Good morning, and welcome to the Kellanova Third Quarter 2023 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 will turn the call over to John Renwick, Vice President of Investor Relations and Corporate Planning for Kellanova Company. Please go ahead.

Thank you, operator. Good morning, and thank you for joining us today for a review of our third quarter results when we were Kellogg Company and a discussion of our outlook for the fourth quarter of 2023, during which we will be post spin-off Kellanova. I'm 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 Kellanova's future performance, are forward-looking statements. 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 third 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.kellanova.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. Please note that we will have discontinued operations impacts to Kellanova's historical financial statements available during our fourth quarter earnings release in February 2024. Until then, any commentary about Kellanova performance is based on estimates and should therefore be viewed as directional. And now I'll turn it over to Steve.

Thanks, John, and good morning, everyone. While our quarter three results predated the spin-off, it is exciting to be talking to you as Kellanova for the first time. It bears reminding that Kellanova is a strengthened portfolio with the business, brands and geographies that make Kellanova a global snacks-led powerhouse. As shown on Slide number 5, over 80% of our annual net sales comes from snacks and emerging markets, both of which have been and will continue to be above-average growth categories and markets. Half of our net sales come from five highly differentiated brands, Pringles, Cheez-It, Pop-Tarts, Rice Krispie Treats and Eggo, that offer above-average growth and accretive economics. And we generate half of our revenue from outside of the United States and Canada, giving us geographic diversification, global reach, access to fast-growing emerging markets and the opportunity to expand big United States brands into international markets. And when you see temporary softness in one market, it can be offset elsewhere, which is precisely what we saw in the third quarter. Kellanova is also a company with a sharpened strategy, one that better suits a global snacking powerhouse, while still emphasizing the capabilities that enable us to win in the marketplace, protect our planet and serve our communities, and deliver attractive and dependable financial returns. This strategy appropriately called differentiate, drive and deliver is shown on Slide number 6. But before we enter the Kellanova era, let's talk about our final quarter as Kellogg Company on Slide number 7. We turned in another good performance in the third quarter. Organic net sales growth was sustained at an on-algorithm pace despite a challenging environment marked by a financially strained consumer and the long-awaited return toward normal levels of elasticities. We're pleased with our continued restoration of gross profit margins. As service levels have returned to normal levels, productivity initiatives are delivering savings and pricing has caught up with input cost inflation. And this enabled us to deliver above-algorithm growth in operating profit even as we increased our brand building at a double-digit rate. Our free cash flow was strong, ahead of last year, even with upfront outlays related to the spin-off. And speaking of the spin-off, we executed it with excellence. So it was another busy and successful quarter, and we are heading into the Kellanova era from a position of strength. Externally, the focus lately has been less about our improved portfolio strategy and long-term growth prospects and much more about current industry dynamics. Fair enough, but I would remind everyone that most of what we are seeing today from decelerating cost inflation to restoration of service levels and margins, to a return to normal levels of elasticities have been in our budget, our guidance and our commentary for quite some time. This is illustrated on slide number 8. The decelerated net sales growth was inevitable because after significant cumulative price increases, including right through the second quarter of 2023, there was going to be a return to typical levels of elasticities in our industry. And across our categories and across our regions, we have seen this rise in elasticities every quarter this year. We don't think this is about price gaps over private label, which largely remain below 2019 levels. And the relatively small shares of private label in our categories remain around their 2019 levels. We did have a couple of additional factors that impacted our volumes in the quarter, but again, these were anticipated. One was lapping trade inventory replenishment from last year, notably in North America cereal and snacks and the other, also in North America, was our decision to delay merchandising activity earlier this year in order to gain full confidence in our return to high service levels, particularly given the lead time required for quality display activity. This caused us some volume in the second and third quarter. But by the latter part of quarter three, we had returned in merchandising, and we expect quality display activity to follow. In short, these conditions and timing differences will pass. Our brand-building investment is increasing. We are returning to merchandising, and we are ramping back up our innovation. We will return to more balanced volume and price/mix within our net sales growth over time, accompanied by sustained improvement in profit margins. Meantime, our brands remain in great shape. And our focus remains on growing our biggest, most differentiated brands around the world. Shown on slide number 9, these brands accounted for half of Kellanova's net sales in 2022 and a little more than that so far in 2023 as their growth continues to outpace the rest of the portfolio. In the quarter and year-to-date periods, we increased brand-building investment behind these advantaged brands at strong double-digit rates year-on-year, faster than the rest of the portfolio. As we prioritize investment behind these brands, we expect them to continue to lead our growth and contribute positively to margin mix. Our focus is also on growing the right way, and slide number 10 shows some of the ways our Better Days Promise program manifested itself during the third quarter. We unveiled new, more ambitious targets for Kellanova, sustained our legacy of helping our communities and found ways to link these activities to our commercial endeavors, and we continue to be recognized for our efforts. So let me now turn it over to Amit, who will walk you through our financials, before I come back and discuss each of our businesses in more detail.

