioned how we're doing it, the way we're executing it. We have eight separate initiatives. By the way, two of the eight work streams are now completed.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

So the focus continues. And you heard today, we reiterated again that the program is on schedule in our budget. And for us, our ability to talk about the same economics today that we did almost two years ago tells us we're on the right path. Now when we talked about it, we did talk about it being primarily a mechanical impact to our P and L because of what's happening within the consolidation of our supply chain network. That continues.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

You already said about talking 300 basis points or so, give or take. We already delivered about 100 basis points, and then the other 100 basis points comes as well, and we believe primarily through gross margin. So none of that has changed. The only thing for us is, as time moves on, as we continue to execute, as we continue to make commitments to lock in capital expenditures and the investment we're making, our confidence in the overall program grows. Dave, I'm going turn

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

it over to

[David McKinstray, Chief Financial Officer at WK Kellogg Co]

Peter, I think just to elaborate a little bit more, as Gary said in the upfront, 500 basis points mostly through gross margin. Everything we said remains intact. Now as we think about this year's profit delivery, obviously, we just took down our outlook for 2025. But as we think about 2026, we're actively working on how we continue to think about that profit as being delayed into 2026. And so just kind of start of how you can think

[David McKinstray, Chief Financial Officer at WK Kellogg Co]

I kind of overviewed the top line and some of that wrapping benefit into 2026. Well, that's going to be a benefit into next year. But beyond that, our cost structure, we're currently identifying ways to further enhance our margin, and that's both in gross margin and EBITDA margin. We talked about the fact that we are largely now unplugged from Calanova. So we have all of our own now SG and A that we are looking to optimize as we move forward.

[David McKinstray, Chief Financial Officer at WK Kellogg Co]

Think about over the last eighteen months, we've been standing up all of our own distribution centers. Those have been staggered over eighteen months. Again, now we're fully separated. We're going to look to optimize that. Similar in manufacturing, we're always looking at ways to further enhance our efficiencies.

[David McKinstray, Chief Financial Officer at WK Kellogg Co]

So these are all opportunities. And I'll give you a proof point in the past. We came into last year, and we talked a lot about waste reduction. That was an area we identified and we're able to go after and get good wins. So we're continuing to identify areas like that that will further bolster our 2026 delivery and into 2027.

[Peter Galbo, Director - Equity Research at Bank of America]

Okay. Thanks for that guys. That's helpful context. And Gary, maybe just a second. There's obviously been a lot of reporting on the competitive dynamic on cereal.

[Peter Galbo, Director - Equity Research at Bank of America]

You have a large competitor who's reducing capacity as well. And I guess I'm just trying to understand kind of the perspectives on, again, the longer term prospects for the category in light of some of the actions that are being taken relative to your long term guidance and what that could mean top line vis a vis what profitability could look like going forward, again, if we are going to be in scenario where the industry is reducing capacity? Thanks very much.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

No, very fair. And I think you heard from Dave just a moment ago about our confidence in terms of our profitability. We talked we already have a massive restructuring going on right now, and that's supply chain modernization, again, on budget, on schedule. So we feel very good about our ability to drive that going forward. And also, our the line of sight that I think you just heard from Dave about additional areas we can go, now that we're stood up, now that we're eighteen months in, we're past the TSA, we got our distribution set up, our ERP system has been cut over, so we have even more opportunity to optimize the organization and our company going forward.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

In terms of the top line, I'll go back to what we said earlier about what's happening within the category. The category is holding in, and it's shifting. And again, we will shift with it. We believe that this shift, as it continues, when if it as consumers are looking for value, they're looking for health and wellness, they're looking for joy and taste, and the consumer is not a monolith. It's a combination of those things, and some want more value than they want more and some want more nutrition.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

No matter what the combination is, the cereal category is a tremendous destination for those consumers. If we had to write out what we would want the consumer sentiment to be, to actually to improve our category, to drive our category, this would be it Because we know price per pound, we we show up very nicely and compare favorably. In terms of nutrition, we talked about our spoons concept. Those are the health credentials relating to our category that largely go ignored or unrecognized or misunderstood. Those are things that we can get after.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

And that's why with what's happening right now with the consumer, and we're always following the consumer, we think while there's some pressure in the first quarter, undoubtedly, it is a long term tailwind for this business, for the category, for this business and for

[Operator]

And our next question is from the line of Robert Moskow with TD Cowen. Go ahead. Your line is open.

