WK Kellogg Co (KLG) Earnings Call Transcript & Summary

All right. Right on time. Thanks, everyone. I'm just going to start by reading the classic disclaimer. For important disclosures, please see the Morgan Stanley Research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales rep. So with that, good morning, everyone. Welcome to day 2 of the Morgan Stanley 2024 Global Consumer and Retail Conference. I'm Megan Clark. I'm one of the consumer analysts here at Morgan Stanley, and I'm really pleased to be here today with WK Kellogg, the company's CEO, Gary Pilnick; and CFO, Dave McKinstray. For any of you who are unfamiliar, though I'm sure most of you are familiar, WK Kellogg is a serial manufacturer, completed its spin from Kellanova in October of last year.

So Gary, Dave, thanks again for joining. Maybe we could start on that topic, the spin. It's been a bit over a year since you completed the spin. Can you start by maybe just reminding investors the rationale, touch on the progress you've made in the last year and then maybe discuss the state of the business today.

Sure, Megan, thanks for having us. Perfectly appropriate that we start the morning with WK Kellogg. I'm sure a lot of you did that as well. So we appreciate the time slot, feels perfectly appropriate. But in terms of the spin, it's been about a year. We're finishing up our very first year as an independent company. If you take a step back and think about why we did this, my old role at the Kellogg Company was running M&A. So part of the thinking was some of the parts. And the idea was when you split up the 2 companies, now called Kellanova and WK Kellogg Co, the sum of the parts was greater than the whole. And part of that was just the multiple trading and what was happening with the 2 businesses. But when you stare at what ended up being Kellanova and WK Kellogg Co, you had 2 very distinct businesses. It's why the some of the parts worked. 2 distinct businesses with 2 very distinct strategies and we needed balance sheet behind it. So the idea was, once you split it up, and you said, hey, WK Kellogg Co, we're going to let you create your own strategy, decide what your business outcomes are going to be, give you the balance sheet to invest behind it, you'll do better as an independent company than you would be being part of a global company. Now that's counterintuitive because the Kellogg Company, $15 billion, presence in over 180 countries. How is it that we're going to be better separated than we were with them given all their muscle. And for us, absolutely clear that, that was the case. And if you think about what we've been doing over the last year, you asked about how we're feeling right now in terms of the spin. And I think we would say is we're really pleased with where we are right now. If a year ago, we would have said, this is where you'd be 1 year from now, we would say, you know what, that would be a successful year. And let me explain. Spins are hard. They're very hard, and they're particularly hard when a company is integrated. At the Kellogg Company, we had a $10 billion North American business, fully integrated with Eggo and Cheez-It and Pop-Tarts and Rice Krispies Treats and Pringles and Cereal, manufacturing, sales, all the IT systems, payroll that had to get separated. So step one is we've got to separate from Kellanova. All that work has been going on. We feel really good about where we are right now. We were told when we were doing that it's so hard just get that done, make it as basic as you can and get to the other side. And we said, no, we're going to unplug and separate, but we're also going to transform. And we said we need to transform, we need to operate very differently because it was a deprioritized business before. So we're going to transform just about all of our commercial capabilities. We're transforming marketing, we're transforming sales and we're transforming supply chain. So we unplugged and we transformed. At the same time, we needed to integrate 5 different businesses, almost done, I promised, Megan. We had to integrate 5 different businesses. Pre-spin, our business was not one integrated business that we lifted and shifted. We had Canada, the Caribbean, U.S., Food Away From Home, even Kashi and Bear Naked was separate. We need to bring that all together. So that got integrated this year. And I think the part that we're most pleased about is while we're executing for today and building for today, we're also building for tomorrow because we're building a platform for growth. So while we're separating, we have a direct sales force that we believe is scalable. We have a dedicated distribution system that we believe is scalable, and we have capabilities that come from a $15 billion global company. We didn't go from 0 to $2.7 billion. We went from $15 billion to $2.7 billion. So we have capabilities in omni and marketing and R&D and digital analytics that we believe we could take into the future. So we're really pleased about where we are. We're almost a year into our first full year as a publicly traded company. We're pleased about the results we've already been able to communicate. We feel good about how we're executing on our strategic priorities. So we're executing today and feel good about what we could do tomorrow as well.