Thanks, Steve. Good morning, everyone. Slide number 12 summarizes the results of Kellogg Company because the spin-off occurred after the quarter ended. Net sales increased by about 4% on an organic basis in quarter three, which is right on the second half pace implied by our full year guidance. Year-to-date, this translates into 8% organic growth. Operating profit increased by 10% on an adjusted and currency-neutral basis, sustaining double-digit growth in spite of higher A&P investment and the divestiture of our Russia business. Year-to-date, this translates to 14% growth, which is ahead of the pace implied by our full year guidance. Earnings per share on an adjusted and currency-neutral basis decreased by about 2% year-on-year in quarter three and increased by 2% year-to-date. This is ahead of the pace implied by our full year guidance, delivering year-on-year growth in spite of some 11 to 12 percentage points of headwind from macroeconomic factors driving higher interest expense and lower pension income. And free cash flow came in at $894 million, which is higher than last year, even in spite of onetime outlays related to the spin-off. This put cash flow well on pace towards our full year guidance for Kellogg Company. So as you step back, you see that our growth in net sales and operating profit were on algorithm or better in the quarter and year-to-date period, and EPS would have been as well were it not for the macro-related pressures on our non-operating items. And we were well on pace to achieve the full year guidance we had given for the Kellogg Company. Now, let's take a look at each metric in closer detail, starting with our net sales growth on slide number 13. As expected, price elasticities rose around the world, putting pressure on volume, though this volume did come in modestly better than projected. Price/mix moderated sequentially from recent quarters as we began to lap some of our largest revenue growth management actions last year. The divestiture of our Russia business, which occurred in July, clipped about 1 percentage point from our overall net sales growth in quarter three and will do so again in quarter four. Foreign currency translation once again was a headwind of about negative 3 percentage points. And based on where rates are today, we are probably facing a similar headwind in quarter four. Most of this is related to the devaluation of the Nigerian naira, partially offset by strength in the euro, pound sterling and Mexican peso. We estimate that portions of the business that represent Kellanova generated better organic growth than total Kellogg Company in the third quarter. So even with the long anticipated rise in elasticities and the lapping of last year's pricing actions, our organic net sales growth remains within our long-term target range. Now, let's discuss gross profit, starting with slide number 14. As we've stated many times, our focus during the period of heightened input cost inflation and supply bottlenecks and shortages was on growing gross profit dollars. And as you can see, we have done just that every quarter this year. And as you can see on slide number 15, we have also made good progress in restoring our gross profit margin as well. We're still not back to our 2019 pre-pandemic levels, but this restoration of margins is proceeding faster than expected with year-on-year expansion in each quarter so far this year. This progress also applies to the Kellanova business, which gets an immediate lift from the absence of North America cereal, and should continue to benefit from the same drivers going forward price realization catching up to input cost inflation, improving supply chain conditions, and the ongoing combination of productivity, revenue growth management and mix shift towards our most differentiated brands. Slide number 16 shows how our sustained top line growth and margin expansion resulted in another quarter of double-digit growth in operating profit. Keep in mind that, this growth includes the divestiture of Russia, and it also includes a double-digit increase in brand building on a currency-neutral basis. Slide number 17 indicates that we are not only restoring our margins at the gross profit level, but at the operating profit level as well. We have delivered year-on-year expansion in operating margin in each quarter of this year, putting our year-to-date margin a full 100 basis points ahead of last year and ahead of our own projections as Kellanova will start immediately with a modestly higher operating margin just from the absence of North America cereal. And we expect to continue to improve our margin going forward as we discussed at our Day@K Investor event. This, along with top line growth propelled by our strong brands and growth-oriented categories and markets, give us confidence in sustaining profit growth. Moving down the income statement. Slide number 18 shows that our adjusted basis earnings per share growth in quarter three was once again mostly attributable to operating profit, which has grown enough to more than offset what are severe macro-related headwinds within our below-the-line items. Those below-the-line pressures were expected and will continue through the year. Interest expense increased significantly year-on-year in the quarter and the year-to-date period due to higher interest rates. Other income decreased sharply year-on-year in each of the first three quarters this year, reflecting the accounting of pension and post-retirement plan asset values stemming from last year's decline in the financial markets and the rising interest rates. Our effective tax rate in quarter three was up year-on-year, keeping our year-to-date rate at the 22% we've been expecting for the full year. Average shares outstanding were again up slightly year-on-year in quarter three, and we would expect that to be the case for the full year as well. Foreign currency translation was positive to earnings per share in quarter three as strength in European and Mexican currencies more than offset what is a relatively small impact from Nigerian Naira at the EPS level. Turning to slide number 19. We see that our free cash flow year-to-date is ahead of the prior year, even in spite of one-time cash outlays related to the spin-off and despite lapping a year ago period in which our capital expenditure was delayed because of supply disruptions. We are pleased with our cash flow conversion, which is higher than last year despite deal factors. This year-to-date free cash flow performance put us well on our way to achieving the full year guidance of $1 billion to $1.1 billion that we had communicated for the Kellogg Company. Meanwhile, we continue to reduce our debt leverage year-on-year, further enhancing our financial flexibility. The slide shows how our net debt continued to decrease even as we continue to deliver higher operating profit and therefore EBITDA. This was our net debt at the end of quarter prior to the spin-off. Upon the spin-off, the transfer of net debt to W.K. Kellogg Company was executed and is estimated to be approximately $600 million. Now, let's discuss our outlook at Kellanova now that W.K. Kellogg Company, our North America cereal business, is no longer in our portfolio. Work is underway to prepare Kellanova financials for all four quarters of 2022 and the first three quarters of 2023, treating W.K. KC as a discontinued operation. We will have those completed a few months from now, and we plan to share them with you at our next quarterly earnings release in early February. In the meantime, slide number 20 offers estimates in absolute dollars for the fourth quarter, our initial quarter at Kellanova. Kellanova was projected to deliver net sales of approximately $3.1 billion in the quarter. Excluding W.K. KC from the base and excluding about 1% negative impact of the Russia divestiture and foreign currency translation that at current rates would be similar to the negative impact we saw on net sales in quarter three, we believe organic net sales growth will be within our long-term growth target even as we assume continued elasticity impact and the lapping of the year-on-year price increases. We expect the restoration of gross profit margin to continue, increasing year-on-year and reaching a level in quarter four of just over 33%. We project adjusted basis operating profit of approximately $380 million to $390 million, which we estimate will translate into year-on-year growth that is within our long-term growth target. Excluding W.K. KC from the base and excluding the small impacts of this year's Russia divestiture and currency translation. We project adjusted basis earnings per share of approximately $0.73 to $0.76 after accounting for interest expense of around $85 million and other income of around $25 million, both of which will continue to reflect the year-on-year headwinds we've experienced all year. In short, we expect Kellanova's quarter four 2023 to remain within our long-term algorithm for net sales and operating profit growth. Looking to 2024. As indicated at our Day at K investor event a few months ago, we expect to sustain on-algorithm growth on sales and profit. We are still in our budgeting process, and we will provide those details at our normal time in February. Allow me to summarize on slide number 21. We feel very good about our financial performance and conditions heading into quarter four as the new Kellanova. Our top line growth remains ahead of our long-term target. Our profit margins continue to recover more quickly than we had anticipated. Our balance sheet is solid as is our free cash flow even as we executed a transformational spin-off. Let me now turn it back to Steve for a run-through of our businesses around the world.

