Kellanova Q2 2024 Earnings Report

Kellanova EPS Results

• Actual EPS: $1.01
• Consensus EPS: $0.90
• Beat/Miss: Beat by +$0.11
• One Year Ago EPS: $1.25

Kellanova Revenue Results

• Actual Revenue: $3.19 billion
• Expected Revenue: $3.15 billion
• Beat/Miss: Beat by +$44.45 million
• YoY Revenue Growth: -4.70%

Kellanova Announcement Details

• Quarter: Q2 2024
• Date: 8/1/2024
• Time: Before Market Opens
• Conference Call Date: Thursday, August 1, 2024
• Conference Call Time: 9:30AM ET

Kellanova (NYSE:K), together with its subsidiaries, manufactures and markets snacks and convenience foods in North America, Europe, Latin America, the Asia Pacific, the Middle East, Australia, and Africa. Its principal products include crackers, crisps, savory snacks, toaster pastries, cereal bars, granola bars and bites, ready-to-eat cereals, frozen waffles, veggie foods, and noodles. The company offers its products under the Kellogg's, Cheez-It, Pringles, Austin, Parati, RXBAR, Eggo, Morningstar Farms, Bisco, Club, Luxe, Minueto, Special K, Toasteds, Town House, Zesta, Zoo Cartoon, Choco Krispis, Crunchy Nut, Kashi, Nutri-Grain, Squares, Zucaritas, Rice Krispies Treats, Sucrilhos, Pop-Tarts, K-Time, Sunibrite, Split Stix, LCMs, Coco Pops, Krave, Frosties, Rice Krispies Squares, Incogmeato, Veggitizers, Gardenburger, Trink, Carr's, Kellogg's Extra, Müsli, Fruit n Fibre, Kellogg's Crunchy Nut, Country Store, Smacks, Honey Bsss, Zimmy's, Toppas, Tresor, Froot Ring, Chocos, Chex, Guardian, Just Right, Sultana Bran, Rice Bubbles, Sustain, and Choco Krispies brand names. It sells its products to retailers through direct sales forces, as well as brokers and distributors. The company was formerly known as Kellogg Company and changed its name to Kellanova in October 2023. Kellanova was founded in 1906 and is headquartered in Chicago, Illinois.

Kellanova Q2 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning. Welcome to Calanova's Second Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session with publishing analysts. At this time, I would like to turn the call over to John Renwick, Vice President of Investor Relations and Corporate Planning for ColorNova.

[Operator]

Mr. Renwick, you may begin your conference call.

[John Renwick, Vice President of Investor Relations & Corporate Planning at Kellanova]

Thank you, operator. Good morning, everyone, and thank you for joining us today for a review of our Q2 results as well as an update on our outlook for 2024. I am joined this morning by Steve Cahillane, our Chairman, President and Chief Executive Officer and Amit Banati, our Vice Chairman and Chief Financial Officer. Slide number 3 shows our forward looking statements disclaimer. As you are aware, certain statements made today, such as projections for Calenova's future performance, are forward looking statements.

[John Renwick, Vice President of Investor Relations & Corporate Planning at Kellanova]

Actual results could be materially different from those projected. For further information concerning factors that could cause these results to differ, please refer to the 3rd slide of this presentation as well as to our public SEC filings. A recording of today's webcast and supporting documents will be archived for at least 90 days on the Investor page of www.calanova.com. As always, when referring to our results and outlook, unless otherwise noted, we will be referring to them on an organic basis for net sales and on a currency neutral adjusted basis for operating profit and earnings per share. Also remember that our 2023 results have been recast to treat the spun off W.

[John Renwick, Vice President of Investor Relations & Corporate Planning at Kellanova]

K. Kellogg Co. As a discontinued operation in accordance with applicable accounting guidelines. Those recast statements can be found in our Q4 2023 earnings press release from February 8 this year. And now I'll

[John Renwick, Vice President of Investor Relations & Corporate Planning at Kellanova]

turn it over to Steve.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Thanks, John, and good morning, everyone. We're once again pleased to report strong quarterly results that are clear evidence of our more growth oriented and more profitable portfolio following last fall's spin off. Our year on year organic growth in net sales was again on algorithm and volume trends improved sequentially again outside of Nigeria. Our year on year currency neutral operating profit growth was also on algorithm and we continue to improve our profit margins.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

And we've returned to full commercial activity with our stepped up innovation reaching shelves in the Q2. Delighting consumers is never more important than it is right now and we now have our full plan in the marketplace, which should help us continue to improve our in market performance in the second half. On slide number 6, we remind you of our strategy, differentiate, drive and deliver, which we continue to execute, helping us to deliver our near term commitments, but also to build for a strong future and drive shareowner value. On slide number 7, we remind you of our global footprint, whose diversification and exposure to faster growing markets is a true point of differentiation for Kelanova. This differentiated footprint along with our return to full commercial activity around the world contributed to our continued sequential improvement in volume in most of our regions.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

The chart on slide number 8 excludes our joint ventures in Africa, where currency driven price increases in Nigeria have resulted in recent elasticities as we expected. We see that our businesses outside those JVs posted a 4th consecutive quarter of sequential improvement in volume. And we drove this sequential improvement across our regions. Europe and the rest of EMEA both recorded moderating volume declines and North America and Latin America both returned to outright volume growth. Another key driver is shown on Slide number 9, innovation.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

As discussed previously, we are returning to a full innovation launch calendar after the pandemic era's supply disruptions. As you can see on the slide, we have a plethora of innovations launching across every one of the regions this year, ranging from limited editions to new flavors to amplified wellness credentials to entirely new food platforms. I'll just highlight a few notables. In the second half, we will be launching Pringles Mingle's in North America, our first out of the can launch in the United States in over 15 years. In late Q3, we will be introducing Cheez It to Europe with a big launch in the UK, supported by a full arsenal of sampling, social media and public relations and advertising.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