[Robert Moskow, Managing Director at TD Cowen]

Hey, Gary. I I didn't see anything in here about the plan for Special K to try to stabilize it. And and given that this was a brand that really did have strong health and wellness credentials for a long time, It would seem that there's some kind of pent up equity there. You didn't mention it in the front of pack labeling that you plan to do for those for the other brands. Can you give an update on that?

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

I'm glad you mentioned it. And you're right, this has significant health credentials. You also saw in the public data that we did not have a good quarter. We lost 40 basis points. And at the same time, we are optimistic about this brand.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

I go back to what's happening with the consumer. This brand is at the intersection of taste and health and likely hasn't been as hard hitting on health as we should have been. Now this trend is now here, and what we're starting to do now is stronger focus on the food, stronger focus on, let's say, nutrient density, but also the upcoming comms that you're going to see, more food focused, stronger claims on pack. What you're going to see is with respect to this trend in health, we have a multi brand fiber campaign that's coming. We're also launching a special k protein granola.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

You know we have in the marketplace right now special k zero. Now that food is getting restaged, relaunched. It has zero added sugar and 18 grams of protein. So I think you have it exactly right, that this should be a tailwind for us and for appreciate the way you asked the question. We do think there's real tailwinds here, this equity should stand up well and respond well to where consumers are going.

[Robert Moskow, Managing Director at TD Cowen]

Okay. And then a follow-up. The category where there is growth, it's in a lot of small emerging brands. I think a lot of them are very protein forward. Do you have any ability to acquire brands like that?

[Robert Moskow, Managing Director at TD Cowen]

Or is your response to those brands just improve the marketing on your existing portfolio to defend?

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

My answer to that is an and. So we like the portfolio that we have. We do believe the entire cereal category should be perceived better from a health perspective. And if you go to our health and wellness brands, we talk about Kashi restaging at Barenaked. You just made the point about Special K.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

So we believe we have the arsenal here. We need to go focus more on that. It's up to us. Now at the same time, while there are smaller brands in the market that are winning, we could do that too. And you're going to start seeing that in the marketplace as well.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

But we have if you if you remember what happened with the spin, we have access to every piece of intellectual property that existed prior to the spin, and that's any of it from around the globe. That's what we get to use exclusively, perpetually, nonroyalty. It's royalty free. We get to use it at our discretion. So we're able to then go fight that fight the way exactly what you just said.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

And I have great confidence in the team that we have that we can go do this and do this well. And then you add it to the the current portfolio about how we push Kashi forward by restaging that, the special k point that you made, as well as our mainstream brands. But we could do it too, and we're excited about that.

[Operator]

With no further questions on the line, I would now like to hand the call back to Kerry Pilnik for some closing remarks.

[Gary Pilnick, Chairman & CEO at WK Kellogg Co]

We appreciate you joining our call today. You could see how we're moving quickly to improve our 2025 plan, executing what was already in the plan and reinforcing things that will resonate with our consumer, a very challenging and dynamic environment, but you can hear the confidence we have with the plan as we go forward. Importantly, our strategic priorities remain on track, and we're confident in the actions that we're taking to drive the business and create value over the long term. Very much appreciate your time.

[Operator]

With that, we will conclude today's conference call. Thank you to everyone who joined us today. You may now disconnect your lines.

Participants

Executives

• Karen Duke, Vice President Finance and Investor Relations
• Gary Pilnick, Chairman & CEO
• David McKinstray, Chief Financial Officer

Analysts

• Andrew Lazar, Managing Director at Barclays
• Ken Goldman, Managing Director at J.P. Morgan
• Megan Clapp, Executive Director at Morgan Stanley
• Peter Galbo, Director - Equity Research at Bank of America
• Robert Moskow, Managing Director at TD Cowen