Thanks, Amit. Slide number 23 splits our portfolio into category groups to help remind you of their relative sizes and how Kellanova’s portfolio is clearly oriented toward growth. Beginning in the fourth quarter, Kellanova will no longer have the North America cereal portion nor the very small Caribbean cereal portion of international cereal. As you can see on the slide, the businesses that will remain with Kellanova continue to drive most of our growth in quarter three. As we walk through our regions, which is how we are structured, we will once again organize our discussion around the businesses that comprise Kellanova first, followed by the North America cereal business that is now part of W.K. Kellogg Co. We'll start with the region's most exposed to emerging markets. Slide number 24 shows the financial performance of our AMEA region. Once again, this region generated double-digit organic net sales growth on top of extremely strong comparisons. It again expanded its operating profit margin year-on-year in the third quarter and it again posted exceptional profit growth, up 14% on an adjusted and currency-neutral basis. And this profit was delivered in spite of high cost inflation and substantial reinvestment into the business. Within AMEA, we see on slide number 25 that snacks turned in another quarter of double-digit organic growth in net sales. This organic growth was again broad-based across Australia, Asia and Africa and the Middle East. In market, Pringles continues to gain share in the region with notably strong outperformance relative to the category this quarter in Australia and Japan. As shown on Slide 26, AMEA cereal also sustained growth in the third quarter in spite of lapping elevated year ago growth. Growth was broad-based with notable growth in Australia, Africa and Southeast Asia. And in market, our overall share gain in the region was led by notably strong performance in Korea and New Zealand. And then we come to noodles and others shown on Slide number 27. This business continues to post exceptional growth even as it begins to lap substantial price increases taken last year to offset cost inflation and weakened currencies. Our business in Nigeria continues to grow strongly, owing to the strength of Dufil's brands and the huge competitive advantage of our distributor arm Multipro. We also continue to expand our Kellogg's noodle business outside of Nigeria. AMEA enters the Kellanova era with solid momentum. For the full year, we continue to expect to sustain strong growth across all three category groups, delivering yet another year of organic net sales growth. And we plan to do that while restoring our profit margins and investing for the future. Now let's look at our other emerging markets region, Latin America, starting on Slide number 29. Kellogg Latin America in quarter three delivered another quarter of strong organic net sales growth on top of exceptionally strong growth last year. This organic growth was once again led by our two largest markets, Mexico and Brazil, though our Pacific subregion also putted strong growth. It's important to note that roughly half of our volume decline, both in the third quarter and year-to-date, was attributable to price pack architecture changes and SKU rationalization that we have undertaken to improve profitability. We again expanded our operating margin in quarter three, leading to a fourth straight quarter of operating profit growth of 20% or better. On Slide number 30, we see that our snacks business in Latin America generated strong organic net sales growth in the third quarter, led by sustained momentum in Mexico and Brazil. Both of those markets saw double-digit category growth in salty snacks, and Pringles gained share in both of these key markets. And in portable wholesome snacks, we continue to outpace the category in Mexico. On Slide number 31, you can see that Kellogg Latin America grew net sales organically again in cereal in spite of lapping exceptional growth in the year ago quarter. This growth was led by Mexico and our Pacific subregion. Keep in mind that a sliver of this business, our Caribbean cereal business, has since been spun off with W.K. Kellogg Co., but this business represented only about 5% of our Latin America cereal business last year, so it is quite small. So Latin America is performing well as it heads into the Kellanova era. For the full year, we continue to expect this region to sustain strong top line momentum with growth in both snacks and cereal and continued recovery in its profit margins. Once again, we can see that both of our emerging markets regions are showing current momentum to go with their outstanding long-term prospects. Now let's turn to our developed markets regions, starting with Kellogg Europe and Slide number 33. This region sustained yet another quarter of strong organic net sales growth on top of strong year-earlier growth. Operating profit increased sharply year-on-year, owing to good top line growth, moderating cost pressures and solid margin expansion, all of which more than offset the impact of divesting Russia earlier in the quarter. If we look deeper into the business, on Slide number 34, you can see that snacks, which represents over half of our sales in Kellogg Europe, continue to lead our growth in this region. In fact, quarter three marked the quarter in the last 11 in which we have posted double-digit organic net sales growth in our European snacks business. The growth in quarter three also continued to be broad based with double-digit gains in all three of