Awesome. Really helpful, great place to start a lot in there that we can definitely get into. Maybe let's just talk about the Cereal category, your outlook for the category maybe in the near and more medium term. So you've talked about targeting a stable sales from 2024 to 2026. The Cereal category historically has declined a bit over the last several years. So can you walk through maybe the drivers of how you think about targeting stable sales and how you plan on outperforming the category?

No, it's a wonderful question. We start with, well, what is our model? I said a moment ago, we had 2 separate businesses that had distinct financial algorithms. What's ours? Ours is in our first horizon as we optimize our Cereal business, we're driving a stable top line while expanding our margin considerably, outsized margin expansion. We were [ birthed ] with a 9% EBITDA margin, and we knew we needed to grow that. So what we said from the very start was we're going to expand our margins by 500 basis points coming out of 2026 with a run rate of 14%. We reiterated that on our Q2 call when we announced the details of our supply chain modernization program. So that's our strategy, stable top line, drive outsized margin expansion so the profitability and cash can rattle right through the P&L. That's our model. When we think about the category, what makes our model work is that stable top line. And what's interesting for us is we believe the category is providing us the backdrop we need to create and deliver on that value. That's not true about all categories right now. There are certain categories are performing in a way where the trajectory needs to change for those participants to drive their strategy and deliver their algorithm. For planning purposes, what we did from the very start, we took a look at the category and said, let's go pre-COVID because once you're in COVID and then you have post-COVID demand and then you have price increases and inflation and then you have the consumer environment, it's a little bit messy post-COVID. So we said, let's go pre-COVID and we looked at that and said to your point, the category has been declining low single digits. That's what our planning assumption is. And if you look at the categories since we've been independent, is performing there, perhaps a little bit better than that actually. That provides us the ability to drive our value going forward. In fact, you're seeing that already. You're seeing our performance year-to-date, the top line where it is, but also our ability to expand margins and actually reaffirm and increase our margin delivery during the course of this year. So how do we keep doing that might be the question that you have. I go back to what I said earlier. Number one, focus. All we're doing is thinking about cereal. Before, we were the seventh out of 7 different categories at Kellanova for all the right reasons. That's not a criticism. I worked at the Kellogg Company. It was the right decision. But for us, all we do is think about Cereal. Cereal is undefeated at WK. We haven't lost a debate yet about where to invest our money because everything we do is about cereals. We focus, we've integrated the business and our ability to invest behind enhanced marketing, enhanced sales and supply chain, we know we'll drive the business. And if there's one thing that's the most tangible, if you think about the sales force, the feet on the street, what would happen before is you go into a store and you're selling 7 different categories. Now all our salespeople are doing selling one category. Think about the depth of their knowledge, the relationships that they're building and how they should understand our category better than anybody and drive that top line. Other contributors, but that would be one that we look at and say, that's a unique capability for WK.

That's a good segue to my next question. So share gains, I think you talked about maybe losing 500 basis points of share, some unfortunate transitory events that were part of that. You've regained a lot of that. So maybe can you just pinpoint your progress in regaining that share? And on the point of service levels, can you talk about -- they've shown year-over-year improvement, but they're still a little bit below industry norms. So what is the time line in your view to get back to what you described as acceptable in service levels?