We've innovated in away from home channels as well, sometimes leveraging these channels to drive consumer awareness. A good example is our partnering with Taco Bell to launch a Big Cheez It Crunchwrap Supreme and a Big Cheez It Tostada. So we feel very good about the quality of our innovations and the buzz, trial and incremental purchases they will generate. Indeed, this heavy innovation calendar should bring us back to normal levels of net sales contribution from innovation. Slide number 10 measures year 1 incremental sales from innovation launches, expressed as a percent of our total net sales.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Notice how the incremental net sales we expect to generate from this year's innovation launches are much higher than the last couple of years when we had been contending with global supply disruptions. Getting back to delighting consumers through innovation is a key component of what we refer to as getting back to full commercial activity. Another good sign is shown on Slide number 11. In our return to full commercial activity, we obviously prioritized our biggest brand Pringles. The chart shows how this investment and activities improving our net sales growth and in market performance for this highly differentiated brand.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

All of it led to another quarter of differentiated results starting with organic net sales growth. Slide number 12 shows how we continue to well outpace the median growth of our peer group, including our more directly comparable snacking and international peers. This is precisely the greater growth orientation I mentioned earlier about our strategy and portfolio. Now let's talk about how we are a more profitable company than we were previously. Slide number 13 shows how our year to date gross profit margin and operating profit margin this year as Kelanova are meaningfully higher than the same periods pre pandemic and pre spin off.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

And our improvement in margins continued in the Q2 as Amit will discuss in a moment, even with a substantial increase in brand investment. Improving our margins is an important part of our strategy as they fuel our ability to invest in our brands and withstand unexpected shocks. And clearly, we are ahead of pace toward our 2026 target of a 15% operating profit margin. Because of how our business is performing, both from a top line and bottom line perspective, we are now raising our full year guidance. Our first half results came in better than expected and we remain on track for our second half outlook.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

We feel good about our commercial activity now fully in the marketplace and that emerging markets will sustain their underlying momentum. Finally, we continue to progress on another element of our strategy and that is our Better Days Promise program. Slide number 15 provides just a few examples of this program in action during the Q2. So let me now turn it over to Amit, who will walk you through our financial results and outlook before I come back and discuss each of our businesses in more detail.

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

Thank you, Steve, and hello, everyone. Slide number 17 summarizes our key financial results for quarter 2 and the first half. As Steve said, we delivered another quarter of on algorithm results and another quarter of results that exceeded our expectations across all of these key metrics. Our organic growth in net sales in quarter 2 came in at 4%, remaining within our long term target range. On a currency neutral basis, our adjusted operating profit grew by 16% year on year, driven by the organic net sales growth and continued improvement in margins in spite of a double digit increase in brand building.

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

Our below the line items continued to be a modest year on year headwind, though less than anticipated, resulting in growth in earnings per share of 14% on a currency neutral basis. Meanwhile, free cash flow also continued to increase year on year. Slide number 18 shows the major components of our year on year net sales growth in quarter 2 and the first half. Price mix growth continued to drive organic net sales growth even as it moderated as expected outside of Nigeria, where we executed price increases in quarter 1. Volume declined on elasticity impacts around the world, but especially in Nigeria.

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

As Steve mentioned, that market accounted for virtually all of our volume decline in quarter 2, so the rest of our portfolio is clearly delivering on planned sequential improvement and even turn to growth in 2 of our regions. Moving along the graph, the small impact from last year's divestiture of our Russia business is now behind us as the transaction anniversaries at the start of quarter 3. Foreign currency translation clipped net sales growth by about 8 percentage points in quarter 2, principally reflecting the Nigerian naira. Now let's discuss profitability starting with our gross profit on Slide number 19. Adjusted basis gross profit continued to increase year on year during quarter 2, up 9% excluding currency and up 5% with currency.

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

This sustains a strong trend as you can see on the slide. Meanwhile, we also continue to improve our gross profit margin with quarter 2's margin up close to 3 40 basis points year on year. As we've discussed previously, the discontinued operations accounting used to recast 2022 and the 1st 3 quarters of 2023 takes into account only the expenses associated with our transition services agreement and not the pass through of those expenses to W. K. Kellogg Company.

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

Year on year, this comparison item again contributed about 100 basis points of our margin expansion during quarter 2. And as we've also discussed previously, currency devaluations affected our country mix contributing a year on year margin benefit in quarter 2 of approximately 150 basis points, a little less than quarter 1 and something that should moderate more meaningfully in the second half as we lap last year's largest devaluation of the naira. Leaving out these 2 transitory items, our gross margin was still up by around a percentage point year on year, a recovery that continues to be aided by a resumed higher level of productivity and moderating input cost inflation. The fact that this gross margin restoration has continued to run ahead of pace gives us additional confidence in our full year outlook of more than 35%. We are experiencing growth and margin expansion at the operating profit line 2 as shown on slide number 20.

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

Operating profit in quarter 2 grew 16% excluding currency and 13% with currency, sustaining a trend of year on year growth. Even if you exclude the impact of the year ago absence of transition services expense pass through, our operating profit grew by more than 6% on this currency neutral basis remaining on our algorithm. This underlying growth was driven by an improving gross profit margin and good discipline on overhead, all of which more than offset the impact of a double digit increase in brand building investment. Even with increased investment, we are improving our profitability and marching solidly towards our guidance for an operating profit margin of over 14% in 2024 and our target of 15% by 2026. Moving down the P and L, we come to our earnings per share walk on slide number 21.

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

As you can see, all of our EPS growth in quarter 2 was attributable to our growth in operating profit just as it was in quarter 1. Looking at our below the line items, we can see that they again largely offset each other. Interest expense again increased meaningfully year on year reflecting higher interest rates. This was partially offset by an increase in other income, principally reflecting interest income and investment gains. Our effective tax rate remained in the mid-twenty 2 percent range.