our sub-regions. In markets, salty snacks category remains in double-digit growth overall with Pringles outpacing the category in markets like the UK, France, Spain, Italy and Poland. And in portable wholesome snacks, category growth rates have accelerated into the double-digits. And we continued to gain substantial share in the UK, led by double-digit growth in Rice Krispies Squares. Our cereal business in Europe, shown on Slide number 35, posted a small organic decline in net sales in the third quarter. As we've discussed previously, this business has slowed owing to the rising category elasticities. But we are confident in our quarter four plans, which includes incremental brand building shifted from previous quarters. So it was another strong quarter for Kellogg Europe. For the full year, we continue to expect the region to post yet another year of solid top line growth led by snacks. We also remain on track to deliver improved margins during the second half in spite of sustained cost pressures. Our divestiture of our business in Russia was a necessary move in an unfortunate situation. But overall, this region is showing good momentum as it heads into the Kellanova era. We'll now turn to Kellogg North America in Slide number 37. As anticipated, net sales growth has decelerated in recent quarters as elasticity continued to move higher and as we begin to lap last year's sizable replenishment of trade inventories. However, we continue to recover gross profit margin, reflecting productivity, revenue growth management and diminishing bottlenecks and shortages. This enabled us to substantially increase investment in our brands and still deliver high single-digit operating profit growth year-on-year in the third quarter. The rise in elasticities, as well as the lapping of last year's strong growth in inventory replenishment can be seen in all three category groups in the third quarter. Slide number 38 shows snacks, which represents over half of our North America net sales. In the third quarter, its net sales were up very slightly against a very big quarter last year. In market, all three of our snacks categories experienced rising elasticities, particularly in higher cash outlay items like multipacks. In addition, we took a more measured approach than many in restoring merchandising activity. It was a similar story in frozen foods, shown on Slide number 39. Our frozen foods net sales were flat in the third quarter. Like snacks, our Eggo business faced a rise in category elasticities. In addition, our Morningstar Farms brand continued to feel the impact of a shakeout in the plant-based category even as it continued to gain share. Now let's turn to our North America cereal business, which forms most of what is now W.K. Kellogg Co. You will get more detail from W.K. Kellogg Co. in its own earnings release. But as shown on Slide number 40, this business faced the same dynamics as the Kellanova businesses in the third quarter: flattish sales, reflecting a continued rise in category elasticities and the lapping of strong year-ago growth. Turning to Slide number 41. Our North America region is having a good year in terms of balanced financial delivery. We now are bad full commercial activity and feel confident in our ability to execute. Snacks should finish the year solidly in growth, while Frozen is expected to continue to finish with improved performance. We are off to an earlier-than-expected start to margin recovery in this region even as we reinvest more in our brands. And with the spin-off, we become that much more focused and streamlined behind snacks and frozen foods. Simply put, North America too is ready to start our new era as Kellanova. So let me summarize with Slide number 43. The third quarter closes the books on the 117-year-old Kellogg Company and does so in a solid way. In spite of rising elasticities across the industry, we continue to deliver good top line growth while getting our service levels back to where they should be and continuing to restore profit margins faster than we had anticipated. And we delivered all that while executing the spin-off of W.K. Kellogg Co. During the quarter, we made all the final preparations to ensure business continuity and the sustained success of both companies. Our company and the company-parallel operations were successful, and our transition services agreements are in place and in operation. And we now enter the Kellanova era from a position of strength. We're back to full commercial activity. Our free cash flow and balance sheet are strong, giving us good financial flexibility. We are proactively mitigating stranded margins. And we have a plan that should continue to deliver the kind of financial algorithm that you would expect from a portfolio that is weighted towards snacking, emerging markets and highly differentiated brands. In sum, we are on track and ready to deliver as Kellanova. So in closing, I want to first express a heartfelt congratulations and thank you to our entire family of Kellogg employees for the tireless efforts and endless passion that went into executing the spin-off and creating such a promising future for both companies. We wish our former colleagues all the best as they embark on their next chapter as W.K. Kellogg Co. And to our Kellanova employees, I share in your excitement for our future. We entered this new era with a more growth-oriented portfolio, a sharpened strategy and more ambitious financial expectations, and we have just the team to deliver on it. And now, we'll be happy to take your questions.

