EX-99.1 2 dex991.htm FINANCIAL RESULTS FOR THE PERIOD ENDED APRIL 3, 2010 Financial Results for the Period Ended April 3, 2010

Exhibit 99.1

 

LOGO     Kellogg Company News
   

 

For release:

  April 29, 2010  
    Analyst Contact:   Kathryn Koessel   (269) 961-9089
    Media Contact:   Kris Charles   (269) 961-3799

 

 

 

KELLOGG COMPANY POSTS SOLID FIRST QUARTER 2010 RESULTS

INCLUDING DOUBLE-DIGIT OPERATING PROFIT AND EPS GROWTH;

AFFIRMS 2010 GUIDANCE;

ANNOUNCES THREE-YEAR $2.5 BILLION SHARE REPURCHASE PROGRAM

BATTLE CREEK, Mich. – Kellogg Company (NYSE: K) today reported solid first quarter 2010 growth in internal net sales, as well as robust internal operating profit and currency-neutral earnings per share growth. The strong operating profit performance was driven by continued focus on cost savings, moderating inflation costs, and timing of advertising expenditures.

First quarter net earnings were $418 million, a 30 percent increase over the first quarter a year ago. First quarter reported earnings per diluted share were $1.09, a 30 percent increase on a reported basis and a 27 percent increase on a currency-neutral basis.

First quarter reported net sales increased 5 percent to $3.3 billion. Internal net sales growth, which excludes the effects of foreign currency translation, rose 2 percent. Total operating profit for the first quarter 2010 grew 20 percent on a reported basis to $637 million, and internal operating profit increased 17 percent. Reported gross margin expanded 190 basis points to 43.0 percent in the quarter.

“We are pleased with our first quarter 2010 performance and are off to a positive start to the year,” said David Mackay, Kellogg Company’s chief executive officer. “By remaining focused on our business model and strategy, we delivered solid results during the first quarter despite facing anticipated pressure to our top-line.”

North America

Kellogg North America posted first quarter reported net sales growth of 3 percent; internal net sales growth was 2 percent. North America Retail Cereal delivered internal net sales growth of approximately half of a percent for the quarter reflecting increased competition in the cereal category and the lapping of a strong first quarter in 2009. Retail Snacks posted internal net sales

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growth of 5 percent, reflecting positive growth in all categories. The North America Frozen and Specialty Channels businesses posted an internal net sales decline of 3 percent, primarily a result of the Eggo supply disruption.

North America operating profit rose 23 percent on a reported basis, and 22 percent on an internal basis. The increase is attributed to solid sales growth combined with robust gross margin expansion and shifts in the timing of reinvestment in our business.

International

Kellogg International posted a first quarter 2010 reported net sales increase of 9 percent. On an internal basis, net sales growth for Kellogg International was 2 percent, excluding the effects of currency translation. First quarter internal net sales growth in Europe was 2 percent. Latin America internal net sales increased 1 percent as the strong performance in Mexico was muted by the impact of excessive rains which caused extensive water damage to our manufacturing facility resulting in a supply disruption in Brazil during the first quarter. Asia Pacific internal net sales rose 1 percent, compared to a double-digit increase in the same period a year earlier.

First quarter 2010 Kellogg International operating profit increased 9 percent on a reported basis. Operating profit grew 3 percent on an internal basis due to solid sales growth and improved gross margin, partially offset by increased advertising expenditures.

Interest and Tax

In the first quarter 2010, Kellogg’s interest expense totaled $65 million, an improvement over last year as a result of lower debt. Discrete tax benefits lowered the first quarter effective tax rate to 27.2 percent.

Cash flow

Cash flow, defined as cash from operating activities less capital expenditures, was $190 million for the quarter.