No, it's very fair. In fact, I like that you're talking about supply chain when it comes to related to top line because sometimes that's missed. Oftentimes, you talk about marketing and sales. But for us, supply chain, that is a critical component to driving our top line. Certainly, the centerpiece of our margin expansion, but also top line. So let me go back in time, if you don't mind. I'm going to go before the spin is 2021, we have 6 plants in our network, and we had a catastrophic fire in the summer of 2021. One of our largest plants went completely down. Now remember where we all were in 2021. We were all going through the increased demand of COVID. We were struggling meeting demand at that point and an entire plant goes down. So we're not present on shelf nearly as much as we would have liked to be shortly after that. Then we had a strike at 4 of our plants that persisted through the end of the year. That combination resulted in losing 500 basis points of share. Why? Because well, you're just not on shelf and your competitors are going to react to that and consumers will react to that. And it takes you a little bit of time to get back on shelf. You don't just flip on the switch and you're producing. We're still repairing that one damaged facility as well as coming back from the strike. So if you look forward, what we've done is we've -- we say recaptured 250 basis points of the 500, but recapture is probably the wrong word. We earned it back. It's not our birthright to have those -- the basis points and have that market share. We earned that back. We do expect to win in the marketplace going forward, particularly, we talk to you about all the things we're doing to focus on Cereal. But what I would say to you is what makes our model work is a stable top line. Now go to the service point that you're making. Right now, Sherry Brice, who runs our supply chain, she's having a team meeting with all of her leaders, and her team has done a remarkable job. Yes, we're investing $500 million in our supply chain, but that capital is early in its deployment. And yet, we've expanded our margins by 100 basis points already. A lot of that is the work that the supply team is doing, improving what we're doing in waste, what we're doing in capacity, that's without capital, but also service. Our service levels right now are at a place that we haven't seen in years. And to your point, there's more to come. And what's important to that is we need to do that to be reliable for our retailers. So we've made great progress. We're on our path there. And if we continue this trajectory, not only we will get to where industry norms would be, who knows where else we're going to go.

Great. And on that supply chain investments, you just mentioned $500 million to modernize your supply chain. Can you maybe just take a step back, talk a little bit more about just giving a high-level overview of the work you're doing to realign your manufacturing network, improve efficiencies? And when we get to 2026, what's the ultimate end goal and does it stop there?

So I'm going to turn it over to Dave, but before I do that, let me compliment Dave about this very topic, which is I talked about we were [ birthed ] with a 9% EBITDA margin. We knew that when we were announced as a leadership team, which was well over a year in advance of the actual spend. The very first thing we did as a leadership team that Dave pushed on was we need to find a path to have better margins because a 9% EBITDA margin, it's hard to be a branded food company at that level. So we knew we needed to expand it. Dave was the one who spearheaded this, having the right internal experts, external experts. We've been building this now for 2 years. But with that, Dave, you know all the details.

Yes. So I think, Megan, if you go back, we put all the details in our Q2 call, but I'll go over them. And the first thing I'd start with is they're largely unchanged in aggregate from what we talked about in our Investor Day back in August of 2023. So we're pleased that we were able to kind of foreshadow it in '23 and then come out with the details and they be broadly the same, right? So if we think about that $500 million investment, think about it this way, our infrastructure is rather aged. We have some plants in our network that we would call old, and we maintain those facilities over time, but we haven't maybe moved them into the future at the rate we needed to. And so as we think about that investment, think about it in new technology, new equipment that can run faster, be more agile, meet different needs of the consumer. People capabilities, right? We're investing in people capabilities. We need to make sure that we can operate effectively and run without hiccups along the way. So think about that $500 million in kind of those type of buckets. Let's talk about what we announced in Q2. We announced that we were closing one of our facilities and downsizing another. Again, I mentioned the age of them. But at one of those facilities, the one we're closing, there's a technology that we would say is antiquated. Technology has moved past it in a different type of platform, and we're investing behind that at one of our facilities. We're making large investments in 3 of our plants, one in Belleville, Ontario, one in Battle Creek, Michigan, one in Lancaster, Pennsylvania. And what those investments are to do is do exactly what I said. We're putting a new line that runs more efficient, more cost effective than the old antiquated technology. The other thing that I would say is once you pull and you make that transition to this new technology at a plant that already has that technology. So they have the expertise to do it, right? They know how to rate -- run those lines and make that food. That Omaha plant becomes descaled pretty quickly, and the economics become pretty tough. So then what you do is you invest to the other plants, Battle Creek and Lancaster, I mentioned that have the technology, the other platforms we run in Omaha, to expand the capacity there, put in, again, new modern equipment that can run more efficiently, cost effectively. So you can kind of think about the investment like that. The one thing that I would mention as well as in August of '23, we put a slide out there that showed the cost differential of our highest cost plants to our lowest cost plants. Our lowest cost plants run at about a 50% less cost than our highest cost plants per pound. So that's a significant gap. And why that is, it goes back to exactly what I said, the aged infrastructure, the inefficiency of those lines, all of those things. So you can see just by really maximizing that new technology and making those investments, how you'll start to get the benefits from it.