Thank you. [Operator Instructions] Our first question for today comes from Jason English of Goldman Sachs. Your line is open. Please go ahead.

Hey, good morning, folks. Thanks for spotting me in. A couple of questions in regards

Hi, Jason.

Hey guys. A couple of questions in regards to your reiteration of long-term algo for next year. First, you gave a base -- estimated base earnings number at your Analyst Day of around 3 35 for this year. Is that still the right base to use?

I think, Jason, we will update the details when we get to our normal cycle in February once we've had this year's actual latest foreign exchange rates. So I think we'll update the absolutes as we kind of get to February. We're right in the middle of our budgeting process right now. But as I mentioned in our prepared remarks, we fully expect to be on our algorithm growth rates we had shared in August.

Okay. But that 3 35 number for this year, even though we're 10 months through, may not be a good number to anchor to. Is that -- did I -- am I hearing that right?

No, we are on track, I mean, from a 2023 standpoint, right? We are ahead of pace in the first nine months. And like I mentioned, we are on track from a 2023 standpoint. So we'll share the specific details when we get to February.

But that we gave for 2023, as we indicated at that time, that was for a full year estimate of what Kellanova might look like. It's not quite the real what you'll see us report because we'll have three quarters of Kellogg Company and one quarter of Kellanova. So, that was just a way for you to calculate.

Yes, which is why I'm still trying to anchor to it just because as is evident in today's press release, it's really muddy, right? There's a lot of noise here. So, I'm just trying to keep it simple. Okay. And sticking with the long-term--

From an underlying business performance, right, we are right on track with -- on 2023.

Yes, that's good to hear. And I think it came through our results, but there is a lot of noise. And sticking with the long-term algo, I think Steve mentioned this upfront. Your diversified business with a diversified global footprint and you've got long-term algo by each segment, but there time where some are going to lag and some are going to do better. And it now feels like it's one of those points in time where the developed world, particularly North America, is lagging. I don't think it's structural, but at a moment in time, your emerging market businesses are doing quite well. Investors are concerned that you're not going to able to hit LTL algo across all segments next year. Is it reasonable to say that? That shouldn't be a concern. You don't need to LTL algo across all segments next year. It could look very much like what we're seeing right now, where perhaps North America does lag, but the strength you have elsewhere could offset that. Or do you actually -- do you really expect and are you entering to a return to a long-term algo in North America?

I think a couple of things, Jason. You're exactly right. We don't need to be on long-term algo in all regions in order to make it corporately because power of the portfolio. Having said that, I think what you're seeing in North America, just to put it in context, we did return to merchandising activity later than most. That was purposeful. In hindsight, perhaps we could have come sooner. But we're back now. We were also going through obviously the spin, which was a massive amount of work. And so as we approach 2024, we look to North America with much more optimism in terms of turning back to quality merchandising activity. The strength of our brands, we know, is there, very, very strong. We were lagging in innovation for the same reasons, so holding back to get our supply chain back to where we wanted it to be. So, we've got a much more ambitious innovation plan in 2024. So, as we look at North America in 2023, a series of events, obviously led by the spin, but also, again, measured return to innovation and merchandising activity, will all be very different in 2024. So, we have more confidence in our long-term algo in North America, which bolsters our confidence in our long-term algo overall as a company.

Appreciate it. Thank you guys. I'll pass it on.

Thank you. Our next question comes from Nik Modi from RBC. Your line is now open, please go ahead.

Thank you. Good morning everyone. Steve, I was hoping you could comment on volume growth. Obviously, revenue has been very strong driven by pricing, but volumes continue to lag. Some of your global snacking peers have actually posted volume growth. So, I just wanted to get some context from you on how you're thinking about that. And then just a second question, and this is more of a kind of an abstract question that I was just thinking about. One of the big growth drivers in the future for Kellanova will be white space and global expansion with some of your existing brands. And I wondered if, do you have global P&Ls for your key brands? Or is that something that still needs to be developed as you spin out the company? Thanks.

Yes, Nik. So, I would say on the volume question, clearly, when you take the type of pricing that we've taken, mid-teens pricing on top of mid-teens pricing a year ago, you're going to have elasticities. The difference from -- for us relative to some competition, as I mentioned earlier, we did return to merchandising activity later than most. We did return -- we're returning to innovation activity later than most. That's a fact. And obviously, we had the spin as well as those other items, which leads us to be much more optimistic about 2024. There's nothing structural in our volumes or our performance or our brand health that points to anything other than optimism in 2024 and beyond. In terms of white space, the global P&L, yes, we track in detail the financial performance of all of our brands at a SKU level and at a geographic level, so a very good understanding of that.

Excellent. I’ll pass it on. Thank you.

Thank you. Our next question comes from David Palmer of Evercore ISI. David, your line is now open. Please go ahead.

Thank you. Good morning. Question on the fourth quarter. You mentioned organic revenue growth would be within algo. I assume that'd be 2% to 4% up, including the Russia drag. And I'm also wondering, how you're thinking about a 4Q sales breakdown between North America and other segments. And the reason I'm asking about that is really the scanner data quarter-to-date. It shows down roughly 4.5% in what we see in terms of US measured channels. So, it would look like you would have to be pretty heavy lifting for international for that to stay that way and for that to reflect what sort of organic revenue growth you'd have in North America in 4Q or put a lot of burden on international. So any thoughts about what we're seeing there or thoughts about improvement in North America, what we're seeing is not real or perhaps any particularly strong growth internationally would be helpful.