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

Joint venture earnings and minority interest were relatively immaterial year on year. Our average shares outstanding were flat. The result of these items was an increase in adjusted basis EPS of 12% in quarter 2 and 14% on a currency neutral basis. Let's now turn to Slide number 22, which shows our free cash flow and net debt positions through quarter 2. We remain ahead of last year on free cash flow through the first half, though as we mentioned previously, some of this is related to the timing of a planned distribution from a post retirement fund, which is expected to be offset later in the year.

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

Even aside from that though, our cash flow generation remains solid. Meantime, we have continued to trim our net debt even as we return sizable cash to share owners mostly through our dividend. And our debt leverage remains well below our targeted ratio of net debt to trailing EBITDA of 3 times giving us excellent financial flexibility. Now let's discuss our increased guidance for the full year 2024 as shown on Slide number 23. With half the year behind us, it is time to narrow the ranges we first gave at our Day at K Investo event 12 months ago.

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

And because of the strength of our first half performance, we are in a position to raise this guidance. For net sales, we now expect organic growth of above 3.5%, an increase from our previous guidance that reflects our better than expected first half performance. We are prudently keeping our second half assumptions largely unchanged. Organic growth, of course, excludes currency translation, which based on exchange rates we saw during quarter 2 would be a headwind of about 7% for the full year. For adjusted basis operating profit, we are raising and narrowing the range to 1.875 to $1,900,000,000 again, primarily reflecting our first half delivery.

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

We continue to expect margin expansion for the year reaching above 35% for gross margin and above 14% for operating margin, though the year on year impacts moderate in the second half, mainly because of what we are lapping then. We don't provide guidance on currency translation, but to give you an idea, if the exchange rates experienced during quarter 2 hold for the year, it would be about a negative 3% headwind to our operating profit. Guidance for adjusted basis earnings per share increases to a range of $3.65 to $3.75 which incorporates the higher operating profit and other income that we experienced in the first half. Specifically, other income should retain its first half upside before settling back to a run rate of $15,000,000 to $20,000,000 per quarter in the second half. Our effective tax rate is now expected to be in the mid-twenty 2 percent range, only slightly better than we previously communicated.

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

These factors are partially offset by interest expense now expected to be higher given quarter 2's run rate and joint venture earnings and minority interest collectively should run a little bit more negative in the second half than the first. And we are raising our outlook for free cash flow to just above $1,000,000,000 with year on year growth driven by operating profit and despite capital expenditure temporarily elevated as a percentage of sales for expanded Pringles capacity in emerging markets as well as usual cash outlays related to our 2 network optimization projects. So we remain in a very good financial position. Our quarter 1 and quarter 2 results came in better than expected, enabling us to raise our guidance for the full year. And we are confident in the second half.

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

We have solid commercial plans that already are improving our volume performance around the world and this is starting to show up more plainly in our in market data as well. Our profit margins continue to improve progressing faster than planned, enabling us to reinvest in our brands. And our balance sheet and cash flow remain in strong shape. And with that, let me now turn it back to Steve for a run through of our businesses around the world.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Thanks, Amit. Let's start with Kelanova North America in Slide number 26. Our organic net sales were +1 percent in North America in the 2nd quarter. Lapping last year's revenue growth management actions and last year's relative lack of merchandising activity, our price mix was down slightly continuing and as expected moderation that began over a year ago. Our performance on volume meanwhile improved sequentially for a 4th consecutive quarter and turned positive in the 2nd quarter.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Industry wide elasticities continued to be a growth headwind across our retail categories, but our return to full commercial activity, including our launches of innovation reaching shelves during the Q2, led to volume growth in both consumption and shipments in our U. S. Retail business. This was augmented by strong growth outside of these measured U. S.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Channels in our U. S. Away from home business and our business in Canada. North America's operating profit increased substantially year on year as margins continue to improve. Even excluding the impact of year earlier recast figures not incorporating the pass through of transition service expenses, North America's operating profit grew at a double digit pace aided by productivity and absorbing increased investment behind our brands.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Slide number 27 shows North America's split between Snacks and frozen foods. During the Q2, our snacks business increased both in volume and price mix year on year, generating organic net sales growth of more than 1% even as it faced a relatively strong prior year quarter. In our much smaller frozen foods business, net sales were off slightly in the 2nd quarter as we faced our toughest quarterly comparison of the year, but we did increase volume led by Eggo. Slide number 28 shows our volume recovery playing out in measured channels. We expect to sustain this improvement in consumption volume and share performance through the second half.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

So North America is delivering strong financial results while getting back to full commercial activity that is taking hold in the form of improving volume performance, both in shipments and consumption. And as we think about the year, as shown on Slide number 29, we remain right on track. We have increased brand building and merchandising and our stepped up innovation is now in the marketplace. And we expect these investments to continue to improve our in market performance in the second half. Meanwhile, our margins continue to recover ahead of pace.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

This is a more focused team and portfolio since the spin off and we expect continued delivery in the second half. Now let's turn to Kelanova Europe and Slide number 30. Our organic basis net sales in Europe declined a little less than 1% in the 2nd quarter against our toughest quarterly comparison of the year. Our volume declines moderated led by growth in Snacks in the UK. Currency neutral adjusted basis operating profit grew by close to 7% year on year despite last year's mid year divestiture of Russia.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Profit margins continue to recover with a strong rebound in profit margins funding a significant boost in brand building investments. On Slide 31, you can see our 2 major category groups in Europe. Snacks, which represent over half of our sales in Telenova Europe grew organically by 1% year on year despite lapping last year's strongest double digit growth. Pringles continues to perform well with strong consumption growth across key markets with particularly strong share gains in the UK and Spain and continued expansion in Poland and Romania. And in portable wholesome snacks, we gained share in our biggest market, which is the UK.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