Awesome. And the 14%, excuse me, EBITDA margin target exiting 2026, you're 100 basis points of the way there to the 500 basis points. Can you talk just a little bit more about your line of sight to achieving that in the context of all the work you're doing on the supply chain?

Yes. And you think about that investment, and that investment is a high ROI investment that we're making. And so the benefit that comes with it is related to that investment. So we've made good progress so far. Gary has highlighted some of the areas that we've made those quick wins, I'll call them, in over the last year. But as we think about and we've said from the beginning, the centerpiece of the 500 basis point is congruent with this investment, okay? And we talked about taking a plant out of the network. You can think about it in 2 ways or the savings that will come with it is there's a mechanical nature of when you take 1 of your 6 plants out of the network, there's dollars that come out of the P&L, very mechanically. The second part of it is exactly what I just said is you're producing the same amount of pounds or more, but much more efficiently. Right? So those are going to be the 2 drivers of it. Just from an overall shaping, you've got to make those investments to get the benefit of them. So they're not going to come right away. We knew that. That's why we knew we had to get the quick wins, the benefit of the smaller focused company. And then as we exit 2026, we'll start seeing the real benefits of this investment after it's been made.

Awesome. Maybe we could shift a little bit just to current events. Your company has been in the news and some of your brands have been in the news a lot over the last few since the election just related to Trump's appointment of RFK. Obviously, still has to be confirmed, and there are still several unknowns. But maybe just to set the record straight, could you spend some time contextualizing your brand's use of artificial dyes, whether it's from an overall brand or percentage of sales standpoint? And then maybe just talk about whether you're considering making any shifts to address what could be a potential unknown risk at this point?

Yes, very fair. And we are in the news. But at the Kellogg Company, we're always in the news. It's the power of our brand. I mean you go anywhere in the world and you mentioned to them, you work at Kellogg. No one ever says, tell me more, where do you work because they understand the brand because it has such power with consumers. So somehow, you'd rather not be in the news, but look, we would take it because it's the power of our company and the brand and what it stands for, for all sorts of stakeholders. When you think about this particular topic, I think it's fair to say it's very early. I think this administration has every right to get their people in seat, decide what their agenda is going to be and figure out what they want to do and drive throughout the country. Now a couple of things about the Kellogg Company and us. We've always had strong relationships around the world, the United States, Canada with our elected officials, with our regulators, with the government. That has always been the case, always will be the case going forward as well. And we would expect to do the same with this topic and so many other topics. So when we think about this, where we start with this particular topic is that our food is safe. That is the first thing that we think about whenever we're operating. We've been doing this for 119 years. If you're not thinking about safety of your consumers when you're making food, you're not going to be around for 119 years. So that will continue to be our focus. The reason why we use colors in our food is because we know it's safe. And we know it's safe because regulators around the world allow it to be in the foods based on years of studies, we also work with independent experts. So certainly, we'll listen to what the governments have to say, but we work with our own independent experts to confirm the -- whether or not what we're doing is the right thing for consumers. We know that it is. In fact, I'll go a little bit deeper. With the use of colors, there's a variety of colors you can use, but there's also certified colors. And those colors are -- every batch that's made gets approved before you can use it, we use certified colors. So you get a sense of who we are and how we operate. So how did we get here? The way we got here was years ago. This debate was out there as well. And we said, okay, we know our food is safe. So we think it turns into a consumer choice issue. So we reached out to our consumers, and we tested it in a variety of locations. And in some locations, they preferred the more natural colors. In other locations said, no, we want the more vibrant colors. So that's what we did. And that's where we are right now. Now something that you can note from that commentary is we could do this. We know how to make the food if we were going to go to natural colors across the board, but that's not what are the signals we were getting -- clear signals we were getting from our consumers. I think the last thing I might say is when you think about this topic, we have been in the news. But it really isn't our topic. I mean, the Cereal category, not just Kellogg, the Cereal category represents about 5% of the foods that are sold with colors. That's off a study from Minter from several years ago. So we're a small part of it. But look, go back to what I said originally, we're a part of it. And we're looking forward to having that dialogue with our government, with our elected officials, and we're going to be the partner we always have been, and we would expect they would be the same.

