Kellogg Company 2012 Annual Report
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® Kellogg Company 2012 Annual Report ™ Pringles Rice Krispies Kashi Cheez-It Club Frosted Mini Wheats Mother’s Krave Keebler Corn Pops Pop Tarts Special K Town House Eggo Carr’s Frosted Flakes All-Bran Fudge Stripes Crunchy Nut Chips Deluxe Fiber Plus Be Natural Mini Max Zucaritas Froot Loops Tresor MorningStar Farms Sultana Bran Pop Tarts Corn Flakes Raisin Bran Apple Jacks Gardenburger Famous Amos Pringles Rice Krispies Kashi Cheez-It Club Frosted Mini Wheats Mother’s Krave Keebler Corn Pops Pop Tarts Special K Town House Eggo Carr’s Frosted Flakes All-Bran Fudge Stripes Crunchy Nut Chips Deluxe Fiber Plus Be Natural Mini Max Zucaritas Froot Loops Tresor MorningStar Farms Sultana Bran Pop Tarts Corn Flakes Raisin Bran Apple JacksCONTENTS Gardenburger Famous Amos Pringles Rice Letter to Shareowners 01 KrispiesOur Strategy Kashi Cheez-It03 Club Frosted Mini Wheats Pringles 04 Our People 06 Mother’sOur Innovations Krave Keebler11 Corn Pops Pop Tarts Financial Highlights 12 Our Brands 14 SpecialLeadership K Town House15 Eggo Carr’s Frosted Flakes Financials/Form 10-K All-BranBrands and Trademarks Fudge Stripes01 Crunchy Nut Chips Deluxe Selected Financial Data 14 FiberManagement’s Plus Discussion Be & Analysis Natural 15 Mini Max Zucaritas Froot Financial Statements 30 Notes to Financial Statements 35 LoopsShareowner Tresor Information MorningStar Farms Sultana Bran Pop Tarts Corn Flakes Raisin Bran Apple Jacks Gardenburger Famous Amos Pringles Rice Krispies Kashi Cheez-It Club Frosted Mini Wheats Mother’s Krave Keebler Corn Pops Pop Tarts Special K Town House Eggo Carr’s Frosted Flakes All-Bran Fudge Stripes Crunchy Nut Chips Deluxe Fiber Plus2 Be NaturalKellogg Company 2012 Annual Mini Report MaxMOVING FORWARD. Zucaritas Froot Loops Tresor MorningStar Farms Sultana Bran Pop Tarts Corn Flakes Raisin Bran Apple Jacks Gardenburger Famous Amos Pringles Rice Krispies Kashi Cheez-It Club Frosted Mini Wheats Mother’s Krave Keebler Corn Pops Pop Tarts Special K Town House Eggo Carr’s Frosted Flakes All-Bran Fudge Stripes Crunchy Nut Chips Deluxe Fiber Plus Dear Shareowners, 2012 was an important year for Kellogg Company. While we began the year more slowly than we’d hoped, our performance gained traction quarter by quarter. By year’s end, we were in a much stronger position, with improved trends across most of the business. During 2012, we also made good progress on our strategy to continue leading the global cereal category, become a global snacks leader and increase our activities in developing and emerging markets. Our acquisition of Pringles, finalized in May, gave us a global platform for growing our snacks John BRYAnt President & Chief Executive Officer business, opening the door to many new opportunities. In addition, we formed a joint venture in China to help us realize the great growth potential that exists there. Today, we are excited about our future and our ability to grow, while striving to fulfill our vision to Enrich and Delight the World through Foods and Brands that Matter and our purpose of Nourishing Families so They Can Flourish and Thrive. Grow Grow Gross Grow Net Internal Profit Dollars/ Earnings Net Sales Margin Increase Return on Disciplined Invested Core Capital Working Jim Jenness Capital Chairman of the Board Improve SUSTAINABLE Overhead MANAGE FOR Price/Mix GROWTH Discipline CASH Improve Prioritize Drive Grow Financial Capital Innovation Brand Flexibility Expenditure Building MOVING FORWARD. Kellogg Company 2012 Annual Report 01 POSITIONED FOR GROWTH demographics. For example, the population is aging—and research We believe Kellogg has broad-based shows that older adults typically eat growth potential. We remain focused as much cereal as kids do, particularly on a few core categories—cereal and in markets such as the U.S., U.K. snacks globally, along with frozen and Australia. In terms of health foods in North America. and wellness, we see cereal as part We see this focus as an advantage, of the solution to the obesity epidemic, given that we’re in some of the world’s childhood obesity in particular. As best categories and have a strong research shows, kids who eat cereal portfolio of brands in each. Plus, tend to weigh less. It positively although we believe in a healthy contributes to nutrient intake and amount of stretch, we have chosen is a gateway to milk consumption for not to diversify our business to the young children. In fact, cereal with extent that we lose sight of our unique milk is a leading source of nutrients strengths. This puts Kellogg in a solid in children’s diets. competitive position as we work to All in all, a bowl of cereal with realize our strategic objectives: milk is tasty, low in calories, nutrient- dense, convenient and affordable—a EXPAND GLOBAL CEREAL LEADERSHIP near perfect food for the 21st century We are