In cereal, net sales declined by less than 3% in the quarter on category elasticities. Slide number 32 reminds you of what we've been planning for in Europe in 2024. Despite the slight quarter 2 decline against tough comps, we remain on track to deliver a 7th straight year of organic net sales growth in Europe. Pringles continues to demonstrate momentum supported by innovation and exciting promotional partnerships. And we are ready and excited for our late quarter 3 launch of Cheez It in the UK, which will expand our snacking portfolio in Europe.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

In cereal, innovations like Tresor Brownie are now in market and promotions like our Kellogg sponsored football camps are underway in the UK. So we're confident that we can manage through category wide elasticity headwinds. Meanwhile, we are making progress on our plans for optimizing our cereal portfolio and manufacturing network. Now let's look at our emerging markets regions, starting with Latin America and Slide number 33. Latin America's net sales increased by 4% organically in the 2nd quarter, sustaining a mid single digit growth rate on top of big growth in the year earlier quarter.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Price mix growth is moderating as expected as we lap prior year actions to offset high cost inflation. Importantly, volume returned to growth in the quarter with gains in both snacks and cereal and led by Mexico. Operating profit increased in the 2nd quarter on top of strong year ago growth. Slide number 34 shows our Latin American net sales growth by category group. Organic net sales for our snacks business in Latin America grew 4% year on year with growth in both volume and price mix.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Salty snacks categories remain in growth across key markets in the region despite elasticities and Pringles has continued to outpace the category in our 2 largest markets, Mexico and Brazil. Our cereal net sales also increased by 4% in the quarter, sustaining volume growth. Cereal categories in the region remain in growth despite elasticities and we have outpaced the category this year in key markets, Mexico and Brazil. Slide number 35 reminds you of what to watch for in our Latin America business this year. Here too, we expect a 7th straight year of organic net sales growth and we expect the growth to come from both snacks and cereal.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Margins should improve, reflecting price pack architecture efforts as well as operating efficiencies and the potential for moderating input cost pressures later in the year. So through the first half, Latin America is right on track. And we'll finish with our EMEA region, starting with Slide number 36. Once again, currency influenced price increases in Nigeria drove substantially all of the regions 16% organic net sales growth in the quarter. Our business there continues to execute well, pricing again earlier this year to keep up with currency rates and during the Q2, its volume declines were not as severe as expected.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

This may have positive implications for our second half forecasts, but we are taking a prudent approach. Nevertheless, these short term challenges are dramatically outweighed by the long term growth opportunity that this growing market and our advantaged assets provide us. Outside of Nigeria and our joint ventures with Talaram, our organic net sales increased at a mid single digit rate in the 2nd quarter. Volume declined only slightly year on year despite category elasticities and the negative demand impact of tensions in the Middle East. On a currency neutral basis, EMEA's operating profit grew by 9% with growth in both Nigeria and in the rest of EMEA and margins continuing to improve even with a substantial increase in brand building investment.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

On Slide number 37, we see how our net sales growth split by major category groups. Noodles and Other's 26% organic growth reflects the currency driven pricing in Nigeria, which was only partially offset by elasticity driven double digit declines in volume. Meanwhile, we continue to drive strong growth for Kellogg's Noodles in South Africa and Egypt, gaining distribution and share in those markets and successfully launching this quarter into Saudi Arabia. In snacks, we grew net sales organically by about 13% year on year with broad based growth across the region led by Pringles. In cereal, our organic net sales grew 4% and this too was broad based across the region in spite of category elasticities.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

For EMEA, in 2024, we continue to watch for the elements listed on Slide number 38. We expect this region to record yet another year of good organic net sales growth and we expect growth both within Nigeria and in the rest of the region. Noodles remains a growth business for us in Africa. Pringles will sustain its momentum supported by innovation, pack formats and distribution. And we expect to sustain growth in cereal led by emerging markets.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Meanwhile, EMEA's improvement of profit margins should continue. So let me summarize with Slide number 40. With each passing quarter, including the Q2, it should be increasingly clear that Kelanova today has a strategy and portfolio that is more focused, more growth oriented and more profitable than ever before. We're delivering on algorithm performance amidst a challenging industry environment. We have strengthened commercial plans for 2024 and they are already starting to yield gradual improvements in volume.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

We are committed to improving our profit margins and this improvement remains ahead of pace. We are raising our guidance, thanks to a strong first half and enviable position to be in, especially in the current industry environment. And yet, we refuse to sit still. We continue to create the future, be it in adding growth capacity in Pringles in emerging markets, expanding Cheez It into Europe, expanding noodles in Africa or continuing to increase investment behind a portfolio with some of the most differentiated brands in the world. This commitment to driving shareholder value is shared by all of our Kelanova team members who deserve our thanks for all that they do.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

And now we'd be happy to take your questions.

[Operator]

Thank you. We will now begin the question and answer session with publishing Our first question comes from Rob Dickerson with Jefferies. Your line is open. Please go ahead.

[Rob Dickerson, Managing Director - Consumer Staples Equity Research at Jefferies LLC]

Super. Thanks so much. Good morning. So Steve, I guess, clearly, we could see the improvement in North America volumes, which is great. Part of that looks to be from some proactive price investment.