Yes. I think similar trends to what we are seeing right now from a quarter four standpoint, if you exclude WKKC from the base, the Russia divestiture would be about a 1% negative impact and then currency translation around 3%. So, I think if you kind of exclude those 3%, you get to the -- you get to our algo growth of somewhere between 3% to 5% for the overall business. We would expect international to grow faster than the US in the next quarter. We continue to expect price elasticities. That's always been in our guidance, so we expect that to continue. We'd expect volume to be down, but for the decline to moderate in quarter 4 as we get back to full merchandising, particularly in the US. So that's kind of the shape of what we're expecting in quarter 4.

My follow-up to that is, if it's down -- if North America were down 4%, then the international would have to be something like up 10%. So that's why I'm asking. It just seems like you must be expecting North America to improve from now. I know back at the Analyst Day in August, you were talking about merchandising activity for Cheez-It and some marketing coming through. So I'm wondering, are you expecting a meaningful improvement? Or do you expect that sort of heavy lifting from international?

Yes. I was going to say it's a lot like quarter 3. And you can see in the scanner data that we did return to merchandising activity. We haven't yet gotten the quality display activity that we're now seeing. So you're going to see a gradual improvement going into Q1 of 2024 as well.

Great. Thank you.

Thank you. Our next question comes from Ken Goldman of JPMorgan. Your line is now open. Please go ahead.

Hi. Thank you. With the caveat that you're not quite ready to talk about certain details in 2024 yet, The Street is -- and it's great to hear that you're expecting an on-algo year. But The Street is looking for volume growth as soon as the second quarter of next year, and I wasn't quite sure if that was reasonable. And I don't know, if I'm asking a question that you can even answer at this point in time. But I'm -- my hope is that Street numbers can maybe be a little more reasonable at some point. If that's the case, just given some of that -- you'll still have some pricing flowing through and there's still certain challenges around the world, I just wouldn't want people to come out and have numbers that are too high and disappointed. So I didn't know if you could talk about that at this point, if there's any kind of commentary you could provide on volume growth into next year at this time, given the lack of visibility, I understand.

Yeah. Like I said, we're working through our budgeting process right now. I think we'd expect a gradual return to volume growth in 2024. Obviously, as you start lapping some of the price increases and some of the volume in quarter three, the laps get easier. But that's probably the shape of how we're looking at 2024 right now.

Okay. Thank you.

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

Hey, good morning. You touched on some of the margin drivers, the pricing now offsetting inflation better, the productivity, the normalization of where the supply chain disruptions had been. Can you maybe give a sense of order of magnitude or -- really trying to understand what are the most sustainable and how to think about looking ahead. And then part of that, is there any way to quantify -- you mentioned some of the additional costs from the parallel operations but still had -- against our expectations, still a nice margin performance. Can you quantify some of that? Was that significant and obviously lapping that? Or are you putting that in the rearview? How much of a lift should that be looking ahead as well?

Yes. So I think in terms of gross margin, I think you hit on the two biggest items, right? So it is pricing, catching our presentation, and it is a much better performing supply chain. So those two are the biggest drivers of the gross margin improvement and it's been coming in better than what we had expected and faster than what we had expected. So more of a timing in terms of the catch-up happening faster than what we have planned for. So -- and I think in terms of -- the parallel costs, we did incur some parallel costs in quarter three for -- as we kind of ran value operations. I think that's now behind us post-spin. I wouldn't say, it's a significant lap item for next year. So we did incur costs, but they weren't really significant from a lap standpoint.

Okay. That's helpful. And just a follow-up on your color on the consumer, just in the release and prepared remarks talking about how they're stretched or elasticities are getting sharper. Can you just maybe give us a sense of how much visibility you have on the broader dynamic in terms of trading down from food away from home? That would, in theory, give a lift to packaged food, but then obviously, the pressure you are seeing with either trade-down, just some of the consumer dynamics and where that all nets out for you? And we've seen in this quarter, obviously, what that looked like, but maybe some of what you expect in the fourth quarter or looking ahead. Is it better? Is it worse? Is it more of the same? You touched a little bit on the volume thoughts for 2024. But just curious for the consumer perspective behind that, that you see as the real driver.

Yeah. Michael, I'd say the consumer is clearly strained. There's evidence of that. There's some degree of channel shifting. There's some degree of trading down to smaller sizes. There is definitely a traffic pattern when they're shopping, more trips, all those types of things. Having said all that, though, I think the overarching line is still the resilience of the consumer. And particularly for our categories, we're talking about affordable luxuries. We've talked about that in the past. And we're not really seeing any meaningful shift to private label or anything that points to a structural change in consumer dynamics. And we've said this in the past, when you take the type of pricing, you're talking about 30-plus percent pricing over the last 18 months, the type of volume decline that we've seen in aggregate is still much smaller than you would otherwise expect. We've seen it more recently, obviously, in a real catch-up. But I think we're probably at the high watermark in terms of elasticities. As we go into next year, we're lapping a lot of this pricing. Consumers are becoming much more used to different price points. We talked about our return to quality merchandising, a lot of things to believe are going to point to a good industry environment, despite all the macro pressures that are well understood and that are putting pressure on the consumer.

Okay. Great. Thanks so much.

Thank you. Our next question comes from Max Gumport of BNP Paribas. Your line is now open. Please go ahead.