Kellogg Affirms 2010 Guidance

Kellogg continues to be well positioned to drive sustainable and dependable performance. The Company affirmed its previous 2010 guidance for full-year earnings per share growth on a

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currency-neutral basis to be in the range of 11 to 13 percent. The Company reaffirmed its 2 to 3 percent 2010 internal net sales growth guidance, in line with long-term targets. The Company also reiterated its 2010 internal operating profit growth guidance of 8 to 10 percent, above its long-term annual targets. Up-front costs for full-year 2010 are still expected to be approximately $0.16 per share.

Kellogg also announced the Kellogg Company Board of Directors authorized a $2.5 billion three-year share repurchase program from 2010 through 2012, reinforcing its commitment to returning cash to shareholders. This authorization replaces the previously announced outstanding share buyback program.

CEO Mackay concluded, “For 2010, we will focus on improving top-line growth, continuing to implement our cost savings initiatives and reinvesting back in our business through increased brand building and additional productivity initiatives. Our strong start to 2010 increases our visibility for another year of sustainable and dependable performance.”

Conference Call / Webcast

Kellogg will host a conference call to discuss these results on April 29, 2010 at 9:30 a.m. Eastern Time. The conference call and accompanying presentation slides will be broadcast live over the Internet at http://investor.kelloggs.com. Analysts and institutional investors may participate in the Q&A session by dialing 888-465-4043 in the U.S., and 201-604-5146 outside of the U.S. Members of the media and the public are invited to attend in a listen-only mode. Rebroadcast information is available at http://investor.kelloggs.com.

About Kellogg Company

With 2009 sales of nearly $13 billion, Kellogg Company is the world’s leading producer of cereal and a leading producer of convenience foods, including cookies, crackers, toaster pastries, cereal bars, fruit-flavored snacks, frozen waffles, and veggie foods. The Company’s brands include Kellogg’s®, Keebler®, Pop-Tarts®, Eggo®, Cheez-It®, Nutri-Grain®, Rice Krispies®, BearNaked®, Morningstar Farms®, Famous Amos®, Special K®, All-Bran®, Frosted Mini-Wheats®, Club® and Kashi®. Kellogg products are manufactured in 18 countries and marketed in more than 180 countries around the world. For more information, visit the Kellogg Company web site at http://www.kelloggcompany.com.

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Forward-Looking Statements Disclosure

This news release contains, or incorporates by reference, “forward-looking statements” with projections concerning, among other things, the Company’s strategy, and the Company’s sales, earnings, margin, operating profit, costs and expenditures, interest expense, tax rate, capital expenditure, dividends, cash flow, debt reduction, share repurchases, costs, brand building, ROIC, working capital, growth, new products, innovation, cost reduction projects, and competitive pressures. Forward-looking statements include predictions of future results or activities and may contain the words “expects,” “believes,” “should,” “will,” “will deliver,” “anticipates,” “projects,” “estimates,” or words or phrases of similar meaning.

The Company’s actual results or activities may differ materially from these predictions. The Company’s future results could also be affected by a variety of factors, including the impact of competitive conditions; the effectiveness of pricing, advertising, and promotional programs; the success of innovation, renovation and new product introductions; the recoverability of the carrying value of goodwill and other intangibles; the success of productivity improvements and business transitions; commodity and energy prices; labor costs; disruptions or inefficiencies in supply chain; the availability of and interest rates on short-term and long-term financing; actual market performance of benefit plan trust investments; the levels of spending on systems initiatives, properties, business opportunities, integration of acquired businesses, and other general and administrative costs; changes in consumer behavior and preferences; the effect of U.S. and foreign economic conditions on items such as interest rates, statutory tax rates, currency conversion and availability; legal and regulatory factors including changes in advertising and labeling laws and regulations; the ultimate impact of product recalls; business disruption or other losses from war, terrorist acts or political unrest; and other items.

Forward-looking statements speak only as of the date they were made, and the Company undertakes no obligation to publicly update them.

