BATTLE CREEK, Mich., July 31, 2008 (PRIME NEWSWIRE) -- Kellogg Company (NYSE:K) today reported second quarter 2008 earnings per share growth of 9% with an 11% increase in sales. Results were driven by strong execution, innovation and price realization, and were achieved after absorbing significant cost inflation. In addition, Kellogg has raised its 2008 full-year earnings guidance to a range of $2.95 to $3.00 per diluted share, as a result of the Company's first half performance and its confidence regarding performance for the remainder of the year.
The Company today also announced that its board of directors has authorized an additional $500 million share repurchase program, to be executed within the next twelve months. The Company's initial 2008 authorization of $650 million has already been completed. The additional repurchases are expected to commence late this year from Company cash balances. Consequently, the Company does not anticipate the purchases will have a meaningful impact on 2008 earnings per share.
Reported net earnings for the quarter were $312 million, a 4% increase over last year's $301 million. Earnings were $0.82 per diluted share versus last year's $0.75, an increase of 9%. The second quarter performance included the impact of significantly higher commodity inflation and a double-digit increase in advertising spending offset by lower upfront costs and a lower tax rate.
"Our first half performance provides further evidence of the strength of our business model and strategy," said David Mackay, Kellogg's chief executive officer. "Despite significant inflation headwinds, we capitalized on our momentum to further increase our investment in future growth. We increased our earnings guidance and acquired two businesses in emerging markets within the first half of the year, and we continue to utilize our strong cash flow to return profits to our shareholders through dividends and share repurchases."
Reported net sales in the second quarter increased 11% to $3.3 billion. Internal net sales growth, which excludes the effect of foreign-currency translation and acquisitions, was 6%.
Kellogg North America posted reported net sales growth of 7%; internal net sales growth was 6%, driven by broad-based growth across the region. Retail Cereal posted internal net sales growth of 5%, the Retail Snacks business posted internal net sales growth of 6% and the North America Frozen and Specialty Channels businesses reported internal net sales growth of 10%.
Kellogg International reported second quarter net sales growth of 17%, or 6% excluding the favorable effect of currency translation and acquisitions. Internal net sales in Latin America increased by 7% and European internal net sales grew by 5%. The Asia Pacific region posted internal net sales growth of 9%.
Reported operating profit was $530 million in the second quarter of 2008, an increase of 2% from the second quarter of last year. Internal operating profit growth was also 2% in the second quarter. Total up-front costs incurred for cost-reduction initiatives were approximately 4 cents per share. Kellogg still expects that up-front costs related to cost-reduction initiatives for the full year will be approximately $0.14 of earnings per share.
Cash flow, defined as cash from operating activities less capital expenditures, was $510 million in the first half versus last year's $569 million. For the full year, Kellogg still anticipates cash flow of between $1,000 million and $1,075 million.
Kellogg Expresses Increased Confidence and Raises Full-Year Guidance
Kellogg now expects full-year earnings to be in the range of $2.95 to $3.00 per share. The Company still expects that internal sales and operating profit will increase at a mid single-digit rate for the full year. Expectations for 2008 now include incremental commodity, energy, fuel and benefits expense of approximately 90 cents per share versus the previous expectation of 80 cents per share.
CEO Mackay concluded, "While commodities and the economic outlook remain volatile, our business model and strategy give us continued confidence that we will achieve our long-term goals."
About Kellogg Company
With 2007 sales of nearly $12 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(r), Keebler(r), Pop-Tarts(r), Eggo(r), Cheez-It(r), Nutri-Grain(r), Rice Krispies(r), Morningstar Farms(r), Famous Amos(r), Special K(r), Stretch Island(r), All-Bran(r), Frosted Mini-Wheats(r), Club(r) and Kashi(r). Kellogg products are manufactured in 19 countries and marketed in more than 180 countries around the world. For more information, visit Kellogg's web site at http://www.kelloggcompany.com.
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Forward-Looking Statements Disclosure
This news release contains forward-looking statements related to business performance, earnings, costs, cash flow, brand building, and cost-reduction initiatives. Actual performance may differ materially from these statements due to factors related to competitive conditions and their impact; the effectiveness of advertising, pricing and promotional spending; the success of productivity improvements and business transitions; the success of innovation and new product introductions; the recoverability of the carrying value of goodwill and other intangibles; the availability of and interest rates on short-term financing; commodity and energy prices and labor costs; actual market performance of benefit plan trust investments; the levels of spending on systems initiatives, properties, business opportunities, integration of acquired businesses; changes in consumer behavior and preferences; U.S. and foreign economic factors such as interest rates, statutory tax rates, and foreign currency conversions or unavailability; legal and regulatory factors; business disruption or other losses from terrorist acts or political unrest; and other factors. Forward-looking statements speak only as of the date they were made, and the Company undertakes no obligation to publicly update them.
