Kellanova

Q2 organic net sales grew 4%. Currency-neutral adjusted operating profit increased 16% year over year, and currency-neutral adjusted EPS increased 14%; adjusted EPS increased 12% on a reported basis. Gross profit increased 9% excluding currency and 5% including currency, with gross margin up close to 340 basis points year over year. Foreign exchange reduced net sales growth by about 8 percentage points in Q2. For 2024, Kellanova now expects organic net sales growth of about 3.5%, adjusted operating profit of $1.875 billion to $1.9 billion, adjusted EPS of $3.65 to $3.75, gross margin above 35%, operating margin about 14%, and free cash flow just above $1 billion.

Steve Cahillane framed the quarter as evidence of a more growth-oriented and more profitable Kellanova after the spin-off, emphasizing that the company is back to full commercial activity. He pointed to sequential volume improvement outside Nigeria, stronger innovation, and a return to more normal promotional activity as signs that the business is rebuilding momentum. His tone was confident and upbeat, especially on North America, Europe, and the company’s innovation calendar.

Amit Banati said the quarter beat expectations across key metrics, with 4% organic sales growth, 16% adjusted operating profit growth, and 14% currency-neutral EPS growth. He highlighted gross profit up 9% ex-currency and gross margin up close to 340 basis points, noting about 100 basis points of margin benefit from the discontinued-ops comparison and about 150 basis points from country mix tied to devaluations; even excluding those items, gross margin was still up around 1 percentage point. He also said free cash flow remained ahead of last year, net debt was being trimmed, leverage stayed well below the 3x target, and the company raised full-year free cash flow guidance to just above $1 billion.

Analysts pressed on North America pricing versus volume, with management saying the volume recovery is mainly due to full commercial activation, stronger Pringles execution, better distribution, and a return to more rational pricing/promotion levels rather than aggressive price cuts. Questions on Europe focused on whether pricing and volume could balance better; management said Europe remains tough but it expects continued growth, helped by increased activation and the Cheez-It UK launch later in the year. There were also questions on Nigeria elasticity and margin sustainability; management said volume declines there were better than expected in Q2 but still expects elasticity pressure in the second half and is being prudent.