Michael Lavery: Okay. That’s helpful color. And can I just squeeze in a housekeeping follow-up on the pensions, that’s a big below the line item for you this year, obviously, but is there any meaningful split between cereal and the legacy, the rest of the company and just trying to understand when that happens. Does one side of the business or the other have a disproportionate impact from that?
Amit Banati: No. I think it’s not disproportionate. It’s broadly in line with the size of the business.
Michael Lavery: Okay, thank you.
Operator: Thank you. Our next question comes from Rob Dickerson of Jefferies. Rob, your line is now open. Please go ahead.
Robert Dickerson: Great, thanks so much. I guess just kind of first question housekeeping is, when should we expect to get a little bit more information on the spend? And then the second question simplistically is just around cash and CAPEX side. I don’t know if I heard it. But in terms of the $300 million from the upfront charges and CAPEX of the spin, just provide a little clarity as to kind of where — what’s driving that?
Amit Banati: Yes. So I think we are on track to execute the spend towards the end of the year. So leading up to that, we’ll be providing all the information as well as having the Investor Day as you’d expect. So towards the end of the year is what we’re working towards. I think the $300 million, it’s a combination of onetime costs related to executing the transaction. So consultants, I think we’re working very closely with some blue-chip advisers on program management, ensuring that we have a comprehensive program to manage the change and develop a comprehensive plan of action. I think it includes your typical banker loyal fees as well, as well as some capital expenditure to realign the supply chain to get IT systems up and running for the new cereal company.
Robert Dickerson: Okay, I will follow-up. Thanks so much.
Operator: Thank you. Our next question comes from Ken Goldman of J.P. Morgan. Your line is now open. Please go ahead.
Kenneth Goldman: Hi, I just wanted to ask about your guidance for a — I think the word was stabilizing gross margin this year. Just curious, does stabilizing mean down versus 2022 but at a maybe decelerating rate of decline? And I’m just curious, rather, what it implies for SG&A either as a percentage of sales or on a dollar basis. It would seem to imply that both would have to come down a little bit but just curious what your thoughts were on there?
Amit Banati: I think on a full year basis, it will be flat to slightly up on gross margins, and I think it’ll improve progressively as we go through the year. So I think that’s kind of the range where we are on gross margin. And then I think from — and I think just the puts and goals in gross margin, obviously, from a positive, we’ve been lapping the fire and the strike. We do expect bottlenecks and shortages to moderate as we go through the year. We are starting to see that in — as well. So that, I think, would be a positive tailwind from a gross margin standpoint. I think from an input cost standpoint, we expect mid-teens inflation, and that’s what our guidance incorporates. So it’s still elevated. It’s moderated from what we saw in 2022, but still elevated.
And I think we continue to see input cost inflation in oils, in corn, in wheat, rice, potatoes. So that’s been built in. And I think from a phasing standpoint, we’d expect gradual improvement in the year-on-year change of gross profit margin as the year progresses. And then I think to your question on SG&A — now I think on your question on SG&A, I think we’d expect an increase in overheads broadly in line with inflation, I think as normal activity continues to restore. And then from a brand building standpoint, we’d expect an increase as we — as supply is restored full year of brand building through the year.
Kenneth Goldman: Great, thank you so much.
Operator: Thank you. Our next question comes from Andrew Lazar from Barclays. Andrew, your line is now open. Please go ahead.
Andrew Lazar: Great, thanks so much. Steve, there’s a concern, I think, among investors for the group as a whole, right, that supply constraints ease and the benefit from pricing wanes, food companies will somehow choose to sort of ramp promotional spending to maybe more irrational levels to drive volume. And I guess this concern seems particularly acute, I think, in really cereal space, partly because Kellogg is obviously heading towards a split of the business. And I’m just curious how you’d kind of respond to that concern and get a sense for what your plans are in terms of in-market sort of activity as you go through the year? Thanks so much.
Steven Cahillane: Yes, Andrew, we really don’t have that concern. We haven’t seen anything that would point to an irrational environment on the horizon. And as our supply has improved, we’ve been gradually restoring merchandising activity, which is an effective complement to our brand building, always has been. And so it’s not a bad thing. It’s not a bad thing to obviously drive displays, as you well know, drive merchandising activity. And from a supply standpoint, it’s not as if there’s a lot of excess capacity in our categories for us, certainly, and I think even for some of our competitors. So when you look at that, when you look at the supply availability, when you look at the demand creation, which is out there, and available, I see a very rational environment on the horizon.
Andrew Lazar: Thanks so much.
Operator: Thank you. Our next question for today comes from Robert Moskow from Credit Suisse. Robert, your line is now open. Please go ahead.
Robert Moskow: Hi, thanks. Amit, I was hoping for a little more color on the phasing for your operating profit growth by quarter. Like first quarter, for example, I think you have an easy comparison on gross profit dollars, but then you’re going to increase SG&A investment. So do you think first quarter profit growth is higher than your annual average or is it not really much different?
Amit Banati: Yes. I think certainly, from a gross margin standpoint, as I mentioned, right, we’d be lapping the fire and strike in quarter one. But I think on the brand building in particular, right, if you recall, last year in quarter one and quarter two, we had pulled back as we were emerging from the strike. So you’re going to have that negative lap in quarter one and into quarter two as well. So it’s kind of — those are the puts and goals from an operating profit phasing standpoint.
Robert Moskow: Okay. A quick follow-up, can you give a little more color on what your process was for pursuing the spin-off of Morningstar, did you also seek a buyer in this process, and what do you think the results will be like in 2023, can it improve off of 2022 or expect a weak year?
Steven Cahillane: Yes, Rob, I would say definitely will improve in 2023. That is our plan. And the process was very thorough. We said from the beginning, we were going to pursue a spin but would look at other strategic alternatives. We did that. And if you recall, when we began this process, valuation for peer companies were stratospheric compared to where they are today. They’ve come down quite substantially. So the thesis when we started the process was to truly unlock shareholder value if we could attract the same types of multiples in the public market, we should pursue that. The environment has clearly changed. And when we look at what’s on the horizon for this category, we see an imminent shakeout coming. It’s happening already.
And there’ll be a couple of players left standing, and Morningstar Farms still has some of the highest household penetration, highest name recognition, fantastic foods, strong in the freezer space where this consumer is migrating back to, and profitable, unlike many of the peers. So as we step back and look at it, we are the best parent for Morningstar Farms. And when we shared with our people this morning that we were keeping the business, there was elation. And so there’s a lot of momentum underlying in our people, in their plans, and we’re optimistic for 2023. And more importantly, we’re optimistic beyond that because when the shakeout continues, there’ll be a few left standing. And the underlying consumer drivers around health and wellness, around environmental concerns, around moving away from animal proteins, all still remain.
And Morningstar Farms has one of the cleanest labels out there. And so there’s a lot going from Morningstar Farms, and we’re excited to keep it.