Great. Thanks, Gary. Maybe a little bit more of another current question. So you reported a few weeks ago, third quarter, you're almost done with the fourth quarter here. You reaffirmed your full year sales guidance to be at the lower end of minus 1 to plus 1 that did imply a little bit of a sequential deceleration here in the fourth quarter. I think part of that was driven by some shipment benefits to the third quarter. I think when we look at the scanner data, the first couple of weeks of the quarter, it does show consumption has decelerated a few points versus where you were tracking in the third quarter. So taking at that back, can you maybe just walk us through how you were thinking about the cadence of the fourth quarter relative to what you reported in 3Q? And to the extent you can share kind of how things have played out relative to your expectations?

Yes. So I think starting with year-to-date, our top line through Q3, our top line is down 90 bps. So right around the bottom end of the range we've spoken about, and we were able to reaffirm in Q3. So let's start there. And in Q3, we did have a quarter where we benefited from really activity that happened in the base year of 2023. So just to reiterate for those unfamiliar, we had a supply challenge in Q3 of 2023. What that led to was retail draw down, okay? Because we could not ship the food. Now we moved past that. This year, we had uninterrupted supply. We overviewed that. And what that meant was we were able to hold more normalized levels of inventory in Q3. So just from a comp perspective, we benefited from that from a year-on-year perspective. So that's Q3. That's kind of where we're at year-to-date through Q3. If we think about Q4, it's pretty easy to unpack if we're down 90 basis points today where we need to be in Q4 to hit the bottom end of our range, right? So one thing that I would point you to, and we've spoken about as well is we talked about a onetime benefit in Q4 that we get well because we're lapping a onetime investment that went into net sales. So that you won't see in any data. It's in our P&L. So I'd point you to that as well as another thing. The last thing that I'll mention is, and we mentioned this on the Q3 call, the world looks at the XAOC Nielsen data regularly. We understand that. We do, of course, as well. There's a decent portion of our business that is in the nonmeasured channels. right? And so as we break that down, you have non-measured. Canada is a large portion of our business. There is Nielsen measurement that goes on in Canada, but it's not in the U.S. XAOC to be clear. So in Canada, our business is performing very well. There's other parts of the U.S. business that are in nonmeasured channels. Those continue to perform for us. The last piece is Puerto Rico. Again, there is public data for Puerto Rico, but it's not in the U.S. scanner data. So I'd just point to those things as you think about it as we go through and finish the year.

Really helpful. And maybe related to that, I think it was you, Gary, on the third quarter call that made a comment that next -- growth next year could be, I think, the word you used was consistent with what you have seen this year. You did say several times it was still early, understanding it is still a little bit early, but anything you can share with us from an update perspective on how you're thinking about the category outlook heading into '25?

Let me do something new. It's early. It's early. So if you go back in time, we have an interesting short but interesting track record in that during Investor Day, which was summer of '23 because it was pre-spin, we actually had to give our guidance for '24 in December of '23. Come back to February '24, we announced our guidance, which was consistent with what we said. And now we're almost through a full lap and you know where we are so far. We will certainly come back in February '25 and give you a lot more detail. At the same time, we thought it was fair just to say we do think next year would be consistent with this year. If you think about the overall algorithm, our view has been that we're going to have a stable top line. We're going to continue to improve our margin over time with a very meaningful increase coming out of 2026. So that's still the shape of what we're thinking about. But Dave, I'll turn it over to you.