[Rob Dickerson, Managing Director - Consumer Staples Equity Research at Jefferies LLC]

So I'm just curious, I think you said, as you think through the back half, you do expect back half sustained volume improvement and then you have great innovations played. So really kind of the simple question is just as you go for the sustained volume improvement in the back half of North America, would you say most of that is coming from these things like incremental distribution, innovation or have you just been very proactive in the right way, kind of focused on certain price points that's been driving that volume improvement relative to the industry? Thanks.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Yes. Thanks for the question, Rob. What I tell you is, we've talked about getting back to full commercial activation and that's really the story in North America. It's really led by Pringles, which returned first and has terrific momentum. It includes increased distribution with new shelf resets in the Q2, as you mentioned.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

It includes a full commercial innovation activation. We're back to levels that we haven't seen since pre pandemic. And it's really that, Rob. It's a full commercial activation, gaining momentum. We returned to volume growth in the Q2 in North America.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

That will continue into the 3rd Q4 and actually improve as activation around Cheez It and some of our other brands starts to catch up to what we've done with Pringles. So and in terms of pricing, we had to take, as you well know, a lot of price in the last 2 years. And so we're returning to the type of price promotion activity more or less that we saw pre pandemic in a very rational environment. So bright spot for us is the second half of the year and the volume that we've seen in

[Steven Cahillane, Chairman, CEO & President at Kellanova]

North America.

[Rob Dickerson, Managing Director - Consumer Staples Equity Research at Jefferies LLC]

All right, super. One question.

[Operator]

We now turn to Chris Carey with Wells Fargo Securities. Your line is open. Please go ahead.

[Christopher Carey, Equity Analyst - Head of Consumer Staples Research at Wells Fargo]

Hi, good morning everyone. I wanted to ask about Europe, the volume under pressure as pricing is decelerating, but you also have some innovation coming, I think you highlighted Cheez It. So just how would you characterize your go forward in Europe? I know looking for another year of growth, but maybe how do you view kind of exit rate in the complexion of trend in the market as you think about balancing price and volume going forward?

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Yes, Chris. So I'd start with Europe is a tough environment, always has been. It's tough this year. But in the Q2, we faced our toughest comps, particularly with Pringles. And you heard us say in the prepared remarks that we have a lot of confidence.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

We're going to continue to grow in Europe and So lots of confidence in Europe, lots of confidence in Europe continuing to grow. So lots of confidence in Europe, lots of confidence in Europe continuing to grow. You saw that Snacks did grow in the 2nd quarter. That will accelerate in the 3rd and Q4 based on the activations. And we are very excited about the Cheez It launch in the Q4.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

And when I say very excited, it's just a great program that they put together in the UK. The customers are excited about it. The consumer testing of the product is outstanding. And so we see big things for Cheez It in the next couple of years. It's going to be a real growth driver for us.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

So bullish on Europe despite a challenging environment. I know that makes us a little different than some others, but our team has delivered now 7 years of growth in Europe. And so that will continue this year.

[Christopher Carey, Equity Analyst - Head of Consumer Staples Research at Wells Fargo]

Thanks, Steve. And if I could, just as a follow-up on the pricing comment in North America, It's great to see the volumes in place. You did make a comment, I think, in the prepared remarks about some year ago, timing impact with promotion or price activity. But would you expect pricing to stay negative as you certainly as you're clearly seeing this positive and constructive uplift in volume as we go forward? Thanks so much.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

We see pricing remaining very rational in the environment. Remember, we're lapping a real dearth of activity last year. So that's what you see when you see our year over year comparisons. We've talked about it quite a lot. We pulled back on commercial activation because of the bottlenecks shortages.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

We were perhaps a little late compared to others in returning, but we've returned. But it's all very rational, very prudent and we see good volume growth and a good balance between price mix volume in the back half of the year for North America.

[Christopher Carey, Equity Analyst - Head of Consumer Staples Research at Wells Fargo]

Okay. Thanks so much.

[Operator]

Our next question comes from Peter Galbo with Bank of America. Your line is open. Please go ahead.

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

Hey guys, good morning. Thanks for taking the question.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Good morning,

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Peter.

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

Steve, maybe in our just continued tour of the

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

world here, having gone through North America and Europe, Latin America, I think you kind of had more of a standout quarter relative to what some of the peers have said, particularly around maybe some delay in stimulus payments in Mexico, and then also some weakness in Brazil. So maybe you can just talk a bit about more specifically the Kelanova quarter in Mexico and Brazil and then relative to kind of the macro that you're seeing there

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

on the ground?

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Yes. So it was a good quarter in Latin America. Cereal and snacks all growing, Mexico having a terrific quarter, kind of record shares in the cereal business in Mexico and Pringles continuing to do extremely well despite being somewhat capacity constrained because we're sourcing out of Jackson, Tennessee. Next year, we'll be sourcing out of Mexico. So really bullish on Pringles' future opportunities in Mexico because of local sourcing.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Brazil, you have to remember Brazil was really impacted by some pretty devastating floods, but the underlying business in Brazil remains strong, really driven also by Pringles. Pringles momentum in Brazil is very, very good. So the Brazilian business is strong, but impacted by pretty devastating floods that obviously we all saw on the news.

[Operator]

Our next question comes from Robert Moskow with TD Cowen. Your line is open. Please go ahead.

[Robert Moskow, Managing Director at TD Cowen]

Hi, thank you. I was wondering if

[Robert Moskow, Managing Director at TD Cowen]

you could talk about North America price sensitivity in terms of like tax sizes and the price points. One of your competitors said that when price points get above a certain level like above $4 it's led to consumers actually exiting the category and they've made some pretty substantial changes to adjust to that. Would you agree with that or is it just not really affecting your

[Steven Cahillane, Chairman, CEO & President at Kellanova]

not it's more extreme because the consumer is under so much pressure. So we've always talked about entry price points. We've always talked about price package architecture. Going back a number of years, we've been investing in the capability to have more pack sizes to hit different price points. But I think what you're hearing in this environment is perhaps more than in a very long period of time, the absolute dollars are under more pressure.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

So the basket that people can fill is affected obviously by the absolute dollars in their pocket. And as the consumer is so strained, it's become heightened in terms of making sure that you hit those right price points. Particularly with consumers under $100,000 in household income with kids, that's where we're seeing the price sensitivity. And it also varies by where you are in the monthly cycle as well. So we look at all of that.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

It is important more important in this environment than perhaps a more normalized environment.