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Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF INCOME

(millions, except per share data)

 

 

 

     Quarter ended  

(Results are unaudited)

   April 3,
2010
    April 4,
2009
 

Net sales

   $ 3,318      $ 3,169   

Cost of goods sold

     1,893        1,867   

Selling, general and administrative expense

     788        773   
                

Operating profit

     637        529   

Interest expense

     65        67   

Other income (expense), net

     1        —     
                

Income before income taxes

     573        462   

Income taxes

     156        143   
                

Net income

   $ 417      $ 319   
                

Net income (loss) attributable to noncontrolling interests

     (1     (2
                

Net income attributable to Kellogg Company

   $ 418      $ 321   
                

Per share amounts:

    

Basic

   $ 1.10      $ .84   

Diluted

   $ 1.09      $ .84   

Dividends per share

   $ .3750      $ .3400   
                

Average shares outstanding:

    

Basic

     380        382   
                

Diluted

     384        383   
                

Actual shares outstanding at period end

     380        382   
                


Kellogg Company and Subsidiaries

SELECTED OPERATING SEGMENT DATA

 

 

 

     Quarter ended  
(millions)    April 3,     April 4,  

(Results are unaudited)

   2010     2009  

Net sales

    

North America

   $ 2,275      $ 2,211   

Europe

     606        557   

Latin America

     222        230   

Asia Pacific (a)

     215        171   
                

Consolidated

   $ 3,318      $ 3,169   
                

Segment operating profit

    

North America

   $ 495      $ 403   

Europe

     105        95   

Latin America

     45        49   

Asia Pacific (a)

     37        25   

Corporate

     (45     (43
                

Consolidated

   $ 637      $ 529   
                

 

(a) Includes Australia, Asia and South Africa.


Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF CASH FLOWS

(millions)

 

 

 

     Quarter ended  
     April 3,     April 4,  

(unaudited)

   2010     2009  

Operating activities

    

Net income

   $ 417      $ 319   

Adjustments to reconcile net income to operating cash flows:

    

Depreciation and amortization

     87        84   

Deferred income taxes

     (11     (31

Other

     44        21   

Postretirement benefit plan contributions

     (22     (74

Changes in operating assets and liabilities

     (265     (74
                

Net cash provided by operating activities

     250        245   
                

Investing activities

    

Additions to properties

     (60     (73

Other

     1        —     
                

Net cash used in investing activities

     (59     (73
                

Financing activities

    

Net issuances of notes payable

     80        2   

Reductions of long-term debt

     —          (1

Net issuances of common stock

     74        7   

Common stock repurchases

     (148     —     

Cash dividends

     (142     (130

Other

     2        2   
                

Net cash used in financing activities

     (134     (120
                

Effect of exchange rate changes on cash and cash equivalents

     (4     (3
                

Increase in cash and cash equivalents

     53        49   

Cash and cash equivalents at beginning of period

     334        255   
                

Cash and cash equivalents at end of period

   $ 387      $ 304   
                

Supplemental Financial Data:

    

Cash Flow (operating cash flow less property additions) (a)

   $ 190      $ 172   
                

 

(a) We use this non-GAAP measure of cash flow to focus management and investors on the amount of cash available for debt reduction, dividend distributions, acquisition opportunities, and share repurchase.


Kellogg Company and Subsidiaries

CONSOLIDATED BALANCE SHEET

(millions, except per share data)

 

 

 

     April 3,     January 2,  
     2010     2010  
     (unaudited)     *  

Current assets

    

Cash and cash equivalents

   $ 387      $ 334   

Accounts receivable, net

     1,284        1,093   

Inventories:

    

Raw materials and supplies

     226        214   

Finished goods and materials in process

     591        696   

Deferred income taxes

     127        128   

Other prepaid assets

     139        93   
                

Total current assets

     2,754        2,558   

Property, net of accumulated depreciation of $4,508 and $4,520

     2,977        3,010   

Goodwill

     3,645        3,643   

Other intangibles, net of accumulated amortization of $45 and $45

     1,458        1,458   

Pension

     175        160   

Other assets

     380        371   
                

Total assets

   $ 11,389      $ 11,200   
                

Current liabilities

    