Hey. Thanks for the question. Just on the volume in North America. You've given some color already. I know you've touched on the slower return to merchandising and innovation and also the lapping of trade inventory build last year. So I was just hoping you could maybe quantify some of those buckets in terms of just order of magnitude. How much of the decline was due to the lap? How much was due to the lower return? And then maybe how much is due to just slower category growth or share performance? I realize this is all very tough to do, just hoping for a bit more color there. Thanks very much.

Yeah. Max, I think just directionally, the big buckets are the merchandising activity and the pricing and the innovation. Those are really the three big buckets, all entirely controllable as we look to the future. The pricing, we're lapping; the innovation, we've got a better plan; the merchandising activity, we're returning. So that's why I say, when we look at the health of our brands, we're very encouraged because you're talking about Pringles, Rice Krispies Treats, Cheez-It, these are big power brands that are loved by the consumer, showing no signs of diminution with consumer loyalty. And so those are the three items that really make up the biggest buckets that's pressured volume up to this point.

Got it. And then one more on the US, there was a large grocery retailer this morning that reported results, and they called out that they now have evidence that the emergency allotments of Snap rolling off, maybe have been a bigger impact than expected. I think their numbers were -- initially would have expected the minus 200 basis point impact on sales, and now it's looking more like a minus 400 basis point impact on sales growth. Just curious if you're seeing a similar type of impact among your lower-income consumers.

Yes. I haven't seen those results yet. But SNAP is obviously one part of the elasticity story. We've taken, as an industry, significant pricing while the consumer has been under pressure. And so I think it's probably -- you're seeing that in the overall elasticities. What SNAP is -- it's hard to quantify for us, but we'll certainly study what you've just mentioned.

Thank you. Our next question comes from Bryan Spillane from Bank of America. Your line is now open. Please go ahead.

Hey, thanks operator. Good morning, everyone. I just had one -- just wanted to ask one clarification and I have a question. In the appendix of the Day at K presentation, there are hard currency-neutral dollar targets for sales and EBIT by segment. So just the -- I'm just trying to understand, is -- are those not valid anymore? Just because you reiterated coming on algorithm for 2024 but didn't really address the hard targets. So I just want to make sure we should be still -- should we still be using those as a guide as we're modeling for 2024?

Yes. So I think, Bryan, we'll give you the details when we close out 2023, right? I think from a growth rate standpoint, like I said, we fully expect to be on long-term growth algorithm for 2024. I think as you'd appreciate, right, currencies will be different when we close out 2023 versus the assumptions that we had made in August. Like I had mentioned on 2023, we are -- at the end of nine months, we are ahead of pace versus the guidance that we had given. And so where we close out from a 2023 standpoint. So I think those kind of pace and currency adjustments would cause the absolute to differ, but we were right in the middle of that work as part of our budget. And I fully expect our long-term growth rates to be on algorithm.

I guess -- but those ranges are currency-neutral that you provided. So I don't know maybe the accounting is changing. It's just -- so I guess, we'll wait till February to get it but...

Yes. So it's currency-neutral, right? The overall rates that we had given for the company included a view of currency, right? So that's for the total Kellogg Company, the ones that we had given in our preliminary 2024 guidance. Where there are currency-neutral numbers, those won't be impacted by those view of the long-term rates. But the rates number base change, right, depending on where we end up on 2023.

Okay. And then just you talked about margins kind of recovery happening a little bit faster than normal. So again, there was an implied margin that is just under 14%, I guess, the middle of that range, currency-neutral next year. So should we -- is it possible that since you're running ahead, we could even be a little bit further ahead in terms of margin recovery for next year?

Yes. We talked that as we kind of complete the budgeting process, Bryan. I think it's a bit premature for me to comment on that. But yes, margin recovery is recovering faster. You'll see that in our results. And we'll give you the specifics on 2024 when we get to it.

Okay. Thanks.

Thank you. Our next question comes from Alexia Howard of Bernstein. Your line is now open. Please go ahead.

Good morning, everyone.

Good morning, Alexia.

Hi, there. So a couple of questions here. You mentioned a couple of times that you were late coming back with merchandising and promotional activity and that, therefore, it was quite a bit lower in the first half of 2023 than your normal run rate would be. Does that mean that the lap that lower promotional period in 2024 that in the developed markets, we could actually see pricing modestly down? I don't know about the timing of the price increases, but I'm just wondering how we should think about that cadence.

No, I wouldn't say you'd see pricing down. I think you just see a return to quality merchandising off of what are inescapably higher list prices. And so that's really the dynamic that you'll see.

Great. Thank you very much. That's clear. And then on the leverage, it looks as though your leverage is fairly comfortable at the moment, probably around 2.4, 2.5x if -- at $600 million on with W.K. Kellogg. How does that mean you make or where does that put you in terms of M&A aspirations, particularly on the acquisition side? And if you were thinking about further deals, which geographies and what type of criteria would you be thinking about on that front?

Yes. So firstly, I think, we like the organic opportunity that's in front of us. And I think despite the short-term volume discussion, right, I think the growth potential of our portfolio is strong. We've got plenty of organic growth opportunities. I think from a capital allocation standpoint, prioritizing investments into the organic opportunity, particularly in capacity expansion in Pringles in emerging markets, is kind of the immediate priority. We'd always evaluate M&A opportunities, I think largely in the areas of snacking and emerging markets. So if something -- we run a very disciplined process, and so we continue to evaluate opportunities come.