[Robert Moskow, Managing Director at TD Cowen]

Can I ask a follow-up? How meaningful is your Pringles launch that the mixed Pringles launch in the back half? And what was the insight that made you think that coming introducing something out of the can is going to compete well in that very competitive marketplace?

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Yes. So I wouldn't look at Pringles, Mingles being a meaningful difference maker in terms of our SV forecast for the balance of the year. We're only starting to tip it and really we'll activate it more in the Q1 of next year. The insight is that people love the brand to begin with. We haven't stretched that brand outside the can, so that's a meaningful innovation.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

The product is extruded. It is in the shape of a bow tie, Mr. Pringle's bow tie. So it plays more on the Mr. P iconography than it does the can.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

We believe the product tests extremely well and Pringles stands for snacking in so many ways. So we're giving a launch outside the can and we'll see how it goes.

[Robert Moskow, Managing Director at TD Cowen]

Great. Thank you.

[Operator]

We now turn to David Palmer with Evercore ISI. Your line is open. Please go ahead.

[David Palmer, Senior Managing Director at Evercore]

Thanks. I wanted to just ask a couple of questions on North America Snacks. You said in your comments, Steve, that there was consumption growth in the quarter in 2Q. Was that we see consumption being down a bit. I assume maybe there was some growth in Canada or beyond the measured channels that we can't see.

[David Palmer, Senior Managing Director at Evercore]

Maybe you can comment on that. But more importantly, I'm just wondering in the data that we are going to be tracking, are you expecting a return to at least that low single digit growth that you're expecting in the beginning of the year for the second half in just the consumption, the Mule Plus type stuff that has pretty good coverage? Would you expect that? And would the improvement if so, would the improvement be in the areas you were targeting earlier in the year around some of the merchandising and innovation on Cheez It and Rice Krispies Treats? Thank you.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Yes, David, thanks for the question. What you're seeing in the measured channels, you hit on it, what you're not seeing is very good growth in Canada and very good growth in our away from home channels. So the non measured channels performed at a rate that led to consumption growth overall in North America. Pringles also you see doing extremely well, lots and lots of momentum on Pringles. You see that in the measured channels, but it's also the same in the non measured channels.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

So all those things together are what's leading the consumption growth. Going forward to your question, we would expect to see improvement in the measured channels. As I mentioned, you've seen it in Pringles, which was kind of first out of the gate with our investments and with return to full commercial activation. You'll see that with the other big brands. You'll see that with Cheez It in the back half of the year as well as Rice Krispies Treats, Pop Tarts and Eggo.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

So we would expect the measured channels start to catch up to some of the non measured channels as we get into the second half of the year and exit the year.

[David Palmer, Senior Managing Director at Evercore]

Okay. Thank you.

[Operator]

Our next question comes from Michael Lavery with Piper Sandler. Your line is open. Please go ahead.

[Michael Lavery, Senior Equity Research Analyst at Piper Sandler Companies]

Thank you. Good morning. Good morning, guys. Just wanted to touch on Nigeria. Yes, thanks.

[Michael Lavery, Senior Equity Research Analyst at Piper Sandler Companies]

Just wanted to touch on Nigeria and obviously with the pricing, you've got a big lift, but of course the currency and volumes are a big offset. I know you called out the volume momentum excluding that, but what are you seeing there? Maybe sequentially, when could that improve? Have you seen any kind of digestion of the pricing that the consumers are adjusting and maybe the elasticities are starting to mitigate? Just trying to understand, obviously, that's part of your emerging market footprint you call out as growth drivers that ordinarily wouldn't be kind of a point of stress?

[Michael Lavery, Senior Equity Research Analyst at Piper Sandler Companies]

When can that turn and really be a proper volume growth driver again?

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Yes. Thanks for the question. The tolerant JV collectively recorded a volume decline in the high teens against the price mix gain of more than 40% year on year. So that's obviously hugely substantive. And we've been talking about the elasticities and the fact that elasticities would have to start to show up and we're seeing that.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

We also talked about it being in our forecast for the back half of the year. We're being very prudent about that. We actually think there might be some upside to that, as the price lands has landed in Africa. But we'll just have to wait and see. The team is executing very well on the ground, but the consumer in Nigeria is under a tremendous amount of strain.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

You can see that in the headlines. It's in our forecast and perhaps there may be some upside in that forecast. I don't know, Amit, do you want to add anything?

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

No. I think

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

the only thing I'd add is that elasticities came in better than expected. So while the volume declines were in the teens, it was definitely better than what we had expected in the quarter. I think we need to continue to take some more pricing in some of our other categories. And so I think we've assumed that elasticity would be there in the second half. And we'll see we're encouraged by what we saw in the second quarter, but we're being prudent about the rest of the year.

[Michael Lavery, Senior Equity Research Analyst at Piper Sandler Companies]

Okay. Thanks so much.

[Operator]

We now turn to Thomas Palmer with Citi. Your line is open. Please go ahead.

[Thomas Palmer, Vice President, Senior Equity Research Analyst at Citi]

Good morning and thanks for the question. You indicated that the guidance increase reflects mainly the first half upside and the second half expectations were a little changed. I wanted to ask on the operating profit. I mean, maybe your expectations were different than consensus estimates, but I think the upside was quite a bit more than consensus estimates had. And just trying to understand if there's any incremental callouts as we think about the second half of the year in terms of pressure on that line that maybe right would kind of limit that upside to guidance in terms of how you framed it?