Kellogg Company and Subsidiaries CONSOLIDATED STATEMENT OF EARNINGS (millions, except per share data) ===================================================================== Year-to-date Quarter ended period ended June 28, June 30, June 28, June 30, (Results are unaudited) 2008 2007 2008 2007 --------------------------------------------------------------------- Net sales $3,343 $3,015 $6,601 $5,978 Cost of goods sold 1,899 1,638 3,793 3,337 Selling, general and administrative expense 914 859 1,733 1,624 --------------------------------------------------------------------- Operating profit 530 518 1,075 1,017 Interest expense 77 76 159 154 Other income (expense), net (8) -- (19) 2 --------------------------------------------------------------------- Earnings before income taxes 445 442 897 865 Income taxes 133 141 270 243 --------------------------------------------------------------------- Net earnings $312 $301 $627 $622 --------------------------------------------------------------------- Net earnings per share: Basic $.82 $.76 $1.64 $1.56 Diluted $.82 $.75 $1.63 $1.55 Dividends per share $.3100 $.2910 $.6200 $.5820 --------------------------------------------------------------------- Average shares outstanding: Basic 379 397 382 397 --------------------------------------------------------------------- Diluted 382 401 386 401 --------------------------------------------------------------------- Actual shares outstanding at period end 379 396 ===================================================================== Kellogg Company and Subsidiaries SELECTED OPERATING SEGMENT DATA ===================================================================== Year-to-date Quarter ended period ended (millions) June 28, June 30, June 28, June 30, (Results are unaudited) 2008 2007 2008 2007 --------------------------------------------------------------------- Net sales North America $2,127 $1,980 $4,275 $3,982 Europe 746 623 1,423 1,197 Latin America 283 253 536 482 Asia Pacific (a) 187 159 367 317 --------------------------------------------------------------------- Consolidated $3,343 $3,015 $6,601 $5,978 --------------------------------------------------------------------- Operating profit North America $380 $365 $783 $726 Europe 122 127 234 235 Latin America 60 55 105 102 Asia Pacific (a) 22 20 53 47 Corporate (54) (49) (100) (93) --------------------------------------------------------------------- Consolidated $530 $518 $1,075 $1,017 --------------------------------------------------------------------- ===================================================================== (a) Includes Australia, Asia and South Africa. Kellogg Company and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS (millions) ====================================================================- Year-to-date period ended June 28, June 30, (unaudited) 2008 2007 ------------------------------------------------------------------- Operating activities Net earnings $627 $622 Adjustments to reconcile net earnings to operating cash flows: Depreciation and amortization 182 185 Deferred income taxes (3) (92) Other (a) 71 79 Postretirement benefit plan contributions (48) (34) Changes in operating assets and liabilities (140) (10) ------------------------------------------------------------------- Net cash provided by operating activities 689 750 ------------------------------------------------------------------- Investing activities Additions to properties (179) (181) Acquisitions of business, net of cash acquired (133) -- Investments in joint ventures and other (b) 10 (4) ------------------------------------------------------------------- Net cash used in investing activities (302) (185) ------------------------------------------------------------------- Financing activities Net issuances of notes payable 152 699 Issuances of long-term debt 756 -- Reductions of long-term debt (465) (729) Issuances of common stock 61 100 Common stock repurchases (650) (264) Cash dividends (236) (232) Other 9 10 ------------------------------------------------------------------- Net cash used in financing activities (373) (416) ------------------------------------------------------------------- Effect of exchange rate changes on cash 18 14 ------------------------------------------------------------------- Increase in cash and cash equivalents 32 163 Cash and cash equivalents at beginning of period 524 411 --------------------------------------------------------------------- Cash and cash equivalents at end of period $556 $574 ====================================================================- ====================================================================- Supplemental Financial Data: Cash Flow (operating cash flow less property additions) (c) $510 $569 ====================================================================- (a) Consists principally of non-cash expense accruals for employee compensation and benefit obligations. (b) Includes proceeds from disposition of assets. (c) 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) ====================================================================== June 28, December 29, 2008 2007 (unaudited) * ---------------------------------------------------------------------- Current assets Cash and cash equivalents $556 $524 Accounts receivable, net 1,285 1,011 Inventories: Raw materials and supplies 248 234 Finished goods and materials in process 694 690 Deferred income taxes 85 103 Other prepaid assets 169 140 ---------------------------------------------------------------------- Total current assets 3,037 2,702 Property, net of accumulated depreciation of $4,502 and $4,313 3,071 2,990 Goodwill 3,597 3,515 Other intangibles, net of accumulated amortization of $42 and $41 1,449 1,450 Pension 518 481 Other assets 321 259 ---------------------------------------------------------------------- Total assets $11,993 $11,397 ====================================================================== Current liabilities Current maturities of long-term debt $2 $466 Notes payable 1,643 1,489 Accounts payable 1,206 1,081 Accrued advertising and promotion 417 378 Accrued income taxes 28 -- Accrued salaries and wages 222 316 Other current liabilities 365 314 ---------------------------------------------------------------------- Total current liabilities 3,883 4,044 Long-term debt 4,008 3,270 Deferred income taxes 662 647 Other liabilities 936 910 Shareholders' equity Common stock, $.25 par value 105 105 Capital in excess of par value 407 388 Retained earnings 4,590 4,217 Treasury stock, at cost (1,915) (1,357) Accumulated other comprehensive income (loss) (683) (827) ---------------------------------------------------------------------- Total shareholders' equity 2,504 2,526 ---------------------------------------------------------------------- Total liabilities and shareholders' equity $11,993 $11,397 ====================================================================== * From audited financial statements.