Yes. I think I'd add, if you look at the category, your question is kind of back to the category, the category year-to-date is down 1%. And if you look at the more recent data, it's actually a little bit better than that. And so it's trended positive towards that 50 basis points in the more recent data. So what we said on the Q3 call, and I think it continues to hold true going back to the algorithm and what we've said for planning purposes of what we need the category to do is be stable. And so if you look at that performance, the category is providing that backdrop. It continues to be stable. As Gary mentioned, going back to pre-COVID category down low single digits, well, here in 2024, down 1%, low single digit. That was our assumption as we entered the year, and that's a backdrop that it's providing as we head into 2025 and finish out 2024. And what that allows us to do is deliver on that algorithm that we have of, again, stable top line outsized margin growth over the medium term.

And the good news is with the -- you're gaining or holding share, I think, in -- or 5 of 6 of your core 6 brands. So in a stable category, that's obviously helpful. Special K has been the laggard and has been pretty clear that it's been the laggard this year. So can you spend just a little bit of time talking about your assessment as to what's been driving the weaker performance for that brand? How you're thinking about marketing activation, potential timing of our recovery for that brand, especially as we kind of head into the important New Year's time?

Yes. When you think about Special K, I think we would zoom out and say, we've been delivering what we're delivering and yet our second biggest brand is down double digits. That gives you a sense of the power of our portfolio, the ability for us to pivot and adjust because that is a very important brand for us. And we do expect to do better going into 2025. Let me explain a little bit. You start with Special K, it's a special brand, no pun intended, but it is at the intersection of taste and health. And if you think about what we know a lot of consumers are looking for, that is smack in the middle of that -- of the target consumer. A lot of consumers want something that's nutritious, but something that also tastes really good. That's what Special K delivers. So the question is, well, what's going on with the brands? Let me talk about a couple of different things. First, mechanical. Let me compare '24 over '23 to give you a sense of what happened in '24. So in '24, a couple of mechanical issues would be in '23, we had a major promotion with a retailer that we moved to a different brand in 2024. So that was a bit of a headwind. We also had a larger innovation set in '23 versus '24. Those 2 things are mechanical. We've adjusted for that. They're in a rearview mirror. We feel better about what '25 is going to look like. We would also say execution. We did mechanical, but also execution. A lot of the work that gets done when you're selling in promotion, when you're getting ready for customer activation happens well in advance to the beginning of the year. We were right in the middle of the spin. We were pre-spin, standing up the company. It's not an excuse. We did not execute on that brand as well as we would like to execute. We feel better now that we're a year in, our capabilities are maturing, even better focused, we like the commercial plan that we have for next year. So mechanical, rearview mirror, otherwise solved; execution, we're expecting better execution. So for that reason, year-over-year, we would expect better performance in '25 than '24 for Special K. Now second biggest brand is also a strategic issue. We need to make sure strategically that message [indiscernible] taste and health is getting through to consumers. Special K has a broad portfolio, has a lot to offer to a variety of different consumers, lots of nutritional benefits, low calorie, low fat, high protein, folic acid. There's a variety of different things that we offer in that portfolio. And it matches specific desires and needs for our consumers. The question is, how do you get that message out? So 2 things. First, we've launched a new campaign called Special For a Reason. It actually expresses what I just said, that is Special For a Reason depending on who you are. And then -- and we're getting early readers. It's making a difference in the marketplace. Now it's early. We have to keep pushing it, but we feel good about that how it's resonating with our consumers right now. But then you add to that our new marketing muscle, the new marketing model that Doug Vandevelde is driving in our growth function. We feel good -- better about our ability of taking that message and targeting it to those consumers who need to hear it. But that's what we need to get after. The great news is it's a wonderful brand. It has terrific positioning. It's where you'd want to build a brand right now. We just need to use our marketing muscle, and that's what we do. We're the WK Kellogg Company. We should be very good at marketing, selling and supplying a food like Special K.

Awesome. When we talked a little bit about the top line performance this year, the EBITDA performance has been better than expectations. You just raised. You're expecting now 5% to 6% EBITDA growth versus 3% to 5% prior. Most of that's been driven by gross margin. I think that's up 100 basis points year-to-date. So Dave, maybe you could spend some time just talking about the primary drivers of that gross margin performance this year. And as we think about looking to '25, is that something that's repeatable? And maybe asked differently, should we be thinking about maybe top and bottom line performance this year as a framework for next year?