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

No, not really. I mean, I think if you kind

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

of look at and we've talked this previously

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

as well, right? The gross margin progression will moderate in the second half as some of the things that we lacked start moderating. We obviously had the TSA pass through last year in quarter 4. So we'll be lapping that. I think the bottlenecks and shortages, which was a big driver of improved gross margin, particularly in quarter 1, I think that's firmly behind us.

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

We saw a little bit

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

of that in quarter 2, but

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

it was largely in quarter 1. So you won't add that in the second half. And then the country mix impact driven by the naira in Nigeria will also you'll start lapping that. If you recall last year, the biggest devaluation in the naira was and around this time, so in quarter 3. So you're going to start lapping that.

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

So we continue to we're very pleased with the progress that we're making on the margins. It's coming in better than expected. But we continue to see progression, but not as much as we saw in the first half because of some of the items that we are lapping. So I'd say that's probably the biggest driver. Brand building, we saw good double digit increase in the first half.

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

That's going to moderate in the second half because if you recall last year in the second half we had ramped up brand building. So the absolute pressure continues to be very good, but when you look at it versus the ramp up in the second half, the growth moderates. So I think those are some of the puts and takes in terms of the second half operating profit.

[Thomas Palmer, Vice President, Senior Equity Research Analyst at Citi]

Okay. Thank you. And then on inflation, I think you previously noted you thought it would be pretty neutral for the year. Is this still the expectation? And then is there anything to consider in terms of the cadence over the course of 2024 in terms of that rate?

[Thomas Palmer, Vice President, Senior Equity Research Analyst at Citi]

Thanks.

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

No real change. I think that continues to be our outlook to be neutral to slightly inflationary. I think costs are coming in pretty much as we had expected. Obviously, Nigeria, we're seeing inflation come through probably at a higher rate. But other than that, costs are coming in pretty much in line with expectations.

[Thomas Palmer, Vice President, Senior Equity Research Analyst at Citi]

Thank you.

[Operator]

Our next question comes from Ken Goldman with JPMorgan. Your line is open. Please go ahead.

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

Hi, thank you. I wanted to ask about gross margins. The increases for you are impressive obviously and it's a trend we're seeing across the food group in general. But at the same time, we're also increasingly hearing from domestic food retailers, your customers that they're increasingly aware, I guess, of their vendors gross margin growth, if I can say that, as volumes remain constrained. So I guess the question is understanding that much of the industry's margin increase is coming from efficiency efforts that should be sticky.

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

How do you think about that balance between inherently wanting to try and drive margins higher and sort of being cognizant of what your customers are saying lately, if makes sense?

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Yes. Thanks for the question, Ken. Obviously, we all want to focus on gross margins because it's what drives the health of the business. And we're doing it through productivity. We're doing it by getting back to where we were in some ways because of the bottlenecks and the shortages.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

And we're increasing our brand building investment quite substantially, which really helps put together winning retail programs. So what we need to do is grow faster than the retailer's same store sales through great activation, great commercial activation, have the right price point for the consumers, so we meet them where they are. And then you get into a much more constructive dialogue with customers versus who's taking what share of the pie. And so, yes, we are growing our gross margins, but it's against a backdrop of where we were and we're increasing our brand building investments, which helps our customers drive volume through their outlets. So that's how that's basically how we would look at that.

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

Makes sense. Thank you, Steve.

[Operator]

We now turn to Alexia Howard with Sanford Bernstein. Your line is open. Please go ahead.

[Alexia Howard, Analyst at Bernstein]

Good morning, everyone. Can we ask about innovation? Hi, there. Can I just ask about the innovation graph that you put up? Obviously, you're up back up to levels that are slightly above where you were in 2021.

[Alexia Howard, Analyst at Bernstein]

Are you actually able to give us a number on percentage of sales coming from new products this year? And perhaps more importantly, are you back up to where you would expect to be long term? Or is there another step up that we might expect over the next year or 2? And just as a super quick follow-up, should we expect guidance for 2025 when you report next quarter?

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Yes. Thanks, Alexis. So let's work backwards. We always release guidance at our February earnings and that's what we'll do again this time. In terms of innovation, we don't really release numbers against that, but we are back to where we were pre pandemic as saw on the slide.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

And that's actually going to get better because that obviously includes a Cheez It launch, it includes the Pringles, Mingles launch and there's a whole host of innovations really by category, by brand group. So it's meaningfully different than it was in the last couple of years back to where we were in 2019 2018. 2019 was the Snap launch, which was a good year for us and we're beating that. So we feel very good about innovation, and we've got a great calendar for next year as well. When we get to February, we'll talk about not only guidance for the year, but we'll give some outlook as to exactly the innovations that we'll be launching in 2025 as well.

[Alexia Howard, Analyst at Bernstein]

Thank you very much. I'll pass it on.

[Operator]

Our next question comes from Steve Powers with Deutsche Bank. Your line is open. Please go ahead.

[Steve Powers, Equity Research Analyst at Deutsche Bank]

Hey, good morning. Hey, Steve, I wanted to follow-up on I think it was Chris Carey's question and your response. I think you talked about expecting a good balance of volume, price and mix in the back half in North America. And I guess the question is, does that to say you expect each of those components to be positive in the back half?

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Yes. No, we don't really get into breaking that down in terms of a forecast, but I think we're returning to the type of balance that we seek. And the most important really is getting back to volume because it's a little bit aberrant when you look at it because of what we're lapping. We're lapping these enormous prices and these declines in volumes. So now we're looking at better volume and less price.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

And so when you look at what's lapping, it's just kind of strange. So we're getting back to volume growth, which I think is going to drive NSV growth then you can kind of back into what that might look like.

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

I think the only thing I'd add,

[Amit Banati, Vice Chairman & Chief Financial Officer at Kellanova]

Steve, when you look at our second half is that if you exclude Nigeria, where we talked, right, that we expect we continue to expect volume declines because of the elasticity and because of the pricing that we're taking. If you exclude that, we pretty much expect volume growth in most of our in all of other regions other than Nigeria. So I think you should expect that trend to continue for us in the second half.