Current maturities of long-term debt

   $ 948      $ 1   

Notes payable

     128        44   

Accounts payable

     1,028        1,077   

Accrued advertising and promotion

     442        409   

Accrued income taxes

     142        33   

Accrued salaries and wages

     189        322   

Other current liabilities

     352        402   
                

Total current liabilities

     3,229        2,288   

Long-term debt

     3,898        4,835   

Deferred income taxes

     439        425   

Pension liability

     431        430   

Other liabilities

     951        947   

Commitments and contingencies

    

Equity

    

Common stock, $.25 par value

     105        105   

Capital in excess of par value

     480        472   

Retained earnings

     5,750        5,481   

Treasury stock, at cost

     (1,885     (1,820

Accumulated other comprehensive income (loss)

     (2,011     (1,966
                

Total Kellogg Company equity

     2,439        2,272   

Noncontrolling interests

     2        3   
                

Total equity

     2,441        2,275   
                

Total liabilities and equity

   $ 11,389      $ 11,200   
                

 

* Condensed from audited financial statements.

 

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Kellogg Company and Subsidiaries

Analysis of net sales and operating profit performance

First quarter of 2010 versus 2009

 

 

(dollars in millions)

   North
America
    Europe     Latin
America
    Asia Pacific
(a)
    Corporate     Consolidated  

2010 net sales

   $ 2,275      $ 606      $ 222      $ 215      $      $ 3,318   
                                                

2009 net sales

   $ 2,211      $ 557      $ 230      $ 171      $      $ 3,169   
                                                

% change - 2010 vs. 2009:

            

Volume (tonnage) (b)

     .9     1.4     -.9     -4.8     —          .5

Pricing/mix

     .9     .8     2.3     5.9     —          1.3
                                                

Subtotal - internal business

     1.8     2.2     1.4     1.1     —          1.8

Foreign currency impact

     1.1     6.6     -4.7     24.4     —          2.9
                                                

Total change

     2.9     8.8     -3.3     25.5     —          4.7
                                                

(dollars in millions)

   North
America
    Europe     Latin
America
    Asia Pacific
(a)
    Corporate     Consolidated  

2010 operating profit

   $ 495      $ 105      $ 45      $ 37      $ (45   $ 637   
                                                

2009 operating profit

   $ 403      $ 95      $ 49      $ 25      $ (43   $ 529   
                                                

% change - 2010 vs. 2009:

            

Internal business

     21.6     4.1     .6     9.9     -2.8     17.5

Foreign currency impact

     1.4     5.8     -9.5     33.9     —          2.9
                                                

Total change

     23.0     9.9     -8.9     43.8     -2.8     20.4
                                                

 

(a) Includes Australia, Asia, and South Africa.

 

(b) We measure the volume impact (tonnage) on revenues based on the stated weight of our product shipments.


Kellogg Company and Subsidiaries

Up-Front Costs*

$ millions

 

     Quarter ended April 3, 2010  
     Cost of goods
sold
    Selling, general and
administrative
expense
    Total  

2010

      

North America

   $ 7      $ 4      $ 11   

Europe

     3        1        4   

Latin America

     —          —          —     

Asia Pacific

     1        1        2   

Corporate

     —          —          —     
                        

Total

   $ 11      $ 6      $ 17   
                        
     Quarter ended April 4, 2009  
     Cost of goods
sold
    Selling, general and
administrative
expense
    Total  

2009

      

North America

   $ 17      $ —        $ 17   

Europe

     1        —          1   

Latin America

     1        —          1   

Asia Pacific

     —          —          —     

Corporate

     —          —          —     
                        

Total

   $ 19      $ —        $ 19   
                        

2010 Variance - better(worse) than 2009

  

   

North America

   $ 10      $ (4   $ 6   

Europe

     (2     (1     (3

Latin America

     1        —          1   

Asia Pacific

     (1     (1     (2

Corporate

     —          —          —     
                        

Total

   $ 8      $ (6   $ 2   
                        

 

* Up-front costs are charges incurred by the Company which will result in future cash savings and/or reduced depreciation.