Yes. I think it all goes back to what Gary said at the top of why the spin. And I think as you unpack that a little bit, it's playing out in the results. So again, the more focused company, the more integrated end-to-end company, not disparate 5 business units acting different commercially. All those things come together to play out in the results we've seen. So what are some examples of that? We've been able to identify where we had areas of true waste in the P&L. And when I say waste, I mean food that was either scrapped through the plants or finished goods that we had to write off. And those capabilities that we built in short time, we were able to identify those issues, quickly understand how we resolve it and then actually execute on that resolution. And that played out through a large P&L benefit. The other thing that I would add on here is the capabilities we're building within our people within our supply chain. We continue to be -- that's a focus of ours and an area that we're leaning into to drive better operational effectiveness. We talked about and Gary mentioned this OEE improvement. We dug into line by line, parts of the process versus pack, understanding where we had inefficiencies, where we had challenges and what that led to is we were able to unlock OEE. What's that do for you? It allows you to produce more food in less amount of time, simply put, right? That's a benefit for us. The other thing and the last thing I'll mention is really around how is a smaller company, we're really able to focus into investments and ROI on investments differently. I think when you're a big company, it's harder. And I can speak from that from years of experience under a big company. It's just harder to understand where every dollar in the P&L is going and exactly what you're getting for it. In the smaller company, you're really able to dig into that. So we think about each line of our P&L, not as a cost, but as an investment. And we ask and our whole organization asks, and that's the culture we built of what are we getting for this investment. And so at the end of the day, it's little things like that, that can play out pretty meaningfully within the P&L. So last part of your question, '25, Gary kind of hit on this earlier, we would expect broadly similar type of performance in '25 from what you saw in '24. Again, we'll have more details on that. I think we said it was early. I think we said that. But we'll have more details on that.

Fair enough. Thank you. We have a couple of minutes left. I wanted to make sure I open it up to the room if anyone has any questions, they'd like to ask Gary or Dave?

[indiscernible] when you're not here having fun with us in New York City and you're back in the conference room with the other executive leaders, what are the 1 or 2 things that are still sort of positive but open debate about the future of the business?

Yes. So we're back in Battle Creek, Michigan and we're the leadership team. Let me talk about the leadership team for a second. So we -- I got everybody I wanted on the team, first round [indiscernible] because I knew they would have the debate they want to have. And we have those debates. What we don't debate about is where our focus is going to be near term about we have a strategy, we just re-upped our strategy. We know we're doing the right things to optimize our Cereal business. That's not changing. We're integrating the business. We're going to drive our supply chain. We're going to improve our direct sales force and drive our new marketing model. There's no debate there. What's interesting is where you have a debate is where are you going in the future? And for us, it's an incredibly healthy debate because what we can already see is our future. We talk about horizons. And if you remember at Investor Day, we talked about 2 different horizons. We said, first horizon, we need to optimize our Cereal business. There is so much value that we can drive for our stakeholders with a stable top line and growing our margin 500 basis points. And even more afterwards, we knew we had to focus on that going forward. Then that second horizon is where do you go from there? And we now can see the different opportunities we have as we build out our direct sales force. And we say, you know what, in a certain period of time, we know that direct sales force can be an asset for us that can allow us to grow even faster. We're going to have a dedicated distribution system. We believe we're going to have capabilities and infrastructure unique to a company our size. So where the debate is, which is what your question is? Okay, where are you going to take it? And the lens to which we look through is if and when we get there because we talked about inorganic growth, for which companies are we the natural parent. And the reason we use that expression is if you're the natural parent, when the combination occurs, you will drive synergy because the combination of the 2 will generate more value than 2 companies being separate. That's where the debate is right now. But I would also tell you, when that debate occurs, we quickly get back to we have a job to do right now, which is to optimize cereal. But that's where there's a little bit of arm wrestling and I think really good debate.

Any other questions in the room? Okay. I actually think that's probably a great place to end and we can give everyone a couple of minutes to go to their next meeting. Elevators are busy. So thank you, everyone, for joining. Thank you, Gary, Dave, for being here.

Great. Thank you, Megan.