well-positioned to continue and an outstanding category for growing our global cereal business. global growth. Mr. Kellogg foresaw Even in a market that is relatively this international potential of cereal well-developed like the U.S. there is and made meaningful investments still good growth potential. overseas during the early part of The cereal category consistently the last century. In many parts responds to brand building, innovation of the world, the Kellogg name is and health/nutrition news. We see this synonymous with the cereal category. again and again. In the back half of In addition, many of our cereal 2012, for instance, we increased our brands have been popular with nu- U.S. brand-building spend and saw a ™ merous generations. This longevity, corresponding uptick in the business. however, in no way precludes the Cereal reacts equally well to strong potential for further growth through innovation that generates consumer AccELERATE AdULT effective, consumer-centric brand excitement. Krave is a perfect example. CONSUMPTION building. For example, in 2012 we It started out as Tresor in France and leveraged the insight that dads enjoy More than ever, our cereals are proved so popular we took it to the becoming an adult staple —one sharing the things they love with U.K., renaming it Krave. The product totally on trend with grownups their kids—and dads love our Frosted worldwide seeking better health was a hit there, too, so we brought it Flakes—with our “Share What You and wellness. At a slim 150 to 160 to the U.S., Canada and Mexico. calories, a bowl of cereal and milk Love with Who You Love” advertising The fact that cereal is such a offers a nutritious meal, and at campaign in the U.S. Sales of Frosted the highly affordable price of fifty versatile food form is another reason Flakes rose during the year, demon- cents a bowl. Is it any wonder, it has long-term growth potential. It’s then, that in the United States, strating the power of fresh, insightful not just for breakfast. Ireland has the older adults now consume as much marketing and the continued potential highest per capita cereal consumption cereal as children — or that we’re of our established, well-loved cereals. investing substantially in innovation in the world because many kids eat it and brand building to drive adult once in the morning and again after consumption worldwide? GROW GLOBAL SNAcks school as a snack. Thirty percent of all Our acquisition of Pringles marked a cereal consumed in Mexico each year new era in the evolution of our snacks is eaten in the evening, with a nearly business, as it gave us a truly global equal percentage enjoyed beyond the snacks platform on which to grow. breakfast occasion in the U.S. For decades, we have had a snacks We also see opportunities for business primarily built around Pop- cereal growth in the world’s changing Tarts toaster pastries, Nutri-Grain 02 Kellogg Company 2012 Annual Report MOVING FORWARD. OUR STRATEGY In 2012, we continued to execute a strategy based on our fundamental strengths, including our expanding family of megabrands, strong global opportunities, a powerful pipeline of product innovations, and people across the globe that can put all of these assets to work. As we move forward into 2013, we are executing our strategy across four tracks. FOCUS ON FROZEN Kellogg has a leading From a handful of We have a frozen food Our business in fast- share in most regions convenience foods in business in North growing economies1 and a very strong the 1990s through our America that generates reached approximately geographic footprint acquisition of Pringles $1 billion in revenues. $2 billion in 2012— on which to build. in 2012, we’ve become This business is up 140% since 2001. This gives us great a leading snacks focused on the growing Whether through opportunities to drive player. This gives us an and on-trend Frozen organic growth, incremental growth exceptional platform on Breakfast, Frozen acquisitions and in developed markets, which to drive growth Veggie, and Natural/ joint ventures, and particularly in both established and Organic Frozen Meals or cross selling strong opportunities developing markets, segments of the broader opportunities created in emerging markets, and on which to build a category. As you might by the acquisition of where cereal is quickly global snacks business imagine, our businesses Pringles, our company becoming recognized that already accounts have also been growing now has exceptional as a fast, convenient, for more than $6 billion very quickly driven opportunities to affordable and enjoyable a year. by the introduction of expand across regions food source. value-added, innovative with highly favorable new products, such as demographics, from new Thick and Fluffy central and Eastern Eggo waffles and Europe, to Latin Special K Flatbread America, and to the Sandwiches. The only Middle East and Asia.