Great. Thank you very much. I will pass it on.

Thank you. Our next question comes from Robert Dickerson of Jefferies. Your line is now open. Please go ahead.

Hi. Great. Thanks so much. Steve, I just wanted to ask about the -- some of the volume impacts around -- I think you said some changes to price pack architecture and also SKU rationalization. So maybe if you could just kind of dive into that, just a little bit more in detail. I'm not sure if that's kind of across the overall global portfolio or if it's more North America-based and kind of what's driving that rationalization in the near-term. And then, I guess, as we think about next year, is it -- yes, we have this better base with rationalization fully coming through in 2023, and we should be able to end that by the end of this year, which, therefore, allows us some higher probability volume growth next year? Thanks.

Yes. So a couple of things, Rob. First, the biggest impact was in Latin America, where we made very purposeful SKU reductions, price package architecture to improve profitability. And we're very pleased with the program and how that worked out. In North America, there's also elements. We've gotten out of some lower-margin cracker business, for example. We did rationalize SKUs when we had severe shortages and bottlenecks and -- last year to get better performance in the plants. And so we'll be lapping that. But biggest headline is definitely Latin America followed North America.

Okay. All right. Fair enough. And then just secondly, kind of quickly, on the pricing side. Pricing clearly is still part of the top-line. I think Alexia said, I'm not sure exactly how many rounds have gone in and kind of what time on a per segment basis. But as we think through into 2024 – excuse me, and may be this pertains a little bit more to some of the emerging markets, do you foresee kind of incremental pricing needs? Doesn't sound like that's something many of us are discussing at this point. But like, when I look at AMEA, kind of pricing relative to currency, maybe there are some opportunities. Maybe there can be some incremental pricing potential in certain geographies. Thanks.

Yes. I'd say a couple of things. First, in the developed markets, we're looking at a more benign inflationary environment going forward. And we certainly feel like the consumer has taken enough pricing and are working hard to mitigate any potential needs to take more pricing going forward. And again, returning to quality merchandising means promotional activity and benefits to the consumer. In the emerging markets, generally, every year, we're going to be taking pricing. Whether that’d be currency, whether that’d be inflation, just cost of doing business, that's fairly routine. And we see the same thing happening in our emerging markets for next year, although not to the same levels that we've seen over the course of the last two years. And we'll exercise all the RGM levers that we have in those emerging markets to maintain affordability, to maintain -- in the shopping baskets of our consumers in the emerging markets. But it's more of a -- I would say, a more normalized environment in emerging markets relative to the past two years. But that doesn't mean deflationary and it doesn't mean flat. It means just more measured price increases going forward.

All right. Great. Make sense. Thank you.

And we may have time for one last question, if it’s there.

Thank you. Our next question comes from Steve Powers of Deutsche Bank. Your line is now open. Please go ahead.

Okay. Great. Maybe just a pick up on that last question from Rob, specific to AMEA. For a while, pricing was running well above the currency headwinds. So, you were seeing double-digit US dollar growth. Now pricing is running below. So you're seeing the double-digit organic growth, but you're seeing kind of double-digit declines in US dollars. So could you frame for us what's going on there? Maybe give us a little bit more of a tutorial around sort of timing of when pricing has been or can be taken in that market relative to currency fluctuations? And then just how you -- net of all that, how you're thinking about kind of real growth in that market in dollar terms over time? Thank you.

Yes. So I think the easiest way to think about it is there's a lag between the devaluation that happens on an operating transaction basis and when the official rate moved. But we've been seeing the devaluation of the naira on the ground from an operating basis all the way through 2022, first half of 2023 and have been taking pricing to cover that. And I think the business has done a remarkable job taking multiple rounds of price. And the great news, and it's a testament just to the strength of our brand and our route to market, that despite the pricing that we've taken, volumes have held up and our shares have held up. So that's been happening. And like you said, we've been seeing that come through with elevated growth rates through 2022 into the first half of 2023. Then you have the devaluation that happened in the last quarter. And so the transaction and the translation have gotten more in sync as a result of that. And so that's why now you're seeing a bit of a lag. I mean the business continues to be growing at double-digit rates and we continue to take pricing, but there is a lag that's kind of flowing in, in the way it's go through in the P&L. But I think from an overall standpoint, a strong route to market, taking the pricing to cover our margins through this whole cycle, we protected our margins. And that's been the focus of the team, and we've done that volumes of hand.

Okay, okay. That's great. And just real quick, you talked about similar currency headwinds in the fourth quarter relative to the third quarter. So we take that to mean around about like a $0.04 drag on EPS from FX?

Well, EPS has been -- it's been a help to EPS. That's the reference there was from a top line standpoint, about a 3% drag the top line growth. EPS was actually positive in the -- in quarter three, right? And so -- yes. But I think from a top line standpoint, about a 3% hit to the top line. And from an EPS, I'd say, using the exchange that we have, probably flattish. So much more impact on the top line than the EPS.

Understood. Thank you very much.

Okay. Operator, we are at time. So thank you, everyone, for your interest. And please do not hesitate to call if you do have follow-up questions.

Thank you for joining today's call. You may now disconnect your lines.