[Steve Powers, Equity Research Analyst at Deutsche Bank]

Okay. That all makes sense. I guess the follow-up though is that you had good returns on this sort of return to activation and promotional investment that you've made so far. But as I'm sure you're aware, a lot of your direct and indirect competitors, some of whom reported today, some of whom reported earlier this week, some of whom reported earlier in the month, all have talked about kind of incremental step ups in investment as we go through the back half. So you've talked about the environment as rational.

[Steve Powers, Equity Research Analyst at Deutsche Bank]

Do you view those comments as rational? And amidst the competitive set arguably leaning in a bit more in the back half, do you expect the same kind of return on your run rate investments?

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Yes. No, I would just reiterate, we do see it as rational. We see things returning to where they were pre pandemic, not anything more than that. The things that are going to drive these categories are innovation, brand building, quality display merchandising, all those types of things. We've all been impacted by extraordinary input cost inflation.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

So we've had to take a lot of price. The consumers obviously reacted to that. But a lot of that price discovery has happened. Consumers are getting more used to these prices. It doesn't mean they're not still under pressure and that we have to make sure to some of the earlier conversations we're hitting the right price points, the right pack sizes, the right promotions at the right time of the month.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

All those types of things are really quite important. But brands matter and we have to make sure that we're continuing to invest in our brands and innovation, meeting the consumers where they are. But having said all that, we continue to forecast a rational pricing environment going forward.

[Steve Powers, Equity Research Analyst at Deutsche Bank]

Okay,

[Steve Powers, Equity Research Analyst at Deutsche Bank]

very good. Thanks so much. Appreciate it.

[John Renwick, Vice President of Investor Relations & Corporate Planning at Kellanova]

We probably have time for one more question, operator.

[Operator]

Our last question comes from Max Gunport with BNP Paribas. Your line is open. Please go ahead.

[Max Gumport, Director - Equity Research at BNP Paribas]

Hey, thanks for the question. Just wanted to follow-up on the last one there and get a better sense for should we expect or why do you not think your business needs more price investment given what we're hearing from all of your competitors, particularly competitors in your near end categories within snacking. It feels like we're hearing more and more about these companies saying that consumer needs some pricing give back. It feels like retailers are saying the same. So I just want to make sure I understand why your own business doesn't need that.

[Max Gumport, Director - Equity Research at BNP Paribas]

Thank you.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Yes, Max, I just point you to, we had a terrific second quarter. We raised our guidance. We've got great confidence. You can't speak to where everybody else is, but we feel very, very good about where we are. We feel good about innovations.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

We feel good about the return we're getting from our brand building. We feel good about our geographic portfolio. And I hope that you heard that come through in not only the results, but the outlook. And so I just point you right to there and say, we don't feel like we're missing anything. We don't feel like we need to do anything on the pricing front that we're not already doing that you haven't seen.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Because again, here we are today announcing good results, very good results and raising guidance. So I just would end it with that.

[Max Gumport, Director - Equity Research at BNP Paribas]

Great. Thanks very much.

[John Renwick, Vice President of Investor Relations & Corporate Planning at Kellanova]

Maybe one more.

[Operator]

Yes. We have a question from Andrew Lazar with Barclays. Your line is open. Please go ahead.

[Andrew Lazar, Managing Director at Barclays]

Great. Just a super quick one. Steve, with all of the activation, commercial activation back up to more normal levels, we're hearing a lot of that about more normal levels of promotional activity from peers as well. It's all off of obviously much higher list pricing. So promoted price points are still quite a bit higher.

[Andrew Lazar, Managing Director at Barclays]

So I'm just curious what you're seeing around lift on promotional activity, if it's kind of where you have always seen it, is it better or worse or how that's trending? That's it. Thanks so much.

[Steven Cahillane, Chairman, CEO & President at Kellanova]

Great question, Andrew. I'd say, if you go back at the beginning of the year and the end of last year, the lifts were not great because I think the price discovery was still happening, as you point out, the higher list prices were starting to improve. And so sequentially, week in and week out, the investments that we're making are seeing a better return. And that's part of our confidence in the back half of the year and the next year that the right level of investment will start to yield the type of returns that we saw pre pandemic.

[Andrew Lazar, Managing Director at Barclays]

Thanks so much.

[Operator]

This concludes our Q and A. I'll now hand back to John Renwick for closing remarks.

[John Renwick, Vice President of Investor Relations & Corporate Planning at Kellanova]

Okay. Well, thank you everyone for your interest and your time. And if you do have follow-up questions, please do not hesitate to call us.

[John Renwick, Vice President of Investor Relations & Corporate Planning at Kellanova]

Have a great day.

[Operator]

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.

Participants

Executives

• John Renwick, Vice President of Investor Relations & Corporate Planning
• Steven Cahillane, Chairman, CEO & President
• Amit Banati, Vice Chairman & Chief Financial Officer

Analysts

• Rob Dickerson, Managing Director - Consumer Staples Equity Research at Jefferies LLC
• Christopher Carey, Equity Analyst - Head of Consumer Staples Research at Wells Fargo
• Peter Galbo, Director - Equity Research at Bank of America
• Robert Moskow, Managing Director at TD Cowen
• David Palmer, Senior Managing Director at Evercore
• Michael Lavery, Senior Equity Research Analyst at Piper Sandler Companies
• Thomas Palmer, Vice President, Senior Equity Research Analyst at Citi
• Ken Goldman, Managing Director at J.P. Morgan
• Alexia Howard, Analyst at Bernstein
• Steve Powers, Equity Research Analyst at Deutsche Bank
• Max Gumport, Director - Equity Research at BNP Paribas
• Andrew Lazar, Managing Director at Barclays